<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended June 30, 1996
-------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ______________ to __________________
Commission File Number 0-27142
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L & B Financial, Inc.
---------------------
(Exact name of registrant as specified in its charter)
Texas 75-0591450
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
306 North Davis Street, Sulphur Springs, Texas 75482
- ---------------------------------------------- -----------
(Address) (Zip Code)
Registrant's telephone number, including area code : (903) 885-2121
--------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.01 per share
--------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months ( or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporate by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K. [ ]
As of September 19, 1996, the aggregate value of the 1,495,435 shares of Common
Stock of the Registrant issued and outstanding on such date, which excludes
88,690 shares held by all directors and officers of the Registrant as a group,
was approximately $25,142,001 (1,495,435 shares at $16.8125 per share)
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents incorporated by reference and the
Part of the Form 10-K into which the document is incorporated.
(1) Portions of the Annual Report to Stockholders for the year ended June 30,
1996, are incorporated into Part II, Items 5 through 8 of this Form 10-K.
(2) Portions of the definitive proxy statement for the 1995 Annual Meeting of
Stockholders to be filed within 120 days of June 30, 1996 are incorporated into
Part III, Items 9 through 13 of this Form 10-K.
- --------------------------------------------------------------------------------
Exhibit 13 has been omitted and will be filed by amendment.
<PAGE>
PART I
ITEM 1. BUSINESS
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General
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L&B Financial, Inc. ("L&B") was incorporated in the State of Texas in
November 1995, for the purpose of becoming a savings and loan holding company
for Loan and Building State Savings Bank (the "Bank"). On October 17, 1995, the
stockholders of the Bank approved a plan to reorganize the Bank into a holding
company form of ownership. The reorganization was completed on November 13,
1995, on which date the Bank became the wholly-owned subsidiary of L&B, and the
shareholders of the Bank became shareholders of L&B. Prior to the completion of
the reorganization, L&B had no material assets or liabilities and engaged in no
business activity. Subsequent to the acquisition of the Bank, L&B has engaged
in no significant activity other than holding the stock of the Bank and engaging
in certain passive investment activities. Accordingly, the information set
forth in this report, including the financial statements and related data,
relates primarily to the Bank. L&B and the Bank are collectively referred to
herein as the "Corporation".
The Bank is a state-chartered capital stock savings bank headquartered
in Sulphur Springs, Texas. The Bank converted from mutual to stock form of
ownership on October 14, 1994 through the sale and issuance of 1,667,500 shares
of common stock at $10.00 per share, resulting in total net proceeds to the Bank
of approximately $16,000,000. The Bank was known as Sulphur Springs Loan and
Building Association until October 1995 when the stockholders voted to convert
to a state savings bank charter. The Bank received regulatory approval and
converted in November of 1995.
The business of the Corporation consists primarily of attracting
deposits from the general public and originating loans on residential properties
located in the northeast Texas counties of Hopkins, Camp, Franklin, Morris,
Titus and Bowie. The Corporation also makes commercial real estate,
construction (both residential and commercial) and consumer loans and invests in
obligations of the federal government and its agencies and obligations of state
and local governments. The Corporation's primary lending focus has been the
origination of longer term, adjustable-rate mortgage loans for its portfolio.
The Corporation originates fixed-rate mortgage loans through its mortgage
banking operations for sale into the secondary market. The principal source of
funds for the Corporation's lending and investment activity include deposits
received from the general public, interest and principal repayments on loans
and, to a lesser extent, borrowing from the Federal Home Loan Bank of Dallas
("FHLB"). The Corporation's primary source of income is interest earned on
loans and investment securities. The Corporation's principal expense is
interest paid on deposit accounts and borrowings and expenses incurred with
operating the Corporation.
The Bank was originally chartered in 1890 and is subject to
examination and comprehensive regulation by the Texas Savings and Loan
Department (the "Department"), which is the Bank's chartering authority and
primary regulator. The Bank is also regulated by the Federal Deposit Insurance
Corporation ("FDIC"), the administrator of the Savings Association Insurance
Fund, which provides the Bank's deposit insurance coverage. The Bank is also
subject to certain reserve requirements established by the Board of Governors of
the Federal Reserve System ("FRB") and a member of the FHLB. For additional
information, see "Regulation".
The Corporation's operations are conducted through its main office
located at 306 North Davis Street, Sulphur Springs, Texas, and five full service
branches located in Mt. Vernon, Mt. Pleasant, Daingerfield, Pittsburg and
Texarkana, Texas. The Texarkana office was approved in the fall of 1995 and
opened in March 1996. For additional information, see "Properties".
Selected Financial and Other Data
- ---------------------------------
The information contained in the tables captioned "Selected
Consolidated Financial and Other Data" contained
1
<PAGE>
in the Corporation's Annual Report to Stockholders for the Fiscal Year Ended
June 30, 1996 ("Annual Report") is attached hereto and incorporated herein by
reference.
Lending Activities
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GENERAL. The Corporation's net loan portfolio totaled approximately
$66,352,000 at June 30, 1996, representing approximately 46.0% of total assets.
The principal lending activity of the Corporation is the origination of one-to-
four family residential mortgage loans. As of June 30,1996, $40,619,000, or
58.5%, of the total loan portfolio consisted of loans secured by one-to-four
family residential property, of which 60.0%, or $24,403,000, were adjustable-
rate mortgage loans. To a lesser extent, the Corporation originates other
mortgage loans secured by commercial real estate and multi-family residential
property, which totaled $12,616,000 and $5,228,000 at June 30, 1996. The
Corporation also offers construction and land loans on single-family residential
property, multi-family residential property and commercial property. Loans of
this type were $6,429,000, or 9.3% of the total loan portfolio at June 30, 1996.
Consumer loans are made as a service to our customers and consist of loans on
deposits, automobile loans, loans secured by other property and unsecured loans.
Consumer loans totaled $4,528,000 at June 30, 1996 and represented 6.5% of the
total loan portfolio outstanding at that date.
Set forth below is the selected data relating to the composition of
the Corporation's loan portfolio by type of loan on the dates indicated (dollars
in thousands).
<TABLE>
<CAPTION>
At June 30,
-----------
1996 1995
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Amount % Amount %
---------------------------------------
<S> <C> <C> <C> <C>
Real estate loans :
One-to-four family residential $40,619 58.52% $38,353 61.13%
Multi-family residential 5,228 7.53% 3,755 5.98%
Commercial real estate 12,616 18.17% 11,611 18.50%
Construction and land loans 6,429 9.26% 5,320 8.48%
---------------------------------------
Total real estate loans 64,892 93.48% 59,039 94.09%
Consumer and other loans:
Loans secured by deposits 1,772 2.55% 1,576 2.51%
Other loans (1) 2,756 3.97% 2,133 3.40%
---------------------------------------
Total consumer and other loans 4,528 6.52% 3,709 5.91%
---------------------------------------
Total loans receivable 69,420 100.00% 62,748 100.00%
Less:
Undisbursed loans in process (2,230) (2,248)
Unearned discounts (82) (260)
Allowance for loan losses (756) (858)
---------------------------------------
Net loans receivable $72,488 $66,114
=======================================
</TABLE>
(1) Includes primarily automobile loans, mobile home loans and unsecured
consumer loans.
The following table sets forth certain information at June 30, 1996 regarding
the dollar amount of loans maturing in the Corporation's loan portfolio based on
contractual terms to maturity (dollars in thousands).
2
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<TABLE>
<CAPTION>
Due After
Due One Due After
Within through Five Five Total
One Year Years years
------------------------------------------------
<S> <C> <C> <C> <C>
One-to-four family residential $ 237 $2,695 $37,687 $40,619
Multi-family residential 0 914 4,314 5,228
Commercial real estate 54 1,924 10,638 12,616
Construction and land loans 4,475 395 1,559 6,429
Consumer and other loans 2,099 2,223 206 4,528
-----------------------------------------------
Total $6,865 $8,151 $54,404 $69,420
===============================================
</TABLE>
Demand loans, having no stated schedule of repayments and no stated
maturity and overdrafts are reported as due within one year. The table above
does not include any estimate of prepayments, which can significantly shorten
the average life of mortgage loans. The actual average life of mortgage loans
is substantially less than the contractual term because of loan repayments and
the enforcement of due-on-sale clauses which gives the Corporation the right to
declare a loan immediately due and payable in the event, among other things,
that the borrower sells the real property subject to the loan and mortgage.
The average life of mortgage loans tends to increase when current mortgage loan
rates are substantially higher than rates on existing mortgage loans and,
conversely, decreases when current mortgage loan rates are substantially lower
than rates on existing mortgage loans.
The following table sets forth the dollar amount of loans as of June
30, 1996 which have fixed rates of interest and which have adjustable rates of
interest (dollars in thousands).
<TABLE>
<CAPTION>
Fixed Rate Adjustable Rate Total
--------------------------------------
<S> <C> <C> <C>
One-to-four family residential $16,216 $24,403 $40,619
Multi-family residential 1,718 3,510 5,228
Commercial real estate 4,089 8,527 12,616
Construction and land loans 5,331 1,098 6,429
Consumer and other loans 4,528 0 4,528
--------------------------------------
Total $31,882 $37,538 $69,420
======================================
</TABLE>
ONE-TO-FOUR FAMILY RESIDENTIAL LOANS. The Corporation has
historically concentrated its lending activities on the origination of loans
secured by first mortgage liens on one-to-four family residences. At June 30,
1996, the Corporation's one-to-four family residential loans totaled
$40,619,000, representing 58.5% of its total loan portfolio. As of such date the
average balance of the Corporation's one-to-four family mortgage loans was
approximately $38,000.
Federal regulations permit a maximum loan-to-value ratio of 100% for
one-to-four family dwellings and 80% for all other real estate loans. The
Corporation's lending policies, however, limit the maximum loan-to-value ratio
on one-to-four family real estate loans to 80% of the lesser of the appraised
value or the purchase price. Any single-family real estate loan made in excess
of 80% is required to have private mortgage insurance, or additional collateral.
The Corporation generally originates one-to-four family loans that are less than
the maximum permissible under applicable regulations and in accordance with
sound lending practices, market conditions and applicable underwriting
standards. As a matter of policy, the Corporation typically does not make one-
to-four family mortgage loans in excess of $350,000.
3
<PAGE>
The Corporation offers fixed-rate, one-to-four family residential
loans with terms up to 30 years and adjustable-rate one-to-four family loans
with terms up to 25 years. One-to-four family residential loans are amortized
on a monthly basis with principal and interest due each month. All residential
mortgage loans customarily include "due-on-sale" clauses which are provisions
giving the Corporation the right to declare a loan immediately due and payable
in the event the borrower sells or otherwise disposes of the real property
subject to the mortgage. Substantially all of the Corporation's one-to-four
family residential mortgage loans are "conventional" mortgage loans. At June
30, 1996, the Corporation had $144,000 of loans insured by the Federal Housing
Administration or partially guaranteed by the Department of Veterans Affairs.
The Corporation is aware of the risks inherent in originating fixed-
rate, one-to-four family residential loans for its portfolio but recognizes the
need to respond to the market demand of fixed-rate loans. As a result, the
Corporation has emphasized 10-year and 15-year fixed-rate, one-to-four family
loans, both with minimal closing costs for inclusion in its loan portfolio.
Substantially all fixed-rate, one-to-four family mortgage loans with terms
greater than 15 years are originated and underwritten using secondary mortgage
market criteria for sale into the secondary mortgage market. The sale of these
loans reduces the Corporation's exposure to interest rate risk. At June 30,
1996, the Corporation had $16,216,000 of fixed-rate, one-to-four family
mortgage loans.
The Corporation offers adjustable-rate, one-to-four family mortgage
loans ("ARM's") in order to decrease the vulnerability of its operations to
changes in interest rates. The demand for adjustable-rate loans in the
Corporation's primary market area is a function of several factors, including
the level of current market interest rates, expectations as to the future
direction of movements in interest rates and the difference between the
interest rates offered for fixed-rate loan products with those available on
adjustable-rate loan products. Customers generally prefer ARM's during periods
of relatively high interest rates and fixed-rate loans during periods of
relatively low interest rates. The Corporation's residential ARM's are fully
amortizing loans with contractual maturities of up to 25 years. Substantially
all of the ARM's in its portfolio have interest rates that adjust on an annual
basis in accordance with a designated index. The Corporation currently offers
ARM's with either a 2% limit on the rate adjustment per period and a 5% limit on
the rate adjustment over the life of the loan or a 1% limit on the rate
adjustment per period and a 3% limit on the rate adjustment over the life of the
loan. ARM's with the one and three caps have a higher initial interest rate.
The Corporation's underwriting standards for ARM's require that it assess a
potential borrower's ability to make principal and interest payments assuming a
2% increase in the interest rate from the rate at the time of origination. The
Corporation's ARM's are not convertible into fixed-rate loans, are assumable
only with Bank approval, do not contain prepayment penalties and do not produce
negative amortization. At June 30, 1996, the Corporation had $24,403,000 of
adjustable-rate, one-to-four family residential loans.
COMMERCIAL REAL ESTATE AND MULTI-FAMILY RESIDENTIAL LOANS. At June
30, 1996, $5,228,000, or 7.5% of the Corporation's total loan portfolio
consisted of loans secured by multi-family residential real estate, and
$12,616,000, or 18.2%, of the Corporation's total loan portfolio consisted of
loans secured by commercial real estate. The Corporation's commercial real
estate loans include loans secured by churches, retirement homes, shopping
centers, small office buildings and family-type business establishments while
multi-family residential loans are secured primarily by small apartment
buildings. At June 30, 1996, the Corporation's commercial and multi-family real
estate loans were secured by properties located in the Bank's primary market
areas with an average loan balance of approximately $162,000. The largest loan
to any one borrower amounted to approximately $2,000,000. In the aggregate,
commercial real estate loans and multi-family residential loans amounted to
25.7% of the Corporation's total loan portfolio at June 30, 1996, and management
currently anticipates that commercial real estate and multi-family residential
loans will continue to comprise a substantial portion of the loan portfolio in
the future.
Commercial real estate and multi-family loans have terms of up to 25
years and loan-to-value ratios are limited to a maximum of 75%. The loan-to-
value ratio and term to maturity are based upon the age of the applicable
structure, condition of repair and remaining economic life. The Corporation
originates both fixed-rate and adjustable-rate commercial and multi-family real
estate loans. At June 30, 1996, $12,037,000 of the Corporation's commercial
real estate and multi-family residential real estate loans had adjustable-rates
of interest.
4
<PAGE>
The Corporation requires appraisals of all properties securing
commercial and multi-family residential real estate loans. Depending upon the
size of the loan, appraisals are performed by either an in-house appraiser or an
independent fee appraiser designated by the Corporation. All appraisals are
reviewed by management. In originating multi-family residential and commercial
real estate loans, the Corporation considers the quality and location of the
real estate, the credit quality of the borrower, corporate cash flows and the
quality of management involved with the property. Commercial and multi-family
residential real estate loans to corporations require the personal guaranty of
the entity's controlling stockholders. Hazard insurance is required as well as
flood insurance if the property is located in a designated flood zone.
The following table presents information as to the Corporation's
commercial and multi-family real estate lending portfolio as of June 30, 1996 by
type of project (dollars in thousands).
<TABLE>
<CAPTION>
Outstanding
Number of Principal Balance
Loans
-------------------------------
<S> <C> <C>
Shopping center 3 $ 900
Church 18 943
Retirement home 4 2,836
Small retail 55 7,655
Multi-family residential (1) 24 5,228
Office building 6 282
--------------------------------
Total 110 $ 17,844
================================
</TABLE>
(1) Primarily represents multi-family loans secured by small apartment
buildings.
CONSTRUCTION AND LAND LOANS. The Corporation makes land loans
primarily to individuals for the acquisition of both improved and unimproved
land. Construction loans are originated for the construction of residential and
commercial properties. Residential construction loans are made to individuals
for the construction of their residence and to approved builders for the
construction of presold and unsold (speculative) properties. Although these
loans afford the Corporation the opportunity to achieve higher interest rates
and fees with shorter terms to maturity than do one-to-four family permanent
mortgage loans, construction financing is generally considered to involve a
higher degree of risk. The Corporation's risk of loss on a construction loan is
largely dependent upon the accuracy of the initial estimate of the property's
value at completion of construction or development and the estimated cost
(including interest) of construction. If the estimate of value proves
inaccurate, the Corporation may be confronted at, or prior to, maturity of the
loan, with a projection of value which is insufficient to assure full repayment.
If the estimate of construction cost or salability of the property upon
completion of the project proves inaccurate, the Corporation may be required to
advance funds beyond the amount originally committed to permit completion of the
project. Speculative construction loans carry more risk than other construction
loans originated by the Corporation because the payoff for the loan is dependent
upon the builder's ability to sell the property prior to the time the
construction loan is due. The Corporation attempts to mitigate these risks by
among other things, working with builders with whom it has established
relationships and by generally limiting the number of unsold homes under
construction. At June 30, 1996, construction and land loans amounted to
$6,429,000, or 9.3% of the Corporation's total loan portfolio.
Construction and land loans are generally limited to the Bank's
primary lending area and generally have terms that do not exceed one year.
Construction loans are originated and closed separately from the permanent
financing on the structure, however, the borrower must have obtained a
commitment for permanent financing from the Corporation before the construction
loan is closed. Construction loans are typically interest only. Construction
loans are underwritten pursuant to the same general guidelines used for
originating permanent loans. Loan disbursements occur
5
<PAGE>
only after an inspection of the site has been made and documented by the Bank's
appraiser.
CONSUMER LOANS. Subject to the restrictions contained in federal and
state regulations, the Corporation is authorized to make loans for a wide
variety of personal, or consumer purposes. The Corporation's consumer loan
portfolio consists primarily of loans secured by savings accounts, automobiles
and recreational vehicles. As a service to our customers, the Corporation from
time to time will make an unsecured loan based on the financial strength of the
borrower. Consumer loans totaled $4,528,000 and represented 6.5% of the total
loan portfolio at June 30, 1996.
Loans secured by savings deposit accounts equaled to $1,772,000 and
represented 39.1% of the outstanding consumer loan portfolio at June 30, 1996.
The portion of these loans that are secured by certificates of deposit are
structured to mature on the same date as the maturity date of the certificate of
deposit securing them. Loans secured by passbook accounts mature in six months.
Holds are placed on all deposit accounts that are pledged as collateral to
eliminate the possibility of withdrawals that would result in the pledged
deposit balance being lower than the loan balance. Such loans are originated
for up to 90% of the account balance and typically require semi-annual payments
of interest only.
Automobile loans, recreational vehicle loans and unsecured consumer
loans were $2,756,000 and represented 4.0% of total loans receivable at June 30,
1996. For loans secured by automobiles, boats and recreational vehicles, the
Corporation retains the original certificate of title to the collateral until
the loan is paid in full. Borrowers must provide proof of collision coverage
and any other applicable loss coverage as a condition of the loan. A condition
report is required on all used auto, boat and recreational vehicle loans. There
is a minimum loan amount of $1,000 for consumer loans. The maximum loan amount
is determined by the published value of the collateral, such as NADA value for
an automobile, and applicable loan-to-value ratios.
Consumer loans generally involve more credit risk than mortgage loans
because of the type and nature of the collateral. Collection of consumer loans
is dependent upon the borrower's continuing financial stability, and thus are
more likely to be adversely affected by job loss, divorce, illness and personal
bankruptcy. In many cases, the repossessed collateral for a defaulted consumer
loan will not provide an adequate source of repayment of the outstanding loan
balance because of improper repair and maintenance of the underlying security.
The remaining deficiency often does not warrant further substantial collection
efforts against the borrower. The Corporation has attempted to limit these
greater risks generally associated with consumer lending by emphasizing loans
secured by savings accounts at the Corporation.
ORIGINATION, PURCHASE AND SALE OF LOANS. The mortgage lending
activities of the Corporation are subject to the written, non-discriminatory,
underwriting standards and loan origination procedures established by the
Corporation's Board of Directors and management. Loan originations come
primarily from walk-in customers and begin with an initial interview with an
officer of the Bank for the purpose of obtaining a formal application. Upon
receipt of a loan application from a perspective borrower, a credit report is
ordered to verify specific information relating to the applicant's employment,
income and credit standing. This information may be verified by personal
contacts with other reference sources. An appraisal of the real estate intended
to secure the proposed loan is undertaken by a pre-approved, qualified,
independent appraiser. As soon as the required information has been obtained
and the appraisal complete, the information is reviewed for compliance with
corporate underwriting standards. Single-family residential loans up to $50,000
can be approved by a loan officer. Loans in excess of $50,000 are submitted to
the President or the Board of Directors for review and approval. The President
has the authority to approve residential mortgage loans up to $150,000.
Residential mortgage loans in excess of $150,000 require approval of the Board
of Directors.
After a loan is approved, it is the Corporation's policy to record a
lien on the real estate securing the loan and to obtain a title insurance policy
which insures that the property is free of prior encumbrances. Borrowers must
also obtain hazard insurance policies prior to closing. Flood insurance is
required for properties located in an area designated as flood plain by the
Department of Housing and Urban Development.
6
<PAGE>
The Corporation originates both fixed-rate and adjustable-rate
mortgage loans. Substantially all fixed-rate loans with terms in excess of
fifteen years are underwritten to secondary market guidelines and closed
pursuant to commitments to sell such loans in the secondary market as part of
the Corporation's asset/liability management program. Mortgage loans
underwritten for specific government programs, such as Farmers Home
Administration or the Veterans Administration, are sold "servicing released"
with the Corporation receiving compensation for the value of the servicing
rights sold and origination fees charged to the customer. Conventional fixed-
rate mortgage loans are sold "servicing retained" with the Corporation receiving
25 basis points to service the loans. All sales of conventional loans were cash
sales with no recourse provisions. Governmental loans sold were cash sales with
the purchaser having the right to require the Corporation to repurchase the loan
if the loan defaults in the first twelve months.
The Corporation has sold participation interests in large commercial
mortgage loans to other financial institutions to reduce the Corporation's
exposure to any one project.
Historically, the Corporation has not been an active purchaser of
loans. The Corporation did not purchase any loans during fiscal 1996, 1995,
1994.
The following table sets forth certain information with respect to
loans originated, sold and repaid for the time periods indicated (dollars in
thousands).
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------
1996 1995 1994
-------------------------------------
<S> <C> <C> <C>
Loan Originations:
Single-family residential $ 17,600 $ 7,960 $ 11,645
Multi-family residential 1,236 1,122 647
Commercial real estate 6,386 2,024 3,648
Construction and land loans 7,630 6,780 4,211
Consumer and other loans 5,657 4,080 2,464
-------------------------------------
Total loans originated 38,509 21,966 22,615
=====================================
Loans sold and principal repayments:
Loans sold (8,652) (3,846) (9,427)
Principal repayments (20,801) (11,669) (14,950)
-------------------------------------
Total (29,453) (15,515) (24,377)
-------------------------------------
Decrease (increase) in other items 121 (246) 93
Net increase (decrease) in
loan portfolio $ 9,177 $ 6,205 $ (1,669)
=====================================
</TABLE>
LOAN SERVICING ACTIVITIES. In addition to servicing loans held in its
portfolio, the Corporation services one-to-four family residential real estate
loans sold to the secondary market. The servicing portfolio consists of single-
family residential real estate loans sold to Federal National Mortgage
Corporation ("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC").
Servicing includes collecting and remitting loan payments, accounting for
principal and interest, holding escrow funds for the payment of real estate
taxes and insurance premiums, contacting delinquent borrowers, supervising
foreclosures in the event of unremedied defaults and general administration of
the loans. The aggregate unpaid principal balance of loans serviced for others
at June 30, 1996 was $21,669,000.
LOAN ORIGINATION AND OTHER FEES. In addition to interest earned on loans
and the fees charged in connection with closing a loan (closing costs), the
Corporation charges origination fees or "points" for originating longer term,
fixed-rate loans. Loan origination fees are usually a percentage of the
principal amount of the mortgage loan and typically range between .5% and 2%,
depending on the terms and conditions. The Corporation also offers loan products
that require no origination fees.
7
<PAGE>
Other fees charged and collected by the Corporation include late charges
applied to delinquent payments and fees collected in connection with loan
modifications. The Corporation charges a 5% late charge fee on payments
delinquent 15 days or more. The late charge is calculated as 5% of the
delinquent monthly principal and interest payment amount. The Corporation
charges certain fees for new loan originations, modification of existing loans
and loan assumptions where applicable. Late charges and other fees do not
constitute a material source of income.
In 1988, the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standard No. 91, "Accounting for Nonrefundable Fees and
Costs Associated with the Originating or Acquiring of Loans and Initial Direct
Costs of Leasing" ("SFAS 91") which requires the amortization of all loan fees
collected in excess of the Corporation's cost to originate that loan over the
life of the loan using the level yield method. Prior to the issuance of SFAS 91,
all loan fees were generally immediately recognized as income. As of June 30,
1996, the Corporation had net deferred loan fees of approximately $57,000.
DELINQUENT LOANS. When a borrower fails to make a scheduled loan
payment, the Corporation contacts the customer in an effort to bring the loan
current. In general, contacts are made after a mortgage loan is more than 15
days past due. A delinquent notice is sent and a late charge imposed after the
mortgage loan payment is 15 days past due. If a delinquency on a mortgage loan
reaches 90 days and is not cured through the Corporation's normal collection
process, or an acceptable arrangement is not worked out with the borrower, the
Corporation will implement measures to remedy the default, including foreclosure
action or, in special circumstances, accepting a voluntary deed in lieu of
foreclosure from the borrower. Defaults are cured promptly in most cases .
Consumer installment loans that are five days past due are sent a
delinquent notice. When an installment loan that is collateralized with real or
personal property becomes 90 days past due, title and possession of the property
is taken.
The following table sets forth (dollars in thousands) information
concerning delinquent loans as of the dates indicated. The amounts presented
represent the total outstanding principal balances of the related loans rather
than the actual payment amounts past due.
<TABLE>
<CAPTION>
June 30,
--------
1996 1995 1994
-------------------------------------------------------------
% of Total % of Total % of Total
Amount Loans Amount Loans Amount Loans
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
30 to 59 days $ 470 0.71% $ 3,320 5.59% $ 2,162 4.06%
60 to 89 days 177 0.27% 934 1.57% 835 1.57%
90 days and over 129 0.19% 193 0.32% 219 0.41%
-------------------------------------------------------------
Total $ 776 1.17% $ 4,447 7.48% $ 3,216 6.04%
-------------------------------------------------------------
</TABLE>
NONPERFORMING ASSETS AND CLASSIFIED ASSETS. Loan are placed on a non-
accrual when, in the opinion of management, the probability of continued
performance is deemed insufficient to warrant further accrual. Generally, the
Corporation places all loans more than 90 days past due on non-accrual status.
Subsequent payments are applied to either the outstanding principal balance or
recorded as interest income, depending on the assessment of the ultimate
collectability of the loan. A loan is returned to accrual status when the loan
has been brought current and, in the opinion of management, the borrower's
ability to pay as agreed has been restored.
Real estate acquired through foreclosure, or a deed in lieu of
foreclosure, is classified as real estate acquired in the settlement of loans.
When the property is acquired, it is recorded at the lower of the recorded
investment in the property or its fair value, whichever is less. The recorded
investment is the sum of the unpaid principal balance, accrued
8
<PAGE>
interest as of the date of acquisition and acquisition costs associated with the
property. If the recorded investment in the property exceeds its fair value, the
excess is charged to the allowance for loan losses at the time of acquisition.
Any subsequent write-downs and costs associated with holding and maintaining the
property are charged to earnings.
Under generally accepted accounting principles, the Corporation is
required to account for certain loan modifications or restructurings as
"troubled debt restructurings." In general, the modification or restructuring of
a debt constitutes a troubled debt restructuring if the Corporation, for
economic or legal reasons related to the borrower's financial difficulties,
grants a concession to the borrower that the Corporation would not otherwise
consider. Debt restructurings and/or loan modifications do not necessarily
always constitute troubled debt restructurings and troubled debt restructurings
do not necessarily result in non-accrual loans. Troubled debt restructuring
amounted to $120,000 as of June 30, 1996.
The following table set forth information with respect to the
Corporation's non-performing assets at the periods indicated (dollars in
thousands).
<TABLE>
<CAPTION>
June 30,
--------
1996 1995 1994
--------------------------------
<S> <C> <C> <C>
Non-accruing loans:
Single-family residential $ 137 $ 163 $ 84
Multi-family residential - - -
Commercial real estate - - -
Construction and land - - -
Consumer and other - 27 27
--------------------------------
Total non-accruing loans 137 190 111
--------------------------------
Accruing loans greater than 90
days delinquent
Consumer and other - 3 108
--------------------------------
Total nonperforming loans 137 193 219
--------------------------------
Real estate acquired through foreclosure 353 294 380
--------------------------------
Total nonperforming assets 490 487 599
Troubled debt restructuring 120 118 114
--------------------------------
Total nonperforming assets and
troubled debt restructuring $ 610 $ 605 $ 713
================================
Total nonperforming loans and
troubled debt restructuring as
a percentage of total loans 0.92% 1.02% 1.34%
Total nonperforming assets and
troubled debt restructuring as
a percentage of total assets 0.42% 0.45% 0.61%
</TABLE>
During the year ended June 30, 1996, the Corporation recognized no
interest income on loans past due 90 days or more, whereas, under the original
terms of these loans, the Corporation would have recognized additional interest
income of approximately $1,000 .
CLASSIFIED ASSETS. State and federal regulations require that each
insured savings bank classify its assets on a regular basis. In addition, in
connection with examinations of insured institutions, federal examiners have the
authority to identify problem assets and, if appropriate, classify them. There
are three classifications for problem assets: "substandard," "doubtful" and
"loss." "Substandard" assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. "Doubtful" assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make
9
<PAGE>
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable and present a high possibility of loss. An
asset classified "loss" is considered uncollectible and of such little value
that continuance as an asset of the institution is not warranted. A fourth
category, designated "special mention", is for assets which contain deficiencies
but do not currently expose an insured institution to a sufficient degree of
risk to warrant classification as "substandard", "doubtful" or "loss". Potential
losses in assets classified as "substandard" or "doubtful" may require additions
to the institution's general allowance for loan loss. If an asset or portion
thereof is classified "loss", the insured institution must either establish a
specific allowance for loan loss in the amount of 100% of the portion of the
asset classified "loss", or charge-off such amount. General loss allowances
established to cover possible losses related to assets classified "substandard"
or "doubtful" may be included in determining an institution's regulatory
capital. Federal examiners may disagree with an insured institution's self
classifications and corresponding reserve amounts and may require the
institution to reclassify assets and adjust reserves accordingly.
The Corporation's total classified assets as of June 30, 1996 amounted
to $532,000, or 0.37% of total assets.
ALLOWANCE FOR LOAN LOSSES. It is management's policy to maintain an
allowance for estimated loan loss at a level which management considers adequate
to absorb losses inherent in the loan portfolio at each reporting date.
Management's estimation of this amount includes a review of all loans for which
full collection is not reasonably assured. Management considers, among other
factors, prior years' loss experience, current and anticipated economic
conditions, distribution of portfolio loans by risk class and the estimated
value of underlying collateral. Although management uses the best information
available to make determinations with respect to the provisions for loan loss,
additional provisions for loan losses may be required in the future should
economic or other conditions change substantially. In addition, the Department
and the FDIC, as an integral part of their examination process, periodically
review the Corporation's allowance for loan loss and may require the Corporation
to recognize additions to such allowance based on their judgment about
information available to them at the time of their examination.
INVESTMENT ACTIVITIES.
INVESTMENT AND MORTGAGE-BACKED SECURITIES. The Corporation has the
authority under state and federal regulation to invest in certain types of
investment securities, including United States Treasury obligations, securities
of various federal agencies, state and municipal governments, certificates of
deposits in federally insured institutions, certain banker's acceptances and
federal funds. Subject to various restrictions, the Corporation may also invest
in commercial paper, corporate debt securities and mutual funds.
The Corporation's investment and mortgage-backed securities portfolio is
managed in accordance with the Corporation's Investment Policy adopted by the
Board of Directors and administered by the Investment Committee. The stated
goals of the investment policy are to maximize the return on the portfolio while
maintaining the liquidity necessary to effectively manage the operations of the
Corporation.
Effective January 1, 1994, the Corporation adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investmentsin
Debt and Equity Securities" ("SFAS 115"). Concurrent with the adoption of the
Statement, management reevaluated its intent with respect to its portfolio. No
reclassifications were deemed appropriate and all of the Corporation's
investment and mortgage-backed securities were classified as held-to-maturity.
In response to the high number of inquiries received by the industry
with respect to SFAS 115 and its implementation, the Financial Accounting
Standards Board ("SFAS") issued A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities ("the Guide")
in November 1995. In connection with the issuance of the Guide, the FASB created
a one time window through which a company could reevaluate its SFAS 115
classifications and reclass securities as deemed necessary for purposes of SFAS
115. Securities reclassified during this window of opportunity would not "taint"
remaining SFAS 115 classifications. This window closed December 31, 1995. As
permitted by the Guide, the Corporation reevaluated it SFAS 115 classifications
and reclassified approximately $28,421,000 of investments and mortgage-backed
securities from held-to-maturity to
10
<PAGE>
available-for-sale.
The following table sets forth the Corporation's investment and
mortgage-backed securities portfolio as of the dates indicated (dollars in
thousands).
<TABLE>
<CAPTION>
June 30,
--------
1996 1995
------------------------------------------------
Amortized Percent of Amortized Percent of
Cost Portfolio Cost Portfolio
------------------------------------------------
<S> <C> <C> <C> <C>
Investment Securities:
U.S. Government and
agency obligations $ 13,352 20.75% $ 16,595 26.03%
Municipal bonds 784 1.22% 818 1.28%
Equity securities 1,266 1.98% 202 0.32%
------------------------------------------------
Total investment securities 15,402 23.95% 17,615 27.63%
------------------------------------------------
Mortgage-backed securities:
FHLMC 8,851 13.76% 11,428 17.92%
FNMA 4,313 6.70% 7,312 11.47%
GNMA 6,763 10.51% 7,985 12.52%
CMO's 29,002 45.08% 19,419 30.46%
------------------------------------------------
Total Mortgage-backed
securities 48,929 76.05% 46,144 72.37%
------------------------------------------------
Total investment and
mortgage-backed securities $ 64,331 100.00% $ 63,759 100.00%
================================================
</TABLE>
The fair value of the Corporation's investment and mortgage-backed
securities portfolio was $64,218,000 and $63,842,000 at June 30, 1996 and 1995,
respectively.
Management purchases both fixed-rate and adjustable-rate mortgage-backed
securities, from FHLMC, FNMA and GNMA with maturities from five to forty years.
The Corporation also purchases adjustable-rate Small Business Administration
("SBA") securities that carry the full faith and credit of the U.S. government.
The Corporation purchases mortgage derivative securities in the form of
collateralized mortgage obligations (CMO'S) and structured notes. CMO's that are
purchased must qualify as investment grade and be considered non-high risk for
inclusion in the investment portfolio. CMO's that do not meet this criteria are
not purchased. If a CMO should fail either of these tests subsequent to its
purchase and the results appear irreversible, the CMO is disposed of in the most
prudent and timely manner possible. The amortized cost and fair value of the
CMO's at June 30, 1996 were approximately $29,002,000 and $29,046,000,
respectively. The Corporation does not purchase CMO's for speculative or hedging
purposes.
The Corporation has purchased structured notes for investment purposes.
These include step-up bonds, single-index floaters and dual-index floaters.
While these types of investments possess minimal credit risk due to the federal
guarantee backing the issuing U.S. government agencies, they do possess
liquidity risk and interest rate risk. While all financial instruments are
subject to interest rate risk and liquidity risk, structured notes are more
sensitive because of the regulatory concerns and differing note structures (call
provision, rate adjustments, etc.). The Corporation had approximately $9,100,000
in structured notes as of June 30, 1996 with a fair value of approximately
$8,400,000. See notes 1 and 2 of the Notes to Consolidated Financial Statements
for more information regarding investment and mortgage-backed securities.
11
<PAGE>
The Corporation is required by regulation to maintain a minimum amount
of liquid assets which may be invested in specified marketable securities and is
also permitted to make certain other investments. The Corporation's liquidity
requirement at June 30, 1996 was $10,400,000. At that date the Corporation held
approximately $68,200,000 in liquid funds, well in excess of regulatory
requirements. The following table sets forth at amortized cost the maturities
and weighted average yields of the Corporation's investment and mortgage-backed
securities portfolio at June 30, 1996 (dollars in thousands).
12
<PAGE>
<TABLE>
<CAPTION>
Less than One to Five Five to Ten Over Ten
One Year Years Years Years Total
-----------------------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and agency
securities $3,765 4.30% $ 8,109 5.19% $ 997 7.97% $ 481 6.38% $13,352 5.19%
Municipal securities 155 6.95% 431 4.70% 40 6.00% 159 5.32% 785 4.84%
Mutual funds 0 0.00% 0 0.00% 0 0.00% 1,264 5.13% 1,264 5.13%
FHLB stock 0 0.00% 0 0.00% 0 0.00% 751 6.00% 751 6.00%
FNMA stock 0 0.00% 0 0.00% 0 0.00% 2 - 2 -
FHLMC mortgage-backed
securities 675 6.95% 764 7.72% 2,184 7.30% 5,228 6.98% 8,851 7.12%
FNMA mortgage-backed
securities 0 0.00% 306 7.17% 2,098 6.92% 1,909 6.64% 4,313 6.81%
GNMA mortgage-backed
securities 0 0.00% 44 8.39% 410 8.43% 6,309 6.64% 6,763 6.76%
CMO's 73 7.02% 860 5.95% 1,047 6.96% 27,022 6.90% 29,002 6.88%
-----------------------------------------------------------------------------------------------------
Total 4,668 4.73% 10,514 5.49% 6,776 7.29% 43,125 6.78% 65,083 6.45%
=====================================================================================================
</TABLE>
At June 30, 1996, approximately $4,965,000 of debt securities and $32,894,000 of
mortgage-backed securities were adjustable-rate securities.
13
<PAGE>
DEPOSITS AND BORROWINGS
GENERAL. Deposits are the major source of the Corporation's funds for
lending and other investment purposes. In addition to deposits, the Corporation
derives funds from principal repayments and interest payments on loans and
mortgage-backed securities. Loans and mortgage-backed securities repayments of
principal and interest payments are a relatively stable source of funds,
typically slowing as rates rise and accelerating as rates fall. Borrowings are
used on a short-term basis to compensate for reductions in the availability of
funds from other sources and for general business purposes.
DEPOSITS. Local deposits are, and traditionally have been, the primary
source of the Corporation's funds for use in lending and for other general
business purposes. The Corporation offers a number of deposit accounts including
negotiable order of withdrawal ("NOW") accounts, money market savings accounts,
savings accounts, individual retirement accounts ("IRAs") and certificate of
deposit accounts. Deposit accounts vary as to withdrawal provisions, deposit
provisions and interest rates.
The Corporation adjusts the interest rates offered on its deposit
accounts as necessary so as to remain competitive with other financial
institutions in its market area. The Corporation does not solicit brokered
deposits.
Savings deposits in the Corporation at June 30, 1996 were represented by
the various types of savings programs described below:
<TABLE>
<CAPTION>
Weighted Minimum Balance Percentage
Average Interest Balance (In of Total
Rate Required Thousands) Deposits
---------------------------------------------------------
<S> <C> <C> <C> <C>
NOW Accounts :
Commercial 0.00% $ 500 $ 1,949 1.86%
Noncommercial 1.71% $ 500 3,550 3.40%
Money market checking accounts 3.12% $1,000 7,751 7.41%
Savings accounts 3.28% $ 5 4,794 4.58%
--------------------------------------------------------
Total checking and savings deposits 18,044 17.25%
--------------------------------------------------------
Certificates of deposits 5.41% $ 500 63,396 60.63%
IRA's 5.63% $ 250 7,629 7.30%
Money Market CD's 4.81% $2,500 15,496 14.82%
--------------------
Total certificates of deposits 86,521 82.75%
--------------------
Total deposits $104,565 100.00%
====================
</TABLE>
14
<PAGE>
The following table sets forth the Corporation's time deposits
classified by rate as of the dates indicated (dollars in thousands).
<TABLE>
<CAPTION>
June 30,
-------------------------
1996 1995 1994
-------------------------
<S> <C> <C> <C>
0.00 - 3.99% $ 995 $13,213 $58,238
4.00 - 5.99% 74,021 62,504 23,689
6.00 - 7.99% 11,505 7,366 13
8.00 - 10.00% 0 877 49
-------------------------
Total $86,521 $83,960 $81,989
=========================
</TABLE>
The following sets forth the amounts and maturities of the Corporation's
time deposits by specified interest rates at June 30, 1996.
<TABLE>
<CAPTION>
Amount Due in
-----------------------------------------------------
Two to
One Year One to Three
Rate or Less Two Years Years Thereafter Total
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
0.00 - 2.99% $ 995 $ 0 $ 0 $ 0 $ 995
3.00 - 5.99% 63,311 7,029 3,048 633 74,021
6.00 - 6.99% 4,525 2,625 668 423 8,241
Over 7.00% 12 220 0 3,032 3,264
-----------------------------------------------------
Total $68,843 $9,874 $3,716 $4,088 $86,521
=====================================================
</TABLE>
The following table sets forth the maturities of the Corporation's
certificates of deposits with balances in excess of $100,000 at June 30, 1996
(dollars in thousands).
<TABLE>
<CAPTION>
Certificates of deposit maturing in: Amount
- ----------------------------------------------------
<S> <C>
Three months or less $ 1,747
Over three months but within six months 2,385
Over six months but within twelve months 3,711
Over twelve months 3,553
-------
Total $11,396
=======
</TABLE>
15
<PAGE>
The following table sets forth the Corporation's deposit activities for the
periods indicated (dollars in thousands).
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------
<S> <C> <C> <C>
Net increase (decrease) before interest credited $1,030 $(7,429) $(2,160)
Interest credited $2,602 2,200 2,311
---------------------------
Net increase (decrease) in deposits $3,632 $(5,229) $ 151
===========================
</TABLE>
See Note 8 of Notes to Consolidated Financial Statements for additional
information regarding deposit accounts.
BORROWINGS. During the year ended June 30, 1996 the Corporation used
advances from the Federal Home Loan Bank of Dallas ("FHLB") to supplement its
supply of lendable funds for granting loans, making investments and to meet
deposit withdrawal requirements. See "Regulation -- Federal Home Loan Bank
System." The Corporation had an average amount of outstanding advances of
approximately $11,100,000 for the year ended June 30, 1996. Advances
outstanding during the fiscal year end June 30, 1996 never exceeded $13,500,000,
the amount outstanding at June 30, 1996. The Corporation has periodically
utilized reverse repurchase agreements as a source of borrowings. Reverse
repurchase agreements are treated as financings and the obligations to
repurchase securities sold are reflected as a liability on the balance sheet.
There were no reverse repurchase agreements outstanding at June 30, 1996.
COMPETITION. The Corporation faces strong competition both in
attracting deposits and making real estate loan. Its most direct competition
for deposits has historically come from other savings associations, credit
unions and commercial banks located in northeastern Texas, including many large
financial institutions which have greater financial and marketing resources
available to them. In addition, the Corporation faces additional significant
competition for investors' funds from mutual funds, corporate and government
securities, annuities and other investment products. The ability of the
Corporation to attract and retain savings deposits depends on its ability to
generally provide a rate of return, liquidity and risk comparable to that
offered by competing investment opportunities.
The Corporation experiences competition for real estate loans
principally from other saving associations, commercial banks, and mortgage
banking companies. The Corporation competes for loans principally through the
interest rates and the loan fees it charges as well as the quality of services
it provides borrowers. Competition may increase as a result of the continuing
reduction of restrictions on the interstate operations of financial
institutions.
EMPLOYEES. The Corporation has 38 full-time employees as of June 30,
1996. None of the employees are represented by a collective bargaining unit.
The Corporation believes that relations with its employees are excellent.
PROPOSED MERGER OF THE CORPORATION
DEFINITIVE MERGER AGREEMENT SIGNED. On September 26, 1996, the
Corporation entered into an Agreement and Plan of Merger pursuant to which
Jefferson Savings Bankcorp, Inc. ("Jefferson") would acquire all of the
outstanding common stock of the Corporation in exchange for a combination of
cash and common stock of Jefferson, at a price of $18.50 per share adjusted for
earnings of the Corporation from April 1, 1996, through the end of the month
prior to closing, less dividends. The merger is subject to the approval of
regulators and the shareholders of the Corporation. Reference is made to a copy
of the Agreement and Plan of Merger filed as Exhibit 10.2 to this Form 10-K
Report for information concerning the terms and conditions of the proposed
merger.
16
<PAGE>
REGULATION
Set forth below is a brief description of certain laws and regulations
which relate to the regulation of the Company and the Bank. The description
does not purport to be complete and is qualified in its entirety by reference to
applicable laws and regulations.
THE COMPANY
REGULATIONS. The Company is a registered savings and loan holding
company and is subject to OTS and Department regulation, examination,
supervision and reporting requirements. In addition, because the capital stock
of the Company is registered under Section 12(g) of the Securities Exchange Act
of 1934, the Company is also subject to various reporting and other requirements
of the SEC. As a subsidiary of a savings and loan holding company, the Bank is
also subject to certain Federal and state restrictions in its dealings with the
Company and affiliates thereof.
FEDERAL ACTIVITIES RESTRICTIONS. There are generally no restrictions
on the activities of a savings and loan holding company which holds only one
subsidiary savings association. However, if the Director of the OTS determines
that there is reasonable cause to believe that the continuation by a savings and
loan holding company of an activity constitutes a serious risk to the financial
safety, soundness or stability of its subsidiary savings institution (i.e., a
savings association or savings bank), the Director may impose such restrictions
as deemed necessary to address such risk, including limiting (i) payment of
dividends by the savings institution; (ii) transactions between the savings
institution and its affiliates; and (iii) any activities of the savings
institution that might create a serious risk that the liabilities of the holding
company and its affiliates may be imposed on the savings institution.
Notwithstanding the foregoing, if the savings institution subsidiary of such a
holding company fails to meet the Qualified Thrift Lender ("QTL") test, then
such unitary holding company also shall become subject to the activities
restrictions applicable to multiple savings and loan holding companies and,
unless the savings institution requalifies as a QTL within one year thereafter,
shall register as, and become subject to the restrictions applicable to, a bank
holding company. See "-Regulation of the Bank-Qualified Thrift Lender Test."
If the Company were to acquire control of another savings institution,
other than through merger or other business combination with the Bank, the
Company would thereupon become a multiple savings and loan holding company.
Except where such acquisition is pursuant to the authority to approve emergency
thrift acquisitions and where each subsidiary savings institution meets the QTL
test, as set forth below, the activities of the Company and any of its
subsidiaries (other than the Bank or other subsidiary savings institutions)
would thereafter be subject to further restrictions. No multiple savings and
loan holding company or subsidiary thereof which is not a savings institution
shall commence or continue beyond a limited period of time after becoming a
multiple savings and loan holding company or subsidiary thereof any business
activity, other than: (i) furnishing or performing management services for a
subsidiary savings institution; (ii) conducting an insurance agency or escrow
business; (iii) holding, managing, or liquidating assets owned by or acquired
from a subsidiary savings institution; (iv) holding or managing properties used
or occupied by a subsidiary savings institution; (v) acting as trustee under
deeds of trust; (vi) those activities authorized by regulation as of March 5,
1987 to be engaged in by multiple savings and loan holding companies; or (vii)
unless the Director of the OTS by regulation prohibits or limits such activities
for savings and loan holding companies, those activities authorized by the
Federal Reserve Board as permissible for bank holding companies. The activities
described in (i) through (vi) above may be engaged in only after giving the OTS
prior notice and being informed that the OTS does not object to such activities.
In addition, the activities described in (vii) above also must be approved by
the Director of the OTS prior to being engaged in by a multiple savings and loan
holding company.
RESTRICTIONS ON ACQUISITIONS. Except under limited circumstances,
savings and loan holding companies are prohibited from acquiring, without prior
approval of the Director of the OTS, (i) control of any other savings
institution or savings and loan holding company or substantially all the assets
thereof or (ii) more than 5% of the voting shares of a savings institution or
holding company thereof which is not a subsidiary. Except with the prior
approval of the Director of OTS, no director or officer of a savings and loan
holding company or person owning or controlling by proxy
17
<PAGE>
or otherwise more than 25% of such company's stock, may acquire control of any
savings institution, other than a subsidiary savings institution, or of any
other savings and loan holding company.
The Director of the OTS may approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
institutions in more than one state only if (i) the multiple savings and loan
holding company involved controls a savings institution which operated a home or
branch office located in the state of the association to be acquired as of March
5, 1987; (ii) the acquirer is authorized to acquire control of the savings
institution pursuant to the emergency acquisition provisions of the Federal
Deposit Insurance Act ("FDIA"), or (iii) the statutes of the state in which the
institution to be acquired is located specifically permit institutions to be
acquired by the state-chartered institutions or savings and loan holding
companies located in the state where the acquiring entity is located (or by a
holding company that controls such state-chartered savings institutions).
On October 14, 1994, the Bank, which was then a state-chartered
savings and loan association known as Sulphur Springs Loan and Building
Association, converted from mutual to stock form of ownership. Applicable OTS
regulations imposed certain requirements on a savings association converting
from mutual to stock form of ownership which included a limitation on purchases
of stock of the converted association by its officers and directors for a period
of three years following the conversion, a requirement that the converting
association register the securities issued in the conversion pursuant to the
Securities Exchange Act of 1934 and undertake not to deregister such securities
for a period of three years thereafter, and limitations upon the converted
association's repurchase of any of its capital stock for a period of three years
from the date of conversion. Further, under the OTS regulations, for a period
of three years following the date of conversion, no person is permitted,
directly or indirectly, to offer to acquire or acquire beneficial ownership of
more than 10% of any class of an equity security of the converted association
without the prior approval of the OTS, and any securities owned by such a person
in excess of 10% may not be counted as shares entitled to vote or counted as
voting shares in connection with any matter submitted to the stockholders for a
vote. The Company became subject to these regulatory requirements to the same
extent as the Bank as the result of the 1995 reorganization by which the Bank
became the wholly-owned subsidiary of the Company.
TEXAS REGULATIONS. Under the Texas Savings Bank Act ("TSBA"), each
registered holding company, such as the Company, is required to file reports
with the Department as required by the Texas Savings and Loan Commissioner
("Commissioner") and is subject to such examination as the Commissioner may
prescribe.
REGULATION OF THE BANK
The Bank is required to file 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 any
merger or acquisition with another institution. The regulatory system to which
the Bank is subject is intended primarily for the protection of the deposit
insurance fund and depositors, not stockholders. The regulatory structure also
provides the Department and the FDIC with substantial discretion in connection
with their supervisory and enforcement functions. The Department and the FDIC
conduct periodic examinations of the Bank in order to assess its compliance with
federal and state regulatory requirements. As a result of such examinations,
the Department and the FDIC may require various corrective actions.
Virtually every aspect of the Bank's business is subject to numerous
federal and/or state regulatory requirements and restrictions with respect to
such matters as, for example, the nature and amounts of loans and investments
that may be made, the issuance of securities, the amount of reserves that must
be established against deposits, the establishment of branches, mergers, non-
banking activities and other operations. Numerous laws and regulations also set
forth special restrictions and procedural requirements with respect to the
extension of credit, credit practices, the disclosure of credit terms and
discrimination of credit transactions.
The description of statutory provisions and regulations applicable to
savings banks set forth in this Form 10-K does not purport to be a complete
description of such statutes and regulations and their effects on the Bank.
Moreover,
18
<PAGE>
because some of the provisions of the FDIA, as amended by the Federal Deposit
Insurance Corporation Improvement Act of 1991, have not yet been fully
implemented through the adoption of regulations by the various federal banking
agencies, the Bank cannot yet fully assess the impact of these provisions on its
operations.
In particular, the Bank cannot predict whether it will be in
compliance with such new regulations at the time they become effective.
Furthermore, the Bank cannot predict what other new regulatory requirements
might be imposed in the future.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. Transactions between
savings institutions and any affiliate are governed by sections 23A and 23B of
the Federal Reserve Act. An affiliate of a savings institution is any company
or entity which controls, is controlled by or is under common control with the
savings institution. In a holding company context, the parent holding company
of a savings institution (such as the Company) and any companies which are
controlled by such parent holding company are affiliates of the savings
institution. Generally, Sections 23A and 23B (i) limit the extent to which the
savings institution or its subsidiaries may engage in "covered transactions"
with any one affiliate to an amount equal to 10% of such institution's capital
stock and surplus, and contain an aggregate limit on all such transactions with
all affiliates to an amount equal to 20% of such capital stock and surplus and
(ii) require that all such transactions be on terms substantially the same, or
at least as favorable to the institution or subsidiary, as those provided to a
non-affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and similar transactions. In
addition to the restrictions imposed by Sections 23A and 23B, no savings
institution may (i) loan or otherwise extend credit to an affiliate, except for
any affiliate which engages only in activities which are permissible for bank
holding companies, or (ii) purchase or invest in any stocks, bonds, debentures,
notes or similar obligations of any affiliate, except for affiliates which are
subsidiaries of the savings institution.
In addition, Sections 22(h) and (g) of the Federal Reserve Act place
restrictions on loans to executive officers, directors and principal
stockholders. Under Section 22(h), loans to a director, an executive officer
and to a greater than 10% stockholder of a savings institution (a "principal
stockholder"), and certain affiliated interests of each of them, may not exceed,
together with all other outstanding loans to such person and affiliated
interests, the savings institution's loans to one borrower limit (generally
equal to 15% of the institution's unimpaired capital and surplus). Section
22(h) also requires that loans to directors, executive officers and principal
stockholders be made on terms substantially the same as offered in comparable
transactions to other persons and also requires prior board approval for certain
loans. In addition, the aggregate amount of extensions of credit by a savings
institution to all insiders cannot exceed the institution's unimpaired capital
and surplus. Furthermore, Section 22(h) places additional restrictions on loans
to executive officers. At June 30, 1996, the Bank was in compliance with the
above restrictions.
REGULATORY CAPITAL REQUIREMENTS. Federally-insured state-chartered
banks are required to maintain minimum levels of regulatory capital. These
standards generally must be as stringent as the comparable capital requirements
imposed on national banks. The FDIC also is authorized to impose capital
requirements in excess of these standards on individual banks on a case-by-case
basis. Under current FDIC regulations, the Bank is required to comply with
three separate minimum capital requirements: a "Tier 1 core capital ratio" and
two "risk-based" capital requirements. "Tier 1 core capital" generally includes
common stockholders' equity (including retained earnings), qualifying
noncumulative perpetual preferred stock and any related surplus, and minority
interests in the equity accounts of fully consolidated subsidiaries, minus all
intangible assets, other than properly valued mortgage servicing rights and
purchased credit card relationships up to certain specified limits and minus net
deferred tax assets in excess of certain specified limits. At June 30, 1996,
the Bank did not have any net deferred tax assets in excess of the specified
limits.
TIER 1 CORE CAPITAL RATIO. FDIC regulations establish a minimum 3.0%
ratio of Tier 1 core capital to total assets for the most highly-rated state-
chartered, FDIC-supervised banks, with an additional cushion of at least 100 to
200 basis points for all other state-chartered, FDIC-supervised banks, which
effectively imposes a minimum Tier 1 core capital ratio for such other banks of
between 4.0% to 5.0%. Under FDIC regulations, highly-rated banks are those that
the FDIC determines are not anticipating or experiencing significant growth and
have well-diversified risk, including no undue interest rate risk exposure,
excellent asset quality, high liquidity and good earnings. At June 30, 1996,
the
19
<PAGE>
required Tier 1 core capital ratio for the Bank was 4.00% and its actual Tier 1
core capital ratio was 21.38%.
RISK-BASED CAPITAL REQUIREMENTS. The risk-based capital requirements
contained in FDIC regulations generally require the Bank to maintain a ratio of
Tier 1 core capital to risk-weighted assets of at least 4.00% and a ratio of
total risk-based capital to risk-weighted assets of at least 8.00%. To
calculate the amount of capital required, assets are placed in one of four
categories and given a percentage weight (0%, 20%, 50% or 100%) based on the
relative risk of the category. For example, U.S. Treasury Bills and GNMA
securities are placed in the 0% risk category. FNMA and FHLMC securities are
placed in the 20% risk category, loans secured by one-to-four family residential
properties and certain privately-issued mortgage-backed securities are generally
placed in the 50% risk category and commercial and consumer loans and other
assets are generally placed in the 100% risk category. In addition, certain
off-balance sheet items are converted to balance sheet credit equivalent amounts
and each amount is then assigned to one of the four categories.
For purposes of the risk-based capital requirements, "total capital"
means Tier 1 core capital plus supplementary or Tier 2 capital, so long as the
amount of supplementary or Tier 2 capital that is used to satisfy the
requirement does not exceed the amount of Tier 1 core capital. Supplementary or
Tier 2 capital includes, among other things, so-called permanent capital
instruments (cumulative or other perpetual preferred stock, mandatory
convertible subordinated debt and perpetual subordinated debt), so-called
maturing capital instruments (mandatorily redeemable preferred stock,
intermediate-term preferred stock, mandatory convertible subordinated debt and
subordinated debt), and a certain portion of the allowance for loan losses up to
a maximum of 1.25% of risk-weighted assets.
At June 30, 1996, the Bank's Tier 1 core capital ratio to risk-
weighted assets ratio was 22.45% and its total risk-based capital to risk-
weighted assets ratio was 23.34%.
FDIC INSURANCE PREMIUMS. The deposits of the Bank are insured to the
maximum extent permitted by the SAIF, which is administered by the FDIC, and are
backed by the full faith and credit of the U.S. Government. As the insurer, the
FDIC is authorized to conduct examinations of, and to require reporting by,
FDIC-insured institutions. It also may prohibit any FDIC-insured institution
from engaging in any activity the FDIC determines by regulation or order to pose
a serious threat to the FDIC. The FDIC also has the authority to initiate
enforcement actions against savings institutions.
The Bank currently pays deposit insurance premiums to the FDIC based
on a risk-based assessment system established by the FDIC for all SAIF-member
institutions. Under applicable regulations, institutions are assigned to one of
three capital groups based solely on the level of an institution's capital -
"well capitalized," "adequately capitalized" and "undercapitalized" - which is
defined in the same manner as the regulations establishing the prompt corrective
action system under Section 38 of the FDIA. These three groups are then divided
into three subgroups which reflect varying levels of supervisory concern, from
those which are considered to be healthy to those which are considered to be of
substantial supervisory concern. The matrix so created results in nine
assessment risk classifications, with rates ranging from .23% for well
capitalized, healthy SAIF-member institutions to .31% for undercapitalized SAIF-
member institutions with substantial supervisory concerns. The Bank has been
notified by the FDIC that the assessment rate is equal to .23% of insured
deposits for the six months ending December 31, 1996.
On November 14, 1995, the FDIC adopted a new assessment rate schedule
of zero to 27 basis points (subject to a $2,000 minimum) for Bank Insurance Fund
("BIF") members beginning on or about January 1, 1996 while retaining the
existing assessment rate schedule for SAIF-member institutions. In announcing
this new schedule, the FDIC noted that the premium differential may have adverse
consequences for SAIF members, including reduced earnings and/or impaired
ability to raise funds in the capital markets. In addition, SAIF members could
be placed at a competitive disadvantage to BIF members with respect to pricing
of loans and deposits and the ability to achieve lower operating costs.
REGULATORY CAPITAL REQUIREMENTS. The FDIA requires the Federal
banking agencies to revise their risk-based
20
<PAGE>
capital guidelines to, among other things, take adequate account of interest
rate risk. The Federal banking agencies continue to consider modification of
the capital requirements applicable to banking organizations. In August 1995,
the Federal banking agencies amended their risk-based capital guidelines to
provide that the banking agencies will include in their evaluations of a bank's
capital adequacy an assessment of the bank's exposure to declines in the
economic value of the bank's capital due to changes in interest rates. The
agencies also issued a proposed policy statement that describes the process that
the agencies will use to measure and assess the exposure of a bank's capital to
changes in interest rates. The agencies stated that after they and the banking
industry gain sufficient experience with the measurement process, the agencies
would issue proposed regulations for establishing explicit charges against
capital to account for interest rate risk.
The FDIA also requires the FDIC and the other Federal banking agencies
to revise their risk-based capital standards, with appropriate transition rules,
to ensure that they take into account concentration of credit risk and the risk
of non-traditional activities and to ensure that such standards reflect the
"actual performance and expected risk of loss of multi-family mortgages" of
which the Bank had $5,228,000 million at June 30, 1996. In December 1995, the
FDIC and the other Federal banking agencies promulgated final amendments to
their respective risk-based capital requirements which would explicitly identify
concentration of credit risk and certain risks arising from nontraditional
activities, and the management of such risks as important factors to consider in
assessing an institution's overall capital adequacy. The FDIC may now require
higher minimum capital ratios based on certain circumstances, including where
the institution has significant risks from concentration of credit or certain
risks arising from non-traditional activities.
The Federal banking agencies have agreed to adopt for regulatory
purposes Statement 115, which, among other things, generally adds a new element
to stockholders' equity under generally accepted accounting principles by
including net unrealized gains and losses on certain securities. In December
1994, the FDIC issued final amendments to its regulatory capital requirements
which would require that the net amount of unrealized losses from available-for-
sale equity securities with readily determinable fair values be deducted for
purposes of calculating the Tier 1 core capital ratio. All other net unrealized
holding gains (losses) on available-for-sale securities are excluded from the
definition of Tier 1 core capital. At June 30, 1996, the Bank had investment
and mortgage-backed securities available for sale with an amortized cost of
$22,153,000 with aggregate net unrealized loss of $167,000 ($118,000 net of tax
effect).
SAFETY AND SOUNDNESS STANDARDS. Each Federal banking agency is
required to prescribe, for all insured depository institutions and their holding
companies, standards relating to internal controls, information systems and
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation, fees and benefits and such other
operational and managerial standards as the agency deems appropriate. The
compensation standards would prohibit employment contracts or other compensatory
arrangements that provide excess compensation, fees or benefits or could lead to
material financial loss to the institution. In addition, each Federal banking
agency also is required to adopt for all insured depository institutions and
their holding companies standards that specify (i) a maximum ratio of classified
assets to capital, (ii) minimum earnings sufficient to absorb losses without
impairing capital, (iii) to the extent feasible, a minimum ratio of market value
to book value for publicly-traded shares of the institution or holding company,
and (iv) such other standards relating to asset quality, earnings and valuation
as the agency deems appropriate. On July 10, 1995, the Federal banking
agencies, including the FDIC, adopted final rules and proposed guidelines
concerning safety and soundness required to be prescribed by regulations
pursuant to Section 39 of the FDIA. In general, the standards relate to
operational and managerial matters, asset quality and earnings and compensation.
The operational and managerial standards cover internal controls and information
systems, internal audit systems, loan documentation, credit underwriting,
interest rate exposure, asset growth, and compensation, fees and benefits.
Under the asset quality and earnings standards, which were adopted by the FDIC
and other federal banking agencies on August 27, 1996, the Bank is required to
establish and maintain systems to identify problem assets and prevent
deterioration in those assets and evaluate and monitor earnings to ensure that
earnings are sufficient to maintain adequate capital reserves. If an insured
institution fails to meet any of the standards promulgated by the regulators,
then such institution will be required to submit a plan within 30 days to the
FDIC specifying the steps that it will take to correct the deficiency. In the
event that an insured institution fails to submit or fails in any material
respect to implement a compliance plan within the time allowed by the FDIC,
Section 39 of the FDIA provides that the FDIC must order the
21
<PAGE>
institution to correct the deficiency and may restrict asset growth, require the
savings institution to increase its ratio of tangible equity to assets, restrict
the rates of interest that the institution may pay or take any other action that
would better carry out the purpose of prompt corrective action. The Bank
believes that it has been and will continue to be in compliance with each of the
standards as they have been adopted by the FDIC.
Finally, each Federal banking agency is required to prescribe
standards for the employment contracts and other compensation arrangements of
executive officers, employees, directors and principal stockholders of insured
depository institutions that would prohibit compensation and benefits and
arrangements that are excessive or that could lead to a material financial loss
for the institution. In February 1996, the FDIC adopted final regulations
regarding the payment of severance and indemnification to management officials
and other affiliates or insured institutions (institution affiliated parties or
"IAPs"). The limitations on severance or "golden parachute" payments apply to
"troubled" institutions which seek to enter into contracts with IAPs. A golden
parachute payment is generally considered to be any payment to an IAP which is
contingent on the termination of that person's employment and is received when
the insured institution is in a trouble condition. The definition of golden
parachute payment does not include payment pursuant to qualified retirement
plans, non-qualified bona fide deferred compensation plans, nondiscriminatory
severance pay plans, other types of common benefit plans, state statutes and
death benefits. Certain limited exceptions to the golden parachute payment
prohibition are provided for in cases involving the hiring of an outside
executive, unassisted changes of control and where the FDIC provides written
permission to make such payment. The limitations on indemnification payments
apply to all insured institutions, their subsidiaries and affiliated holding
companies. Generally, this provision prohibits such entities from indemnifying
an IAP for that portion of the costs sustained with regard to a civil or
administrative enforcement action commenced by any Federal banking agency which
results in a final order or settlement pursuant to which the IAP is assessed a
civil monetary penalty, removed from office, prohibited from participating in
the affairs of an insured institution or required to cease and desist from
taking certain affirmative actions. Nevertheless, institutions or holding
companies may purchase commercial insurance to cover such expenses (except for
judgments or penalties) and the institutions or holding company may advance
legal expenses to the IAP if its board of directors makes certain specific
finding and the IAP agrees in writing to reimburse the institution if it is
ultimately determined that the IAP violated a law, regulation or other fiduciary
duty.
ACTIVITIES AND INVESTMENTS OF INSURED STATE-CHARTERED BANKS. The
activities and equity investments of FDIC-insured, state-chartered banks are
limited by Federal law to those that are permissible for national banks. An
insured state bank generally may not acquire or retain any equity investment of
a type, or in an amount, that is not permissible for a national bank. An
insured state bank is not prohibited from, among other things, (i) acquiring or
retaining a majority interest in a subsidiary, (ii) investing as a limited
partner in a partnership the sole purpose of which is direct or indirect
investment in the acquisition, rehabilitation or new construction of a qualified
housing project, provided that such limited partnership investments may not
exceed 2% of the bank's assets, (iii) acquiring up to 10% of the voting stock of
a company that solely provides or reinsures directors' and officers' liability
insurance, and (iv) acquiring or retaining the voting shares of a depository
institution if certain requirements are met.
COMMUNITY REINVESTMENT ACT. Under the Community Reinvestment Act
("CRA"), as implemented by FDIC regulations, a savings institution has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires the FDIC, in connection with its examination of a savings
institution, to assess the institution's record of meeting the credit needs of
its community and to take such record into account in its evaluation of certain
applications by such institution. As of the date of its most recent regulatory
examination, the Bank was rated "satisfactory" with respect to its CRA
compliance.
In May 1995, the FDIC and other Federal banking agencies promulgated
final revisions to their regulations concerning the CRA. The revised
regulations generally are intended to provide clearer guidance to financial
institutions on the nature and extent of their obligations under the CRA and the
methods by which the obligations will be assessed
22
<PAGE>
and enforced. Among other things, the revised regulations substitute for the
current process-based assessment factors a new evaluation system that would rate
institutions based on their actual performance in meeting community credit
needs. In particular, the revised system will evaluate the degree to which an
institution is performing under tests and standards judged in the context of
information about the institution, its community, its competitors and its peers
with respect to (i) lending, (ii) service delivery systems and (iii) community
development. The revised regulations also specify that an institution's CRA
performance will be considered in an institution's expansion (e.g., branching)
proposals and may be the basis for approving, denying or conditioning the
approval of an application. Management of the Bank currently is unable to
predict the effects of the regulations under the CRA as recently adopted.
QUALIFIED THRIFT LENDER TEST. All savings institutions, including the
Bank, are required to meet a QTL test set forth under Section 10(m) of the Home
Owners Loan Act, as amended, to avoid certain restrictions on their operations.
A depository institution must have at least 65% of its portfolio assets (which
consist of total assets less intangibles, properties used to conduct the savings
institution's business and liquid assets not exceeding 20% of total assets) in
qualified thrift investments on a monthly average basis in 9 of every 12 months.
Loans and mortgage-backed securities secured by domestic residential housing, as
well as certain obligations of the FDIC and certain other related entities may
be included in qualifying thrift investments without limit. Certain other
housing-related and non-residential real estate loans and investments, including
loans to develop churches, nursing homes, hospitals and schools, and consumer
loans and investments in subsidiaries engaged in housing-related activities may
also be included. Qualifying assets for the QTL test include investments related
to domestic residential real estate or manufactured housing, the book value of
property used by an institution or its subsidiaries for the conduct of its
business, an amount of residential mortgage loans that the institution or its
subsidiaries sold within 90 days of origination, shares of stock issued by any
FHLB and shares of stock issued by the FHLMC or the FNMA. The Bank was in
compliance with the QTL test as of June 30, 1996.
RESTRICTIONS ON CAPITAL DISTRIBUTIONS. The Company is required to
provide to the OTS not less than 30 days' advance notice of the proposed
declaration by its board of directors of any dividend on its capital stock. The
OTS may object to the payment of the dividend on safety and soundness grounds.
The FDIA prohibits an insured depository institution from paying
dividends on its capital stock or interest on its capital notes or debentures
(if such interest is required to be paid only out of net profits) or distribute
any of its capital assets while it remains in default in the payment of any
assessment due the FDIC. Texas law permits the Bank to pay dividends out of
current or retained income in cash or additional stock.
LEGISLATIVE AND REGULATORY PROPOSALS. Proposals to change the laws
and regulations governing the operations and taxation of, and federal insurance
premiums paid by, savings banks and other financial institutions and companies
that control such institutions are frequently raised in Congress, state
legislatures and before the FDIC and other bank regulatory authorities. The
likelihood of any major changes in the future and the impact such changes might
have on the Bank are impossible to determine. Similarly, proposals to change
the accounting treatment applicable to savings banks and other depository
institutions are frequently raised by the SEC, the FDIC and other appropriate
authorities, including, among others, proposals relating to fair market value
accounting for certain classes of assets and liabilities. The likelihood and
impact of any additional future accounting rule changes and the impact such
changes might have on the Bank are impossible to determine.
FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the FHLB of
Dallas, which is one of 12 regional FHLBs that administers the home financing
credit function of savings institutions and commercial banks. Each FHLB serves
as a source of liquidity for its members within its assigned region. It is
funded primarily from proceeds derived from the sale of consolidated obligations
of the FHLB System. It makes loans to members (i.e., advances) in accordance
with policies and procedures established by its Board of Directors. As of June
30, 1996, the Bank's advances from the FHLB of Dallas amounted to $13,500,000 or
9.3% of its total assets.
As a member, the Bank is required to purchase and maintain stock in
the FHLB of Dallas in an amount equal
23
<PAGE>
to the greater of 1% of its aggregate unpaid residential mortgage loans, home
purchase contracts or similar obligations at the beginning of each year or 5% of
total advances. At June 30, 1996, the Bank had $751,000 of stock, which was in
compliance with this requirement.
The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low-and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future. These contributions also could have an adverse effect on the
value of FHLB stock in the future. For the year ended June 30, 1996, dividends
paid by the FHLB of Dallas to the Bank totaled $46,000.
FEDERAL RESERVE SYSTEM. The Federal Reserve Board requires all
depository institutions to maintain reserves against their transaction accounts
(primarily NOW and Super NOW checking accounts) and non-personal time deposits.
At June 30, 1996, the Bank was in compliance with such requirements.
The balances maintained to meet the reserve requirements imposed by
the Federal Reserve Board may be used to satisfy applicable liquidity
requirements. Because required reserves must be maintained in the form of vault
cash or a non-interest-bearing account at a Federal Reserve Bank, the effect of
this reserve requirement is to reduce a bank's earning assets. The amount of
funds necessary to satisfy this requirement has not had a material affect on the
Bank's operations.
TEXAS SAVINGS BANK LAW. As a Texas chartered savings bank, the Bank
is subject to regulation and supervision by the Department under the TSBA. The
TSBA contains provisions governing the incorporation and organization, location
of offices, rights and responsibilities of directors, officers and members as
well as the corporate powers, savings, lending, capital and investment
requirements and other aspects of the Bank and its affairs. In addition, the
Department is given extensive rule-making power and administrative discretion
under the TSBA, including authority to enact and promulgate rules and
regulations.
The Bank is required under the TSBA to comply with certain capital
requirements established by the Department. The TSBA also restricts the amount
the Bank can lend to one borrower to that permitted to national banks, which is
generally not more than 15% of the Bank's unimpaired capital and unimpaired
surplus and, if such loans are fully secured by readily marketable collateral,
an additional 10% of unimpaired capital and unimpaired surplus. The Department
generally examines the Bank once every year and the current practice is for the
Department to conduct a joint examination with FDIC. The Department monitors
the extraordinary activities of the Bank by requiring that the Bank seek the
Department's approval for certain transactions such as the establishment of
additional offices, a reorganization, merger or purchase and assumption
transaction, changes of control, or the issuance of capital obligations. The
Department may intervene in the affairs of a savings bank if the savings bank, a
director, officer or agent has: engaged in an unsafe and unsound practice,
violated the savings bank's articles of incorporation, violated a statute or
regulation, filed materially false or misleading information, committed a
criminal act or a breach of fiduciary duty, or if the savings bank is, or is in
imminent danger of becoming, insolvent.
FEDERAL AND STATE TAXATION
GENERAL. The Corporation will report its income on a fiscal year
basis using the accrual method of accounting and will be subject to federal
income taxation in the same manner as other corporations with some exceptions
that apply to thrift and other types of financial institutions. The following
discussion of tax matters is intended only as a summary and does not purport to
be a comprehensive description of the tax rules applicable to the Corporation.
24
<PAGE>
BAD DEBT RESERVE. As a "domestic building and loan association," the
Corporation is permitted to establish reserves for bad debts and to make annual
additions thereto which qualify as deductions for the purpose of determining
taxable income. The bad debt deduction is generally based on a savings
institution's actual loss experience (the "Experience Method"). In addition,
provided that certain definitional tests relating to the composition of assets
and the nature of its business were met, a savings institution prior to
enactment of the Small Business Job Protection Act of 1996 could elect annually
to compute its allowable addition to bad debt reserves for qualifying real
property loans (generally loans secured by improved real estate) by reference to
a percentage of its taxable income.
The Corporation in the past has elected between these two methods of
computing its bad debt reserve. However, under the Small Business Job
Protection Act of 1996 a thrift institution of the Bank's size will be required
in the future to use the Experience Method and must recapture certain
"applicable excess bad debt reserves" over a six year period, subject to certain
requirements, and begin paying taxes on the recaptured amount. Generally, the
1987 and prior reserves are exempt from such recapture. The Corporation
believes that implementation of this legislation will not have a material affect
on its operating results.
DISTRIBUTIONS. While the Corporation maintains a bad debt reserve, if
it were to distribute cash or property to its stockholders having a total fair
market value in excess of its accumulated tax-paid earnings and profits, or were
to distribute cash or property to its stockholders in redemption of its stock,
it would generally be required to recognize as income an amount which, when
reduced by the amount of federal income tax that would be attributable to the
inclusion of such amount in income, is equal to the lesser of: (i) the amount of
the distribution or (ii) the sum of (a) the amount of the accumulated bad debt
reserve of the Corporation with respect to qualifying real property loans (to
the extent that additions to such reserve exceed the additions that would be
permitted under the experience method) and (b) the amount of the Corporation's
supplemental bad debt reserve.
CORPORATE ALTERNATIVE MINIMUM TAX. The Code imposes an alternative
minimum tax at a rate of 20% on a base of regular taxable income plus certain
tax preferences ("alternative minimum taxable income" or "AMTI"). The
alternative minimum tax is payable to the extent that the tax on such AMTI is in
excess of the tax which would otherwise be payable. The Code provides that one
item of tax preference is the excess of the bad debt deduction allowable for a
taxable year pursuant to the percentage of taxable income method over the amount
allowable under the experience method. The other items of tax preference that
constitute AMTI include (a) tax exempt interest on newly-issued (generally
issued on or after August 8, 1986) private activity bonds other than certain
qualified bonds and (b) for taxable years beginning after 1989, 75% of the
excess (if any) of (i) adjusted current earnings as defined in the Code, over
(ii) AMTI (determined without regard to this preference and prior to reduction
by net operating losses). New operating losses can offset no more than 90% of
AMTI. Certain payments of alternative minimum tax may be used as credits
against regular tax liabilities in future years.
STATE TAXATION. Effective August 12, 1991, the Texas legislature
enacted the 1991 Texas Revenue Bill which, among other things, imposes a
franchise tax on the Corporation. Under the new law, the Corporation will pay
an annual franchise tax equal to the greater of $2.50 per $1,000 of taxable
capital apportioned to Texas, or $4.50 per $100 of net taxable earned surplus
apportioned to Texas. Net taxable earned surplus is the Corporations' Federal
taxable income with certain modifications.
25
<PAGE>
ITEM 2. PROPERTIES
OFFICES AND PROPERTIES
At June 30, 1996, the Corporation conducted its business from its main
office at 306 N. Davis Street, Sulphur Springs, Texas 75482 and five branch
office facilities, all of which are located in northeastern Texas (dollars in
thousands).
<TABLE>
<CAPTION>
Net Book Value
Description/ of Deposits at
Address Leased/Owned the Property June 30 ,1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Main Office Owned $ 103 $ 55,706
306 North Davis St.
Sulphur Springs, Tx
Branch Office Leased (1) -- 17,379
101 Kaufman
Mt. Vernon, Tx
Branch Office Owned 341 12,669
101 Broadnax
Daingerfield, Tx
Branch Office Owned 318 13,927
801 North Jefferson
Mt. Pleasant, Tx
Branch Office Owned 55 3,593
117 South Greer
Pittsburg, Tx
Branch Office Owned 886 1,291
3501 Sowell Ln.
Texarkana, Tx
Vacant Office Owned 77 --
101 East North Front St.
New Boston, Tx
Office Leased (2) -- --
212 North Davis St.
Sulphur Springs, Tx
Development Site Owned 198 --
641 Gilmer
Sulphur Springs, Tx
-------------------------------
Total 1,978 104,565
===============================
</TABLE>
- --------------------
(1) This facility is leased from Mr. Connelly, a director of the Corporation,
on a month-to-month basis. Annual rent is $4,200.
(2) This facility is leased from Mr. Burgin a director of the Corporation, on a
month-to-month basis. Annual rent is $4,500.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
Neither the Corporation or its subsidiary is engaged in any legal
proceedings of a material nature at the present time. From time to time, the
Bank is involved in routine legal proceedings occurring in the ordinary course
of business wherein it enforces the Bank's security interest in mortgage loans
made by the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended June 30, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
- ---------------------------------------------------------------------------
MATTERS
- -------
The information contained under the section captioned "Common Stock
Information" contained on page 5 of the Annual Report to Shareholders is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
The information contained under the section captioned "Selected
Consolidated Financial and Other Data" contained on pages 3 and 4 of the Annual
Report to Shareholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATION'S
- --------------
The information contained under the section captioned "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations" contained on page 6 through 14 of the Annual Report to Shareholders
is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
- ---------------------------------------------------
The financial statements which are listed under Item 14 herein and are
contained on pages 13 through 40 of the Annual Report to Shareholders are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURES
- ---------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The information required by this item is hereby incorporated by
reference from pages 4 through 7 of the Corporation's 1996 definitive proxy
statement.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
The information required by this item is hereby incorporated by
reference from pages 7 and 8 of the Corporation's 1996 definitive proxy
statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The information required by this item is hereby incorporated by
reference from pages 2, 3, 5, and 6 of the Corporation's 1996 definitive proxy
statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information required by this item is hereby incorporated by
reference from pages 8 and 9 of the Corporation's 1996 definitive proxy
statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(A) DOCUMENTS FILED AS PART OF THIS REPORT
--------------------------------------
(1) The following financial statements are incorporated by reference from Item
8 hereof (see Exhibit 13):
Independent Auditors' Report.
Consolidated Statements of Financial Condition at June 30, 1996 and 1995.
Consolidated Statements of Operations for the Years Ended June 30, 1996,
1995 and 1994.
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended June 30, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the Years Ended June 30, 1996,
1995 and 1994.
Notes to Consolidated Financial Statements.
(2) All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are omitted because of the
absence of conditions under which they are required or because the required
information is included in the financial statements and related notes thereto.
(3) The following exhibits are filed as part of this Form 10-K:
Exhibit No.
----------
3.2 Articles of Incorporation of Registrant
3.3 Bylaws of Registrant
10.2 Agreement and Plan of Merger by and among L & B Financial, Inc., a
Texas corporation, and Jefferson Savings Bancorp, Inc., a Delaware
corporation, and Jefferson Savings Acquisition Co., Inc., a Missouri
corporation dated September 25, 1996
13. 1996 Annual Report to Shareholders (1)
21. Loan and Building State Savings Bank, a savings bank organized under
the laws of the state of Texas, is a wholly-owned and operating
subsidiary of the Registrant
23. Consent of Oakerson, Arnold, Walker & Co. to incorporation by
reference
24. Powers of attorney
27. Financial Data Schedule
<PAGE>
99.1 Sulphur Springs Loan and Building Association 1995 Stock Option
Plan (2)
99.2 Sulphur Springs Loan and Building Association Recognition and
Retention Plan and Trust Agreement (3)
(1) to be filed by amendment.
(2) Incorporated by reference to Exhibit No. 99.1 to the
Registrant's Form S-8 Registration Statement No. 333-2574
(3) Incorporated by reference to Exhibit B to Registrant's Proxy
Statement dated February 3, 1995.
(B) REPORTS ON FORM 8-K
-------------------
During the fourth quarter of the Registrant's 1996 fiscal year, the
Registrant filed one Form 8-K Report. That report was dated May 7,
1996, and disclosed the commencement of preliminary negotiations with
a possible acquirer.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
L&B FINANCIAL, INC.
Date: September 30, 1996 By: /s/ C. Glynn Lowe
-------------------------------
C. Glynn Lowe
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ C. Glynn Lowe /s/ Enos L. Ashcroft
- ---------------------------------------- ---------------------------------
C. Glynn Lowe Enos L. Ashcroft
Chief Executive Officer Chairman of the Board
Date: September 30, 1996 Date: September 30, 1996
/s/ Jeffrey C. David W. T. Allison *
- ---------------------------------------- ---------------------------------
Jeffrey C. David W. T. Allison
Principal Financial and Accounting Officer Director
Date: September 30, 1996 Date: September 30, 1996
Daniel L. Bonner * Bob J. Burgin *
- ---------------------------------------- ---------------------------------
Daniel L. Bonner Bob J. Burgin
Director Director
Date: September 30, 1996 Date: September 30, 1996
James H. Connelly * Wayne H. Gaylean *
- ---------------------------------------- ---------------------------------
James H. Connelly Wayne H. Gaylean
Director Director
Date: September 30, 1996 Date: September 30, 1996
Thomas J. Payne *
- ----------------------------------------
Thomas J. Payne
Director
Date: September 30, 1996
* By /s/ C. Glynn Lowe
------------------------------------
C. Glynn Lowe
Attorney-in-fact
under power of attorney
<PAGE>
EXHIBIT 3.2
[SEAL OF THE STATE OF TEXAS APPEARS HERE]
The State of Texas
Secretary of State
CERTIFICATE OF INCORPORATION
OF
"L & B FINANCIAL, INC."
CHARTER NUMBER 01369516
THE UNDERSIGNED, AS SECRETARY OF STATE OF THE STATE OF TEXAS, HEREBY
CERTIFIES THAT THE ATTACHED ARTICLES OF INCORPORATION FOR THE ABOVE NAMED
CORPORATION HAVE BEEN RECEIVED IN THIS OFFICE AND ARE FOUND TO CONFORM TO LAW.
ACCORDINGLY, THE UNDERSIGNED, AS SECRETARY OF STATE, AND BY VIRTUE OF THE
AUTHORITY VESTED IN THE SECRETARY BY LAW, HEREBY ISSUES THIS CERTIFICATE OF
INCORPORATION.
ISSUANCE OF THIS CERTIFICATE OF INCORPORATION DOES NOT AUTHORIZE THE USE OF
A CORPORATE NAME IN THIS STATE IN VIOLATION OF THE RIGHTS OF ANOTHER UNDER THE
FEDERAL TRADEMARK ACT OF 1946, THE TEXAS TRADEMARK LAW, THE ASSUMED BUSINESS OR
PROFESSIONAL NAME ACT OR THE COMMON LAW.
DATED SEP. 8, 1995
EFFECTIVE SEP. 8, 1995
[SEAL]
/S/ ANTONIO O. GARZA, JR.
-----------------------------------------
Antonio O. Garza, Jr., Secretary of State
<PAGE>
ARTICLES OF INCORPORATION
OF
L & B FINANCIAL, INC.
ARTICLE I
NAME
Name. The name of the corporation is "L & B Financial, Inc." (hereinafter
referred to as the "Corporation").
ARTICLE II
DURATION
Duration. The period of duration of the existence of the Corporation is
perpetual.
ARTICLE III
PURPOSE; EFFECTIVE DATE
Purpose and Effective Date. The purpose of the Corporation is to engage in
any lawful activity or business for which a Texas corporation may be
incorporated under the Texas Business Corporation Act ("TBCA"). The Corporation
has and may exercise all expressed, implied and incidental powers conferred by
the Constitution and laws of the State of Texas or by any other federal or state
governmental authority having the power to regulate or to grant rights, powers
and privileges to the Corporation. These Articles of Incorporation shall become
effective upon the date that they are endorsed as filed with the Secretary of
the State of Texas.
ARTICLE IV
REGISTERED OFFICE; REGISTERED AGENT; PRINCIPAL OFFICE
Registered Office and Registered Agent. The address of the registered
office of the Corporation in the State of Texas is 306 North Davis, in the city
of Sulphur Springs, County of Hopkins, Texas 75482. The name of the registered
agent at such address is: Linda Galligher. The principal office of the
Corporation is 306 North Davis, in the city of Sulphur Springs, County of
Hopkins, Texas 75482.
The name and address of the sole incorporator of the Corporation is Sulphur
Springs Building and Loan Association, A Texas Savings Association, 306 North
Davis, in the city of Sulphur Springs, County of Hopkins, Texas 75482.
<PAGE>
The name and address of the sole incorporator of the Corporation is Sulphur
Springs Building and Loan Association, A Texas Savings Association, 306 North
Davis, in the city of Sulphur Springs, County of Hopkins, Texas 75482.
ARTICLE V
CAPITAL STOCK
Capital Stock. The total number of shares of capital stock which the
Corporation has authority to issue is 30,000,000, of which 25,000,000 shall be
common stock, $0.01 par value per share (hereinafter the "Common Stock") and of
which 5,000,000 shall be preferred stock, no par value per share (hereinafter
the "Preferred Stock"). The Board of Directors shall have the authority to
establish series of unissued shares of any class of capital stock by fixing and
determining the designations, preferences, limitations and relative rights,
including voting rights, of the shares of any series so established to the same
extent that such designations, preferences, limitations and relative rights
could be stated if fully set forth in these Articles of Incorporation. Except to
the extent required by governing law, rule or regulation, the shares of capital
stock may be issued from time to time by the Board of Directors without further
approval of stockholders. The consideration for the issuance of the shares of
capital stock shall be paid in full in cash before their issuance and shall not
be less than their par value, if any, and the Corporation shall not loan funds
against the shares of its outstanding capital stock. The Corporation shall have
the authority to purchase its capital stock out of funds lawfully available
therefor, which funds shall include, without limitation, the Corporation's
unreserved and unrestricted capital.
The Corporation will not commence business until it has received for the
issuance of shares consideration of the value of a stated sum which shall be at
least One Thousand Dollars ($1,000.00) (cash required).
A description of the different classes and series (if any shall be
established or created) of the Corporation's capital stock and a statement of
the designations, and the relative rights, preferences and limitations of the
shares of each class of and series of capital stock are as follows:
Nothing contained in this Article Five (or in any supplementary sections
hereto) shall entitle the holders of any class of capital stock to vote as a
separate class or series or to more than one vote per share; provided, that this
--------
restriction on voting separately by class or series shall not apply:
(i) To any provision which would authorize the holders of preferred stock,
voting as a class or series, to elect some members of the Board of
Directors, but less than a majority thereof, in the event of default
in the payment of dividends on any class or series of preferred stock;
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<PAGE>
(ii) to any provision which would require the holders of preferred stock,
voting as a class or series, to approve the merger or consolidation
of the Corporation with another corporation or the sale, lease or
conveyance (other than by mortgage or pledge) of properties or
business in exchange for securities of a corporation other than the
Corporation if the preferred stock is exchanged for securities of
such other corporation; or
(iii) to any amendment which would adversely change the specific terms of
any class or series of capital stock as set forth in this Article
Five (or in any supplementary sections hereto), including any
amendment which would create or enlarge any class or series ranking
prior thereto in rights and preferences. An amendment which increases
the number of authorized shares of any class or series of capital
stock, or substitutes the surviving association in a merger or
consolidation for the Corporation, shall not be considered to be such
an adverse change.
Shares of the capital stock of the Corporation shall not be cumulated when
voting for the election of directors or for any other matter. A description of
the different classes and series (if any) of the Corporation's capital stock and
a statement of the designations and the relative rights, preferences and
limitations of the shares of each class or and series (if any) of capital stock
are as follows:
A. Common Stock. Except as provided in this Article V (or in any
resolution or resolutions adopted by the Board of Directors pursuant hereto) and
as provided in Article X.D., the exclusive voting power shall be vested in the
Common Stock, the holders thereof being entitled to one vote for each share of
such Common Stock standing in the holder's name on the books of the Corporation.
Subject to any rights and preferences of any class of stock having preference
over the Common Stock, holders of Common Stock shall be entitled to such
dividends as may be declared by the Board of Directors out of any assets
lawfully available therefor. Upon any liquidation, dissolution or winding up of
the affairs of the Corporation, whether voluntary or involuntary, holders of
Common Stock shall be entitled to receive pro rata the remaining assets of the
Corporation (in cash or kind) after the payment or provision for payment of the
Corporation's debts and liabilities and after the holders of any class of stock
having preference over the Common Stock have been paid in full any sums to which
they may be entitled. Each share of Common Stock shall have the same relative
rights as and be identical in all respects with all other shares of Common
Stock.
B. Preferred Stock. The Board of Directors is hereby expressly authorized
to provide, by resolution or resolutions, out of the unissued shares of
Preferred Stock, for one or more classes of Preferred Stock, which shall be
separately identified. The shares of any class may be divided into and issued in
series, with each series separately designated so as to distinguish the shares
thereof from the shares of all other series and classes. All shares of the same
class shall be identical except as to certain relative rights and preferences,
as
3
<PAGE>
to which there may be variations between different series. Before any shares of
any such series are issued, the Board of Directors shall fix, and hereby is
expressly empowered to fix, by resolution or resolutions, the following
provisions of the shares thereof:
(a) The designation of such series, the number of shares to constitute
such series and the stated value, if any, thereof;
(b) Whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of such
voting rights, which may be general or limited;
(c) The dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and, if so, from what dates, the conditions and
dates upon which such dividends shall be payable, the preference or relation
which such dividends shall bear to the dividends payable on any shares of stock
of any other class or any other series of this class;
(d) Whether the shares of such series shall be subject to redemption by
the Corporation, and, if so, the times, prices and other conditions of such
redemption;
(e) The amount or amounts payable upon shares of such series upon, and
the rights of the holders of such series in, the voluntary or involuntary
liquidation, dissolution or winding up, or upon any distribution of the assets,
of the Corporation;
(f) Whether the shares of such series shall be subject to the operation
of a retirement or sinking fund and, if so, the extent to and manner in which
any such retirement or sinking fund shall be applied to the purchase or
redemption of the shares of such series for retirement or other corporate
purposes and the terms and provisions relative to the operation thereof;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or any other series of a
class or any other securities of the Corporation, and, if so, the price or
prices or the rate or rates of conversion or exchange and the method, if any, of
adjusting the same, and any other terms and conditions of conversion or
exchange;
(h) The price or other consideration for which the shares of such series
shall be issued;
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of preferred stock and
whether such shares may be reissued as shares of the same or any other series of
preferred stock;
4
<PAGE>
(j) The limitations and restrictions, if any, to be effective while
any shares of such series are outstanding upon the payment of dividends or the
making of other distributions on, and upon the purchase, redemption or other
acquisition by the Corporation of, the Common Stock or shares of stock of any
other class or any other series of this class;
(k) The conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such series or of any other series of this class
or of any other class; and
(l) Any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications, limitations and
restrictions thereof.
The powers, preferences and relative, participating, optional and other
special rights, of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series, and shares of any one series issued at different times may
differ as to the dates from which dividends thereon shall accrue and/or be
cumulative.
Prior to the issuance of any shares of a series of capital stock
established by resolution adopted by the Board of Directors, if such issuance is
the first issuance of shares of such series since the resolution was adopted,
the Corporation shall submit to the Secretary of State of Texas a statement as
required by the TBCA. Upon the filing of such statement by the Secretary of
State, the resolution establishing and designating the series and fixing and
determining the preferences, limitations, and relative rights thereof shall
become an amendment of these Articles of Incorporation.
ARTICLE VI
NO PREEMPTIVE RIGHTS
Preemptive Rights. No holder of the capital stock of the Corporation shall
be entitled as such, as a matter of right or otherwise, to subscribe for or
purchase any part of any new or additional issue of equity or debt of any class
or series whatsoever, of the Corporation, or of securities convertible into
equity or debt of any class whatsoever, whether now or hereafter authorized, or
whether issued for cash or other consideration or by way of a dividend.
5
<PAGE>
ARTICLE VII
BOARD OF DIRECTORS
Directors. The initial Board of Directors of the Corporation shall be:
C. Glynn Lowe
Daniel E. Bonner
James H. Connelley
Wayne H. Galyean
Thomas J. Payne
Enos L. Ashcroft, III
Bob J. Burgin
W.T. Allison, II
The business address of each member of the Board of Directors of the
Corporation shall be 306 North Davis, in the city of Sulphur Springs, Texas
75482.
The business and affairs of the Corporation shall be managed by or under
the direction of a Board of Directors. Each director must be an owner in good
faith and in his or her own right on the books of the Corporation of capital
stock of the Corporation having a value of at least one thousand dollars
($1,000), which shall not be reduced by a pledge for a loan by the Corporation,
for so long as such person may be a director of the Corporation. Except as
otherwise fixed pursuant to the provisions of Article V hereof relating to the
rights of the holders of any class or series of stock having a preference over
the Common Stock as to dividends or upon liquidation to elect additional
directors, the number of directors shall be determined by resolution of the
Board of Directors as provided in the Corporation's Bylaws, as may be amended
from time to time, provided, however, that the number of directors shall not be
less than five nor greater than twenty-one. Directors 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.
There shall be no cumulative voting for the election of the Corporation.
A. Classification and Term. The Board of Directors, other than those who
may be elected by the holders of any class or series of stock having preference
over the Common Stock as to dividends or upon liquidation, shall be divided into
three classes as nearly equal
6
<PAGE>
in number as possible, with one class to be elected for a term of three years,
as set forth in the Bylaws of the Corporation.
B. Vacancies. Except as otherwise fixed pursuant to the provisions of
Article V hereof relating to the rights of the holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation to elect directors: (i) any vacancy occurring in the Board of
Directors shall be filled by a majority vote of the Whole Board of Directors and
a majority of the Continuing Directors then in office, as defined by Article X,
though less than a quorum of the Board of Directors, or by a sole remaining
director, and any director so chosen shall be elected for the unexpired term of
his predecessor in office and until such director's successor shall have been
elected and qualified; and (ii) any vacancy to be filled by reason of an
increase in the number of directors shall be filled by a majority vote of the
Whole Board of Directors and a majority of the Continuing Directors then in
office, as defined by Article X, through less than a quorum, or by the sole
remaining director, and any director so chosen shall be elected for a term of
office continuing only until the next election of one or more directors by the
stockholders; provided that the Board of Directors may not fill more than two
such directorships during the period between any two successive annual meetings
of stockholders. Whenever the holders of any class or series of shares or group
of classes or series of shares are entitled to elect one or more directors by
the provision of these Articles of Incorporation, any vacancies in such
directorships and any newly created directorships of such class to be filled by
reason of increase in the number of such directors shall be filled by the
affirmative vote of a majority vote of the remaining Whole Board of Directors
and a majority of the Continuing Directors then in office, though less than a
quorum of the Board of Directors, or by a sole remaining director, and any
director so chosen shall be elected for the unexpired term of his predecessor in
office and until such director's successor shall have been elected and
qualified. When the number of directors is changed, the Board of Directors
shall determine the class or classes to which the increased or decreased number
of directors shall be apportioned; provided that no decrease in the number of
directors shall shorten the term of any incumbent director.
C. Removal. Subject to the rights of any class or series of stock having
preference over the Common Stock as to dividends or upon liquidation to elect
directors, any director (including persons elected by directors to fill
vacancies in the Board of Directors) may be removed from office only with cause
by an affirmative vote of not less than two-thirds of the votes eligible to be
cast by stockholders at a duly constituted meeting of stockholders called
expressly for such purpose. Whenever the holders of any class or series of
capital stock of the Corporation are entitled to elect one or more directors by
the provisions of these Articles of Incorporation or any amendment thereto, only
the holders of shares of that class or series of Capital Stock shall be entitled
to vote for or against the removal of any director elected by the holders of the
shares of that class or series. Cause for removal shall exist only if the
director whose removal is proposed has been either declared of unsound mind by
an order of a court of competent jurisdiction, convicted of a felony or of an
offense punishable by imprisonment for a term of more than one year by a court
of competent
7
<PAGE>
jurisdiction, or deemed liable by a court of competent jurisdiction for gross
negligence or misconduct in the performance of such director's duties to the
Corporation. At least thirty (30) days prior to such meeting of stockholders,
written notice shall be sent to the director whose removal will be considered at
the meeting.
D. Nominations of Directors. Nominations of candidates for election as
directors at any annual meeting of stockholders may be made (a) by, or at the
direction of, a majority of the Board of Directors or (b) by any stockholder
entitled to vote at such annual meeting. Only persons nominated in accordance
with the procedures set forth in this Article VII.D. shall be eligible for
election as directors at an annual meeting. Ballots bearing the names of all
the persons who have been nominated for election as directors at an annual
meeting in accordance with the procedures set forth in this Article VII.D. shall
be provided for use at the annual meeting.
Subject to the rights of the holders of any class or series of stock having
a preference over the Common Stock as to dividends or upon liquidation,
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation as set forth in this Article VII.D. To be timely, a
stockholder's notice shall be delivered to, or mailed and received at, the
principal executive offices of the Corporation (i) with respect to the first
annual meeting of stockholders of the Corporation following its acquisition of
all of the capital stock of Sulphur Springs Building and Loan Association, A
Texas Savings Association (the "Association"), not later than 90 days after the
date of the mailing of proxy materials to stockholders of the Association
regarding a meeting of stockholders called for purposes of approval of the plan
of reorganization to the holding company form of organization, ,(ii) with
respect to an election to be held at any succeeding annual meeting of
stockholders, 60 days prior to the anniversary date of the mailing of proxy
materials by the Corporation in connection with the immediately preceding annual
meeting of stockholders of the Corporation; and (iii) with respect to a special
meeting of stockholders for the election of directors, the close of business on
the tenth day following the date on which notice of such meeting is first given
to stockholders. Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or re-election
as a director (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the Corporation's stock which are Beneficially
Owned (as defined in Article X.A.(d)) by such person on the date of such
stockholder notice, and (iv) any other information relating to such person that
is required to be disclosed in solicitations of proxies with respect to nominees
for election as directors, pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), including, but not
limited to, information required to be disclosed by Items 4, 5, 6 and 7 of
Schedule 14A and information which would be required to be filed on Schedule 14B
with the Securities and Exchange Commission (or any successor of such items or
schedules); and (b) as to the stockholder giving the notice (i) the name and
address, as they appear on the Corporation's books, of such stockholder and any
other stockholders known by such stockholder to be supporting such nominees and
(ii) the
8
<PAGE>
class and number of shares of the Corporation stock which are Beneficially Owned
by such stockholder on the date of such stockholder notice and, to the extent
known, by any other stockholders known by such stockholder to be supporting such
nominees on the date of such stockholder notice. At the request of the Board of
Directors, any person nominated by, or at the direction of, the Board for
election as a director at an annual or special meeting of stockholders shall
furnish to the Secretary of the Corporation that information required to be set
forth in a stockholder's notice of nomination which pertains to the nominee.
The Board of Directors may reject any nomination by a stockholder not
timely made in accordance with the requirements of this Article VII.D. If the
Board of Directors, or a designated committee thereof, determines that the
information provided in a stockholder's notice does not satisfy the
informational requirements of this Article Vii.D. in any material respect, the
Secretary of the Corporation shall promptly notify such stockholder of the
deficiency in the notice. The stockholder shall have an opportunity to cure the
deficiency by providing additional information to the Secretary within such
period of time, not to exceed five days from the date such deficiency notice is
given to the stockholder, as the Board of Directors or such committee thereof
shall reasonably determine. If the deficiency is not cured within such period,
or if the Board of Directors or such committee thereof reasonably determines
that the additional information provided by the stockholder, together with
information previously provided, does not satisfy the requirements of this
Article VII.D. in any material respect, then the Board of Directors may reject
such stockholder's nomination. The Secretary of the Corporation shall notify a
stockholder in writing whether his nomination has been made in accordance with
the time and informational requirements of this Article VII.D. Notwithstanding
the procedures set forth in this paragraph, if neither the Board of Directors
nor such committee thereof makes a determination as to the validity of any
nominations by a stockholder, the presiding officer of the annual meeting shall
determine and declare at the annual meeting whether the nomination was made in
accordance with the terms of this Article VII.D. If the presiding officer
determines that a nomination was made in accordance with the terms of this
Article VII.D., he or she shall so declare at the annual meeting and ballots
shall be provided for use at the meeting with respect to such nominee. If the
presiding officer determines that a nomination was not made in accordance with
the terms of this Article VII.D., he or she shall so declare at the annual
meeting and the defective nomination shall be disregarded.
Notwithstanding the foregoing, and except as otherwise required by law,
whenever the holders of any one or more series of Preferred Stock shall have the
right, voting separately as a class, to elect one or more directors of the
Corporation, the provisions of this Article VII.D. shall not apply with respect
to the director or directors elected by such holders of Preferred Stock.
E. Discharge of Duties. In discharging the duties of their respective
positions, the Board of Directors, committees of the Board and individual
directors shall, in considering the best interests of the Corporation, consider
the effects of any action upon the employees of the Corporation and its
subsidiaries, its depositors and borrowers of any banking
9
<PAGE>
subsidiary, the communities in which offices or other establishments of the
Corporation or any subsidiary are located and all other pertinent factors.
ARTICLE VIII
INDEMNIFICATION, ETC. OF
OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
A. Limitation of Liability. No director shall be personally liable to the
Corporation or its stockholders for monetary damages for any act or omission by
such director as a director; provided that a director's liability shall not be
eliminated to the extent provided by Section 7.06B. of the Texas Miscellaneous
Corporation Laws Act or any successor provision thereto. No amendment to or
repeal of this Subsection (A) to Article VIII shall apply to or have any effect
on the liability or alleged liability of any director of the Corporation for or
with respect to any acts or omissions of such director occurring prior to such
amendment.
B. Indemnification. The Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative, by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation or any predecessor of
the Corporation, or is or was serving at the request of the Corporation or any
predecessor of the Corporation, as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against liability and expenses (including court costs and attorney's fees),
judgments, fines, excise taxes and amounts paid in satisfaction, settlement or
compromise actually and reasonable incurred by such person in connection with
such action, suit or proceeding to the full extent authorized by law.
C. Advancement of Expenses. Reasonable expenses incurred by a director,
officer, employee or agent of the Corporation in defending a civil or criminal
action, suit or proceeding described in Article VIII.B. shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors only upon receipt of written
affirmation by or on behalf of such person of his good faith belief that he or
she has met the standard of conduct necessary for indemnification under
relevant law and a written undertaking to repay such amount if it shall
ultimately be determined that the person has not met that standard or if it is
ultimately determined that indemnification of the person against expenses
incurred by him or her in connection with that proceeding is prohibited by
relevant law.
D. Other Rights and Remedies. The indemnification provided by this
Article VIII shall not be deemed to exclude any other rights to which those
seeking indemnification or advancement of expenses may be entitled under the
Corporation's Articles of Incorporation,
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any insurance or other agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in their official capacity and as to
actions in another capacity while holding such office, and shall continue 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 person;
provided that no indemnification shall be made to or on behalf of an individual
if a judgment or other final adjudication establishes that his actions, or
omissions to act, were material to the cause of action as adjudicated and (i)
the person is found liable on the basis that personal benefit was improperly
received by him or her; (ii) the person is found liable to the Corporation; or
(iii) the person is found liable for willful or intentional misconduct in the
performance of his duty to the Corporation; provided, however, that persons
found liable under clauses (i) and (ii) above, may still be indemnified solely
as to reasonable expenses actually incurred by such person in connection with
the proceeding.
E. Insurance. Upon resolution passed by the Board, the Corporation may
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or another enterprise, against
any liability asserted against him or her or incurred by him or her in any such
capacity, or arising out of his status, whether or not the Corporation would
have the power to indemnify him or her against such liability under the
provisions of this Article or the TBCA.
F. Modification. The duties of the Corporation to indemnify and to
advance expenses to a director or officer provided in this Article VIII shall be
in the nature of a contract between the Corporation and each such director or
officer, and no amendment or repeal of any provision of this Article VIII shall
alter, to the detriment of such director or officer, the right of such person to
the advance of expenses or indemnification related to a claim based on an act or
failure to act which took place prior to such amendment or repeal.
G. Proceedings Initiated by Indemnified Persons. Notwithstanding any
other provision of this Article VIII, the Corporation shall not indemnify a
director, officer, employee or agent for any liability incurred in an action,
suit or proceeding initiated by (which shall not be deemed to include
counter-claims or affirmative defenses), or participated in as an intervenor or
amicus curiae by, the person seeking indemnification unless such initiation of
or participation in the action, suit or proceeding is authorized, either before
or after its commencement, by the affirmative vote of a majority of the
directors then in office.
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ARTICLE IX
MEETINGS OF STOCKHOLDERS AND STOCKHOLDER PROPOSALS
A. Special Meetings of Stockholders. Except as otherwise required by law
and subject to the rights of the holders of any class or series of Preferred
Stock, and subject to the provisions of Article VII.D. of these Articles of
Incorporation, special meetings of the stockholders of the Corporation may be
called only by (i) the Board of Directors pursuant to a resolution approved by
the affirmative vote of a majority of the Whole Board of Directors and a
majority of the Continuing Directors then in office, (ii) the Chairman of the
Board, (iii) the Chief Executive Officer, or (iv) the holders of not less than
50 percent of all votes entitled to be cast on any issue proposed to be
considered at such special meeting.
B. Stockholder Proposals. At an annual meeting of stockholders, only such
business shall be conducted, and only such proposals shall be acted upon, as
shall have been brought before the annual meeting by, or at the direction of,
(a) the Board of Directors or (b) any stockholder of the Corporation who
complies with all the requirements set forth in this Article IX.B.
Proposals, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation as set forth in this Article IX.B. For stockholder proposals
to be included in the Corporation's proxy materials, the stockholder must comply
with all the timing and informational requirements of Rule 14a-8 of the Exchange
Act (or any successor regulation). With respect to stockholder proposals to be
considered at the annual meeting of stockholders but not included in the
Corporation's proxy materials, the stockholder's notice shall be delivered to,
or mailed and received at, the principal executive offices of the Corporation
not less than (i) with respect to the first annual meeting of stockholders of
the Corporation following its acquisition of all the capital stock of the
Association, not later than 90 days after the date of the mailing of proxy
materials to stockholders of the Association regarding a meeting of stockholders
called for purposes of approval of the plan or reorganization to the holding
company form of organization, and (ii) with respect to any succeeding annual
meeting of stockholders, 60 days prior to the anniversary date of the mailing of
proxy materials by the Corporation in connection with the immediately preceding
annual meeting of stockholders of the Corporation. Such stockholder's notice
shall set forth as to each matter the stockholder proposes to bring before the
annual meeting (a) a brief description of the proposal desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (b) the name and address, as they appear on the Corporation's
books, of the stockholder proposing such business and, to the extent known, any
other stockholders known by such stockholder to be supporting such proposal, (c)
the class and number of shares of the Corporation's stock which are Beneficially
Owned by the stockholder on the date of such stockholder notice and, to the
extent known, by any other
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stockholders known by such stockholder to be supporting such proposal on the
date of such stockholder notice, and (d) any financial interest of the
stockholder in such proposal (other than interests which all stockholders would
have).
The Board of Directors may reject any stockholder proposal not timely
made in accordance with the terms of this Article IX.B. If the Board of
Directors, or a designated committee thereof, determines that the information
provided in a stockholder's notice does not satisfy the informational
requirements of this Article IX.B. in any material respect, the Secretary of the
Corporation shall promptly notify such stockholder of the deficiency in the
notice. The stockholder shall have an opportunity to cure the deficiency by
providing additional information to the Secretary within such period of time,
not to exceed five days from the date such deficiency notice is given to the
stockholder, as the Board of Directors or such committee thereof shall
reasonably determine. If the deficiency is not cured within such period, or if
the Board of Directors or such committee thereof determines that the additional
information provided by the stockholder, together with information previously
provided, does not satisfy the requirements of this Article IX.B. in any
material respect, then the Board of Directors may reject such stockholder's
proposal. The Secretary of the Corporation shall notify a stockholder in
writing whether his proposal has been made in accordance with the time and
informational requirements of this Article IX.B. Notwithstanding the procedures
set forth in this paragraph, if neither the Board of Directors nor such
committee thereof makes a determination as to the validity of any stockholder
proposal, the presiding officer of the annual meeting shall determine and
declare at the annual meeting whether the stockholder proposal was made in
accordance with the terms of this Article IX.B. If the presiding officer
determines that a stockholder proposal was made in accordance with the terms of
this Article IX.B., he or she shall so declare at the annual meeting and ballots
shall be provided for use at the meeting with respect to any such proposal. If
the presiding officer determines that a stockholder proposal was not made in
accordance with the terms of this Article IX.B., he or she shall so declare at
the annual meeting and any such proposal shall not be acted upon at the annual
meeting.
This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, directors and
committees of the Board of Directors, but in connection with such reports, no
new business shall be acted upon at such annual meeting unless stated, filed and
received as herein provided.
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ARTICLE X
CERTAIN BUSINESS COMBINATIONS, ACQUISITIONS OF STOCK,
AND CERTAIN PROVISIONS APPLICABLE FOR TEN YEARS
A. Definitions and Related Matters.
(a) Acquire. The term "acquire" includes every type of acquisition,
whether effected by purchase, exchange, gift, transfer or otherwise, or by
operation of law.
(b) Affiliate. An "Affiliate" of, or a Person "affiliated with," a
specified Person means a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Person specified.
(c) Associate. The term "Associate" when used to indicate a
relationship with any Person means:
(i) Any corporation or organization (other than the Corporation
or a Subsidiary of the Corporation) of which such Person is an officer
or partner or is, directly or indirectly, the beneficial owner of 10
percent or more of any class of equity securities;
(ii) Any trust or other estate in which such Person has a 10
percent or greater beneficial interest or as to which such Person
serves as trustee or in a similar fiduciary capacity;
(iii) Any relative or spouse of such Person, or any
relative of such spouse who has the same home as such Person; or
(iv) Any investment company registered under the
Investment Company Act of 1940 for which such Person or any
Affiliate or Associate of such Person serves as investment
advisor.
(d) Beneficial Owner. A Person shall be considered the "Beneficial
Owner" of any shares of stock (whether or not owned of record):
(i) With respect to which such Person or any Affiliate
or Associate of such Person directly or indirectly has or shares (1)
voting power, including the power to vote or to direct the voting of
such shares of stock and/or (2) investment power, including the power
to dispose of or to direct the disposition of such shares of stock;
(ii) Which such Person or any Affiliate or Associate of
such Person has (1) the right to acquire (whether such right is
exercisable
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immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, and/or (2) the right to vote pursuant
to any agreement, arrangement or understanding (whether such right is
exercisable immediately or only after the passage of time); or
(iii) Which are Beneficially Owned within the meaning of (i) or (ii) of
this Article X.A.(d) by any other Person with which such first-mentioned Person
or any of its Affiliates or Associates has any agreement, arrangement or
understanding, written or oral, with respect to acquiring, holding, voting or
disposing of any shares of stock of the Corporation or any Subsidiary of the
Corporation or acquiring, holding or disposing of all or substantially all, or
any Substantial Part, of the assets or businesses of the Corporation or a
Subsidiary of the Corporation.
For the purpose only of determining whether a Person is the Beneficial
Owner of a percentage specified in this Article X of the outstanding Voting
Shares, such shares shall be deemed to include any Voting Shares which may be
issuable pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants, options or otherwise
and which are deemed to be Beneficially Owned by such Person pursuant to the
foregoing provisions of this Article X.A.(d).
(e) Business Combination. A "Business Combination" means:
(i) The sale, exchange, lease, transfer or other disposition to or with
a Related Person or any Affiliate or Associate of such Related Person by the
Corporation or any of its Subsidiaries (in a single transaction or a series of
related transactions) of all or substantially all, or any Substantial Part, of
its or their assets or businesses (including, without limitation, any securities
issued by a Subsidiary);
(ii) The purchase, exchange, lease or other acquisition by the
Corporation or any of its Subsidiaries (in a single transaction or a series of
related transactions) of all or substantially all, or any Substantial Part, of
the assets or business of a Related Person or any Affiliate or Associate of such
Related Person;
(iii) Any merger or consolidation of the Corporation or any Subsidiary
thereof into or with a Related Person or any Affiliate or Associate of such
Related Person or into or with another Person which, after such merger or
consolidation, would be an Affiliate or an Associate of a Related Person, in
each case irrespective of which Person is the surviving entity in such merger or
consolidation;
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(iv) Any reclassification of securities, recapitalization or other
transaction (other than a redemption in accordance with the terms of the
security redeemed) which has the effect, directly or indirectly, of increasing
the proportionate amount of Voting Shares of the Corporation or any Subsidiary
thereof which are Beneficially Owned by a Related Person, or any partial or
complete liquidation, spin-off or split-up of the Corporation or any Subsidiary
thereof; provided, however, that this Article X.A.(e)(iv) shall not relate to
any transaction of the types specified herein that have been approved by the
affirmative vote of at least two-thirds of the Whole Board of Directors and a
majority of the Continuing Directors; or
(v) The acquisition upon the issuance thereof of Beneficial Ownership by
a Related Person of Voting Shares or securities convertible into Voting Shares
or any voting securities or securities convertible into voting securities of any
Subsidiary of the Corporation, or the acquisition upon the issuance thereof of
Beneficial Ownership by a Related Person of any rights, warrants or options to
acquire any of the foregoing or any combination of the foregoing Voting Shares
or voting securities of a Subsidiary.
As used in this definition, a "series of related transactions" shall be
deemed to include not only a series of transactions with the same Related Person
but also a series of separate transactions with a Related Person or any
Affiliate or Associate of such Related Person.
Anything in this definition to the contrary notwithstanding, this
definition shall not be deemed to include any transaction of the type set forth
in Article X.A.(e)(i) through X.A.(e)(iii) between or among any two or more
Subsidiaries of the Corporation if such transaction has been approved by the
affirmative vote of at least two-thirds of the Whole Board of Directors and a
majority of the Continuing Directors on or prior to the Date of Determination .
(f) Continuing Director. A "Continuing Director" shall mean:
(i) Each of the present directors of the Corporation as set forth in
Article VII, whether or not such person is a Related Person or an Affiliate or
Associate of a Related Person, except that such designation shall in no way be
deemed to affect or change or diminish the fiduciary duties of such person to
the Corporation;
(ii) An individual who is unaffiliated with a Related Person and who was
a member of the Board of Directors prior to the time that a Related Person
acquired 10% or more of the Voting Shares; or,
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(iii) An individual who is unaffiliated with a Related Person and who
is designated before his or her initial election as a Continuing Director
by a majority of the then Continuing Directors.
(g) Date of Determination. The term "Date of Determination" means:
(i) The date on which a binding agreement (except for the
fulfillment of conditions precedent, including, without limitation, votes
of stockholders to approve such transaction) is entered into by the
Corporation, as authorized by its Board of Directors, and another Person
providing for any Business Combination; or,
(ii) If such an agreement as referred to in Article X.A.(g)(i) above
is amended so as to make it less favorable to the Corporation and its
stockholders, the date on which such amendment is approved by the Board of
Directors of the Corporation; or,
(iii) In cases where neither Article X.A.(g)(i) nor (ii) shall be
applicable, the record date for the determination of stockholders of the
Corporation entitled to notice of and to vote upon the transaction in
question.
A majority of the Continuing Directors shall have the power and duty
to determine the Date of Determination as to any transaction under this
Article X. Any such determination shall be conclusive and binding for all
purposes of this Article X.
(h) Fair Market Value. The term "Fair Market Value" shall mean:
(i) In the case of stock, the highest closing sale price during the
30-day period immediately preceding the date in question of a share of such
stock on the Composite Tape for New York Stock Exchange - Listed Stocks,
or, if such stock is not quoted on the Composite Tape, on the New York
Stock Exchange or the American Stock Exchange, or, if such stock is not
listed on such exchanges, on the principal United States securities
exchange registered under the Exchange Act on which such shares are listed,
or, if such shares are not listed on any such exchange, the highest closing
price with respect to a share of such stock during the 30-day period
preceding the date in question on the National Market System of the
National Association of Securities Dealers Automated Quotations ("NASDAQ")
System, or, if not listed on the National Market System, the highest mean
of the closing bid and asked quotations on the NASDAQ System during such
30-day period or any system then in use, or, if no such quotations are
available, the fair market value on the date in question of a share as
determined by a majority of the Continuing Directors in good faith; and
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(ii) In the case of property other than cash or stock, the fair
market value of such property on the date in question as determined by a
majority of the Continuing Directors in good faith.
(i) Independent Majority of Stockholders. The term "Independent Majority
of Stockholders" shall mean the holders of a majority of the outstanding Voting
Shares that are not Beneficially Owned or controlled, directly or indirectly, by
a Related Person.
(j) Offer. The term "Offer" shall mean every offer to buy or otherwise
acquire, solicitation of an offer to sell, tender offer for, or request or
invitation for tenders of, a security or interest in a security for value;
provided that the term "Offer" shall not include: (a) inquiries directed solely
- --------
to the management of the Corporation and not intended to be communicated to
stockholders which are designed to elicit an indication of management's
receptivity to the basic structure of a potential acquisition with respect to
the amount of cash and/or securities, manner of acquisition and formula for
determining price, or (b) non-binding expressions of understanding or letters of
intent with the management of the Corporation regarding the basic structure of a
potential acquisition with respect to the amount of cash and/or securities,
manner of acquisition and formula for determining price.
(k) Person. The term "Person" shall mean any person, partnership,
corporation, association, joint stock company, trust, unincorporated
organization or similar company, syndicate or group or other entity, alone or
acting in concert with any of the foregoing (other than the Corporation, any
Subsidiary of the Corporation or a trustee holding stock for the benefit of
employees of the Corporation or its Subsidiaries, or any one of them, pursuant
to one or more employee benefit plans or arrangements). When two or more Persons
act as a partnership, limited partnership, syndicate, association or other group
for the purpose of acquiring, holding or disposing of shares of stock, such
partnership, syndicate, association or group shall be deemed a "Person."
(l) Related Person. The term "Related Person" shall mean any Person who
or which is (a) the Beneficial Owner, as of the Date of Determination, or
immediately prior to the consummation of a Business Combination, of 10% or more
of the Voting Shares; or (b) an Affiliate of the Corporation and at any time
within the two-year period immediately prior to the announcement of a Business
Combination was the Beneficial Owner, directly or indirectly, of 10% or more of
the then outstanding Voting Shares; or (c) an assignee of or has otherwise
succeeded to any Voting Shares which were at any time within the two-year period
immediately prior to the announcement of a Business Combination Beneficially
Owned by any Related Person, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not involving
a public offering within the meaning of the Securities Act of 1933.
(m) Substantial Part. The term "Substantial Part" as used with reference
to the assets of the Corporation, of any Subsidiary or of any Related Person
means assets
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having a value of more than 10% of the total consolidated assets of the
Corporation and its Subsidiaries as of the end of the Corporation's most recent
fiscal year ending prior to the time the determination is being made.
(n) Subsidiary. The term "Subsidiary" shall mean any
corporation or other entity of which the Person in question owns not less than
50 percent of any class of equity securities, directly or indirectly.
(o) Voting Shares. The term "Voting Shares" shall mean shares
of the Corporation entitled to vote generally in the election of directors.
(p) Whole Board of Directors. The term "Whole Board of
Directors" shall mean the total number of directors which the Corporation would
have if there were no vacancies.
(q) Certain Determinations with Respect to Article X.
(i) A majority of the Continuing Directors shall have
the power to determine for the purposes of this Article X, on
the basis of information known to them; (1) the number of Voting
Shares of which any Person is the Beneficial Owner, (2) whether
a Person is an Affiliate or Associate of another, (3) whether a
Person has an agreement, arrangement or understanding with
another as to the matters referred to in the definition of
"Beneficial Owner" as hereinabove defined, (4) whether the
assets subject to any Business Combination constitute a
"Substantial Part" as hereinabove defined, (5) whether two or
more transactions constitute a "series of related transactions"
as hereinabove defined, (6) any matters referred to in Article
X.A.(q)(ii) below, and (7) such other matters with respect to
which a determination is required under this Article X.
(ii) A Related Person shall be deemed to have acquired a
share of the Corporation at the time when such Related Person
became a Beneficial Owner thereof. With respect to shares owned
by Affiliates, Associates or other Persons whose ownership is
attributable to a Related Person under the foregoing definition
of Beneficial Owner, if the price paid by such Related Person
for such shares is not determinable, the price so paid shall be
deemed to be the higher of (1) the price paid upon acquisition
thereof by the Affiliate, Associate or other Person or (2) the
market price of the shares in question (as determined by a
majority of the Continuing Directors) at the time when the
Related Person became the Beneficial Owner thereof.
(r) Fiduciary Obligation. Nothing contained in this Article X
shall be construed to relieve any Related Person from any fiduciary obligation
imposed by law.
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B. Approval of Business Combination.
(a) Except as provided in Article X.B.(b), neither the
Corporation nor any of its Subsidiaries shall become party to any Business
Combination without the prior affirmative vote at a meeting of the Corporation's
stockholders of:
(i) The holders of not less than 80 percent of the
outstanding Voting Shares, voting separately as a class, and
(ii) An Independent Majority of Stockholders.
Such favorable votes shall be in addition to any stockholder vote which
would be required without reference to this Article X.B.(a) and shall be
required notwithstanding the fact that no vote may be required, or that some
lesser percentage may be specified by law or otherwise.
(b) The provisions of Article X.B.(a) shall not apply to a
particular Business Combination, and such Business Combination shall require
only such stockholder vote (if any) as would be required without reference to
this Article X.B., if all of the conditions set forth in subparagraphs (i)
through (vii) below are satisfied:
(i) The ratio of (1) the aggregate amount of the cash
and the Fair Market Value of the other consideration to be
received per share of Common Stock (as defined in Article V) of
the Corporation in such Business Combination by holders of
Common Stock other than the Related Person involved in such
Business Combination, to (2) the market price per share of the
Common Stock immediately prior to the announcement of the
proposed Business Combination, is at least as great as the ratio
of (x) the highest per share price (including brokerage
commissions, transfer taxes and soliciting dealers' fees) which
such Related Person has theretofore paid in acquiring any Common
Stock prior to such Business Combination, to (y) the market
price per share of Common Stock immediately prior to the initial
acquisition by such Related Person of any shares of Common
Stock; and
(ii) The aggregate amount of the cash and the Fair Market
Value of other consideration to be received per share of Common
Stock in such Business Combination by holders of Common Stock,
other than the Related Person involved in such Business
Combination, is not less than the highest per share price
(including brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by such Related Person in acquiring any of
its holdings of Common Stock; and
(iii) If applicable, the ratio of (1) the aggregate amount
of the cash and the Fair Market Value of other consideration to
be received per share of Preferred Stock (as defined in Article
V) of the Corporation in such
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Business Combination by holders of Preferred Stock other than the Related
Person involved in such Business Combination, to (2) the market price per
share of the Preferred Stock immediately prior to the announcement of the
proposed Business Combination, is at least as great as the ratio of (x) the
highest per share price (including brokerage commissions, transfer taxes
and soliciting dealers' fees) which such Related Person has theretofore
paid in acquiring any Preferred Stock prior to such Business Combination to
(y) the market price per share of Preferred Stock immediately prior to the
initial acquisition by such Related Person of any shares of Preferred
Stock; and
(iv) If applicable, the aggregate amount of the cash and the Fair
Market Value of other consideration to be received per share of Preferred
Stock in such Business Combination by holders of Preferred Stock, other
than the Related Person involved in such Business Combination, is not less
than the highest per share price (including brokerage commissions, transfer
taxes and soliciting dealers' fees) paid by such Related Person in
acquiring any of its holdings of Preferred Stock; and
(v) The consideration (if any) to be received in such Business
Combination by holders of stock other than the Related Person (whether
Common Stock or Preferred Stock) involved shall, except to the extent that
a stockholder agrees otherwise as to all or part of the shares which he or
she owns, be in the same form and of the same kind as the consideration
paid by the Related Person in acquiring Common Stock or Preferred Stock
already owned by it; and
(vi) After such Related Person became a Related Person and prior to
the consummation of such Business Combination:
(1) such Related Person shall vote his shares in such a manner as
to cause, to the extent necessary and within his power as a
stockholder, the Board of Directors of the Corporation to include at
all times representation by Continuing Directors proportionate to the
ratio that the number of Voting Shares of the Corporation from time to
time owned by stockholders who are not Related Persons bears to all
Voting Shares of the Corporation outstanding at the time in question
(with a Continuing Director to occupy any resulting fractional
position among the directors);
(2) such Related Person shall not have acquired from the
Corporation, directly or indirectly, any shares of the Corporation
(except (x) upon conversion of convertible securities acquired by it
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prior to becoming a Related person or (y) as a result of a pro rata stock
dividend, stock split or division of shares or (z) in a transaction which
satisfied all applicable requirements of this Article X);
(3) such Related Person shall not have acquired any additional Voting
Shares of the Corporation or securities convertible into or exchangeable
for Voting Shares except as a part of the transaction which resulted in
such Related Person becoming a Related Person;
(4) such Related Person shall not have (x) received the benefit,
directly or indirectly (except proportionately as a stockholder), of any
loans, advances, guarantees, pledges or other financial assistance or tax
credits provided by the Corporation or any Subsidiary, or (y) made any
major change in the Corporation's business or equity capital structure or
entered into any contract, arrangement or understanding with the
Corporation except any such change, contract, arrangement or understanding
as may have been approved by the favorable vote of not less than a majority
of the Whole Board of Directors and a majority of the Continuing Directors
of the Corporation; and
(5) except as approved by a majority of the Whole Board of Directors
and a majority of the Continuing Directors, there shall have been: (x) no
failure to declare and pay at the regular date therefor any dividends
(whether or not cumulative) on any outstanding Preferred Stock; (y) no
reduction in the annual rate of dividends paid on the Common Stock (except
as necessary to reflect any subdivision of the Common Stock); and (z) an
increase in such annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split), recapitalization,
reorganization or any similar transaction which has the effect of reducing
the number of outstanding shares of the stock; and
(viii) A proxy statement complying with the requirements under the
Exchange Act shall have been mailed to all holders of Voting Shares for the
purpose of soliciting stockholder approval of such Business Combination. Such
proxy statement is not required to be filed with or approved by the Office of
Thrift Supervision unless otherwise required by law. Such proxy statement shall
contain at the front thereof, in a prominent place, any recommendations as to
the advisability (or inadvisability) of the Business Combination which the
Continuing Directors, or any of them, may have furnished in writing and, if
deemed advisable by a majority of the Continuing Directors, an opinion of a
reputable investment banking firm as to the fairness (or lack of fairness) of
the terms of such Business Combination from the point
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of view of the holders of Voting Shares other than any Related Person
(such investment banking firm to be selected by a majority of the
Continuing Directors, to be furnished with all information it
reasonably requests, and to be paid a reasonable fee for its services
upon receipt by the Corporation of such opinion).
(c) for purposes of Article X.B(b)(i) through X.B.(b)(iv) hereof, in
the event of a Business Combination upon consummation of which the Corporation
would be the surviving corporation or company or would continue to exist (unless
it is provided, contemplated or intended that as part of such Business
Combination or within one year after consummation thereof a plan of liquidation
or dissolution of the Corporation will be effected), the term "other
consideration to be received" shall include (without limitation) Common Stock
retained by the stockholders of the Corporation other than Related Persons who
are parties to such Business Combination.
(d) The provisions of this Article X.B. shall not apply to (i) any
Business Combination approved by two-thirds of the Whole Board of Directors of
the Corporation at a time prior to the acquisition of 10 percent or more of the
outstanding Voting Shares of the Corporation by the Related Person, or (ii) any
Business Combination approved by two-thirds of the Whole Board of Directors and
a majority of the Continuing Directors after such acquisition.
C. Evaluation of Business Combinations, Etc. In connection with the
exercise of its judgment in determining what is in the best interest of the
Corporation and its stockholders when evaluating a Business Combination or a
proposal by another Person or Persons to make a Business Combination or a
tender or exchange offer, the Board of Directors of the Corporation shall, in
addition to considering the adequacy of the amount to be paid in connection with
any such transaction, consider all of the following factors and any other
factors which it deems relevant: (i) the social and economic effects of the
transaction on the Corporation and its Subsidiaries and their respective
employees, depositors, loan and other customers, creditors and other elements of
the communities in which the Corporation and its Subsidiaries operate or are
located; (ii) the business and financial condition and earnings prospects of the
acquiring Person or Persons, including, but not limited to, debt service and
other existing or likely financial obligations of the acquiring Person or
Persons, and the possible effect of such conditions upon the Corporation and its
Subsidiaries operate or are located; and (iii) the competence, experience and
integrity of the acquiring Person or Persons and its or their management.
D. Certain Provisions Applicable for Ten Years. For a period of ten years
from the date of incorporation of the Corporation, the following provisions
shall apply:
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No Person shall directly or indirectly offer to acquired or acquire the
Beneficial Ownership of more than 10 percent of any class of an equity security
of the Corporation. This limitation shall not apply: (a) to a transaction in
which the Corporation forms a holding company without change in the respective
Beneficial Ownership interests of its stockholders other than pursuant to
the exercise of any dissenter and appraisal rights, the purchase of shares by
underwriters in connection with a public offering, or the purchase of shares by
a tax-qualified employee stock benefit plan which is exempt from the approval
requirements of (S)574.3(c)(1)(vi) of the Rules and Regulations of the Office of
Thrift Supervision; or (b) where (i) the offer or acquisition is approved by
two-thirds of the Whole Board of Directors of the Corporation at a time prior to
the offer or acquisition, or (ii) where the offer or acquisition is approved by
two-thirds of the Whole Board of Directors and a majority of the Continuing
Directors after such offer or acquisition.
In the event shares are acquired in violation of this Article X.D., all
shares beneficially owned by any Person in excess of 10% shall be considered
"excess shares" and shall not be counted as shares entitled to vote and shall
not be voted by any Person or counted as Voting Shares in connection with any
maters submitted to the stockholders for a vote.
E. Amendments, Etc. of this Article X. Notwithstanding any other
provisions of these Articles of Incorporation or the Bylaws of the Corporation
(and notwithstanding the fact that some lesser percentage may be specified by
law, these Articles of Incorporation or the Bylaws of the Corporation), this
Article X shall not be amended, altered, changed, or repealed without the
affirmative vote of (i) the holders of two-thirds or more of the outstanding
Voting Shares, voting separately as a class, and (ii) an Independent Majority of
Stockholders; provided, however, that this Article X.E. shall not apply to, and
such vote shall not be required for, any such amendment, change or repeal
recommended to stockholders by the favorable vote of not less than two-thirds of
the Whole Board of Directors, including a majority of the Continuing Directors,
and any such amendment, change or repeal so recommended shall require only the
vote, if any, required under the applicable provisions of the TBCA, these
Articles of Incorporation and the Bylaws of the Corporation.
ARTICLE XI
AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS
A. Articles of Incorporation. The Corporation reserves the right to
amend, alter, change or repeal any provision contained in these Articles of
Incorporation, in the manner now or hereafter prescribed by law, and all rights
conferred upon stockholders herein are granted subject to this reservation. No
amendment, addition, alteration, change or repeal of these Articles of
Incorporation shall be made unless it is first approved by the Board of
Directors of the Corporation pursuant to a resolution adopted by the affirmative
vote of a majority of the directors then in office, and thereafter is approved
by the holders of a
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majority of the shares of the Corporation entitled to vote generally in an
election of directors, voting together as a single class, unless any class or
series of shares is entitled to vote thereon as a class, in which event the
proposed amendment shall be adopted upon receiving the affirmative vote of the
holders of a majority of the shares within each class or series of outstanding
shares entitled to vote thereon as a class and of at least a majority of the
total outstanding shares entitled to vote thereon, provided that,
notwithstanding anything contained in these Articles of Incorporation to the
contrary, (i) the affirmative vote of the holders of at least two-thirds of the
shares of the Corporation entitled to vote generally in an election of
directors, voting together as a single class, unless any class or series of
shares is entitled to vote thereon as a class, in which event the proposed
amendment shall be adopted upon receiving the affirmative vote of the holders of
two-thirds of the shares within each class or series of outstanding shares
entitled to vote thereon, shall be required to amend, adopt, alter, change or
repeal any provision inconsistent with Articles VI, VII, VIII, IX and this
Article XI, and (ii) Article X shall be amended in the manner specified in
Article X.E.
B. Bylaws. The Board of Directors may adopt, alter, amend or repeal
the Bylaws of the Corporation. Such action by the Board of Directors shall
require the affirmative vote of a majority of the directors then in office at
any regular or special meeting of the Board of Directors.
ARTICLE XII
SEVERABILITY
If a final judicial determination is made or an order is issued by a
court or government regulatory agency having jurisdiction that any provision of
these Articles is unreasonable or otherwise unenforceable, such provisions shall
not be rendered void, but shall be deemed amended to apply to the maximum extent
as such court or government regulatory agency may determine or indicate to be
reasonable. If, for any reason, any provision of these Articles shall be held
invalid, such invalidity shall not affect any other provision of these Articles
not held so invalid, and each such other provision shall, to the full extent
consistent with law, continue in full force and effect. If any provision of
these Articles shall be held invalid in part, such invalidity shall in no way
affect the remainder of such provision, and the remainder of such provision,
together with all other provisions of these Articles shall, to the full extent
consistent with law, continue in full force and effect.
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I, THE UNDERSIGNED, being the duly authorized Chief Executive Officer
of the Sulphur Springs Loan and Building Association, A Texas Savings
Association, Sulphur Springs, Texas, the sole incorporator, for the purpose of
forming a corporation pursuant to the TBCA do make these Articles of
Incorporation, hereby declaring and certifying that this is my act and deed on
behalf of L & B Financial, Inc. and the facts herein stated are true, and
accordingly have hereunto set my hand this _______th day of August 1995.
Sulphur Springs Loan and Building Association
A Texas Savings Association
By:
-------------------------------------
Name: C. Glynn Lowe
Title: Chief Executive Officer
Subscribed and duly sworn to before me, this _____ day of August 1995 at Sulphur
Springs, Texas.
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Notary Public
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
L & B FINANCIAL, INC.
ARTICLE I
OFFICES
1.1 Registered Office and Registered Agent. The registered office of L &
B Financial, Inc. (the "Corporation") shall be located in the State of Texas at
such place as may be fixed from time to time by the Board of Directors upon
filing of such notices as may be required by law, and the registered agent shall
have a business office identical with such registered office.
1.2 Other Offices. The Corporation may have other offices within or
outside the State of Texas at such place or places as the Board of Directors may
from time to time determine, as permitted by applicable law and regulation.
ARTICLE II
STOCKHOLDERS' MEETINGS
2.1 Meeting Place. All meetings of the stockholders shall be held at the
principal place of business of the Corporation, or at such other place within or
without the State of Texas as shall be determined from time to time by the Board
of Directors, and the place at which any such meeting shall be held shall be
stated in the notice of the meeting.
2.2 Annual Meeting Time. The annual meeting of the stockholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held each year within 120 days from
the close of the Corporation's fiscal year at the hour of 11:00 a.m., or at such
other date and time as may be determined by the Board of Directors and stated in
the notice of such meeting.
2.3 Organization. Each meeting of the stockholders shall be presided
over by the Chairman of the Board, Chief Executive Officer, or by the President,
or if neither the Chairman, the Chief Executive Officer, nor the President is
present, by an Executive or Senior Vice President or such other officer as
designated by the Board of Directors. The Secretary, or in his absence a
temporary Secretary, shall act as secretary of each meeting of the stockholders.
In the absence of the Secretary and any temporary Secretary, the chairman of the
meeting may appoint any person present to act as secretary of the meeting. The
chairman of any meeting of the stockholders, unless prescribed by law or
regulation or unless the Chairman of the Board has otherwise determined, shall
determine the order of the business and the procedure at the meeting, including
such regulation of the manner of voting and the conduct of discussions as shall
be deemed appropriate by him in his sole discretion.
<PAGE>
2.4 Special Meetings. Special meetings of the stockholders for any
purpose may be called at any time in the manner provided in the Corporation's
Articles of Incorporation, which are incorporated herein with the same effect as
if they were set forth herein.
2.5 Notice.
(a) Notice of the time and place of the annual meeting of
stockholders shall be given by delivering personally or by mailing a written or
printed notice of the same, at least ten days and not more than sixty days prior
to the meeting, to each stockholder of record entitled to vote at such meeting.
When any stockholders' meeting, either annual or special, is adjourned and if a
new record date is fixed for an adjourned meeting of stockholders, 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, unless a new record date is fixed therefor, other than an
announcement at the meeting at which such adjournment is taken.
(b) At least ten day and not more than sixty days prior to the
meeting, a written or printed notice of each special meeting of stockholders,
stating the place, day and hour of such meeting, and the purpose or purposes for
which the meeting is called, shall be either delivered personally or mailed to
each stockholder of record entitled to vote at such meeting.
2.6 Voting List. At least ten days before each meeting of stockholders, a
complete list of the stockholders entitled to vote at such meeting, or any
adjournment thereof, shall be made, arranged in alphabetical order, with the
address of and number of shares held by each, which list shall be kept on file
at the registered office of the Corporation for a period of ten days prior to
such meeting. The list shall be kept open at the time and place of such meeting
for the inspection of any stockholder.
2.7 Quorum. Except as otherwise required by law:
(a) A quorum at any annual or special meeting of stockholders shall
consist of stockholders representing, either in person or by proxy, a majority
of the outstanding capital stock of the Corporation entitled to vote on that
matter at such meeting.
(b) With respect to any other matter other than the election of
directors, the votes of a majority in interest of those present at any properly
called meeting or adjourned meeting of stockholders at which a quorum, as
defined above, is present, shall be sufficient to transact business.
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2.8 Voting of Shares.
(a) Except as otherwise provided by these Bylaws or to the extent
that voting rights of the shares of any class or classes are limited or denied
by the Articles of Incorporation, each stockholder, on each matter submitted to
a vote at a meeting of stockholders, shall have one vote for each share of
stock registered in his name on the books of the Corporation.
(b) Directors are to be elected by a plurality of votes cast by the
shares entitled to vote in the election at a meeting at which a quorum is
present. Stockholders shall not be permitted to cumulate their votes for the
election of directors. If, at any meeting of the stockholders, due to a vacancy
or vacancies or otherwise, directors of more than one class of the Board of
Directors are to be elected, each class of directors to be elected at the
meeting shall be elected in a separate election by a plurality vote.
2.9 Closing of Transfer Books and Fixing Record Date. For the purpose
of determining stockholders entitled to notice of or to vote at any meeting
of stockholders, or any adjournment thereof, or entitled to receive payment of
any distribution by the Corporation or a share dividend, or in order to make a
determination of stockholders for any other proper purpose, the Board of
Directors may provide that the stock transfer books shall be closed for a stated
period not to exceed sixty days preceding such meeting. If the share transfer
records shall be closed for the purpose of determining shareholders entitled to
notice of or to vote at a meeting of stockholders, such records shall be closed
for at least ten days immediately preceding such meetings. In lieu of closing
the stock transfer books, the Board of Directors may fix in advance a record
date for any such determination of stockholders, such date to be not more than
sixty days and, in case of a meeting of stockholders, not less than ten days
prior to the date on which the particular action requiring such determination of
stockholders is to be taken.
2.10 Proxies. A stockholder may vote either in person or by proxy
executed in writing by the stockholder, or his duly authorized attorney-in-fact.
No proxy shall be valid after eleven months from the date of its execution,
unless otherwise provided in the proxy.
2.11 Waiver of Notice. Whenever any notice is required to be given to
any stockholder, a waiver of notice signed by the person or persons entitled to
such notice, whether before or after the time stated therein for the meeting,
shall be equivalent to the giving of such notice.
2.12 Voting of Shares in the Name of Two or More Persons. When ownership
stands in the name of two or more persons, in the absence of written directions
to the Corporation to the contraty, at any meeting of the stockholders of the
Corporation any one or more of such stockholders 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 names shares of stock stand, the vote or votes to which
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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.
2.13 Voting of Shares by Certain Holders. Shares standing in the name of
another corporation may be voted by an 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 or conservator may be voted by him, either
in person or by proxy, so long as such shares forming a part of an estate are in
the possession and forming a part of the estate being served by him, without a
transfer of such shares into his name. Shares standing in the name of a trustee
may be voted by him, either in person or by proxy, but no trustee shall be
entitled to vote shares held by him without a transfer of such shares into his
name as trustee. Shares standing in the name of a 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 stockholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the pledgee,
and thereafter the pledgee shall be entitled to vote the shares so transferred.
2.14 Stockholder Proposals. Stockholder proposals shall be made in
accordance with the provisions of the Corporation's Articles of Incorporation,
which provisions are incorporated herein with the same effect as if they were
set forth herein.
2.15 Inspectors. For each meeting of stockholders, the Board of Directors
may appoint one or more inspectors of election. If for any meeting the
inspector(s) appointed by the Board of Directors shall be unable to act or the
Board of Directors shall fail to appoint any inspector, one or more inspectors
may be appointed at the meeting by the chairman thereof. Such inspectors
shall conduct the voting in each election of directors and, as directed by the
Board of Directors or chairman of the meeting, the voting on the matters voted
on at such meeting, and after the voting shall make a certificate of the vote
taken. Inspectors need not be stockholders.
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ARTICLE III
CAPITAL STOCK
3.1 Certificates. Certificates of stock shall be issued in numerical
order, and each stockholder shall be entitled to a certificate signed by the
Chief Executive Officer, the President or a Vice President, and the Secretary or
the Treasurer, and may be sealed with the seal of the Corporation or a facsimile
thereof. The signatures of such officers may be facsimiles if the certificate
is manually signed on behalf of a transfer agent, or registered by a registrar,
other than the Corporation itself or any employee of the Corporation. If an
officer who has signed or whose facsimile signature has been placed upon such
certificate ceases to be an officer before the certificate is issued, it may be
issued by the Corporation with the same effect as if the person were an officer
on the date of issue. Each certificate of stock shall state:
(a) that the Corporation is organized under the laws of the State
of Texas;
(b) the name of the person to whom issued;
(c) the number and class of shares and the designation of the series,
if any, which such certificate represents; and
(d) the par value of each share represented by such certificate.
3.2 Transfers.
(a) Transfers of stock shall be made only upon the stock transfer
books of the Corporation, kept at the registered office of the Corporation or at
its principal place of business, or at the office of its transfer agent or
registrar, and before a new certificate is issued the old certificate shall be
surrendered for cancellation. The Board of Directors may, by resolution, open a
share register in any state of the United States, and may employ an agent or
agents to keep such register, and to record transfers of shares therein.
(b) Shares of stock shall be transferred by delivery of the
certificates therefor, accompanied either by an assignment in writing on the
back of the certificate or an assignment separate from the certificate, or by a
written power of attorney to sell, assign and transfer the same, signed by the
holder of said certificate. No shares of stock shall be transferred on the
books of the Corporation until the outstanding certificates therefor have been
surrendered to the Corporation.
3.3 Registered Owner. Registered stockholders shall be treated by the
Corporation as the holders in fact of the stock standing in their respective
names and the Corporation shall not be bound to recognize any equitable or other
claim to or interest in any share on the part of any other person, whether or
not it shall have express or other notice thereof,
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except as expressly provided below or by the laws of the State of Texas. The
Board of Directors may adopt by resolution a procedure whereby a stockholder of
the Corporation may certify in writing to the Corporation that all or a portion
of the shares registered in the name of such stockholder are held for the
account of a specified person or persons.
3.4 Mutilated, Lost or Destroyed Certificates. In case of any mutilation,
loss or destruction of any certificate of stock,another may be issued in its
place upon receipt of proof of such mutilation, loss or destruction. The Board
of Directors may impose conditions on such issuance and may require the giving
of a satisfactory bond or indemnity to the Corporation in such sum as they might
determine or establish such other procedures as they deem necessary.
3.5 Fractional Shares or Scrip. The Corporation may (a) issue fractions
of a share which shall entitle the holder to exercise voting rights, to receive
dividends thereon, and to participate in any of the assets of the Corporation in
the event of liquidation; (b) arrange for the disposition of fractional
interests by those entitled thereto; (c) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such shares are
determined; or (d) issue scrip in registered or bearer form which shall entitle
the holder to receive a certificate for a full share upon the surrender of such
scrip aggregating a full share.
3.6 Shares of Another Corporation. Shares owned by the Corporation in
another corporation, domestic or foreign, may be voted by such officer, agent or
proxy as the Board of Directors may determine or, in the absence of such
determination, by Chief Executive Officer or the President of the Corporation.
ARTICLE IV
BOARD OF DIRECTORS
4.1 Number and Powers. The management of all the affairs, property and
interests of the Corporation shall be vested in a Board of Directors. The Board
of Directors shall consist of eight persons as of the effective date of these
Bylaws. Directors need not be residents of the State of Texas. The Board of
Directors, other than those who may be elected by the holders of any class or
series of stock having preference over the Common Stock as to dividends or upon
liquidation, shall be divided into three classes as nearly equal in number as
possible, with one class to be elected annually. At the first annual meeting of
stockholders following the effective date of these Articles of Incorporation,
directors of the first class shall be elected to hold office for a term expiring
at the next succeeding annual meeting, directors of the second class shall be
elected to hold office for a term expiring at the second succeeding annual
meeting, and directors of the third class shall be elected to hold office for a
term expiring at the third succeeding annual meeting; and, as to directors of
each class, when their respective successors are elected and qualified. At each
subsequent annual meeting of stockholders, directors elected to succeed those
whose terms are expiring shall be elected for a term of office to expire at the
third succeeding annual
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meeting of stockholders and when their respective successors are elected and
qualified. Stockholders of the Corporation shall not be permitted to cumulate
their votes for the election of directors. In addition to the powers and
authorities expressly conferred upon it by these Bylaws and the Articles of
Incorporation, the Board of Directors may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Articles of Incorporation or by these Bylaws directed or required to be
exercised or done by the stockholders.
4.2 Change of Number. The number of directors may at any time be
increased or decreased by a vote of a majority of the Whole Board of Directors
and a majority of the Continuing Directors, as such terms are defined in the
Articles of Incorporation, provided that no decrease shall have the effect of
shortening the term of any incumbent director except as provided in Sections 4.3
and 4.4 hereunder.
4.3 Vacancies. All vacancies in the Board of Directors shall be filled
in the manner provided in the Corporation's Articles of Incorporation, which
provisions are incorporated herein with the same effect as if they were set
forth herein.
4.4 Removal of Directors. Directors may be removed in the manner
provided in the Corporation's Articles of Incorporation, which provisions are
incorporated herein with the same effect as if they were set forth herein.
4.5 Regular Meetings. Regular meetings of the Board of Directors or any
committee may be held without notice at the principal place of business of the
Corporation or at such other place or places, either within or without the State
of Texas, as the Board of Directors or such committee, as the case may be, may
from time to time designate. The annual meeting of the Board of Directors shall
be held without notice immediately after the adjournment of the annual meeting
of stockholders.
4.6 Special Meetings.
(a) Special meetings of the Board of Directors may be called at any
time by the Chairman, the Chief Executive Officer, the President or by a
majority of the authorized number of directors, to be held at the principal
place of business of the Corporation or at such other place or places as the
Board of Directors or the person or persons calling such meeting may from time
to time designate. Notice of all special meetings of the Board of Directors
shall be given to each director by at least one days' service of the same by
facsimile or personally, and by at least three days' service when delivered by
mail at the address at which the director is most likely to be reached. Such
notice shall be deemed to be delivered when deposited in the mail so addressed
with postage prepared, or when delivered to the telegraph company if sent by
telegram. Such notice need not specify the business to be transacted at, nor the
purpose of, the meeting.
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(b) Special meetings of any committee may be called at any time by
such person or persons and with such notice as shall be specified for such
committee by the Board of Directors, or in the absence of such specification, in
the manner and with the notice required for special meetings of the Board of
Directors.
4.7 Quorum. A majority of the Whole Board of Directors, as such term is
defined in the Corporation's Articles of Incorporation, shall be necessary at
all meetings to constitute a quorum for the transaction of business.
4.8 Waiver of Notice. Attendance of a director at a meeting of directors
shall constitute a waiver of notice of such meeting, except where a director
attends for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. A waiver of notice
signed by the director or directors, whether before or after the time stated for
the meeting, shall be equivalent to the giving of notice.
4.9 Registering Dissent. A director who is present at a meeting of the
Board of Directors at which action on a corporate matter is taken shall be
presumed to have assented to such action unless his dissent 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 voted in favor of such
action.
4.10 Executive, Audit and Other Committees. Standing or special
committees may be appointed from its own number by the Board of Directors from
time to time and the Board of Directors may from time to time invest such
committees with such powers as it may see fit, subject to such conditions as may
be prescribed by the Board. An Executive Committee may be appointed by
resolution passed by a majority of the Whole Board of Directors, as such term is
defined in the Corporation's Articles of Incorporation. It shall have and
exercise all of the authority of the Board of Directors, except in reference to
amending the Articles of Incorporation, adopting a plan of merger or
consolidation, recommending the sale, lease or exchange or other disposition of
all or substantially all the property and assets of the Corporation otherwise
than in the usual and regular course of business, recommending a voluntary
dissolution or a revocation thereof, or amending these Bylaws. An Audit
Committee may be appointed by a resolution approved by a majority of the Whole
Board of Directors, as such term is defined in the Corporation's Articles of
Incorporation, and at least a majority of the members of the Audit Committee
shall be directors who are not also officers of the Corporation. The Audit
Committee shall recommend independent auditors to the Board of Directors
annually and shall review the Corporation's budget, the scope and results of the
audit performed by the Corporation's independent auditors and the Corporation's
system of internal control with management and such independent auditors, and
such other duties as may be assigned to such Committee. All committees so
appointed shall keep regular minutes of the transactions of their meetings and
shall cause them to be recorded in books kept for that purpose in the
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office of the Corporation. The designation of any such committee, and the
delegation of authority thereto, shall not relieve the Board of Directors, or
any member thereof, of any responsibility imposed by law.
4.11 Remuneration. Directors, as such, may receive a stated salary for
their service, but by resolution of the Board of Directors, a fixed sum and
expenses of attendance, if any, may be allowed for attendance at each regular or
special meeting of such Board. Members of standing or special committees may be
allowed like compensation for attending committee meetings.
4.12 Action by Directors Without a Meeting. Any action required or which
may be taken at a meeting of the directors, or of a committee thereof, may be
taken without a meeting if a consent in writing, setting forth the action so
taken or to be taken, shall be signed by all of the directors, or all of the
members of the committee, as the case may be. Such consent shall have the same
effect as a unanimous vote.
4.13 Action of Directors by Communications Equipment. Any action required
or which may be taken at a meeting of directors, or of a committee thereof, may
be taken by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear or identify
each other at the meeting.
4.14 Nominations. Nominations of candidates for election as directors at
any annual meeting of stockholders shall be made in the manner set forth in the
provisions of the Corporation's Articles of Incorporation, which provisions are
incorporated herein with the same effect as if they were set forth herein.
ARTICLE V
OFFICERS
5.1 Designations. The officers of the Corporation shall be a Chairman of
the Board, a Chief Executive Officer, a President, a Secretary and a Treasurer,
such Vice Presidents, Assistant Secretaries and Assistant Treasurers as the
Board may designate, each of whom shall be elected by a majority vote of the
Board of Directors for one year at their first meeting after the annual meeting
of stockholders, and who shall hold office until their successors are elected
and qualify. The Board of Directors also may elect or authorize the appointment
of such other officers as the business of the Corporation may require. Any two
or more offices may be held by the same person.
5.2 Powers and Duties. The officers of the Corporation shall have such
authority and perform such duties as the Board of Directors may from time to
time authorize and determine. In the absence of action of the Board of
Directors, the officers shall have such powers and duties as may be provided in
these Bylaws and as generally pertain to their respective offices.
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5.3 Delegation. In the case of absence or inability to act of any officer
of the Corporation and of any person herein authorized to act in his place, the
Board of Directors may from time to time delegate the powers or duties of such
officer to any other officer or any directors or other person whom it may
select.
5.4 Vacancies. Vacancies in any office arising from any cause may be
filled by a vote of a majority of the Whole Board of Directors, as such term is
defined in the Articles of Incorporation, at any regular or special meeting of
the Board.
5.5 Other Officers. The Board of Directors may appoint such other
officers and agents as it shall deem necessary or expedient, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors.
5.6 Term; Removal. The officers of the Corporation shall hold office
until their successors are chosen and qualify. any officer or agent elected or
appointed by the Board of Directors may be removed at any time, with or without
cause, by the affirmative vote of a majority of the Whole Board of Directors, as
such term is defined in the Corporation's Articles of Incorporation, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.
ARTICLE VI
DIVIDENDS AND FINANCE
6.1 Dividends. Subject to the conditions and limitations imposed by law
and regulation, dividends may be declared by the Board of Directors and paid by
the Corporation.
6.2 Reserves. There may be set aside out of the net earnings of the
Corporation such sum or sums as the directors from time to time in their
absolute discretion deem expedient as a reserve fund to meet contingencies or
for any other proper purpose.
6.3 Depositories. The monies of the Corporation shall be deposited in the
name of the Corporation in such financial institution or financial institutions
or trust company or trust companies as the Board of Directors shall designate,
and shall be drawn out only by check or other order for payment of money signed
by such persons and in such manner as may be determined by resolution of the
Board of Directors.
-10-
<PAGE>
ARTICLE VII
NOTICES
Except as may otherwise be required by law, any notice to any stockholder
or director may be delivered personally or by mail. If mailed, the notice shall
be deemed to have been delivered when deposited in the United States mail,
addressed to the addressee at his last known address in the records of the
Corporation, with postage thereon prepaid.
ARTICLE VIII
SEAL
The corporate seal of the Corporation shall be in such form and bear such
inscription as may be adopted by resolution of the Board of Directors, or by
usage of the officers on behalf of the Corporation.
ARTICLE IX
BOOKS AND RECORDS
The Corporation shall keep correct and complete books and records of
account and shall keep minutes and proceedings of its stockholders and Board
of Directors; and it shall keep at its registered office or principal place of
business, or at the office of its transfer agent or registrar, a record of its
stockholders, giving the names and addresses of all stockholders and the number
and class of the shares held by each. Any books, records and minutes may be in
written form or any other form capable of being converted into written form
within a reasonable time.
ARTICLE X
FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Corporation shall end on the 30th day of June 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. The appointment of such accountants shall be subject to
annual ratification by the stockholders.
-11-
<PAGE>
(b) The Savings Bank shall indemnify any person who is a director,
agent, officer, employee or agent of the Savings Bank to the extent set forth in
the Savings Bank's Articles of Incorporation, which provisions are incorporated
herein with the same affect as if they were set forth herein.
(c) A blanket indemnity bond, as required by law, covering all
officers, employees and any director of the Savings Bank when performing the
duty of an employee or officer shall be maintained by the Savings Bank, which is
satisfactory to the Savings and Loan Commissioner of the State of Texas.
ARTICLE XII
AMENDMENTS
These Bylaws may be altered amended or repealed only in the manner set
forth in the Savings Bank's Articles of Incorporation, which provisions are
incorporated herein with the same effect as if they were set forth herein.
ARTICLE XIII
SEVERABILITY
If a final judicial determination is made or an order is issued by a court
or government regulatory agency having jurisdiction that any provision of these
Bylaws is unreasonable or otherwise unenforceable, such provisions shall not be
rendered void, but shall be deemed amended to apply to the maximum extent as
such court or government regulatory agency may determine or indicate to be
reasonable. If, for any reason, any provision of these Bylaws shall be held
invalid, such invalidity shall not affect any other provision of these Bylaws
not held so invalid, and each such other provision shall, to the full extent
consistent with law, continue in full force and effect. If any provision of
these Bylaws shall be held invalid in part, such invalidity shall in no way
affect the remainder of such provision, and the remainder of such provision,
together with all other provisions of these Bylaws shall, to the full extent
consistent with law, continue in full force and effect.
-12-
<PAGE>
EXHIBIT 10.2
================================================================================
AGREEMENT AND PLAN OF MERGER
by and among
L & B FINANCIAL, INC.,
a Texas corporation,
and
JEFFERSON SAVINGS BANCORP, INC.,
a Delaware corporation,
and
JEFFERSON SAVINGS ACQUISITIONCO, INC.
a Missouri corporation
Dated September 25, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE ONE - TERMS OF THE MERGER & CLOSING................................ 1
Section 1.01. The Merger............................................. 1
Section 1.02. Merging Corporation.................................... 1
Section 1.03. Surviving Corporation.................................. 1
Section 1.04. Effect of the Merger................................... 1
Section 1.05. Basic Merger Consideration; Conversion of Shares....... 1
Section 1.06. The Closing............................................ 4
Section 1.07. Closing Date........................................... 4
Section 1.08. Exchange Procedures; Surrender of Certificates......... 4
Section 1.09. Actions At Closing..................................... 5
ARTICLE TWO - REPRESENTATIONS OF L & B..................................... 7
Section 2.01. Organization and Capital Stock......................... 7
Section 2.02. Authorizations; No Defaults............................ 8
Section 2.03. Subsidiaries; Partnerships; Joint Ventures............. 9
Section 2.04. Financial Information.................................. 9
Section 2.05. Absence of Changes..................................... 9
Section 2.06. Regulatory Enforcement Matters......................... 10
Section 2.07. Tax Matters............................................ 10
Section 2.08. Litigation............................................. 10
Section 2.09. Employment Agreements.................................. 10
Section 2.10. Reports................................................ 10
Section 2.11. Investment Portfolio................................... 11
Section 2.12. Loan Portfolio......................................... 11
Section 2.13. Employee Matters and ERISA............................. 11
Section 2.14. Title to Properties; Insurance......................... 12
Section 2.15. Environmental Matters.................................. 13
Section 2.16. Compliance with Law.................................... 13
Section 2.17. Undisclosed Liabilities................................ 14
Section 2.18. Brokerage.............................................. 14
Section 2.19. Statements True and Correct............................ 14
ARTICLE THREE - REPRESENTATIONS OF JEFFERSON AND ACQUISITIONCO............. 14
Section 3.01. Organization and Capital Stock......................... 14
Section 3.02. Authorizations; No Defaults............................ 15
Section 3.03. Subsidiaries........................................... 15
Section 3.04. Financial Information.................................. 16
Section 3.05. Absence of Changes..................................... 16
i
<PAGE>
Section 3.06. Litigation............................................. 16
Section 3.07. Reports................................................ 16
Section 3.08. Compliance With Law.................................... 16
Section 3.09. Statements True and Correct............................ 16
Section 3.10. Brokerage.............................................. 17
Section 3.11. Regulatory Enforcement Matters......................... 17
Section 3.12. Tax Matters............................................ 17
Section 3.13. Undisclosed Liabilities................................ 17
Section 3.14. Current Public Information............................. 17
ARTICLE FOUR - AGREEMENTS OF L & B......................................... 18
Section 4.01. Business in Ordinary Course............................ 18
Section 4.02. Breaches............................................... 21
Section 4.03. Submission to Shareholders............................. 21
Section 4.04. Consents to Contracts and Leases....................... 21
Section 4.05. Merger Expenses and Related Matters.................... 21
Section 4.06. Conforming Accounting and Reserve Policies............. 22
Section 4.07. Consummation of Agreement.............................. 22
Section 4.08. Environmental Reports.................................. 22
Section 4.09. Restriction on Resales................................. 23
Section 4.10. Access to Information.................................. 23
Section 4.11. Subsidiary Merger...................................... 24
Section 4.12. Termination of Deferred Compensation Agreements........ 24
Section 4.13. Main Office Parking Lot and Mt. Vernon Branch.......... 24
ARTICLE FIVE - AGREEMENTS OF JEFFERSON AND ACQUISITIONCO................... 24
Section 5.01. Regulatory Approvals and Registration Statement........ 24
Section 5.02. Breaches............................................... 25
Section 5.03. Consummation of Agreement.............................. 25
Section 5.04. Employee Benefits...................................... 25
Section 5.05. Directors and Officers' Liability Insurance and
Indemnification....................................... 26
Section 5.06. Access to Information.................................. 27
ARTICLE SIX - CONDITIONS PRECEDENT TO THE MERGER........................... 27
Section 6.01. Conditions to Jefferson's and AcquisitionCo'
Obligations........................................... 27
Section 6.02. Conditions to L & B's Obligations...................... 28
ARTICLE SEVEN - TERMINATION OR ABANDONMENT................................. 29
Section 7.01. Mutual Agreement....................................... 29
Section 7.02. Material Breach........................................ 29
Section 7.03. Environmental Reports.................................. 30
ii
<PAGE>
Section 7.04. Failure of Conditions.................................. 30
Section 7.05. Regulatory Approval Denial............................. 30
Section 7.06. Shareholder Approval Denial............................ 30
Section 7.07. Regulatory Enforcement Matters......................... 30
Section 7.08. Share Component Fluctuation............................ 30
Section 7.09. Other Termination...................................... 30
Section 7.10. Termination Fee........................................ 31
ARTICLE EIGHT - GENERAL.................................................... 32
Section 8.01. Confidential Information............................... 32
Section 8.02. Return of Documents.................................... 32
Section 8.03. Publicity.............................................. 32
Section 8.04. Notices................................................ 32
Section 8.05. Liabilities............................................ 33
Section 8.06. Expenses............................................... 33
Section 8.07. Nonsurvival of Representations, Warranties and
Agreements............................................ 34
Section 8.08. Entire Agreement....................................... 34
Section 8.09. Headings and Captions.................................. 34
Section 8.10. Waiver, Amendment or Modification...................... 34
Section 8.11. Rules of Construction.................................. 34
Section 8.12. Counterparts........................................... 34
Section 8.13. Successors and Assigns................................. 34
Section 8.14. Governing Law; Assignment.............................. 34
Section 8.15. Employment Agreement................................... 35
Section 8.16. Time................................................... 35
Section 8.17. Status of Employee Benefit Plans....................... 35
EXHIBIT 1.09(a)(x) - L & B's Legal Opinion Matters
EXHIBIT 1.09(b)(vi) - Jefferson's Legal Opinion Matters
EXHIBIT 4.09 - Affiliates Agreements
EXHIBIT 8.01 - Confidentiality Agreement
EXHIBIT 8.15 - Form of C. Glynn Lowe Employment Agreement
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
This is an AGREEMENT AND PLAN OF MERGER (this "Agreement") made September 25,
1996, by and among L & B FINANCIAL, INC., a Texas corporation ("L & B"),
JEFFERSON SAVINGS BANCORP, INC., a Delaware corporation ("Jefferson"), and
JEFFERSON SAVINGS ACQUISITIONCO, INC., a Missouri corporation and wholly owned
subsidiary of Jefferson ("AcquisitionCo").
In consideration of the premises and the mutual terms and provisions set
forth in this Agreement, the parties hereto agree as follows.
ARTICLE ONE
-----------
TERMS OF THE MERGER & CLOSING
-----------------------------
SECTION 1.01. THE MERGER. Pursuant to the terms and provisions of this
------------ ----------
Agreement, the General and Business Corporation Law of Missouri (the "Missouri
Corporate Law") and the Texas Business Corporation Act (the "Texas Corporate
Law") (together, the "Corporate Law"), L & B shall merge with and into
AcquisitionCo (the "Merger").
SECTION 1.02. MERGING CORPORATION. L & B shall be the merging corporation
------------ -------------------
under the Merger and the corporate identity and existence of L & B, separate and
apart from AcquisitionCo, shall cease upon consummation of the Merger.
SECTION 1.03. SURVIVING CORPORATION. AcquisitionCo shall be the surviving
------------ ---------------------
corporation in the Merger. No changes in the articles of incorporation or
bylaws of AcquisitionCo shall be effected by the Merger. The directors and
officers of AcquisitionCo shall continue to serve in such capacities as the
directors and officers of the surviving corporation.
SECTION 1.04. EFFECT OF THE MERGER. The Merger shall have all of the
------------ --------------------
effects provided by this Agreement and the Corporate Law.
SECTION 1.05. BASIC MERGER CONSIDERATION; CONVERSION OF SHARES.
------------ ------------------------------------------------
(a) At the Effective Time (as defined in Section 1.07 hereof), the shares of
common stock, par value $0.01 per share, of L & B (the "L & B Common") issued
and outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holders thereof, be converted
into the right to receive a combination, in the proportion described in Section
1.05(b) hereof, of cash and common stock, par value $0.01 per share, of
Jefferson (the "Jefferson Common") having an aggregate value equal to the sum of
(A) plus (B), where (A) is the product of (i) $18.50 multiplied by (ii) the
number of Issued and Outstanding L & B Shares (as hereinafter defined) as of the
Effective Time, and (B) is an amount equal to (i) L & B's consolidated earnings
for the period commencing April 1, 1996 and extending through and including the
last day of the calendar month next preceding the calendar month in which the
Effective Time occurs (the "Earnings Period"), less (ii) the aggregate amount of
any cash dividends paid and/or declared on the L & B Common during the Earnings
Period (such aggregate amount of cash and Jefferson Common to be received in
connection with the Merger is hereinafter referred to as
<PAGE>
the "Basic Merger Consideration"). L & B's consolidated earnings during the
Earnings Period shall be determined initially by the accounting firm of
Oakerson, Arnold, Walker & Co. in accordance with generally accepted accounting
principles ("GAAP"), consistently applied, which determination of such
consolidated earnings shall be subject to verification by KPMG Peat Marwick LLP,
or such other accounting firm as Jefferson shall designate. As used herein,
"Issued and Outstanding L & B Shares" shall mean the number of shares of L & B
Common issued and outstanding immediately prior to the Effective Time, other
than shares of L & B Common held for the Sulphur Springs Loan and Building
Association Recognition and Retention Plan and Trust Agreement (the "L & B
Retention Plan"). Each share of Issued and Outstanding L & B Shares, other than
shares any holders of which have duly exercised their dissenters' rights under
the Texas Corporate Law, shall, by virtue of the Merger and without any action
on the part of the holders thereof, be converted into the right to receive the
quotient of (A) divided by (B), where (A) equals the Basic Merger Consideration
and (B) equals the number of Issued and Outstanding L & B Shares (such quotient
is hereinafter defined as the "Per Share Basic Merger Consideration").
(b) One half of the aggregate value of the Basic Merger Consideration shall
be payable in cash (the "Cash Component") and one half of the aggregate value of
the Basic Merger Consideration shall be payable in shares of Jefferson Common
(the "Stock Component"). The number of shares of Jefferson Common constituting
the Stock Component shall equal the quotient of (A) divided by (B), where (A)
equals one-half of the aggregate value of the Basic Merger Consideration and (B)
equals the average per share closing price of Jefferson Common, as reported on
The Nasdaq Stock Market's National Market, ("Nasdaq") for the 20 business days
immediately preceding the 5th calendar day prior to the Effective Time, but
which such average shall not be more than $33.60 per share and not less than
$20.00 per share (the "Jefferson Average Price"). No fractional shares of
Jefferson Common shall be issued in connection with the Merger and, in lieu
thereof, holders of shares of L & B Common who would otherwise be entitled to a
fractional share interest in Jefferson Common (after taking into account all
shares of L & B Common held by such holder) shall be paid an amount in cash
equal to the product of such fractional share interest and the closing price of
a share of Jefferson Common on the Nasdaq on the business day immediately
preceding the date on which the Effective Time occurs. Notwithstanding the
foregoing, the number of whole shares of Jefferson Common to be issued pursuant
to this Section 1.05, including shares of Jefferson Common issued pursuant to
subsections (c) and (d) of this Section 1.05, will be increased, as necessary,
and the amount of cash payable to such persons will be decreased, as necessary,
such that the aggregate value of such shares of Jefferson Common, determined as
of the Closing Date, will be not less than 50% of the aggregate consideration
paid pursuant to this Section 1.05.
(c) At the Effective Time, each person who would otherwise have been entitled
to receive, but for the Merger, shares of L & B Common by reason of awards that
have been or would have been made as of February 28, 1997 under the L & B
Retention Plan shall be entitled to receive, in addition to the Per Share Basic
Merger Consideration for shares of L & B Common held by such person and any
amounts payable to such person pursuant to subsection (d) of this Section 1.05,
if any, an amount equal to the product of (A) multiplied by (B), where (A) is
the number of shares of L & B Common to which such person is or would have been
entitled as of February 28, 1997 under or by reason of the L & B Retention Plan,
without regard to whether or not such shares have been awarded or earned, and
(B) is an amount equal to the Per Share Basic Merger Consideration; provided,
however, that, assuming a Per Share Basic Merger Consideration of $18.80, the
aggregate amount payable under this Section 1.05(c) shall not exceed $667,400.
The amount payable to each person pursuant to this Section 1.05(c) shall be paid
one-half in
2
<PAGE>
cash and one-half in shares of Jefferson Common in the same manner that the
Basic Merger Consideration is payable pursuant to Section 1.05(b).
(d) At the Effective Time, each person for whom options to purchase shares of
L & B Common have been or would have been granted as of February 28, 1997 under
the Sulphur Springs Loan and Building Association 1995 Stock Option Plan adopted
by L & B (the "Option Plan"), shall be entitled to receive, in addition to the
Per Share Basic Merger Consideration for shares of L & B Common held by such
person and any amounts payable to such person pursuant to subsection (c) of this
Section 1.05, if any, an amount equal to the product of (A) multiplied by (B),
where (A) is the number of shares of L & B Common issuable upon the exercise of
unexercised stock options which have been or would have been granted to such
person as of February 28, 1997 (such options being identified in Section 2.13(c)
of the Disclosure Schedule), under the Option Plan, without regard to whether
such options have been granted or have become vested or exercisable, and (B) is
the difference obtained by subtracting (i) the per share exercise price for such
option(s) from (ii) an amount equal to the Per Share Basic Merger Consideration;
provided, however, that, assuming a Per Share Basic Merger Consideration of
$18.80, the aggregate amount payable under this Section 1.05(d) shall not exceed
$1,270,000. For purposes of this Agreement, the exercise price for options
which would have been granted in 1997 shall be deemed to be $10.50. The amount
payable to each person under this Section 1.05(d) shall be paid one-half in cash
and one-half in shares of Jefferson Common in the same manner that the Basic
Merger Consideration is payable pursuant to Section 1.05(b).
(e) Upon the Effective Time, all of the shares of L & B Common, by virtue of
the Merger and without any action on the part of the holders thereof, shall no
longer be outstanding and shall be canceled and retired and shall cease to
exist, and each holder of any certificate or certificates which immediately
prior to the Effective Time represented outstanding shares of L & B Common (the
"Certificate" or "Certificates") shall thereafter cease to have any rights with
respect to such shares, except (i) the right of such holders to receive, without
interest, the Per Share Basic Merger Consideration upon the surrender of such
Certificate or Certificates in accordance with Section 1.08 hereof, or (ii) the
right provided under Section 1.05(i), as applicable.
(f) At the Effective Time, each share of L & B Common, if any, held in the
treasury of L & B or by any direct or indirect subsidiary of L & B (other than
shares held in trust accounts for the benefit of others or in other fiduciary,
nominee or similar capacities) immediately prior to the Effective Time shall be
canceled and retired and shall cease to exist.
(g) Each share of common stock, par value $1.00 per share, of AcquisitionCo
("AcquisitionCo Common") outstanding immediately prior to the Effective Time
shall remain outstanding and shall be unaffected by the Merger.
(h) If, between the date hereof and the Effective Time, a share of Jefferson
Common shall be changed into a different number of shares of Jefferson Common or
a different class of shares by reason of reclassification, recapitalization,
splitup, exchange of shares or readjustment, or if a stock dividend thereon
shall be declared with a record date within such period, then the number of
shares of Jefferson Common constituting the Stock Component of the Basic Merger
Consideration into which a share of L & B Common will be converted pursuant to
this Section 1.05, and the number of shares of Jefferson Common payable under
subsections (c) and (d) of this Section 1.05, will be appropriately and
proportionately
3
<PAGE>
adjusted so that each shareholder of L & B, and each person entitled to payment
under subsections (c) and (d) of this Section 1.05, shall be entitled to receive
such fraction of a share or such number of shares of Jefferson Common as such
shareholder and such person would have received pursuant to such
reclassification, recapitalization, splitup, exchange of shares or readjustment
or as a result of such stock dividend had the record date therefor been
immediately following the Effective Time of the Merger.
(i) If holders of L & B Common dissent from this Agreement and the Merger in
accordance with the Texas Corporate Law, any issued and outstanding shares of L
& B Common held by any dissenting holder shall not be converted as described in
this Section 1.05 but from and after the Effective Time shall represent only the
right to receive such consideration as may be determined to be due to such
dissenting holder pursuant to the Texas Corporate Law; provided, however, that
each share of L & B Common outstanding immediately prior to the Effective Time
and held by a dissenting holder who shall, after the Effective Time, either
withdraw his or her demand for appraisal or lose his or her right to dissent
shall have only such rights as are provided under the Texas Corporate Law.
SECTION 1.06. THE CLOSING. The closing of the Merger (the "Closing")
------------ -----------
shall take place at the main offices of Jefferson, or at such other location as
the parties may agree, at 10:00 A.M. Central Time on the Closing Date described
in Section 1.07 of this Agreement.
SECTION 1.07. CLOSING DATE. The Closing shall take place on the first
------------ ------------
business day of the month following the month during which each of the
conditions in Sections 6.01 and 6.02 hereof is satisfied or waived by the
appropriate party, or as soon thereafter as practicable, or on such other date
after such satisfaction or waiver as Jefferson and L & B may agree (the "Closing
Date"). The Merger shall be effective upon the filing of Articles of Merger
with the Secretary of State of the State of Missouri and the Secretary of State
of the State of Texas (the "Effective Time"), which the parties shall use their
best efforts to cause to occur on the Closing Date.
SECTION 1.08. EXCHANGE PROCEDURES; SURRENDER OF CERTIFICATES.
------------ ----------------------------------------------
(a) Boatmen's Trust Company, St. Louis, Missouri, shall act as Exchange Agent
in the Merger (the "Exchange Agent"). At or prior to the Closing, Jefferson
shall deliver, or cause to be delivered, to the Exchange Agent (i) cash in an
amount sufficient for payment of the Cash Component plus the amounts payable in
cash under subsections (c) and (d) of Sections 1.05 and (ii) certificates for
Jefferson Common sufficient for payment of the Stock Component plus the amounts
payable in shares of Jefferson Common under subsections (c) and (d) of Section
1.05. Cash and certificates delivered by Jefferson to the Exchange Agent shall
be held in trust for payment and delivery in accordance with this Section 1.08.
(b) As soon as reasonably practicable after the Effective Time, the Exchange
Agent shall mail or cause to be delivered (as the Exchange Agent may determine)
to each record holder of any Certificate or Certificates whose shares were
converted into the right to receive the Per Share Basic Merger Consideration, a
letter of transmittal (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 shall be in such form and have
such other provisions as Jefferson may reasonably specify) (each such letter,
the "Merger Letter of Transmittal") and instructions for use in effecting the
surrender of the Certificates in exchange for the Per Share Basic Merger
Consideration. Upon surrender to the Exchange Agent of a Certificate, together
with a Merger Letter of Transmittal duly executed and any other documents
4
<PAGE>
as may be required by the Exchange Agent, the holder of such Certificate shall
be entitled to receive in exchange therefor solely the Per Share Basic Merger
Consideration. No interest on the Per Share Basic Merger Consideration issuable
upon the surrender of the Certificates shall be paid or accrued for the benefit
of holders of Certificates. If the Per Share Basic Merger Consideration is to be
issued to a person other than a person in whose name a surrendered Certificate
is registered, it shall be a condition of issuance that the surrendered
Certificate shall be properly endorsed or otherwise in proper form for transfer
and that the person requesting such issuance shall pay to the Exchange Agent any
required transfer or other taxes or establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not applicable.
(c) At any time following six months after the Effective Time, Jefferson
shall be entitled to terminate the Exchange Agent relationship, and thereafter
holders of Certificates shall be entitled to look only to Jefferson (subject to
abandoned property, escheat or other similar laws) with respect to the Per Share
Basic Merger Consideration issuable upon surrender of their Certificates.
(d) No dividends that are otherwise payable on shares of Jefferson Common
constituting the Stock Component of the Basic Merger Consideration shall be paid
to persons entitled to receive such shares of Jefferson Common until such
persons surrender their Certificates. Upon such surrender, there shall be paid
to the person in whose name the shares of Jefferson Common shall be issued any
dividends which may have become payable with respect to such shares of Jefferson
Common (without interest and less the amount of taxes, if any, which may have
been imposed thereon), between the Effective Time and the time of such
surrender.
(e) If any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such Certificate to
be lost, stolen or destroyed and, if required by Jefferson, the posting by such
person of a bond in such amount as Jefferson may determine is reasonably
necessary as indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent shall issue in exchange for such
lost, stolen or destroyed Certificate, the Per Share Basic Merger Consideration
deliverable in respect thereof pursuant to this Agreement.
(f) Promptly after the Effective Time, Jefferson shall deliver to the
Exchange Agent written instructions, dated as of the Closing Date and approved
by L & B, directing the Exchange Agent to mail or deliver (as the Exchange Agent
may determine) to the persons shown on such instructions the cash and shares of
Jefferson Common to which they are, respectively, entitled to receive pursuant
to subsections (c) and (d) of Section 1.05 of this Agreement.
SECTION 1.09. ACTIONS AT CLOSING.
------------ ------------------
(a) At the Closing, L & B shall deliver or cause to be delivered to Jefferson
and AcquisitionCo:
(i) a certified copy of the articles of incorporation of L & B and a
certified copy of the articles of incorporation, charter or articles of
association of each direct and indirect subsidiary of L & B, including Loan &
Building State Savings Bank (formerly Sulphur Springs Loan and Building
Association), a Texas savings bank and wholly owned subsidiary of L & B (the
"Savings Bank");
5
<PAGE>
(ii) a Certificate or Certificates signed by an appropriate officer of
L & B stating that (A) each of the representations and warranties contained
in Article Two hereof is true and correct in all material respects at the
time of the Closing with the same force and effect as if such representations
and warranties had been made at Closing (except as may otherwise be
specifically identified in such Certificate or Certificates), (B) all of the
conditions set forth in Sections 6.01(b) and 6.01(d) (but, with respect to
the latter section, only to approvals which L & B and/or its subsidiaries are
required by law to obtain) have been satisfied or waived as provided therein
and (C) this Agreement has been approved by the requisite vote of L & B
shareholders in accordance with the Texas Corporate Law and L & B's articles
of incorporation and bylaws;
(iii) a certified copy of the resolutions of L & B's Board of
Directors and shareholders, as required for valid approval of the execution
of this Agreement and the consummation of the Merger and any other
transactions contemplated hereby;
(iv) a certified list of the shareholders of L & B dated as of the
Closing Date;
(v) a certified list of the persons participating or entitled to
participate in the L & B Retention Plan, the Option Plan and the Sulphur
Springs Loan and Building Association Employee Stock Ownership Plan (the
"ESOP"), dated as of the Closing Date, setting forth the respective
allocations, grants and/or awards thereunder, as the case may be, of each
such person;
(vi) a certified list of dissenting holders of L & B Common, if any,
dated as of the Closing Date;
(vii) a Certificate of the Texas Secretary of State, dated a recent
date, stating that L & B is in existence;
(viii) a Certificate of the Texas Comptroller of Public Accounts, dated
a recent date, stating that L & B is in good standing;
(ix) Certificates issued by the T.S.L.D., dated a recent date, as to
the good standing and/or existence of the Savings Bank, and issued by the
F.D.I.C., dated a recent date, as to the insured status of the deposits of
the Savings Bank;
(x) a legal opinion of counsel for L & B, in form reasonably acceptable
to Jefferson's counsel, opining with respect to the matters listed on Exhibit
1.09(a)(x) attached hereto;
(xi) an original copy of the employment agreement between Jefferson and
C. Glynn Lowe, substantially in the form of Exhibit 8.15 attached hereto,
duly executed by C. Glynn Lowe; and
(xii) resignations of present trustees or other fiduciaries under the
Employee Plans identified in Section 2.13(c) of the Disclosure Schedule.
(b) At the Closing, Jefferson and/or AcquisitionCo, as the case may be, shall
deliver or cause to be delivered to L & B:
6
<PAGE>
(i) a Certificate or Certificates signed by an appropriate officer of
Jefferson and AcquisitionCo, as the case may be, stating that (A) each of the
representations and warranties contained in Article Three hereof made by
Jefferson and/or AcquisitionCo, as the case may be, is true and correct in
all material respects at the time of the Closing with the same force and
effect as if such representations and warranties had been made by the
respective party at Closing, and (B) all of the conditions set forth in
Sections 6.02(b) and 6.02(d) (but only with respect to approvals other than
by L & B's shareholders) have been satisfied or waived as provided therein;
(ii) a certified copy of the resolutions of Jefferson's Board of
Directors authorizing the execution of this Agreement and the consummation of
the transactions contemplated hereby;
(iii) a certified copy of the resolutions of AcquisitionCo's Board of
Directors and sole shareholder, as required for valid approval of the
execution of this Agreement and the consummation of the transactions
contemplated hereby;
(iv) Certificate of the Delaware Secretary of State, dated a recent
date, stating that Jefferson is in good standing;
(v) Certificate of the Missouri Secretary of State, dated a recent
date, stating that AcquisitionCo is in good standing;
(vi) a legal opinion of counsel for Jefferson, in form reasonably
acceptable to L & B's counsel, opining with respect to the matters listed on
Exhibit 1.09(b)(vi) attached hereto;
(vii) an original copy of the employment agreement between Jefferson
and C. Glynn Lowe, substantially in the form of Exhibit 8.15 attached hereto,
duly executed on behalf of Jefferson;
(viii) evidence acknowledging receipt by the Exchange Agent of the cash
and certificates for Jefferson Common delivered by Jefferson to the Exchange
Agent pursuant to Section 1.08 hereof; and
(ix) appropriate appointments or designations of successor trustees or
other fiduciaries under the Employee Plans identified in Section 2.13(c) of
the Disclosure Schedule, together with the written acceptance of appointment
or designation executed by each such successor trustee or other fiduciary so
appointed or designated.
ARTICLE TWO
-----------
REPRESENTATIONS OF L & B
------------------------
L & B hereby makes the following representations and warranties:
SECTION 2.01. ORGANIZATION AND CAPITAL STOCK.
------------ ------------------------------
7
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(a) L & B is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas with full corporate power and
authority to own all of its properties and assets, to incur all of its
liabilities and to carry on its business as presently conducted. L & B is a
savings and loan holding company registered with the Office of Thrift
Supervision (the "O.T.S.") under the Home Owners' Loan Act.
(b) The authorized capital stock of L & B consists of (i) 25,000,000 shares
of L & B Common, of which, as of the date hereof, 1,584,125 shares are issued
and outstanding and 83,375 shares are held as treasury stock, and (ii) 5,000,000
shares of preferred stock, no par value per share, of which, as of the date
hereof, no shares have been issued. All of the issued and outstanding shares of
L & B Common are duly and validly issued and outstanding and are fully paid and
non-assessable. None of the outstanding shares of L & B Common has been issued
in violation of any preemptive rights of the current or past shareholders of L &
B. As of the date hereof, L & B has reserved 166,750 shares of L & B Common for
issuance under the Option Plan, had outstanding employee stock options
representing the right to acquire 150,498 shares of L & B Common pursuant to the
Option Plan, and options to acquire an additional 4,015 shares of L & B Common
may be granted from the date hereof through February 28, 1997. As of the date
hereof, 40,000 shares of L & B Common are owned by the trust created under the L
& B Retention Plan and are held by such trust for awards under the L & B
Retention Plan, 34,350 of such shares of L & B Common have been awarded and
allocated to participants pursuant to the L & B Retention Plan and awards for an
additional 1,150 shares of L & B Common may be made and allocated to
participants from the date hereof through February 28, 1997. As of the date
hereof, 100,050 shares of L & B Common have been acquired and are held by the
ESOP, of which (i) 14,723.800 shares have been allocated to ESOP participants,
(ii) 7,138.345 shares have been released from the lien placed on such shares
pursuant to that Pledge Agreement, dated January 22, 1996, between L & B and the
ESOP (the "Pledge Agreement") and are available for allocation to ESOP
participants, and (iii) 78,187.855 shares remain unreleased under the Pledge
Agreement.
(c) Except as set forth in subsection 2.01(b) above, there are no shares of
capital stock or other equity securities of L & B issued or outstanding and
there are no outstanding options, warrants, rights to subscribe for, calls, or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of L & B Common or other capital
stock of L & B or contracts, commitments, understandings or arrangements by
which L & B is or may be obligated to issue additional shares of its capital
stock or options, warrants or rights to purchase or acquire any additional
shares of its capital stock. Except as disclosed in Section 2.01 of that
certain confidential writing delivered by L & B to Jefferson and AcquisitionCo
and executed by each of L & B, Jefferson and AcquisitionCo concurrently with the
delivery and execution of this Agreement (the "Disclosure Schedule"), each
Certificate representing shares of L & B Common issued by L & B in replacement
of any Certificate theretofore issued by it which was claimed by the record
holder thereof to have been lost, stolen or destroyed was issued by L & B only
upon receipt of an affidavit of lost stock certificate and indemnity agreement
of such shareholder indemnifying L & B against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
Certificate or the issuance of such replacement Certificate.
SECTION 2.02. AUTHORIZATIONS; NO DEFAULTS. L & B's Board of Directors has,
------------ ---------------------------
by all appropriate action, approved this Agreement, the Merger and any other
transactions contemplated hereby and autho rized the execution hereof on its
behalf by its duly authorized officers and, subject to the approval of this
8
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Agreement by the shareholders of L & B and to receipt of all required regulatory
approvals, the performance by L & B of its obligations hereunder. Except as set
forth in Section 2.02 of the Disclosure Schedule, nothing in the articles of
incorporation or bylaws of L & B, as amended, or any other agreement,
instrument, decree, proceeding, law or regulation (except as specifically
referred to in or contemplated by this Agreement) by or to which it or any of
its subsidiaries are bound or subject would prohibit or inhibit L & B from
consummating this Agreement, the Merger or any other transactions contemplated
hereby on the terms and conditions herein contained. This Agreement has been
duly and validly executed and delivered by L & B and constitutes a legal, valid
and binding obligation of L & B, enforceable against L & B in accordance with
its terms (except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, receivership, conservatorship, moratorium or other laws
affecting creditor's rights generally or the rights of creditors of savings
institutions, the accounts of which savings institutions are insured by the
Savings Association Insurance Fund of the F.D.I.C., or laws relating to the
safety and soundness of insured financial institutions and by judicial
discretion in applying principles of equity). L & B and its subsidiaries are
neither in default under nor in violation of any provision of their respective
articles of incorporation or association, charters, bylaws, or any promissory
note, indenture or any evidence of indebtedness or security therefor, lease,
contract, purchase or other commitment or any other agreement which is material
to L & B and its subsidiaries taken as a whole.
SECTION 2.03. SUBSIDIARIES; PARTNERSHIPS; JOINT VENTURES. Each of L & B's
------------ ------------------------------------------
direct and indirect subsidiaries, including the Savings Bank (collectively, the
"subsidiaries"), the name and jurisdiction of incorporation or organization of
each of which is set forth in Section 2.03 of the Disclosure Schedule, are duly
organized, validly existing and in good standing under the laws of the
jurisdiction of their incorporation or organization and have the corporate or
other power to own their respective properties and assets, to incur their
respective liabilities and to carry on their respective business as presently
con ducted. The number of issued and outstanding shares of capital stock of
each such subsidiary, including the Savings Bank, is set forth in Section 2.03
of the Disclosure Schedule, all of which shares (except as may be otherwise
there expressly disclosed) are owned by L & B or L & B's subsidiaries, as the
case may be and as therein disclosed, free and clear of all liens, encumbrances,
rights of first refusal, options or other restrictions of any nature whatsoever,
except as otherwise may be expressly disclosed in Section 2.03 of the Disclosure
Schedule. There are no options, warrants or rights outstanding to acquire any
capital stock of any of L & B's subsidiaries and no person or entity has any
other right to purchase or acquire any unissued shares of stock of any of L &
B's subsidiaries, nor does any such subsidiary have any obligation of any nature
with respect to its unissued shares of stock. Except as may be disclosed in
Section 2.03 of the Disclosure Schedule, neither L & B nor any of L & B's
subsidiaries is a party to any partnership or joint venture or owns an equity
interest in any other business or enterprise.
SECTION 2.04. FINANCIAL INFORMATION. The audited consolidated balance
------------ ---------------------
sheets of L & B (which shall include balance sheet information for Sulphur
Springs Loan and Building Association for periods before the formation of L & B)
as of June 30, 1995 and 1994 and the related consolidated income statements and
statements of changes in shareholders' equity and cash flows for the three (3)
years ended June 30, 1995, together with the notes thereto, and the unaudited
balance sheets of L & B as of December 31, 1995 and related unaudited income
statements and statements of changes in shareholders' equity and cash flows for
the nine (9) months then ended, and the year-end and quarterly Reports of
Condition and Report of Income of the Savings Bank for 1995 and March 31, 1996,
respectively, as currently on file with the Federal Deposit Insurance
Corporation (the "F.D.I.C.") and the O.T.S. (together, the "L & B Financial
Statements"), have been prepared in accordance with GAAP applied on a consistent
basis throughout the
9
<PAGE>
periods presented (except as may be disclosed therein and except for regulatory
reporting differences required by the Savings Bank's reports), and fairly
present in all material respects the financial position and the results of
operations, changes in shareholders' equity and cash flows of the entities
therein described as of the dates and for the periods indicated (subject, in the
case of interim financial statements, to normal recurring year-end adjustments,
none of which will be material).
SECTION 2.05. ABSENCE OF CHANGES. Since June 30, 1995, there has not been
------------ ------------------
any material adverse change in the financial condition, the results of
operations or the business or prospects of L & B or any of its subsidiaries, nor
have there been any events or transactions having such a material adverse effect
which should be disclosed in order to make the L & B Financial Statements not
misleading. Since the date of the most recent T.S.L.D. and F.D.I.C. examination
report regarding the Savings Bank, there has been no material adverse change in
the financial condition, the results of operations or the business or prospects
of the Savings Bank. Notwithstanding the foregoing, any actions taken or
changes made by L & B or any of its subsidiaries, including the Savings Bank,
pursuant to Section 4.05 hereof shall not, individually or in the aggregate, be
deemed to be a material adverse change in the financial condition, the results
of operations or the business or prospects of L & B and its subsidiaries taken
as a whole.
SECTION 2.06. REGULATORY ENFORCEMENT MATTERS. Except as may be disclosed
------------ ------------------------------
in Section 2.06 of the Disclosure Schedule, neither L & B nor any of its
subsidiaries is subject to, and has not received any notice or advice that any
of them may become subject to, any order, agreement, memorandum of understanding
or other regulatory enforcement action or proceeding with or by any federal or
state agency charged with the supervision or regulation of thrifts or thrift
holding companies or engaged in the insurance of bank or thrift deposits or any
other governmental agency having supervisory or regulatory authority with
respect to L & B or any of its subsidiaries.
SECTION 2.07. TAX MATTERS. Except as may be disclosed in Section 2.07 of
------------ -----------
the Disclosure Schedule, L & B and its subsidiaries have filed all federal,
state and local tax returns due in respect of any of their businesses or
properties in a timely fashion and have paid or made provision, as reflected on
the L & B Financial Statements, for all amounts due shown on such returns. All
such returns fairly reflect the information required to be presented therein.
All provisions for accrued but unpaid taxes contained in the L & B Financial
Statements were made in accordance with GAAP applied on a consistent basis and
in the aggregate do not materially fail to provide for potential tax
liabilities.
SECTION 2.08. LITIGATION. Except as may be disclosed in Section 2.08 of
------------ ----------
the Disclosure Schedule, there is no litigation, claim or other proceeding
pending or, to the knowledge of L & B, threatened, against L & B or any of its
subsidiaries, or of which the property of L & B or any of its subsidiaries is or
would be subject.
SECTION 2.09. EMPLOYMENT AGREEMENTS. Except as may be disclosed in Section
------------ ---------------------
2.09 of the Disclosure Schedule, neither L & B nor any of its subsidiaries is a
party to or bound by any contract for the employment, retention or engagement,
or with respect to the severance, of any officer, employee, agent, consultant or
other person or entity which, by its terms, is not terminable by L & B or such
subsidiary on thirty (30) days written notice or less without the payment of any
amount by reason of such termination. A true, accurate and complete copy of
each such agreement and any and all amendments or supplements thereto is
included as an exhibit to Section 2.09 of the Disclosure Schedule.
10
<PAGE>
SECTION 2.10. REPORTS. Except as may be disclosed in Section 2.10 of the
------------ -------
Disclosure Schedule, L & B and each of its subsidiaries has filed all reports
and statements, together with any amendments required to be made with respect
thereto, that they were required to file with (i) the O.T.S., (ii) the F.D.I.C.,
(iii) any and all applicable state securities, banking or thrift authorities,
including the Texas Savings and Loan Department (the "T.S.L.D."), and (iv) any
other governmental authority with jurisdiction over L & B or any of its
subsidiaries. As of their respective dates, each of such reports and documents,
including any financial statements, exhibits and schedules thereto, complied in
all material respects with the relevant statutes, rules and regulations enforced
or promulgated by the regulatory authority with which they were filed, and did
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
SECTION 2.11. INVESTMENT PORTFOLIO. Except as may be disclosed in Section
------------ --------------------
2.11 of the Disclosure Schedule, all United States Treasury securities,
obligations of other United States Government agencies and corporations,
obligations of States and political subdivisions of the United States and other
investment securities held by L & B, as reflected in the latest balance sheet of
L & B included in the L & B Financial Statements, are carried in the aggregate
at no more than cost adjusted for amortization of premiums and accretion of
discounts, except as otherwise required by FASB 115.
SECTION 2.12. LOAN PORTFOLIO. Except as may be disclosed in Section 2.12
------------ --------------
of the Disclosure Schedule, (i) all loans and discounts shown on the L & B
Financial Statements or which were entered into after the date of the most
recent balance sheet included in the L & B Financial Statements, were and will
be made in all material respects for good, valuable and adequate consideration
in the ordinary course of the business of L & B and its subsidiaries, in
accordance in all material respects with sound banking practices, and are not
subject to any material known defenses, setoffs or counterclaims, including
without limitation any such as are afforded by usury or truth in lending laws,
except as may be provided by bankruptcy, insolvency or similar laws or by
general principles of equity; (ii) the notes or other evidences of indebtedness
evidencing such loans and all forms of pledges, mortgages and other collateral
documents and security agreements are and will be, in all material respects, to
the knowledge of L & B, enforceable, valid, true and genuine and what they
purport to be; and (iii) L & B and its subsidiaries have complied and will prior
to the Closing Date comply with all laws and regulations relating to such loans
or, to the extent there has not been such compliance, such failure to comply
will not materially interfere with the collection of any such loan.
SECTION 2.13. EMPLOYEE MATTERS AND ERISA.
------------ --------------------------
(a) Except as may be disclosed in Section 2.13(a) of the Disclosure Schedule,
neither L & B nor any of its subsidiaries has entered into any collective
bargaining agreement with any labor organization with respect to any group of
employees of L & B or any of its subsidiaries and to the knowledge of L & B
there is no present effort nor existing proposal to attempt to unionize any
group of employees of L & B or any of its subsidiaries.
(b) Except as may be disclosed in Section 2.13(b) of the Disclosure Schedule,
(i) L & B and its subsidiaries are and have been in material compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, including, without limitation, any
such laws respecting employment discrimination and occupational safety and
health
11
<PAGE>
requirements, and neither L & B nor any of its subsidiaries is engaged in
any unfair labor practice; (ii) there is no unfair labor practice complaint
against L & B or any of its subsidiaries pending or, to the knowledge of L & B,
threatened before the National Labor Relations Board; (iii) there is no labor
dispute, strike, slowdown or stoppage actually pending or, to the knowledge of L
& B, threatened against or directly affecting L & B or any of its subsidiaries;
and (iv) neither L & B nor any of its subsidiaries has experienced any material
work stoppage or other material labor difficulty during the past five years.
(c) Except as may be disclosed in Section 2.13(c) of the Disclosure Schedule,
neither L & B nor any of its subsidiaries maintains, contributes to or
participates in or has any liability under any employee benefit plans, as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or any nonqualified employee benefit plans or deferred
compensation, bonus, stock or incentive plans, or other employee benefit or
fringe benefit programs for the benefit of former or current employees of L & B
or of its subsidiaries (the "Employee Plans"). No present or former employee of
L & B or any of its subsidiaries has been or is expected to be charged with
breaching and has not breached a fiduciary duty under any of the Employee Plans.
Neither L & B nor any of its subsidiaries participates in, nor has it in the
past five years participated in, nor has it any present or future obligation or
liability under, any multiemployer plan (as defined at Section 3(37) of ERISA).
Except as may be separately disclosed in Section 2.13(c) of the Disclosure
Schedule, neither L & B nor any of its subsidiaries maintains, contributes to,
or participates in, any plan that provides health, major medical, disability or
life insurance benefits to former employees of L & B or any of its subsidiaries.
(d) Except as may be disclosed in Section 2.13(d) of the Disclosure Schedule,
(i) neither L & B nor any of its subsidiaries maintains, nor have any of them
maintained for the past ten years, any Employee Plans subject to Title IV of
ERISA or Section 412 of the Internal Revenue Code of 1986, as amended (the
"Code"); (ii) no reportable event (as defined in Section 4043 of ERISA) has
occurred with respect to any Employee Plans as to which a notice would be
required to be filed with the Pension Benefit Guaranty Corporation; (iii) no
claim is pending, and neither L & B nor any of its subsidiaries has received
notice of any threatened or imminent claim with respect to any Employee Plan
(other than a routine claim for benefits for which plan administrative review
procedures have not been exhausted) for which L & B or any of its subsidiaries
would be liable after June 30, 1996, except as are reflected on the L & B
Financial Statements; (iv) after June 30, 1996, L & B and its subsidiaries have
no liability for excise taxes under Sections 4971, 4975, 4976, 4977, 4979 or
4980B of the Code or for a fine under Section 502 of ERISA with respect to any
Employee Plan; and (v) all Employee Plans have in all material respects been
operated, administered and maintained in accordance with the terms thereof and
in compliance with the requirements of all applicable laws, including, without
limitation, ERISA and the Code.
(e) Except as may be disclosed in Section 2.13(e) of the Disclosure Schedule,
each benefit plan maintained by L & B and/or its subsidiaries for the benefit of
their respective directors, officers and employees (including, but not limited
to, defined contribution or savings plans and deferred compensation plans) is,
to the extent required under Section 412 of the Code or Section 302 of ERISA,
fully funded, except for any amounts withheld from the compensation of any
employee pursuant to a salary reduction agreement or other contribution
agreement under a plan, including but not limited to a plan intended to be
qualified under Section 401(k) or Section 125 of the Code, which are not yet
required actually to be contributed or otherwise applied to such plan pursuant
to Section 3 of ERISA and Section 2510.3-102(a) of the Regulations issued by the
Secretary of Labor. Except with respect to the vested rights of participants
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<PAGE>
in any such plan, or as may be disclosed in Section 2.13(e) of the Disclosure
Schedule, the assets of each such plan are unencumbered.
SECTION 2.14. TITLE TO PROPERTIES; INSURANCE. Except as may be disclosed
------------ ------------------------------
in Section 2.14 of the Disclosure Schedule, (i) L & B and its subsidiaries have
good, indefeasible and insurable title, free and clear of all liens, charges and
encumbrances (except taxes which are a lien but not yet due and liens, charges
or encumbrances reflected in the L & B Financial Statements and easements,
rights-of-way, and other restrictions which are not adversely material to the
use of the property by L & B or its subsidiary and further excepting in the case
of Other Real Estate Owned ("O.R.E.O."), as such real estate is internally
classified on the books of L & B or its subsidiaries, rights of redemption under
applicable law) to all of their real properties; (ii) all leasehold interests
for real property and any material personal property used by L & B and its
subsidiaries in their respective businesses are held pursuant to lease
agreements which are valid and enforceable in accordance with their terms; (iii)
all such properties comply in all material respects with all applicable private
agreements, zoning requirements and other governmental laws and regulations
relating thereto and there are no condemnation proceedings pending or, to the
knowledge of L & B, threatened with respect to such properties; (iv) L & B and
its subsidiaries have valid title or other ownership or license rights under
licenses to all material intangible personal or intellectual property used by L
& B or its subsidiaries in their respective businesses, free and clear of any
claim, defense or right of any other person or entity which is material to such
property, subject only to rights of the licensors pursuant to applicable license
agreements, which rights do not materially adversely interfere with the use of
such property; and (v) all material real properties owned, held or operated by L
& B or its subsidiaries are insured by the title insurers listed on Section 2.14
of the Disclosure Schedule, and all material properties owned by L & B or its
subsidiaries are insured, in such amounts and against fire and other risks
insured against by extended coverage and public liability insurance, as is
customary with financial institutions of similar size.
SECTION 2.15. ENVIRONMENTAL MATTERS. (a) As used in this Agreement,
------------ ---------------------
"Environmental Laws" means all local, state and federal environmental, health
and safety laws and regulations in all jurisdictions in which L & B and its
subsidiaries have done business or owned, leased or operated property,
including, without limitation, the Federal Resource Conservation and Recovery
Act, the Federal Comprehensive Environmental Response, Compensation and
Liability Act, the Federal Clean Water Act, the Federal Clean Air Act, and the
Federal Occupational Safety and Health Act.
(b) Except as may be disclosed in Section 2.15(b) of the Disclosure Schedule,
neither the conduct nor operation of L & B and its subsidiaries nor, to the
knowledge of L & B, any condition of any property presently or previously owned,
leased or operated by any of them violates or violated Environmental Laws in any
respect material to the business of L & B and its subsidiaries and no condition
has existed or event has occurred with respect to any of them or any such
property that, with notice or the passage of time, or both, would constitute a
violation material to the business of L & B and its subsidiaries of
Environmental Laws or obligate (or potentially obligate) L & B or its
subsidiaries to remedy, stabilize, neutralize or otherwise alter the
environmental condition of any such property where the aggregate cost of such
actions would be material to L & B and its subsidiaries. Except as may be
disclosed in Section 2.15(b) of the Disclosure Schedule, neither L & B nor any
of its subsidiaries has received any notice from any person or entity that L & B
or its subsidiaries or the operation or condition of any property ever owned,
leased or operated by any of them are or were in violation of any Environmental
Laws or that any of them are
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responsible (or potentially responsible) for remedying, or the cleanup of, any
pollutants, contaminants, or hazardous or toxic wastes, substances or materials
at, on or beneath any such property.
(c) Except as may be disclosed in Section 2.15(c) of the Disclosure Schedule,
neither L & B nor any of its subsidiaries has received notice or has knowledge
that any property in which any of them has a security interest, lien or other
encumbrance violates or violated Environmental Laws in any material respects.
SECTION 2.16. COMPLIANCE WITH LAW. L & B and its subsidiaries have all
------------ -------------------
licenses, franchises, permits and other governmental authorizations that are
legally required to enable them to conduct their respective businesses in all
material respects and are in compliance in all material respects with all
applicable laws and regulations.
SECTION 2.17. UNDISCLOSED LIABILITIES. L & B and its subsidiaries do not
------------ -----------------------
have any material liability, whether known or unknown, whether asserted or
unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due (and there
is no past or present fact, situation, circumstance, condition or other basis
for any present or future action, suit or proceeding, hearing, charge,
complaint, claim or demand against L & B or its subsidiaries giving rise to any
such liability), except (i) for liabilities set forth in the L & B Financial
Statements, and (ii) as may be disclosed in Section 2.17 of the Disclosure
Schedule.
SECTION 2.18. BROKERAGE. Except as may be disclosed in Section 2.18 of the
------------ ---------
Disclosure Schedule, there are no existing claims or agreements for brokerage
commissions, finders' fees, or similar compensation in connection with the
transactions contemplated by this Agreement payable by L & B or its
subsidiaries.
SECTION 2.19. STATEMENTS TRUE AND CORRECT. None of the information
------------ ---------------------------
supplied or to be supplied by L & B or its subsidiaries for inclusion in (i) the
Registration Statement (as defined in Section 4.07 hereof), (ii) the Proxy
Statement/Prospectus (as defined in Section 4.03 hereof) and (iii) any other
documents to be filed with the Securities and Exchange Commission (the "S.E.C.")
or any other securities, banking, thrift or other regulatory authority in
connection with the transactions contemplated hereby, will, at the respective
times such documents are filed, and, in the case of the Registration Statement,
when it becomes effective, and, with respect to the Proxy Statement/Prospectus,
when first mailed to the shareholders of L & B, 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/Prospectus or any amendment thereof or supplement thereto, at
the time of the Stockholders' Meeting (as defined in Section 4.03), be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of any proxy for the Stockholders' Meeting. All documents that
L & B is responsible for filing with the S.E.C. or any other regulatory
authority in connection with the transactions contemplated hereby will comply as
to form in all material respects with the provisions of applicable law and the
applicable rules and regulations thereunder.
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ARTICLE THREE
-------------
REPRESENTATIONS OF JEFFERSON AND ACQUISITIONCO
----------------------------------------------
Jefferson and AcquisitionCo, as applicable, hereby make the following
representations and warranties:
SECTION 3.01. ORGANIZATION AND CAPITAL STOCK.
------------- ------------------------------
(a) Jefferson is a corporation duly incorporated, validly existing, and in
good standing under the laws of the State of Delaware with full corporate power
and authority to own all of its properties and assets, to incur all of its
liabilities and carry on its business as presently conducted. AcquisitionCo is
a corporation duly incorporated, validly existing, and in good standing under
the laws of the State of Missouri with full corporate power and authority to
carry on its business as it is now being conducted.
(b) The authorized capital stock of Jefferson consists of (i) 20,000,000
shares of Jefferson Common, of which, as of June 30, 1996, 4,181,563 shares were
issued and outstanding. All of the issued and outstanding shares of Jefferson
Common are duly and validly issued and outstanding and are fully paid and non-
assessable. None of the outstanding shares of Jefferson Common has been issued
in violation of any preemptive rights of the current or past shareholders of
Jefferson. Jefferson has available for issuance, from treasury or otherwise, a
sufficient number of authorized shares of Jefferson Common to pay the Basic
Merger Consideration and the amounts payable in shares of Jefferson Common
pursuant to subsections (c) and (d) of Section 1.05.
(c) The authorized capital stock of AcquisitionCo consists of thirty thousand
(30,000) shares of AcquisitionCo Common, of which as of the date hereof, 1,000
shares of AcquisitionCo Common are issued and outstanding, fully paid and non-
assessable and owned by Jefferson.
(d) The shares of Jefferson Common that are to be issued to the shareholders
of L & B pursuant to the Merger have been duly authorized and, when so issued in
accordance with the terms of this Agreement, will be validly issued and
outstanding, fully paid and nonassessable, with no personal liability attaching
to the ownership thereof.
SECTION 3.02. AUTHORIZATIONS; NO DEFAULTS. The Board of Directors of each
------------ ---------------------------
of Jefferson and AcquisitionCo have, by all appropriate action and as required
by applicable law, approved this Agreement, the Merger and the other
transactions contemplated hereby and authorized the execution hereof on their
behalf by their respective duly authorized officers and the performance by such
entities of their respective obligations hereunder. Nothing in the articles of
incorporation or bylaws of Jefferson or AcquisitionCo, as amended, or any other
agreement, instrument, decree, proceeding, law or regulation (except as
specifically referred to in or contemplated by this Agreement) by or to which
either of them or any of their subsidiaries are bound or subject would prohibit
or inhibit Jefferson or AcquisitionCo from entering into and consummating this
Agreement, the Merger or any other transactions contemplated hereby, on the
terms and conditions herein contained. This Agreement has been duly and validly
executed and delivered by Jefferson and AcquisitionCo and constitutes a legal,
valid and binding obligation of Jefferson and AcquisitionCo, enforceable against
Jefferson and AcquisitionCo in accordance with its terms (except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
receivership, conservatorship,
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moratorium or other laws affecting creditors' rights generally or the rights of
creditors of savings institutions, the accounts of which savings institutions
are insured by the Savings Association Insurance Fund of the F.D.I.C. or laws
relating to the safety and soundness of insured financial institutions and by
judicial discretion in applying principles of equity), and no other corporate
acts or proceedings are required to be taken by Jefferson or AcquisitionCo to
authorize the execution, delivery and performance of this Agreement. Except for
the requisite approval of the O.T.S. and the T.S.L.D., no notice to, filing
with, authorization by, or consent or approval of, any federal or state
regulatory authority is necessary for the execution and delivery of this
Agreement or consummation of the Merger by Jefferson or AcquisitionCo. Jefferson
and AcquisitionCo are not in default under or in violation of any provision of
their respective articles of incorporation, bylaws or any promissory note,
indenture or any evidence of indebtedness or security therefor, lease, contract,
purchase or other commitment or any other agreement which is material to
Jefferson or AcquisitionCo, as applicable.
SECTION 3.03. SUBSIDIARIES. Each of Jefferson's significant subsidiaries
------------ ------------
(as such term is defined under S.E.C. regulations) and AcquisitionCo is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the corporate power to own its
respective properties and assets, to incur its respective liabilities and to
carry on its respective business as now being conducted.
SECTION 3.04. FINANCIAL INFORMATION. The consolidated balance sheets of
------------ ---------------------
Jefferson and its subsidiaries as of December 31, 1995 and 1994 and related
consolidated statements of income, changes in stockholders' equity and cash
flows for the three (3) years ended December 31, 1995, together with the notes
thereto, included in Jefferson's Annual Report on Form 10-K for the year ended
December 31, 1995, and the unaudited consolidated balance sheet of Jefferson and
its subsidiaries as of March 31, 1996 and the related unaudited consolidated
income statement for the three (3) months then ended included in Jefferson's
Quarterly Report on Form 10-Q for the quarter then ended, as currently on file
with the S.E.C. (together, the "Jefferson Financial Statements"), have been
prepared in accordance with GAAP applied on a consistent basis (except as
disclosed therein) and fairly present the consolidated financial position and
the consolidated results of operations, changes in stockholders' equity and cash
flows of Jefferson and its consolidated subsidiaries as of the dates and for the
periods indicated (subject, in the case of interim financial statements, to
normal recurring year-end adjustments, none of which will be material, and the
absence of footnotes).
SECTION 3.05. ABSENCE OF CHANGES. Since December 31, 1995, there has not
------------ ------------------
been any material adverse change in the financial condition, the results of
operations or the business or prospects of Jefferson and its subsidiaries taken
as a whole, nor have there been any events or transactions having such a
material adverse effect which should be disclosed in order to make the Jefferson
Financial Statements not misleading.
SECTION 3.06. LITIGATION. There is no litigation, claim or other
------------ ----------
proceeding pending or, to the knowledge of Jefferson, threatened, against
Jefferson or any of its subsidiaries, or of which the property of Jefferson or
any of its subsidiaries is or would be subject which, if adversely determined,
would have a material adverse affect on the business of Jefferson and its
subsidiaries taken as a whole.
SECTION 3.07. REPORTS. Each of Jefferson and its significant subsidiaries
------------ -------
has filed all reports and statements, together with any amendments required to
be made with respect thereto, that it was required to file with (i) the S.E.C.,
(ii) the O.T.S., (iii) the F.D.I.C., (iv) any state securities, banking or
thrift
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authorities having jurisdiction over Jefferson or any of its significant
subsidiaries, (v) Nasdaq and (vi) any other governmental authority with
jurisdiction over Jefferson or any of its significant subsidiaries. As of their
respective dates, each of such reports and documents, as amended, including the
financial statements, exhibits and schedules thereto, complied in all material
respects with the relevant statutes, rules and regulations enforced or
promulgated by the regulatory authority with which they were filed, and did not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
SECTION 3.08. COMPLIANCE WITH LAW. Jefferson and its significant
------------ -------------------
subsidiaries have all licenses, franchises, permits and other governmental
authorizations that are legally required to enable them to conduct their
respective businesses in all material respects and are in compliance in all
material respects with all applicable laws and regulations.
SECTION 3.09. STATEMENTS TRUE AND CORRECT. None of the information
------------ ---------------------------
supplied or to be supplied by Jefferson or AcquisitionCo for inclusion in (i)
the Registration Statement (as defined in Section 4.07 hereof), (ii) the Proxy
Statement/Prospectus (as defined in Section 4.03 hereof) and (iii) any document
to be filed with the S.E.C., or any thrift or other regulatory authority in
connection with the transactions contemplated hereby, will, at the respective
times such documents are filed, and, in the case of the Registration Statement,
when it becomes effective, and, with respect to the Proxy Statement/Prospectus,
when first mailed to the shareholders of L & B, 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/Prospectus or any amendment thereof or supplement thereto, at
the time of the Stockholders' Meeting, be false or misleading with respect to
any material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Stockholders' Meeting. All documents that Jefferson or
AcquisitionCo is responsible for filing with the S.E.C., the O.T.S. or any other
regulatory authority in connection with the transactions contemplated hereby
will comply as to form in all material respects with the provisions of
applicable law and any rules and regulations thereunder.
SECTION 3.10. BROKERAGE. There are no existing claims or agreements for
------------ ---------
brokerage commissions, finders' fees, or similar compensation in connection with
the transactions contemplated by this Agreement payable by Jefferson or
AcquisitionCo.
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SECTION 3.11. REGULATORY ENFORCEMENT MATTERS. Neither Jefferson nor
------------ ------------------------------
AcquisitionCo, nor any of Jefferson's other subsidiaries, is subject to, and
none of them have received any notice or advice that any may become subject to,
any order, agreement, memorandum of understanding or other regulatory
enforcement action or proceeding with or by any federal or state agency charged
with the supervision or regulation of thrifts or thrift holding companies or
engaged in the insurance of thrift deposits or any other governmental agency
having supervisory or regulatory authority with respect to Jefferson or
AcquisitionCo or any of Jefferson's other subsidiaries.
SECTION 3.12. TAX MATTERS. Jefferson and AcquisitionCo have filed all
------------ -----------
federal, state and material local tax returns due in respect of their respective
business or properties in a timely fashion and have paid or made provision for
all amounts due as shown on such returns. All such returns fairly reflect the
information required to be presented therein. All provisions for accrued but
unpaid taxes contained in the Jefferson Financial Statements were made in
accordance with GAAP applied on a consistent basis and in the aggregate do not
materially fail to provide for potential tax liabilities.
SECTION 3.13. UNDISCLOSED LIABILITIES. Jefferson and AcquisitionCo have no
------------ -----------------------
material liability, whether known or unknown, asserted or unasserted, absolute
or contingent, accrued or unaccrued, liquidated or unliquidated, and whether due
or to become due (and there is no past or present fact, situation, circumstance,
condition or other basis for any present or future action, suit or proceeding,
hearing, charge, complaint, claim or demand against Jefferson or AcquisitionCo
giving rise to any such liability), except for liabilities set forth in the
Jefferson Financial Statements.
SECTION 3.14. CURRENT PUBLIC INFORMATION. For purposes of determining
----------- --------------------------
compliance with the provisions of Rule 145 of the Securities Act of 1933, as
amended (the Securities Act"), for each person who may be deemed an "affiliate"
of L & B within the meaning of such term as used in Rule 145, Jefferson meets
the requirements of Rule 144(c) under the Securities Act.
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ARTICLE FOUR
------------
AGREEMENTS OF L & B
-------------------
SECTION 4.01. BUSINESS IN ORDINARY COURSE.
------------ ---------------------------
(a) L & B shall not declare and/or pay any dividend or make any other
distribution to shareholders, whether in cash, stock or other property, after
the date of this Agreement and prior to the Effective Time or the earlier
termination hereof, except that L & B may, upon prior written notice to
Jefferson, declare and/or pay regular quarterly cash dividends on the L & B
Common in such amounts and at such times as are consistent with L & B's
historical practices.
(b) L & B shall, and shall cause each of its subsidiaries to, continue to
carry on after the date hereof their respective businesses and the discharge or
incurrence of obligations and liabilities, only in the usual, regular and
ordinary course of business, as heretofore conducted, and by way of
amplification and not limitation, L & B shall not, and shall cause each of its
subsidiaries not to, after the date of this Agreement, without the prior written
consent of Jefferson:
(i) make any changes in the authorized capital stock of L & B or any of
its subsidiaries; or
(ii) except as contemplated by any written agreements in existence on
June 25, 1996, (1) issue or sell any shares of L & B Common or other capital
stock of L & B or its subsidiaries, (2) grant or issue any options, warrants,
or other rights to subscribe for or purchase shares of L & B Common or any
other capital stock of L & B or its subsidiaries, (3) grant any awards to
acquire shares of L & B Common under or pursuant to the L & B Retention Plan;
(4) issue or sell any securities convertible into or exchangeable for any
capital stock of L & B or its subsidiaries; or
(iii) directly or indirectly redeem, purchase or otherwise acquire any
L & B Common or any other capital stock of L & B or its subsidiaries;
provided, however, that L & B shall transfer into treasury 4,500 shares of L
& B Common from the 40,000 shares of L & B Common presently owned by the L &
B Retention Plan trust and held for award under the L & B Retention Plan; or
(iv) effect a reclassification, recapitalization, splitup, exchange of
shares, readjustment or other similar change in or to any capital stock of L
& B or its subsidiaries or otherwise reorganize or recapitalize; or
(v) change its charter or articles of incorporation or association, as
the case may be, or bylaws; or
(vi) except as contemplated by written agreements in existence on June
25, 1996, grant any increase (other than ordinary and normal increases
consistent with past practices) in the compensation payable or to become
payable to directors, officers or salaried employees, grant any stock options
or, except as required by law, adopt or make any change in any bonus,
insurance, pension, or other Employee Plan, agreement, payment or arrangement
made to, for or with any of such directors, officers or employees; or
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(vii) borrow or agree to borrow any amount of funds, or directly or
indirectly guarantee or agree to guarantee any obligations of others, except
for borrowings in the ordinary course of business from the Federal Home Loan
Bank of Dallas and sales of mortgage loans into the secondary market made in
the ordinary course of business and with recourse or obligation to
repurchase; or
(viii) except for loans made pursuant to commitments outstanding on
June 30, 1996, make or commit to make any new loan or letter of credit or any
new or additional discretionary advance under any existing line of credit, in
principal amounts in excess of $500,000 or that would increase the aggregate
credit outstanding to any one borrower (or group of affiliated borrowers) to
more than $500,000 (excluding for this purpose any accrued interest or
overdrafts), without the prior written consent of Jefferson, acting through
its Chief Credit Officer or such other designee as Jefferson may specify in a
written notice to L & B; or
(ix) purchase or otherwise acquire any investment security for its own
account having an average remaining life to maturity greater than five years
or any asset-backed securities other than those issued or guaranteed by the
Government National Mortgage Association, the Federal National Mortgage
Association or the Federal Home Loan Mortgage Corporation (and L & B and its
subsidiaries shall consult and confer with Jefferson with respect to all
securities transactions, even in circumstances where approval is not required
hereunder); or
(x) increase or decrease the rate of interest paid on time deposits, or
on certificates of deposit, except in a manner and pursuant to policies
consistent with past practices; or
(xi) enter into any agreement, contract or commitment out of the
ordinary course of business or having a term in excess of three (3) months
other than letters of credit, loan agreements, deposit agreements, and other
lending, credit and deposit agreements and documents made in the ordinary
course of business; or
(xii) except in the ordinary course of business, place on any of its
assets or properties any mortgage, pledge, lien, charge, or other
encumbrance, except to secure borrowings permitted under paragraph (vii) of
this Section 4.01(b); or
(xiii) except in the ordinary course of business, cancel or accelerate
any material indebtedness owing to L & B or its subsidiaries or any claims
which L & B or its subsidiaries may possess or waive any material rights with
respect thereto; or
(xiv) sell or otherwise dispose of any real property or any tangible or
intangible personal property having a value on the books of L & B or its
subsidiary in excess of $25,000 other than properties acquired in foreclosure
or otherwise in the ordinary collection of indebtedness to L & B and its
subsidiaries, except that, upon receipt of the agreements contemplated by
Section 4.12 hereof, L & B may transfer, or cause to be transferred, to C.
Glynn Lowe and Daniel M. Phillips, respectively, life insurance policies
owned by L & B or a subsidiary thereof under which C. Glynn Lowe and Daniel
M. Phillips are, respectively, the insured; or
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(xv) foreclose upon or otherwise take title to or possession or control
of any real property without first obtaining a phase one environmental report
thereon which does not reflect the need for further environmental assessment;
provided, however, that L & B and its subsidiaries shall not be required to
obtain such a report with respect to single family, non-agricultural
residential property of one acre or less to be foreclosed upon unless it has
reason to believe that such property might contain any such waste materials
or otherwise might be contaminated; or
(xvi) commit any act or fail to do any act which will cause a breach of
any agreement, contract or commitment and which will have a material adverse
effect on L & B's and/or its subsidiaries' business, financial condition, or
earnings; or
(xvii) violate any law, statute, rule, governmental regulation, or
order, which violation might have a material adverse effect on L & B's and/or
its subsidiaries' business, financial condition, or earnings; or
(xviii) purchase any real or personal property or make any other
capital expenditure where the amount paid or committed therefor is in excess
of $50,000; or
(xix) prepay any outstanding principal amount under any loan agreement
relative to the ESOP or make any interim allocations of additional shares of
L & B Common to participants under the ESOP, other than an annual allocation
as may be required under the terms of the ESOP; or
(xx) amend, modify or supplement any Employee Plans (including, but not
limited to, the ESOP) or distribute to employees of L & B and its
subsidiaries any revised summary plan descriptions or supplements to summary
plan descriptions relative to any of the Employee Plans.
(c) L & B and its subsidiaries shall not, without the prior written consent
of Jefferson, engage in any transaction or take any action that would render
untrue in any material respect any of the representations and warranties of L &
B contained in Article Two hereof, if such representations and warranties were
given as of the date of such transaction or action.
(d) L & B shall promptly notify Jefferson in writing of the occurrence of any
matter or event known to and directly involving L & B or any of its
subsidiaries, which would not include any changes in conditions that affect the
banking or thrift industry generally, that is materially adverse to the
business, operations, properties, assets, or condition (financial or otherwise)
of L & B and its subsidiaries taken as a whole.
(e) L & B shall (i) not, directly or indirectly, through any of its
directors, officers, employees, agents, affiliates or other representatives,
solicit, initiate or encourage any inquiries or proposals with respect to, or
without prior written notice to Jefferson, participate in or encourage any
negotiations leading to any offers or proposals concerning the possible sale or
other disposition of all or substantially all of the assets or capital stock of
L & B or any of its subsidiaries to, or merger of consolidation of L & B or any
of its subsidiaries with, any other person, (ii) not disclose any information
not customarily disclosed to any person or provide access to its properties,
books or records or otherwise assist or encourage any person in connection with
any of the foregoing, and (iii) give Jefferson prompt (which for this purpose
shall mean
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within 24 hours) written notice of any such inquiries, offers or proposals,
including the name of the other party or parties and the substance of any
inquiry, offer or proposal.
SECTION 4.02. BREACHES. L & B shall, in the event it has knowledge of the
------------ --------
occurrence, or impending or threatened occurrence, of any event or condition
which would cause or constitute a failure of any condition precedent to any
party's obligation to effect the Merger or a breach (or would have caused or
constituted a breach had such event occurred or been known prior to the date
hereof) of any of its representations or agreements contained or referred to
herein, give prompt written notice thereof to Jefferson and use its best efforts
to prevent or promptly remedy the same.
SECTION 4.03. SUBMISSION TO SHAREHOLDERS. L & B shall cause to be duly
------------ --------------------------
called and held, on a date mutually selected by Jefferson and L & B, a meeting
of the shareholders of L & B (the "Stockholders' Meeting") for submission of
this Agreement and the Merger for approval of such share holders as required by
the Texas Corporate Law. In connection with the Stockholders' Meeting, (i) L &
B shall cooperate and assist Jefferson in preparing and filing a Proxy
Statement/Prospectus (the "Proxy Statement/Prospectus") with the S.E.C., the
O.T.S. and the T.S.L.D., if required, and upon receipt of any required approval
or clearance from any such regulatory agency, L & B shall mail such Proxy
Statement/Prospectus to its shareholders, (ii) L & B shall furnish Jefferson all
information concerning L & B and its subsidiaries that Jefferson may reasonably
request in connection with such Proxy Statement/Prospectus, and (iii) the Board
of Directors of L & B shall (subject to compliance with its fiduciary duties as
advised by counsel) recommend to its shareholders the approval of this Agreement
and the Merger and use its best efforts to obtain such shareholder approval.
SECTION 4.04. CONSENTS TO CONTRACTS AND LEASES. L & B shall use its best
------------ --------------------------------
efforts to obtain all necessary consents with respect to all interests of L & B
and its subsidiaries in any material leases, licenses, contracts, instruments
and rights which require the consent of another person for their transfer or
assumption pursuant to the Merger, if any.
SECTION 4.05. MERGER EXPENSES AND RELATED MATTERS.
------------ -----------------------------------
(a) L & B and Jefferson shall consult and cooperate with each other with
respect to determining, as specified in a written notice from Jefferson to L &
B, based upon such consultation and as hereinafter provided, the amount and the
timing for recognizing for financial accounting purposes the expenses of the
Merger and the restructuring charges related to or to be incurred in connection
with the Merger.
(b) From and after the date of this Agreement to the Effective Time, L & B
shall, to the extent required under Section 412 of the Code or Section 302 of
ERISA, maintain and keep all of its benefit plans (including, but not limited
to, defined contribution plans and deferred compensation plans) fully funded,
and shall, to the extent any such benefit plan may not be fully funded, make
such contributions as are necessary to fully fund any such unfunded benefit
plan; provided, however, that L & B or any of its subsidiaries which has
withheld amounts from the compensation of any employee pursuant to a salary
reduction agreement or other contribution agreement under a plan, including but
not limited to a plan intended to be qualified under Section 401(k) or Section
125 of the Code, shall not be required to actually contribute or otherwise apply
such amounts to such plan prior to the date otherwise required pursuant to
Section 3 of ERISA and Section 2510.3-102(a) of the Regulations issued by the
Secretary of Labor.
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SECTION 4.06. CONFORMING ACCOUNTING AND RESERVE POLICIES.
------------ ------------------------------------------
(a) At the request of Jefferson, L & B shall, prior to the Closing Date,
establish and take such reserves and accruals as Jefferson shall request so as
to conform L & B's loan, accrual, reserve and other accounting policies to
Jefferson's policies, establish and take such accruals, reserves and charges in
order to implement such policies in respect of excess facilities and equipment
capacity, severance costs, litigation matters, write-off or write-down of
various assets and other appropriate accounting adjustments, and recognize for
financial accounting purposes such expenses of the Merger and restructuring
charges related to or to be incurred in connection with the Merger, in each case
at such times as are mutually agreeable to Jefferson and L & B; provided,
however, that L & B shall not be required to take any such action that is not
consistent with GAAP.
(b) No accrual or other adjustment made by L & B pursuant to the provisions
of this Section 4.06 shall constitute an acknowledgment by L & B or create any
implication, for any purpose, that such accrual or adjustment was necessary for
any purpose other than to comply with the provisions of this Section 4.06.
(c) The calculation of L & B's consolidated earnings during the Earnings
Period for the purpose of determining the Basic Merger Consideration shall be
unaffected by any accrual or adjustment made by L & B at the request of
Jefferson pursuant to this Section 4.06.
SECTION 4.07. CONSUMMATION OF AGREEMENT. L & B shall use its best efforts
------------ -------------------------
to perform and fulfill all conditions and obligations on its part to be
performed or fulfilled under this Agreement, to effect the Merger in accordance
with the terms and provisions hereof and to obtain all necessary approvals and
consents on its part to be obtained pursuant to this Agreement. L & B shall
furnish to Jefferson in a timely manner all information, data and documents in
the possession of L & B or its subsidiaries requested by Jefferson as may be
required to obtain any necessary regulatory or other approvals of the Merger or
to file with the S.E.C. a registration statement on Form S-4 (the "Registration
Statement") relating to the shares of Jefferson Common to be issued to the
shareholders of L & B pursuant to the Merger and this Agreement and shall
otherwise cooperate fully with Jefferson to carry out the purpose and intent of
this Agreement.
SECTION 4.08. ENVIRONMENTAL REPORTS. L & B shall provide to Jefferson, as
------------ ---------------------
soon as reasonably practical, but not later than forty-five (45) days after the
date hereof, a report ("Phase I Report") of a phase one environmental site
assessment ("Phase I ESA") on all real property owned, leased or operated by L &
B or its subsidiaries as of the date hereof (other than space in retail and
similar establishments leased or operated by L & B for automatic teller
machines) and within ten (10) days after the acquisition or lease of any real
property acquired, leased or operated by L & B or its subsidiaries after the
date hereof (other than space in retail and similar establishments leased or
operated by L & B for automatic teller machines), except as otherwise provided
in Section 4.01(b)(xv). If required by the Phase I ESA in Jefferson's
reasonable opinion, and upon written request from Jefferson to L & B within
fifteen (15) business days of Jefferson receipt of such Phase I Reports, L & B
shall provide to Jefferson as soon as reasonably practicable a report ("Phase II
Report") of a phase two investigation on properties requiring such additional
study. Jefferson shall have fifteen (15) business days from the receipt of any
Phase II Report to notify L & B of any objection to the contents of such report.
Should the cost to L & B and/or any of its subsidiaries of taking all remedial
and corrective actions and measures (i) required by applicable law, or (ii)
recommended or suggested by any such Phase I Report or Phase II Report, or (iii)
prudent in light of
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serious life, health or safety concerns (the "Remediation Cost"), in the
aggregate, exceed the sum of One Hundred Thousand Dollars ($100,000) as
reasonably estimated by an environmental expert retained for such purpose by
Jefferson and reasonably acceptable to L & B, or if the Remediation Cost cannot
be so reasonably estimated by such expert to be less than of $100,000, with any
reasonable degree of certainty, then Jefferson shall have the right pursuant to
Section 7.03 hereof, for a period of ten (10) business days following receipt of
such estimate or indication that the Remediation Cost cannot be so reasonably
estimated, to terminate this Agreement by giving written notice thereof to L &
B.
SECTION 4.09. RESTRICTION ON RESALES. L & B shall obtain and deliver to
------------ ----------------------
Jefferson, at least thirty-one days prior to the Closing Date, the signed
agreement, in the form of Exhibit 4.08 hereto, of each person who may reasonably
be deemed an "affiliate" of L & B within the meaning of such term as used in
Rule 145 under the Securities Act regarding compliance with the provisions of
such Rule 145.
SECTION 4.10. ACCESS TO INFORMATION. L & B shall permit Jefferson and
------------ ---------------------
AcquisitionCo, and their respective accountants, attorneys or other
representatives, reasonable access, at all reasonable times during normal
business hours and in a manner which will avoid undue disruption or interference
with the normal operations of L & B and its subsidiaries and subject to certain
laws and practices regarding confidentiality and privilege, to the properties of
L & B and its subsidiaries and shall disclose and make available to Jefferson
and AcquisitionCo, and their respective accountants, attorneys or other
representatives, all corporate, business and accounting books, documents, papers
and records relating to the assets, stock, ownership, properties, operations,
obligations and liabilities of L & B and its subsidiaries, including, but not
limited to, all books of account (including the general ledger), tax records,
minute books of directors' and shareholders' meetings, organizational documents,
material contracts and agreements, loan files, filings with any regulatory
authority, accountants' workpapers (if available and subject to the respective
independent accountants' consent), litigation files (but only to the extent that
such review would not result in a material waiver of the attorney-client or
attorney work product privileges under the rules or evidence), plans affecting
employees, reports of examination by regulatory authorities and related
correspondence, internal audit reports and reviews and related work papers,
internal loan review reports, and any other business activities or prospects in
which Jefferson or AcquisitionCo may have a reasonable and legitimate interest
in furtherance of the transactions contemplated by this Agreement. In addition,
Jefferson and AcquisitionCo, and their respective accountants, attorneys or
other representatives, at all reasonable times during normal business hours and
in a manner which will avoid undue disruption or interference with the normal
operations of L & B and its subsidiaries, may make such accounting, financial
and operating inspections, reviews and analyses with respect to auditors'
reports and such other financial statements concerning L & B and its
subsidiaries, and perform such other tests or reviews as Jefferson or
AcquisitionCo may reasonably request. L & B shall deliver to Jefferson within
ten (10) business days after the date hereof a true, accurate and complete copy
of each written plan or program disclosed in Section 2.13(c) of the Disclosure
Schedule and, with respect to each such plan or program, all (i) amendments or
supplements thereto, (ii) summary plan descriptions, (iii) lists of all current
participants and all participants with benefit entitlements, (iv) contracts
relating to plan documents, (v) actuarial valuations for any defined benefit
plan, (vi) valuations for any plan as of the most recent date, (vii)
determination letters from the Internal Revenue Service, (viii) the most recent
annual report filed with the Internal Revenue Service, (ix) registration
statements on Form S-8 and prospectuses, and (x) trust agreements. Jefferson
will hold any such information which is nonpublic in confidence in accordance
with the provisions of Section 8.01 hereof. Furthermore, Jefferson and
AcquisitionCo, and their respective accountants, attorneys or other
representatives, shall be permitted to contact and consult with the
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accounting firm or personnel responsible for preparing the L & B Financial
Statements or any other audited financial information concerning L & B or its
subsidiaries.
SECTION 4.11. SUBSIDIARY MERGER. Upon the request of Jefferson, L & B
------------ -----------------
shall cause the Savings Bank to enter into a merger agreement with First Federal
Savings Bank of North Texas, a federal savings bank and wholly owned subsidiary
of Jefferson, and take all other actions and cooperate with Jefferson in order
to prepare for and cause such merger (the "Subsidiary Merger") to be effected.
Such subsidiary merger agreement shall provide, in addition to customary terms
for mergers of subsidiaries in transactions such as this: (i) for consummation
of such Subsidiary Merger at a time on or after the Effective Time, as may be
selected by Jefferson; and (ii) that the obligations of the Savings Bank
thereunder are conditioned on the prior or simultaneous consummation of the
Merger pursuant to this Agreement.
SECTION 4.12. TERMINATION OF DEFERRED COMPENSATION AGREEMENTS. L & B shall
------------ -----------------------------------------------
obtain and deliver to Jefferson prior to the Closing Date, the signed agreements
of each of Messrs C. Glynn Lowe and Daniel M. Phillips regarding termination of
the Deferred Compensation Agreements, each dated November 17, 1987, between
Sulphur Springs Loan and Building Association and each such person, (which such
termination shall be effective on at the Effective Time) and the release of all
liabilities and obligations thereunder.
SECTION 4.13. MAIN OFFICE PARKING LOT AND MT. VERNON BRANCH.
------------ ---------------------------------------------
(a) L & B shall obtain, on terms reasonably satisfactory to L & B, and
deliver to Jefferson prior to the Closing Date a copy of a lease agreement,
satisfactory to Jefferson, or satisfactory evidence of ownership with respect to
that certain parking lot (including all improvements thereon) located
immediately adjacent to the Savings Bank's home office at 306 North Davis
Street, Sulphur Springs, Texas.
(b) L & B shall deliver to Jefferson prior to the Closing Date a copy of a
lease, on terms satisfactory to Jefferson, with respect to the Savings Bank's
branch office located at 101 Kaufman, Mt. Vernon, Texas.
ARTICLE FIVE
------------
AGREEMENTS OF JEFFERSON AND ACQUISITIONCO
-----------------------------------------
SECTION 5.01. REGULATORY APPROVALS AND REGISTRATION STATEMENT. Jefferson
------------ -----------------------------------------------
shall file, or cause to be filed, all regulatory applications required in order
to consummate the Merger, including but not limited to the necessary
applications for the prior approval of the O.T.S. and the T.S.L.D. Jefferson
shall file or cause to be filed with the S.E.C. the Registration Statement on
Form S-4 relating to the shares of Jefferson Common to be issued to the
shareholders of L & B pursuant to this Agreement, including shares to be issued
pursuant to subsections (c) and (d) of Section 1.05, and shall use its best
efforts to cause the Registration Statement to become effective. Jefferson
shall also cause the shares of Jefferson Common issued pursuant to this
Agreement to be qualified for trading on the Nasdaq National Market. Jefferson
shall keep L & B reasonably informed as to the status of such applications and
filings and make available to L & B, prior to making all such applications and
filings and upon reasonable request by L & B from time to time, copies of such
applications and any supplementally filed materials and promptly make available
25
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to L & B copies of any comment letters and any other materials received by
Jefferson in connection therewith, and L & B shall be permitted to participate
in the processing of each application and responses thereto. At the time the
Registration Statement becomes effective, the Registration Statement shall
comply in all material respects with the provisions of the Securities Act and
the published rules and regulations thereunder, and shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not false or
misleading, and at the time of mailing thereof to the shareholders of L & B, at
the time of the Stockholders' Meeting and at the Effective Time the Proxy
Statement/Prospectus included as part of the Registration Statement, as amended
or supplemented by any amendment or supplement, shall not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein not false or misleading. Jefferson shall timely
file or caused to be timely filed all documents required to obtain all necessary
permits and approvals from state securities agencies or authorities, if any,
required to carry out the transactions contemplated by this Agreement, shall pay
all expenses incident thereto and shall use its best efforts to obtain such
permits and approvals on a timely basis. Jefferson shall promptly and properly
prepare and file or cause to be properly prepared and filed any other filings
required under the Securities Exchange Act of 1934 (the "Exchange Act") relating
to the Merger and the transactions contemplated herein.
SECTION 5.02. BREACHES. Jefferson shall, in the event it has knowledge of
------------ --------
the occurrence, or impending or threatened occurrence, of any event or condition
which would cause or constitute a breach (or would have caused or constituted a
breach had such event occurred or been known prior to the date hereof) of any of
its representations or agreements contained or referred to herein, give prompt
written notice thereof to L & B and use its best efforts to prevent or promptly
remedy the same.
SECTION 5.03. CONSUMMATION OF AGREEMENT. Jefferson and AcquisitionCo
------------ -------------------------
shall use their respective best efforts to perform and fulfill all conditions
and obligations on their part to be performed or fulfilled under this Agreement,
to effect the Merger in accordance with the terms and conditions of this
Agreement, and to obtain all necessary approvals and consents on their
respective parts to be obtained pursuant to this Agreement.
SECTION 5.04. EMPLOYEE BENEFITS. Jefferson shall, with respect to each
------------ -----------------
person who remains an employee of L & B or its subsidiaries following the
Closing Date (each a "Continued Employee"), provide the benefits described in
this Section 5.04. Subject to the right of subsequent amendment, modification
or termination in Jefferson's sole discretion, each Continued Employee shall be
entitled, as a new employee of a subsidiary of Jefferson, to participate in such
employee benefit plans, as defined in Section 3(3) of ERISA, or any non-
qualified employee benefit plans or deferred compensation, stock option, bonus
or incentive plans, or other employee benefit or fringe benefit programs that
may be in effect generally for employees of all of Jefferson subsidiaries (the
"Jefferson Plans"), if and as a Continued Employee shall be eligible and, if
required, selected for participation therein under the terms thereof and
otherwise shall not be participating in a similar plan which is maintained by L
& B after the Effective Time. L & B employees shall participate therein on the
same basis as similarly situated employees of other Jefferson subsidiaries.
Jefferson shall cause each such Continued Employee to be eligible to participate
immediately in the group health plan or plans of Jefferson or the subsidiary
which will employ each such Continued Employee, without the application of any
pre-existing condition exclusion or limitation which would otherwise apply with
respect to such Continued Employee or his or her dependents provided that such
Continued Employee is not, as of the Closing Date, subject to any such exclusion
or limitation with respect to any similar group health plan or plans maintained
by L & B or its subsidiaries. Subject only to the foregoing, all such
26
<PAGE>
participation shall be subject to the terms of such plans as may be in effect
from time to time and this Section 5.04 is not intended to give Continued
Employees any rights or privileges superior to those of other employees of
Jefferson subsidiaries. Jefferson may terminate or modify all Employee Plans and
Jefferson's obligation under this Section 5.04 shall not be deemed or construed
so as to provide duplication of similar benefits but, subject to that
qualification, Jefferson shall, for purposes of vesting and any age or period of
service requirements for commencement of participation with respect to any
Jefferson Plans in which Continued Employees may participate, credit each
Continued Employee with his or her term of service with L & B and its
subsidiaries.
SECTION 5.05. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE AND
------------ ------------------------------------------------
INDEMNIFICATION.
---------------
(a) Following the Effective Time, Jefferson shall provide the present and
former directors and officers of L & B and its subsidiaries, regardless of
whether or not such persons are employed or serve thereafter, with the same
directors' and officers' liability insurance coverage that Jefferson provides to
directors and officers of its other thrift subsidiaries generally, and, in
addition, for a period of three years following the Effective Time, Jefferson
shall use its best efforts to continue L & B's directors' and officers'
liability insurance coverage with respect to actions occurring prior to the
Effective Time to the extent that such coverage is obtainable for an aggregate
premium not to exceed the annual premium presently being paid by L & B. If the
premium for such insurance coverage would exceed such maximum amount, Jefferson
shall use its best efforts to procure such level of insurance as can be obtained
for a premium equal to such maximum amount.
(b) For a period of six years after the Effective Time, Jefferson and
AcquisitionCo (the survivor of the Merger) shall jointly and severally
indemnify, defend and hold harmless the present and former officers, directors,
employees and agents of L & B and its subsidiaries, including persons who have
served as fiduciaries of Employee Plans, at the Effective Time (each, an
"Indemnified Party"), regardless of whether or not such persons are employed or
serve thereafter, against all losses, expenses, claims, damages or liabilities
arising out of actions or omissions occurring on or prior to the Effective Time
to the full extent then permitted by the Corporate Law and by L & B's articles
of incorporation or bylaws and the articles of association or bylaws of L & B's
subsidiaries as in effect on the date hereof, including provisions relating to
advancement of expenses incurred in the defense of any action or suit.
(c) If after the Effective Time AcquisitionCo or any of its successors or
assigns (i) shall consolidate with or merge with and into any other corporation
or entity and shall not be the continuing or surviving corporation or entity, or
(ii) shall transfer all or substantially all of its properties and assets to any
individual, corporation or other entity, then and in each such case, proper
provision shall be made so that the successors and assigns of AcquisitionCo
shall assume any remaining obligations set forth in this Section 5.05. If
AcquisitionCo shall liquidate, dissolve or otherwise wind up its business, then
Jefferson shall indemnify, defend and hold harmless each Indemnified Party to
the same extent and on the same terms that AcquisitionCo was so obligated
pursuant to this Section 5.05.
(d) The provisions of this Section 5.05 are intended to be for the benefit
of, and shall be enforceable by, each of the individuals referred to in
subsections (a) and (b) of this Section 5.05 and their respective heirs and
personal representatives.
27
<PAGE>
SECTION 5.06. ACCESS TO INFORMATION. Jefferson shall permit L & B and its
------------ ---------------------
accountants, attorneys or other representatives, reasonable access, at all
reasonable times during normal business hours and in a manner which will avoid
undue disruption or interference with the normal operations or Jefferson or its
subsidiaries and subject to certain laws and practices regarding confidentiality
and privilege, to the properties of Jefferson and its significant subsidiaries
and shall disclose and make available to L & B and its accountants, attorneys or
other representatives, all corporate, business and accounting books, documents,
papers and records relating to the assets, stock, ownership, properties,
operations, obligations and liabilities of Jefferson and its significant
subsidiaries, including, but not limited to, all books of account (including the
general ledger), tax records, minute books of directors' and shareholders'
meetings, organizational documents, material contracts and agreements, loan
files, filings with any regulatory authority, accountants' workpapers (if
available and subject to the respective independent accountants' consent),
litigation files (but only to the extent that such review would not result in a
material waiver of the attorney-client or attorney work product privileges under
the rules of evidence), plans affecting employees, reports of examination by
regulatory authorities and related correspondence, internal audit reports and
reviews and related work papers, internal loan review reports, and any other
business activities or prospects in which L & B may have a reasonable and
legitimate interest in furtherance of the transactions contemplated by this
Agreement. In addition, L & B and its accountants, attorneys or other
representatives, at all reasonable times during normal business hours and in a
manner which will avoid undue disruption or interference with the normal
operations of Jefferson and its significant subsidiaries, may make such
accounting, financial and operating inspections, reviews and analyses with
respect to auditors' reports and such other financial statements concerning
Jefferson and/or its significant subsidiaries, and perform such other tests as L
& B may reasonably request. L & B and its accountants, attorneys or other
representatives shall be permitted to contact and consult with the accounting
firm or personnel responsible for preparing the Jefferson Financial Statements
or any other audited financial information concerning Jefferson or its
significant subsidiaries.
SECTION 5.07. NOTICE OF CERTAIN EVENTS. Jefferson shall promptly notify L &
------------ ------------------------
B in writing of the occurrence of any matter or event known to and directly
involving Jefferson or any of its subsidiaries, which would not include any
changes in conditions that affect the banking or thrift industry generally, that
is materially adverse to the business, operations, properties, assets, or
condition (financial or otherwise) of Jefferson and its subsidiaries taken as a
whole.
ARTICLE SIX
-----------
CONDITIONS PRECEDENT TO THE MERGER
----------------------------------
SECTION 6.01. CONDITIONS TO JEFFERSON'S AND ACQUISITIONCO'S OBLIGATIONS.
------------ ---------------------------------------------------------
Jefferson's and AcquisitionCo's obligations to effect the Merger shall be
subject to the satisfaction (or waiver by Jefferson) prior to or on the Closing
Date of the following conditions:
(a) Except for changes specifically referred to in this Agreement, the
representations and warranties made by L & B in this Agreement shall be true in
all material respects on and as of the Closing Date with the same effect as
though such representations and warranties had been made or given on and as of
the Closing Date;
28
<PAGE>
(b) L & B shall have performed and complied in all material respects with all
of its obligations and agreements required to be performed on or prior to the
Closing Date under this Agreement;
(c) No temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger shall be in
effect, nor shall any proceeding by any bank or thrift regulatory authority or
other person seeking any of the foregoing be pending. There shall not be any
action taken, or any statute, rule, regulation or order enacted, entered,
enforced or applicable to the Merger which makes the consummation of the Merger
illegal;
(d) All necessary regulatory approvals, consents, authorizations and other
approvals required by law for consummation of the Merger shall have been
obtained and all waiting periods required by law shall have expired;
(e) Jefferson shall have received the environmental reports required by
Section 4.08 hereof, and shall not have elected, pursuant to Section 7.03
hereof, to terminate and cancel this Agreement;
(f) Jefferson shall have received all documents required to be received from
L & B on or prior to the Closing Date, all in form and substance reasonably
satisfactory to Jefferson;
(g) The Registration Statement shall be effective under the Securities Act
and no stop orders suspending the effectiveness of the Registration Statement
shall be in effect or proceedings for such purpose pending before or threatened
by the S.E.C.; and
(h) Jefferson shall have received an opinion of its counsel, addressed to the
board of directors of each of Jefferson and L & B, to the effect that, for
federal income purposes, the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code and that, accordingly, for federal tax
purposes (i) gain will be realized by each holder of shares of L & B Common who
receives both Jefferson Common and cash in exchange for his or her L & B Common
and will be recognized, but not in excess of the amount of cash received, (ii)
the aggregate tax basis of Jefferson Common received by a shareholder of L & B
will be the same as the aggregate basis of the L & B Common surrendered in
exchange therefor decreased by the amount of cash received by the shareholder
and increased by the amount, if any, treated as a dividend and the amount, if
any, of gain recognized by the shareholder in the exchange, and (iii) the
holding period of Jefferson Common to be received by each L & B shareholder will
include, in each instance, the period in which the shareholder held the L & B
Common surrendered in exchange therefor provided that the L & B Common is held
as a capital asset on the date of exchange.
SECTION 6.02. CONDITIONS TO L & B'S OBLIGATIONS. L & B's obligation to
------------ ---------------------------------
effect the Merger shall be subject to the satisfaction (or waiver by L & B)
prior to or on the Closing Date of the following conditions:
(a) Except for changes specifically required by this Agreement, the
representations and warranties made by Jefferson and AcquisitionCo in this
Agreement shall be true in all material respects on and as of the Closing Date
with the same effect as though such representations and warranties had been made
or given on the Closing Date;
29
<PAGE>
(b) Jefferson and AcquisitionCo shall have performed and complied in all
material respects with all of their obligations and agreements hereunder
required to be performed on or prior to the Closing Date under this Agreement;
(c) No temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger shall be in
effect, nor shall any proceeding by any bank or thrift regulatory authority or
other governmental agency seeking any of the foregoing be pending. There shall
not be any action taken, or any statute, rule, regulation or order enacted,
entered, enforced or applicable to the Merger which makes the consummation of
the Merger illegal;
(d) All necessary regulatory approvals, consents, authorizations and other
approvals, including the requisite approval of this Agreement and the Merger by
the shareholders of L & B, required by law for consummation of the Merger shall
have been obtained and all waiting periods required by law shall have expired;
(e) L & B shall have received all documents required to be received from
Jefferson on or prior to the Closing Date, all in form and substance reasonably
satisfactory to L & B;
(f) L & B shall have received a fairness opinion from its financial advisor
for disclosure to L & B's shareholders in the Proxy Statement/Prospectus, which
fairness opinion has not been withdrawn prior to the Closing Date, to the effect
that the Merger contemplated hereby is fair to the L & B shareholders from a
financial perspective;
(g) The Registration Statement shall be effective under the Securities Act
and no stop orders suspending the effectiveness of the Registration Statement
shall be in effect or proceedings for such purpose pending before or threatened
by the S.E.C.; and
(h) L & B shall have received a copy of the opinion delivered pursuant to
Section 6.01(h) hereto.
ARTICLE SEVEN
-------------
TERMINATION OR ABANDONMENT
--------------------------
SECTION 7.01. MUTUAL AGREEMENT. This Agreement may be terminated by the
------------ ----------------
mutual written agreement of the parties at any time prior to the Closing Date,
regardless of whether approval of this Agreement and the Merger by the
shareholders of L & B shall have been previously obtained.
SECTION 7.02. MATERIAL BREACH. In the event that there is a material
------------ ---------------
breach in any of the representations and warranties or agreements of Jefferson
or L & B, which breach is not cured within thirty (30) days after notice to cure
such breach is given to the breaching party by a non-breaching party, then the
non-breaching party making such cure demand, regardless of whether approval of
this Agreement and the Merger by the shareholders of L & B shall have been
previously obtained, may terminate and cancel this Agreement by providing
written notice of such action to the other party hereto.
30
<PAGE>
SECTION 7.03. ENVIRONMENTAL REPORTS. Jefferson may terminate this
------------ ---------------------
Agreement to the extent provided by Section 4.08 and this Section 7.03 by giving
written notice of such action to L & B.
SECTION 7.04. FAILURE OF CONDITIONS. In the event that any of the
------------ ---------------------
conditions to the obligations of any party are not satisfied or waived on or
prior to the Closing Date, and if any applicable cure period provided in Section
7.02 hereof has lapsed, then the affected party may, regardless of whether
approval of this Agreement and the Merger by the shareholders of L & B shall
have been previously obtained, terminate and cancel this Agreement by delivery
of written notice of such action to the other parties.
SECTION 7.05. REGULATORY APPROVAL DENIAL. If any regulatory application
------------ --------------------------
filed pursuant to Section 5.01 hereof should be finally denied or disapproved by
the respective regulatory authority or if any such regulatory application should
not be finally approved within nine (9) months from the date hereof, then this
Agreement thereupon shall be deemed terminated and canceled; provided, however,
that a request for additional information or undertaking by Jefferson or
AcquisitionCo, as a condition for approval, shall not be deemed to be a denial
or disapproval so long as Jefferson or AcquisitionCo diligently provides the
requested information or undertaking. In the event an application is denied
pending an appeal, petition for review, or similar such act on the part of
Jefferson or AcquisitionCo (hereinafter referred to as the "appeal") then the
application will be deemed denied unless Jefferson or AcquisitionCo prepares and
timely files such appeal and continues the appellate process for purposes of
obtaining the necessary approval.
SECTION 7.06. SHAREHOLDER APPROVAL DENIAL. If this Agreement, the Merger
------------ ---------------------------
and any other transactions contemplated hereby are not approved by the requisite
vote of the shareholders of L & B, then any party may terminate this Agreement
by giving written notice of such action to the other parties.
SECTION 7.07. REGULATORY ENFORCEMENT MATTERS. In the event that L & B or
------------ ------------------------------
any of its subsidiaries shall become a party or subject to any new or amended
written agreement, memorandum of understanding, cease and desist order,
imposition of civil money penalties or other regulatory enforcement action or
proceeding with any federal or state agency charged with the supervision or
regulation of thrifts or thrift holding companies after the date of this
Agreement, then Jefferson or AcquisitionCo may terminate this Agreement.
SECTION 7.08. SHARE COMPONENT FLUCTUATION. If the Jefferson Average Price
------------ ---------------------------
is greater than $33.60 per share or less than $20.00 per share, then this
Agreement may be terminated by any party by giving written notice of such action
to the other parties.
SECTION 7.09. OTHER TERMINATION. If the Closing does not occur within
------------ -----------------
thirty (30) days after the expiration of nine (9) months from the date hereof,
then this Agreement may be terminated by any party by giving written notice of
such action to the other parties, provided that such failure of the Closing to
occur is not the result of the terminating party's default in the performance of
a material obligation or covenant under this Agreement.
31
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SECTION 7.10. TERMINATION FEE.
------------ ---------------
(a) Jefferson shall pay to L & B the sum of Two Hundred Fifty Thousand
Dollars ($250,000.00) as an agreed upon termination fee and as liquidated
damages, in lieu of all remedies at law or in equity and in full satisfaction of
all obligations or liabilities of Jefferson and AcquisitionCo hereunder, upon
the termination of this Agreement by L & B as the result of a material breach of
this Agreement by Jefferson and/or AcquisitionCo which breach has not been cured
by Jefferson and/or AcquisitionCo within thirty (30) days after notice to cure
such breach is given to Jefferson by L & B.
(b) L & B shall pay to Jefferson the sum of Two Hundred Fifty Thousand
Dollars ($250,000.00) as an agreed upon termination fee and as liquidated
damages, in lieu of all remedies at law or in equity and in full satisfaction of
all obligations or liabilities of L & B hereunder, upon the (i) termination of
this Agreement by Jefferson or AcquisitionCo as the result of a material breach
of this Agreement by L & B which breach has not been cured by L & B within
thirty (30) days after notice to cure such breach is given to L & B by Jefferson
or AcquisitionCo (including, without limitation, the execution of an agreement
between L & B or any subsidiary and any third party which is itself a breach of
this Agreement), or (ii) the failure of the L & B shareholders to approve this
Agreement, the Merger and/or any other transactions contemplated hereby at the
Stockholders' Meeting (other than as a result of a material breach of this
Agreement by Jefferson or AcquisitionCo), AND, in either case, the occurrence of
one or more of the following events (a "Triggering Event") within a period of
twenty-four (24) months thereafter:
(i) any person or group of persons (other than Jefferson and/or its
affiliates) shall acquire, or have the right to acquire, more than fifty
percent (50%) of the outstanding shares of L & B Common;
(ii) the expiration date of a tender or exchange offer by any person or
group of persons (other than Jefferson and/or its affiliates) to purchase or
acquire securities of L & B or any of its subsidiaries if upon consummation
of such offer, such person or group of persons would own, control or have the
right to acquire more than fifty percent (50%) of the outstanding shares of L
& B Common or other capital stock of L & B or any of its subsidiaries; or
(iii) the entry by L & B or any of its subsidiaries into a binding
agreement or other understanding with a person or group of persons (other than
Jefferson and/or its affiliates) for such person or group of persons to acquire,
merge or consolidate with L & B or any of its subsidiaries, or to purchase or
acquire L & B or any of its subsidiaries, or all or substantially all of the
assets of L & B or any of its subsidiaries, or more than fifty percent (50%) of
the outstanding shares of L & B Common or other capital stock of L & B or any of
its subsidiaries.
For purposes of this Section 7.10(b), "person" and "group of persons" shall have
the meanings conferred thereon by Section 13(d) of the Exchange Act.
(c) L & B shall notify Jefferson promptly in writing upon its becoming aware
of the occurrence of any Triggering Event.
32
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ARTICLE EIGHT
-------------
GENERAL
-------
SECTION 8.01. CONFIDENTIAL INFORMATION. The parties acknowledge the
------------ ------------------------
confidential and proprietary nature of the "Protected Information" (as herein
described) that has heretofore been exchanged and that will be received from
other parties hereunder and/or their subsidiaries and agree to hold and keep,
and to instruct their respective agents, representatives, shareholders,
affiliates, employees and consultants to hold and keep, such information
confidential in accordance with the terms of that certain Confidentiality
Agreement dated June 25, 1996 among Jefferson, L & B and the Savings Bank, a
copy of which is attached hereto as Exhibit 8.01 and made a part hereof (the
"Confidentiality Agreement"). Such Protected Information will include, in
addition to any information defined as protected pursuant to Section 1(b) of the
Confidentiality Agreement, any and all financial, technical, commercial,
marketing, customer or other information concerning the business, operations and
affairs of a party or any subsidiary that may be provided to the other,
irrespective of the form of the communications, by such party's employees or
agents. Such Protected Information shall not include information that is or
becomes generally available to the public other than as a result of a disclosure
by a party or its representatives in violation of this Agreement. The parties
agree that the Protected Information will be used solely for the purposes
contemplated by this Agreement and that such Protected Information will not be
disclosed to any person other than employees and agents of a party who are
directly involved in evaluating the transaction. The Protected Information
shall not be used in any way detrimental to a party, including use directly or
indirectly in the conduct of the other party's business or any business or
enterprise in which such party may have an interest, now or in the future, and
whether or not now in competition with such other party.
SECTION 8.02. RETURN OF DOCUMENTS. Upon termination of this Agreement
------------ -------------------
without the Merger becoming effective, each party (i) shall deliver to the other
all originals and copies or other derivatives of all Protected Information made
available to such party (ii) will not retain any copies, extracts or other
reproductions or derivatives in whole or in part of such Protected Information,
and (iii) will destroy all memoranda, notes and other writings prepared by
either party based on the Protected Information.
SECTION 8.03. PUBLICITY. Jefferson, AcquisitionCo and L & B shall
------------ ---------
cooperate with each other in the development and distribution of, and mutually
agree upon the form and content of, all news releases and other public
disclosures concerning this Agreement and the Merger and shall not issue any
news release or make any other public disclosure without the prior consent of
the other party, unless such is required by law upon the written advice of
counsel or is in response to published newspaper or other mass media reports
regarding the transaction contemplated hereby, in which such latter event the
parties shall consult with each other regarding such responsive public
disclosure.
SECTION 8.04. NOTICES. Any notice or other communication shall be in
------------ -------
writing and shall be deemed to have been given or made on the date of delivery,
in the case of hand delivery, or three (3) business days after deposit in the
United States Registered Mail, postage prepaid, or upon receipt if transmitted
by facsimile telecopy or any other means, addressed (in any case) as follows:
33
<PAGE>
(a) if to Jefferson or AcquisitionCo:
Jefferson Savings Bancorp, Inc.
14915 Manchester Road
Ballwin, Missouri 63011
Attention: Mr. David V. McCay
Facsimile: (314) 227-5009
with a copy to:
Lewis, Rice & Fingersh, L.C.
500 North Broadway, Suite 2000
St. Louis, Missouri 63102
Attention: John K. Pruellage, Esq.
Facsimile: (314) 241-6056
and
(b) if to L & B:
L & B Financial, Inc.
306 North Davis
Sulphur Springs, Texas 75482
Attention: Mr. C. Glynn Lowe
Facsimile: (903) 885-9723
with copies to:
Shannon, Gracey, Ratliff & Miller, LLP
1600 Bank One Tower
500 Throckmorton
Fort Worth, Texas 76102
Attention: Richard G. Williams, Esq.
Facsimile: (817) 336-3735
or to such other address as any party may from time to time designate by notice
to the others.
SECTION 8.05. LIABILITIES. In the event that this Agreement is
------------ -----------
terminated pursuant to the provisions of Article Seven hereof, except as
provided in Section 7.10 of this Agreement, no party hereto shall have any
liability to any other party for costs, expenses, damages or otherwise;
provided, however, that, notwithstanding the foregoing, in the event that this
Agreement is terminated pursuant to Section 7.02 hereof on account of a willful
breach of any of the representations and warranties set forth herein or a
willful breach of any of the agreements set forth herein, then the non-breaching
party shall be entitled to recover appropriate damages from the breaching party.
34
<PAGE>
SECTION 8.06. EXPENSES. Each of the parties to this Agreement shall bear
------------ --------
their respective costs, fees and expenses incurred in connection with this
Agreement, the Merger and any other transactions contemplated hereby. Fees and
expense reimbursement paid and payable by L & B to its financial advisor for
services rendered in connection with the transaction contemplated by this
Agreement shall not be charged against L & B's consolidated earnings during the
Earnings Period for purposes of determining the Basic Merger Consideration,
except to the extent, if any, that the aggregate amount of such fees and
reimbursement exceeds $100,000.
SECTION 8.07. NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
------------ ---------------------------------------------------------
Except for, and as provided in this Section 8.07, no representation, warranty or
agreement contained in this Agreement shall survive the Effective Time or the
earlier termination of this Agreement. The agreements set forth in Sections
1.03, 1.04, 1.05(d), 1.08, 4.11, 5.04 and 5.05 shall survive the Effective Time
and the agreements set forth in Sections 7.10, 8.01, 8.02, 8.03, 8.05 and 8.06
hereof shall survive the Effective Time or the earlier termination of this
Agreement.
SECTION 8.08. ENTIRE AGREEMENT. This Agreement, including the Exhibits
------------ ----------------
and Schedules attached hereto, constitute the entire agreement between the
parties and supersedes and cancels any and all prior discussions, negotiations,
undertakings, agreements in principle and other agreements between the parties
relating to the subject matter hereof.
SECTION 8.09. HEADINGS AND CAPTIONS. The captions of Articles and
------------ ---------------------
Sections hereof are for convenience only and shall not control or affect the
meaning or construction of any of the provisions of this Agreement.
SECTION 8.10. WAIVER, AMENDMENT OR MODIFICATION. The conditions of this
------------ ---------------------------------
Agreement that may be waived may only be waived by notice to the other party
waiving such condition. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect the right
at a later time to enforce the same. This Agreement may be amended or modified
by the parties hereto, at any time before or after approval of the Agreement by
the shareholders of L & B; provided, however, that after any such approval no
such amendment or modification shall alter the amount or change the form of the
Basic Merger Consideration contemplated by this Agreement to be received by
shareholders of L & B or alter or change any of the terms of this Agreement if
such alteration or change would adversely affect the holders of L & B Common.
This Agreement shall not be amended or modified except by a written document
duly executed by the parties hereto.
SECTION 8.11. RULES OF CONSTRUCTION. Unless the context otherwise
------------ ---------------------
requires: (a) a term has the meaning assigned to it; (b) an accounting term not
otherwise defined has the meaning assigned to it in accordance with GAAP; (c)
"or" is not exclusive; and (d) words in the singular may include the plural and
in the plural include the singular.
SECTION 8.12. COUNTERPARTS. This Agreement may be executed in two or
------------ ------------
more counterparts, each of which shall be deemed an original and all of which
shall be deemed one and the same instrument.
SECTION 8.13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
------------ ----------------------
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Except as expressly provided for herein, there shall be
no third party beneficiaries hereof.
35
<PAGE>
SECTION 8.14. GOVERNING LAW; ASSIGNMENT. This Agreement shall be
------------ -------------------------
governed by the laws (other than the conflict of laws rule) of the State of
Texas, except to the extent that applicable federal and other state laws and
regulations must govern aspects of the Merger procedures and shareholder rights
related thereto. This Agreement may not be assigned by any of the parties
hereto.
SECTION 8.15. EMPLOYMENT AGREEMENT. Effective on the Closing Date,
------------ --------------------
Jefferson and C. Glynn Lowe shall enter into an employment agreement in
substantially the form of Exhibit 8.15 attached hereto.
SECTION 8.16. TIME. Time is of the essence in connection with this
------------ ----
Agreement.
SECTION 8.17. STATUS OF EMPLOYEE BENEFIT PLANS. Nothing in this Agreement
------------ --------------------------------
shall be construed to be an amendment to the ESOP, the Sulphur Springs Loan &
Building Association 401(k) Plan & Trust, or any other "employee benefit plan,"
as defined in Section 3(3) of ERISA, maintained by L & B or any of its
subsidiaries (as used in this Section 8.17, a "benefit plan"), nor shall this
Agreement or any provision hereof be considered or construed to be the
establishment of any benefit plan or create any rights under ERISA in favor of
any person. In the event of any conflict between any provision of this
Agreement and any benefit plan maintained by L & B or any of its subsidiaries,
the terms of such benefit plan shall prevail.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
36
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
L & B FINANCIAL, INC.
By: /s/ C. Glynn Lowe
--------------------------------------------------
C. Glynn Lowe, President and Chief Executive
Officer
JEFFERSON SAVINGS BANCORP, INC.
By: /s/ David V. McCay
--------------------------------------------------
David V. McCay, Chairman of the Board and
President
JEFFERSON SAVINGS ACQUISITIONCO, INC.
By: /s/ David V. McCay
--------------------------------------------------
David V. McCay, President
37
<PAGE>
EXHIBIT 1.09(a)(x)
------------------
L & B'S LEGAL OPINION MATTERS
The due incorporation, valid existence and good standing of L & B under the
laws of the State of Texas, its power and authority to own and operate its
properties and to carry on its business as now conducted, and its power and
authority to enter into the Agreement, to merge with AcquisitionCo in accordance
with the terms of the Agreement and to consummate the transactions contemplated
by the Agreement.
1. The due incorporation or organization, valid existence and good standing
of each of the subsidiaries of L & B listed in Section 2.03 of the Disclosure
Schedule, their power and authority to own and operate their properties, the
possession of all licenses, permits and authorizations necessary to carry on
their respective businesses as now conducted.
2. With respect to L & B, (i) the number of authorized, issued and
outstanding shares of capital stock of L & B on the Closing Date, (ii) the
nonexistence of any violation of the preemptive or subscription rights of any
person, (iii) the number of outstanding Stock Options, warrants, or other rights
to acquire, or securities convertible into, any equity security of L & B, (iv)
the nonexistence of any obligation, contingent or otherwise, to reacquire any
shares of capital stock of L & B, and (v) the nonexistence of any outstanding
stock appreciation, phantom stock or similar rights to receive shares of capital
stock or benefits derived from the value of underlying shares, except as
disclosed in the Agreement.
3. With respect to L & B's subsidiaries, (i) the number of authorized,
issued and outstanding shares of capital stock on the Closing Date and the
ownership of all issued shares by L & B, (ii) the nonexistence of any violation
of the preemptive or subscription rights of any person, (iii) the nonexistence
of any outstanding options, warrants, or other rights to acquire, or securities
convertible into, any equity securities of such subsidiary, (iv) the
nonexistence of any obligation, contingent or otherwise, to reacquire any shares
of capital stock of such subsidiary, and (v) the nonexistence of any outstanding
stock appreciation, phantom stock or similar rights to receive shares of capital
stock or benefits derived from the value of underlying shares.
4. The due and proper performance of all corporate acts and other
proceedings necessary or required to be taken by L & B to authorize the
execution, delivery and performance of the Agreement, the due execution and
delivery of the Agreement by L & B, and the Agreement as a valid and binding
obligation of L & B, enforceable against L & B in accordance with its terms
(subject to the provisions of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws affecting the enforceability of
creditors' rights generally from time to time in effect, and equitable
principles relating to the granting of specific performance and other equitable
remedies as a matter of judicial discretion).
5. The execution of the Agreement by L & B, and the consummation of the
Merger and the other transactions contemplated therein, do not violate or cause
a default under L & B's articles of incorporation or bylaws, or any statute,
regulation or rule or any judgment, order or decree against or any material
agreement known to counsel binding upon L & B or its subsidiaries.
38
<PAGE>
6. Except for the regulatory approvals and registrations to be obtained or
accomplished by Jefferson, the receipt of all required consents, approvals
(including the requisite approval of the shareholders of L & B), orders or
authorizations of, or registrations, declarations or filings with or notices to,
any court, administrative agency or commission or other governmental authority
or instrumentality, domestic or foreign, or any other person or group of persons
or entity required to be obtained or made by L & B or its subsidiaries in
connection with the respective execution and delivery of the Agreement or the
consummation of the transactions contemplated therein.
8. If requested by Jefferson pursuant to Section 4.11 of the Agreement, the
due and proper performance of all corporate acts and other proceedings necessary
or required to be taken by the Savings Bank to authorize the execution, delivery
and performance of the Agreement to Merge with First Federal Savings Bank of
North Texas, and the Agreement to Merge as a valid and binding obligation of the
Savings Bank, enforceable against the Savings Bank in accordance with its terms
(subject to the provisions of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws affecting the enforceability of
creditors' rights generally from time to time in effect, and equitable
principles relating to the granting of specific performance and other equitable
remedies as a matter of judicial discretion).
9. The nonexistence, to the knowledge of counsel, of any material actions,
suits, proceedings, orders, investigations or claims pending or threatened
against or affecting L & B or its subsidiaries which, if adversely determined,
would have a material adverse effect upon their respective properties or assets
or the transactions contemplated by the Agreement.
2
<PAGE>
EXHIBIT 1.09(b)(vi)
-------------------
JEFFERSON'S LEGAL OPINION MATTERS
The due incorporation, valid existence and good standing of Jefferson
and AcquisitionCo under the laws of the State of Delaware and the State of
Missouri, respectively, and their respective power and authority to enter into
the Agreement and to consummate the transactions contemplated thereby.
1. The due and proper performance of all corporate acts and other
proceedings required to be taken by each of Jefferson and AcquisitionCo to
authorize the execution, delivery and performance of the Agreement, the due
execution and delivery of the Agreement by Jefferson and AcquisitionCo, and the
Agreement as a valid and binding obligation of Jefferson and AcquisitionCo,
enforceable against each of Jefferson and AcquisitionCo in accordance with its
terms (subject to the provisions of bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforceability of creditors' rights
generally from time to time in effect, and equitable principles relating to the
granting of specific performance and other equitable remedies as a matter of
judicial discretion).
2. The due authorization and, when issued to the shareholders of L & B in
accordance with the terms of the Agreement, the valid issuance of the shares of
Jefferson Common to be issued pursuant to the Merger, such shares being fully
paid and nonassessable, with no personal liability attaching to the ownership
thereof.
3. The execution and delivery of the Agreement by Jefferson and
AcquisitionCo and the consummation of the transactions contemplated therein, as
neither conflicting with, in breach of or in default under, resulting in the
acceleration of, creating in any party the right to accelerate, terminate,
modify or cancel, or violate, any provision of Jefferson's and AcquisitionCo's
certificate or articles of incorporation or bylaws, or any statute, regulation,
rule, judgment, order or decree binding upon Jefferson and AcquisitionCo which
would be materially adverse to the business of Jefferson and its subsidiaries
taken as a whole.
4. Except for regulatory approvals to be obtained by L & B or the Savings
Bank, the receipt of all required consents, approvals, orders or authorizations
of, or registrations, declarations or filings with or without notices to, any
court, administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, or any other person or entity required to
be obtained or made by or with respect to Jefferson or AcquisitionCo in
connection with the execution and delivery of the Agreement or the consummation
of the transactions contemplated by the Agreement.
<PAGE>
EXHIBIT 4.09
------------
___________________, 1996
Jefferson Savings Bancorp, Inc.
14915 Manchester Road
Ballwin, Missouri 63011
Re: Agreement and Plan of Merger, dated as of September 25, 1996 (the
"Merger Agreement"), by and among L & B Financial, Inc. ("L & B"),
Jefferson Savings Bancorp, Inc. ("Jefferson"), and Jefferson Savings
Acquisition Co. ("AcquisitionCo")
Gentlemen:
I have been advised that I may be deemed to be an affiliate of L & B, as that
term is defined for purposes of paragraphs (c) and (d) of Rule 145 ("Rule 145")
of the Rules and Regulations of the Securities and Exchange Commission (the
"Commission") promulgated under the Securities Act of 1933, as amended (the
"Securities Act").
Pursuant to the terms and conditions of the Merger Agreement, each share of
common stock of L & B owned by me as of the effective time of the merger
contemplated by the Merger Agreement (the "Merger") may be converted into the
right to receive a combination of shares of common stock of Jefferson (the
"Jefferson Shares") and cash. This letter is delivered to Jefferson pursuant to
Section 4.09 of the Merger Agreement.
I represent and warrant to Jefferson and agree that:
1. I shall not make any sale, transfer or other disposition of the
Jefferson Shares I receive pursuant to the Merger in violation of the
Securities Act or the Rules and Regulations of the Commission promulgated
thereunder.
2. I understand that the issuance of the Jefferson Shares to me
pursuant to the Merger will be registered with the Commission under the
Securities Act. I also understand that because I may be deemed an "affiliate"
of L & B and because any distributions by me of the Jefferson Shares will not
be registered under the Securities Act, such Jefferson Shares must be held by
me unless (i) the sale, transfer or other distribution has been registered
under the Securities Act, (ii) the sale, transfer or other distribution of
such Jefferson Shares is made in accordance with the provisions of Rule 145,
or (iii) in the opinion of counsel acceptable to Jefferson some other
exemption from registration under the Securities Act is available with
respect to any such proposed distribution, sale, transfer or other
disposition of such Jefferson Shares.
A. I understand and agree that:
<PAGE>
Jefferson Savings Bancorp, Inc.
___________________, 1996
Page 2
1. Stop transfer instructions will be issued with respect to the
Jefferson Shares and there will be placed on the certificates representing
such Jefferson Shares, or any certificate delivered in substitution therefor,
a legend stating in substance:
"The shares represented by this Certificate were issued in a
transaction to which Rule 145 under the Securities Act of 1933, as
amended, applied. The shares represented by this certificate may be
transferred only in accordance with the terms of a letter agreement
dated _________________, 1996, by the registered holder in favor of
Jefferson Savings Bancorp, Inc., a copy of which agreement is on file
at the principal offices of Jefferson Savings Bancorp, Inc."
2. Unless the transfer by me of Jefferson Shares is a sale made in
compliance with the provisions of Rule 145(d) or made pursuant to an
effective registration statement under the Securities Act, Jefferson reserves
the right to place the following legend on the Certificates issued to my
transferee:
"The shares represented by this Certificate have not been registered
under the Securities Act of 1933, as amended, and were acquired from a
person who received such shares in a transaction to which Rule 145
under the Securities Act of 1933, as amended, applied. The shares have
not been acquired by the holder with a view to, or for resale in
connection with, any distribution thereof within the meaning of the
Securities Act of 1933, as amended, and may not be sold or otherwise
transferred unless the shares have been registered under the Securities
Act of 1933, as amended, or an exemption from registration is
available."
I understand and agree that the legends set forth in paragraphs 1 and 2 above
shall be removed by delivery of substitute Certificates without any legend if I
deliver to Jefferson a copy of a letter from the staff of the Commission, or an
opinion of counsel in form and substance satisfactory to Jefferson, to the
effect that no such legend is required for the purpose of the Securities Act.
I have carefully read this letter and the Merger Agreement and understand the
requirements of each and the limitations imposed upon the distribution, sale,
transfer or other disposition of Jefferson Shares by me.
Very truly yours,
<PAGE>
EXHIBIT 8.01
------------
CONFIDENTIALITY AGREEMENT
<PAGE>
EXHIBIT 8.15
------------
FORM OF C. GLYNN LOWE EMPLOYMENT AGREEMENT
<PAGE>
EXHIBIT 23
[OAKERSON, ARNOLD, WALKER & CO. LETTERHEAD APPEARS HERE]
CONSENT OF INDEPENDENT AUDITORS
TO INCORPORATION BY REFERENCE
-----------------------------
The Board of Directors
L&B Financial, Inc.:
We consent to incorporation by reference in the registration statement (No.
333-2574) on Form S-8 of L&B Financial, Inc., of our report dated August 14,
1996, relating to the consolidated balance sheets of L&B Financial, Inc., and
subsidiaries as of June 30, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the years
in the three-year period ended June 30, 1996, which report appears in the
June 30, 1996 annual report on Form 10-K of L&B Financial, Inc.
/s/ Oakerson, Arnold, Walker & Co.
----------------------------------
Oakerson, Arnold, Walker & Co.
Mt. Pleasant, Texas
September 26, 1996
<PAGE>
EXHIBIT 24
SPECIAL POWER OF ATTORNEY
STATE OF TEXAS (S)
(S) KNOW ALL MEN BY THESE PRESENTS
COUNTY OF HOPKINS (S)
THAT WE, the undersigned, of Hopkins County, Texas, above made, constituted and
appointed, and by these presents do make, constitute, and appoint Enos L.
Ashcroft, III and C. Glynn Lowe, and each of them severally, our true and lawful
attorneys and agents to execute in our name, place and stead (in any capacity)
the Annual Report on Form 10-K of L&B Financial, Inc. ("Form 10-K") for the
fiscal year ended June 30, 1996, each of said attorneys and agents to have power
to act with or without the other and to have full power and authority to do and
perform in the name of and on behalf of each of the undersigned, as the case may
be, every act whatsoever necessary or advisable to be done in the premises as
fully and to all intents and purposes as any of the undersigned might or could
do in person, such power to extend to the execution of any amendment to the Form
10-K.
WITNESS OUR HANDS this 27th day of September 1996.
/s/ W.T. Allison, II
-------------------------------
W.T. Allison, II
/s/ Daniel E. Bonner
-------------------------------
Daniel E. Bonner
/s/ Bob J. Burgin
-------------------------------
Bob J. Burgin
/s/ James H. Connelly
-------------------------------
James H. Connelly
/s/ Wayne H. Galeyean
-------------------------------
Wayne H. Galeyean
/s/ Thomas J. Payne
-------------------------------
Thomas J. Payne
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1996 ANNUAL
REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JUN-30-1996 JUN-30-1995
<PERIOD-START> JUL-01-1995 JUL-01-1994
<PERIOD-END> JUN-30-1996 JUN-30-1995
<CASH> 1,386 1,866
<INT-BEARING-DEPOSITS> 7,530 4,552
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 21,986 193
<INVESTMENTS-CARRYING> 42,178 63,557
<INVESTMENTS-MARKET> 42,232 63,649
<LOANS> 67,108 60,240
<ALLOWANCE> 756 858
<TOTAL-ASSETS> 144,130 133,783
<DEPOSITS> 104,565 100,933
<SHORT-TERM> 13,500 4,904
<LIABILITIES-OTHER> 1,282 1,396
<LONG-TERM> 0 896
0 0
0 0
<COMMON> 17 17
<OTHER-SE> 24,766 25,637
<TOTAL-LIABILITIES-AND-EQUITY> 144,130 133,783
<INTEREST-LOAN> 5,746 5,105
<INTEREST-INVEST> 4,441 3,763
<INTEREST-OTHER> 344 212
<INTEREST-TOTAL> 10,531 9,080
<INTEREST-DEPOSIT> 4,485 4,041
<INTEREST-EXPENSE> 5,643 4,162
<INTEREST-INCOME-NET> 4,888 4,918
<LOAN-LOSSES> (100) 5
<SECURITIES-GAINS> 26 0
<EXPENSE-OTHER> 3,353 3,128
<INCOME-PRETAX> 1,964 1,931
<INCOME-PRE-EXTRAORDINARY> 1,964 1,931
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,450 1,382
<EPS-PRIMARY> 0.93 0.63
<EPS-DILUTED> 0.93 0.63
<YIELD-ACTUAL> 7.66 7.45
<LOANS-NON> 137 190
<LOANS-PAST> 0 3
<LOANS-TROUBLED> 120 118
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 858 876
<CHARGE-OFFS> 2 23
<RECOVERIES> 0 0
<ALLOWANCE-CLOSE> 756 858
<ALLOWANCE-DOMESTIC> 756 858
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
