As filed with the Securities and Exchange Commission on May 30, 1997
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 6035 APPLIED FOR
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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2900 TEXAS AVENUE, BRYAN, TEXAS 77802
(409) 779-2900
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
J. STANLEY STEPHEN, PRESIDENT
THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY
2900 TEXAS AVENUE
BRYAN, TEXAS 77802
(409) 779-2900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
PLEASE SEND COPIES OF ALL COMMUNICATIONS TO:
Dave M. Muchnikoff, P.C.
SILVER, FREEDMAN & TAFF, L.L.P.
(a limited liability partnership including professional corporations)
1100 New York Avenue, NW
Washington, DC 20005-3934
(202) 414-6100
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are being
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box. [X]
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CALCULATION OF REGISTRATION FEE
====================================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE (1) OFFERING PRICE(1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------------
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Common Stock, par value $.01 per share 200,000 shares $ 10.00 $2,000,000 $606(1)
Units 3,700 units $1,000.00 $3,700,000 $1,122(1)
====================================================================================================================================
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(1) Estimated solely for the purpose of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS
THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY
UP TO 200,000 SHARES OF HOLDING COMPANY COMMON STOCK AND UP TO 3,700
UNITS CONSISTING OF _____% DEBENTURES DUE ________, 2002 AND WARRANTS.
PURCHASE PRICE: $1,000 PER UNIT CONSISTING
$10.00 PER SHARE OF HOLDING OF A DEBENTURE AND NINE WARRANTS
COMPANY COMMON STOCK
The Bryan-College Station Financial Holding Company (the "Holding
Company") is offering (the "Offering") for sale up to 200,000 shares of common
stock, par value $.01 per share (the "Holding Company Common Stock") at $10.00
per share and up to 3,700 Units ("Units") at $1,000 per Unit, each Unit
consisting of $1,000 of ___% debentures due ____, 2002 (the "Debentures") and
nine detachable warrants ("Warrant"). Each Warrant entitles the holder thereof
to purchase one share of Holding Company Common Stock at an exercise price of
$12.50 at any time prior to _____ p.m. Central Time on ______, 2002. The net
proceeds of this Offering will be used to finance the Holding Company's cash
purchase of up to 80% of the outstanding shares of First Federal Savings Bank,
Bryan, Texas ("First Federal") common stock (the "First Federal Common Stock")
which are not exchanged for Holding Company Common Stock pursuant to the merger
agreement between First Federal and the Holding Company dated ________, 1997
(the "Merger"). The Merger will result in a predominantly community-owned,
independent thrift holding company structure with First Federal as the
wholly-owned, sole subsidiary of the Holding Company. Consummation of the
Offering is contingent upon all conditions to the Merger being satisfied or
waived.
(continued on next page)
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Estimated Net
Selling Offering
Price to Public(1) Commissions(2) Proceeds(3)
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Per Share of Holding Company
Common Stock $ 10.00 $ $
Minimum Total $1,500,000 $ $
Maximum Total $2,000,000 $ $
Per Unit $ 1,000 $ $
Minimum Total $3,400,000 $ $
Maximum Total $3,700,000 $ $
============================= =================== ================== ======================
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(1) The shares of Holding Company Common Stock are being sold by the Company in
a community offering. The Units are being offered by the Holding Company
through Hoefer & Arnett, Incorporated, financial advisors and investment
bankers to the Holding Company ("Hoefer & Arnett" or the "Marketing Agent")
on a "best efforts, minimum-maximum" basis. Unless 150,000 shares of
Holding Company Common Stock and Units aggregating $3.4 million have been
sold by ________, 1997 (which date may be extended for 120 days by
agreement between the Holding Company and the Marketing Agent), this
Offering will be terminated and all funds will be promptly returned to the
subscribers without deduction therefrom of each subscriber's pro rata share
of any interest actually earned thereon. All subscription proceeds will be
placed in an escrow account at The First National Bank of Bryan, Bryan,
Texas. See "The Offering."
(2) The Selling Commission to the Marketing Agent will equal 7.0% of the gross
proceeds of the Units sold by the Marketing Agent. Such commissions may be
deemed to be underwriting fees. In addition, the Holding Company has agreed
to indemnify the Marketing Agent against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "The Offering."
(3) Before deducting expenses payable by the Holding Company estimated at
$________.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR BY ANY STATE SECURITIES AUTHORITIES,
NOR HAS SUCH COMMISSION, OFFICE, CORPORATION OR AUTHORITY PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT
FEDERALLY INSURED OR GUARANTEED.
THESE SECURITIES ARE SPECULATIVE IN THAT THEY INVOLVE A HIGH DEGREE OF
RISK AND SUBSTANTIAL BOOK VALUE DILUTION. PROSPECTIVE PURCHASERS SHOULD BE
PREPARED TO SUSTAIN A LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" AT
PAGE ___ AND "DILUTION" FOR A DISCUSSION OF MATTERS WHICH SHOULD BE CONSIDERED
BY PROSPECTIVE PURCHASERS OF THESE SECURITIES.
The date of this PROSPECTUS is , 1997.
HOEFER & ARNETT INCORPORATED
<PAGE>
Pursuant to the Merger, each holder of First Federal Common Stock will
have the option of exchanging each share of First Federal Common Stock for
either: (i) 2.5 shares of Holding Company Common Stock; (ii) $24.07 in cash, or
(iii) any combination of Holding Company Common Stock and cash. The Holding
Company anticipates that a minimum of approximately 150,000 shares of Holding
Company Common Stock will be issued pursuant to the Merger. The Directors and
executive officers of First Federal have indicated that they will exchange their
First Federal Common Stock for approximately 110,000 shares of Holding Company
Common Stock. Consummation of the Merger is subject to the satisfaction of
customary conditions, the approval of both First Federal's stockholders and the
Office of Thrift Supervision (the "OTS") and consummation of the Offering.
The Debentures will be unsecured and will be subordinated in right of
payment to all present and future Senior Indebtedness and General Obligations
(each as hereinafter defined) of the Holding Company. Generally, payment of
principal of the Debentures may be accelerated only in the case of certain
events of default relating to the bankruptcy or receivership of the Holding
Company or its subsidiary or in the event of a default in the payment of
principal or interest. Interest on the Debentures is payable quarterly on the
15th calendar day of July, October, January and April of each year, if such
calendar day is a business day, and otherwise the next succeeding business day,
commencing on the first payment date subsequent to the closing of the Offering.
See "The Offering" and "Description of the Debentures."
Historically, there has been no active daily market for the First
Federal Common Stock. Prior to their issuance, there has been no market for the
offered Holding Company Common Stock or Units nor can there be any assurance
that one will develop, or if it does develop, that it will provide the holders
of the Holding Company Common Stock and Units with liquidity or will continue
for the life of the Units. The Holding Company has received preliminary approval
to have the Holding Company Common Stock listed among the Nasdaq "SmallCap
Market" under the symbol "____." There can be no assurance that the Holding
Company will satisfy the criteria for listing on the Nasdaq. In the event that
the Holding Company does not satisfy the criteria for listing on the Nasdaq it
will seek to list its shares on the OTC Bulletin Board administered by the NASD.
The Holding Company is a new corporation and has never issued stock to the
public, and there can be no assurance that an active and liquid trading market
for the Holding Company Common Stock will develop or that purchasers will be
able to sell their shares at or above the offering price. Investors should
consider, therefore, the potentially illiquid and long term nature of an
investment in the Holding Company Common Stock. The offering price for the
Holding Company Common Stock and the exchange ratio of First Federal Common
Stock to be exchanged for Holding Company Common Stock pursuant to the Merger
(the "Exchange Ratio") have been determined by the Holding Company in
consultation with Hoefer & Arnett. Hoefer & Arnett intends, but is not
obligated, to make a market in the Units. See "Risk Factors - No Prior Market
for Units and Holding Company Common Stock; Potential Illiquidity of Units and
Holding Company Common Stock."
The shares of Holding Company Common Stock are being offered by the
Holding Company and Units are being offered by the Marketing Agent on a "best
efforts" basis. This Offering will commence on the date hereof and subscriptions
for shares of Holding Company Common Stock and Units will be accepted until
12:00 p.m. Central time, ________ __, 1997 subject to the Holding Company's
right to extend the subscription period without notice until ________ __, 1997
or terminate the Offering at any time (the "Expiration Date"). Notwithstanding
the foregoing, the Marketing Agent shall have the right, in its sole discretion,
to permit investors to submit irrevocable orders together with legally binding
commitments for payment for Units for which they subscribe at any time prior to
the Expiration Date with payment to be received at any time prior to 24 hours
before completion of the Offering. Funds paid by subscribers will be deposited
in an escrow account (the "Escrow Account") with The First National Bank of
Bryan, Bryan, Texas as escrow agent (the "Escrow Agent"). If subscriptions for a
total of at least $1,500,000 in Holding Company Common Stock and $3,700,000 in
Units have not been received by the Expiration Date, no shares of Holding
Company Common Stock or Units will be issued and the subscribers' funds will be
refunded promptly, with each subscriber's pro rata share of any interest
actually earned thereon. Consummation of the Offering will take place as soon as
possible after the Expiration Date, subject to the satisfaction of certain
conditions precedent in the agency agreement between the Holding Company and the
Marketing Agent (the "Agency Agreement"). See "The Offering - Subscription
Procedures."
The Holding Company may reject any subscription or part thereof for
shares of Holding Company Common Stock or Units for any reason including if the
total amount of shares of Holding Company Common Stock owned by any person
following the Merger would constitute more than 9.9% of the issued and
outstanding Holding Company Common Stock, unless such condition has been waived
at the discretion of the Holding Company's Board of Directors in one or more
instances with the approval of the Office of Thrift Supervision (the "OTS"). The
Holding Company reserves the right in its sole discretion to withdraw, cancel or
modify this Offering without notice and to accept or reject any offer, in whole
or in part. The Offering is conditioned upon all conditions to the Merger being
satisfied or waived.
THE HOLDING COMPANY COMMON STOCK AND UNITS OFFERED HEREBY ARE NOT
SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE SAVINGS INSURANCE FUND OR ANY OTHER GOVERNMENT
AGENCY.
2
<PAGE>
AVAILABLE INFORMATION
The Holding Company has filed with the Securities and Exchange
Commission (the "SEC") a Registration Statement on Form S-1 under the Securities
Act of 1933, as amended (Registration Statement No. 333-_____), with respect to
the shares of Holding Company Common Stock and Units to be sold in the Offering.
As permitted by the rules and regulations of the SEC, this Prospectus omits
certain information contained in the Registration Statement. For further
information pertaining to Holding Company Common Stock and Units offered hereby,
reference is made to the Registration Statement and to the exhibits thereto,
which may be inspected and copied at the public reference facilities of the SEC,
450 Fifth Street, N.W., Washington, D.C. 20549, and copies of which can be
obtained from the SEC at prescribed rates by writing to the Public Reference
Section of the SEC at the above-stated address. The Registration Statement may
be inspected and copied at the SEC's Regional Office located at 7 World Trade
Center, Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and may be inspected at the SEC's site on the
worldwide web (http//www.sec.gov).
The Holding Company will hereafter furnish to holders of the Holding
Company Common Stock and Units annual reports containing audited financial
statements for each fiscal year and quarterly reports containing unaudited
financial information for each of the first three quarters of each fiscal year.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS, VERBALLY OR IN WRITING, IN CONNECTION WITH THE TRANSACTIONS
DESCRIBED IN THIS PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS ABSOLUTELY MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY EITHER FIRST FEDERAL, THE HOLDING COMPANY, THEIR
MANAGEMENT OR THEIR RESPECTIVE BOARD OF DIRECTORS. EXCEPT AS OTHERWISE EXPRESSLY
INDICATED, ALL INFORMATION IS GIVEN AS OF THE DATE OF THIS PROSPECTUS. NEITHER
THE DELIVERY OF THIS PROSPECTUS AFTER SUCH DATE NOR ANY OFFER, SALE OR EXCHANGE
OF ANY SECURITY MADE HEREUNDER AFTER SUCH DATE SHALL UNDER ANY CIRCUMSTANCE
CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE INFORMATION SET
FORTH HEREIN SINCE SUCH DATE.
3
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[INSERT MAP]
4
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PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified
in its entirety by the detailed information and Consolidated Financial
Statements, including the notes thereto, appearing elsewhere in this Prospectus.
THE HOLDING COMPANY
The Holding Company is a newly formed company organized under Delaware
law to become a financial institution holding company by acquiring 100% of the
stock of First Federal through the exchange of First Federal Common Stock for
Holding Company Common Stock and through the purchase of First Federal Common
Stock for cash. The Holding Company was formed to enable First Federal to remain
as a predominantly community- owned, independent financial institution. The
Holding Company has entered into a merger agreement dated _______, 1997 (the
"Merger Agreement") to acquire 100% of First Federal's outstanding shares in
exchange for shares of Holding Company Common Stock and cash, subject to, among
other customary conditions, regulatory and shareholder approvals, the condition
that holders of no more than 80% of First Federal Common Stock elect to receive
cash as merger consideration (approximately $4.6 million of cash elections) and
consummation of this Offering. The Offering will be consummated only if every
condition required to be met pursuant to the Merger Agreement has been met or
waived. The Offering will close immediately prior to the acquisition of the
shares of First Federal Common Stock by the Holding Company. See "The Offering."
The principal executive offices of the Holding Company are located at
2900 Texas Avenue, Bryan, Texas 77802, and its telephone number at that address
is (409) 779-2900. The Holding Company upon consummation of the Merger will be a
thrift institution holding company under the Home Owners Loan Act of 1993, as
amended (the "HOLA") and, therefore, will be regulated and supervised by the
Office of Thrift Supervision (the "OTS").
FIRST FEDERAL SAVINGS BANK
First Federal Savings Bank ("First Federal"), is a federally chartered
community-owned, independent thrift institution, headquartered in Bryan-College
Station, Texas, which began operations in 1965. First Federal is predominantly a
locally-based home lender, originating loans primarily in Bryan-College Station
and the surrounding trade area, and to a lesser extent other communities in the
general area between Houston, Austin and Dallas, Texas. First Federal also
originates consumer, construction, U.S. Small Business Administration ("SBA")
partially guaranteed loans, small commercial real estate and small to medium
commercial business loans. First Federal's deposits are insured up to applicable
limits by the Savings Association Insurance Fund (the "SAIF") which is
administered by the Federal Deposit Insurance Corporation (the "FDIC"). At
December 31, 1996, First Federal had assets of $59.7 million, deposits of $53.0
million and total stockholders' equity of $4.4 million. New senior management
was installed in early 1991 to recapitalize and convert First Federal from a
mutual savings institution to a federal stock institution, which was completed
in April, 1993.
Beginning in fiscal 1994, senior management of First Federal began its
transition to full-service retail banking in order to compete more effectively
and to increase the overall profitabibility of First Federal. In addition to its
core single-family lending business, since fiscal 1994 First Federal has
increased its focus on the following products:
o Commercial real estate lending
o Commercial business lending
o Small Business Administration loans (partially government guaranteed)
o Home improvement loans
o Indirect automobile financing through dealers
o Credit-default insured "second chance" auto finance program
5
<PAGE>
First Federal funds these lending products using a retail deposit base
gathered in its home market of Bryan- College Station as well as in the
surrounding counties of Burleson, Grimes, Leon, Madison, Robertson and
Washington. First Federal currently operates two full service offices located in
Bryan (headquarters office) and adjacent College Station. In addition, a site
has been acquired for another full service branch in the northern portion of
Bryan. The Bryan-College Station area has a population of more than 110,000
permanent residents and is home to Texas A&M University, one of the three
largest universities in the United States. In order to expand its lending base
First Federal has opened loan production offices in Waco and Huntsville, Texas
and has redefined its general lending area to include the triangle between
Dallas, Houston and Austin.
First Federal's management believes that the transition to full service
retail banking has had several positive effects including increasing the net
interest margin, increasing the portfolio of loans outstanding, diversifying the
types of loans in the loan portfolio and increasing overall profitability,
including increasing fee income and service charges.
THE HOLDING COMPANY COMMON STOCK OFFERING
Common Stock Offered...............The Holding Company is hereby offering up to
a maximum of 200,000 shares of Holding
Company Common Stock, $.01 par value per
share, with a purchase price to the public of
$10.00 per share of Holding Company Common
Stock. Purchase orders will be filled first
on a when received basis subject to the
maximum purchase and other limitations,
described below. Par value per share has no
relation to the inherent value of the stock.
Determination of Offering Price....The purchase price of the Holding Company
Common Stock and the exchange ratio of
Holding Company Common Stock for First
Federal Common Stock have been determined by
the Holding Company in consultation with
Hoefer & Arnett and do not necessarily bear
any relation to any established investment
criteria of value such as book value,
earnings or assets or the intrinsic value, if
any, of the Holding Company or First Federal.
The future value of the Holding Company
Common Stock will be dependent in part on the
Holding Company's and First Federal's future
operating results which are subject in part
to economic and other factors beyond the
Holding Company's and First Federal's
control. The Marketing Agent has been engaged
by First Federal to consult, advise and
solicit orders for the Units and consult with
the Holding Company regarding the sale of the
Holding Company Common Stock in the Offering.
See "The Offering."
Maximum Purchase Limitation........The Holding Company may reject any
subscription or part thereof for shares of
Holding Company Common Stock or Units for any
reason including if the total amount of
shares of Holding Company Common Stock owned
by any person following the Merger would
constitute more than 9.9% of the issued and
outstanding Holding Company Common Stock,
unless such condition has been waived at the
discretion of the Holding Company's Board of
Directors in one or more instances with the
approval of the OTS.
6
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THE UNIT OFFERING
Units Offered......................A minimum of 3,400 and a maximum of 3,700
Units, each Unit consisting of $1,000
aggregate principal amount of __% Debentures
due __________, 2002 and nine Warrants, for a
price of $1,000 per Unit. Each Warrant
entitles the holder thereof to purchase one
share of Holding Company Common Stock at an
exercise price of $12.50 at any time prior to
5:00 p.m., Central Time, on _____, 2002.
Debenture Maturity Date........... __________, 2002
Interest Payment Dates.............The 15th calendar day of each of July,
October, January and April of each year, if
such calendar day is a business day, and
otherwise the next succeeding business day,
commencing on the first payment date
subsequent to the closing of the Offering.
Mandatory Redemption...............None.
Subordination......................The Debentures are subordinated in right of
payment to all present and future Senior
Indebtedness and General Obligations (each as
defined herein) of the Holding Company. As of
December 31, 1996, the Holding Company had no
Senior Indebtedness or General Obligations
outstanding. The Indenture governing the
Debentures' terms and conditions does not
prohibit or limit the occurrence of
additional Senior Indebtedness or General
Obligations.
Sinking Fund.......................None. The Holding Company anticipates
retiring the Debentures upon maturity through
dividends from First Federal, the sale of
additional common stock or preferred stock,
and, if necessary, a loan to the Holding
Company from a third party financial
institution. There can be no assurance funds
will be available for repayment. See "Risk
Factors."
Covenants..........................The Indenture, among its other provisions,
restricts the ability of the Holding Company
under certain circumstances to pay dividends
on, or repurchase, its Holding Company Common
Stock, and prohibits the Holding Company from
consolidating or merging with another entity
unless: (i) such other entity assumes the
Holding Company's obligations under the
Indenture, (ii) immediately after such merger
or consolidation takes effect, the Holding
Company will not be in Default (as defined
herein) under the Indenture, and (iii) the
Holding Company has delivered to the
Indenture trustee an appropriate opinion of
counsel. See "Description of the Debentures
-Consolidation, Merger and Sales of Assets"
and "--Limitations on Dividends, Redemptions,
Etc."
Rights of Acceleration.............If an Event of Default, as hereinafter
defined (See "Description of the Debentures -
Events of Default"), has occurred and is
continuing, the Trustee or the holders of at
least 25% in principal amount of the then
outstanding Debentures may declare the
principal amount of all the Debentures,
together with unpaid interest thereon, to be
immediately due and payable, subject in
certain circumstances to rescission or waiver
by the holders of at least a majority in
principal amount of Debentures. See
"Description of the Debentures - Events of
Default."
Warrants...........................Each Warrant entitles the holder thereof to
purchase one share of Holding Company Common
Stock at an exercise price of $12.50 at any
time prior to _____ p.m. Central Time on
______, 2002. The Warrants are detachable and
may trade separately from the Debentures. See
"Description of Warrants."
7
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LISTING
The Holding Company has never issued capital stock to the public and,
consequently, there is no existing market for the Holding Company Common Stock.
Although the Holding Company has received preliminary approval to list the
Holding Company Common Stock among the "Small-Cap Issues" on Nasdaq under the
symbol "____", there can be no assurance that the Holding Company will meet
Nasdaq listing requirements, which include a minimum market capitalization, a
minimum of 300 stockholders immediately upon the closing of the Offering and a
minimum of two market makers in the Holding Company Common Stock. In the event
that the Holding Company does not satisfy the criteria for listing on the
Nasdaq, it will seek to list its shares on the OTC Bulletin Board administered
by the NASD. Moreover, there can be no assurance that an active or liquid
trading market will develop, or that if a market develops, it will continue. A
public market having the desirable characteristics of depth, liquidity and
orderliness depends upon the presence in the marketplace of both willing buyers
and sellers of the Holding Company Common Stock at any given time, which is not
within the control of the Holding Company or any market maker. Accordingly,
there can be no assurance that purchasers will be able to sell their shares at
or above the price paid for the shares in the Offering. Investors should
consider, therefore, the potentially illiquid and long-term nature of an
investment in the Holding Company Common Stock. See "Market Information."
Prior to this offering, there have been no Units outstanding. There is
no current public market for the Units and it is unknown whether an active and
liquid trading market for the Units will develop. The Holding Company has no
present intention to have the Units authorized for quotation on Nasdaq or any
other quotation system or listed on any securities exchange. Although there is
no obligation to do so, Hoefer & Arnett has informed the Holding Company that it
intends to make a market for the Units if the volume of trading and other
market-making considerations justify such an undertaking. If an active trading
market does develop, there can be no assurance that such a trading market will
continue. The Warrants are detachable and may trade separately from the
Debentures, although there is no assurance that an active or liquid trading
market for the Warrants will develop.
USE OF PROCEEDS
The net proceeds from the Offering (estimated at $___ million and $___
million based on the minimum and maximum number of Holding Company Common Stock
and Units offered) will be used to purchase for cash all of the shares of First
Federal Common Stock not exchanged for Holding Company Common Stock pursuant to
the Merger Agreement, repay First Federal for expenses paid by First Federal in
connection with the Merger and Offering, and the balance, if any, will become
part of the Holding Company's general funds for use in its business. On an
interim basis, such proceeds will be invested primarily in short-term marketable
securities. See "Use of Proceeds."
RISK FACTORS
An investment in the Holding Company Common Stock or Units involves a
high degree of risk and, in the case of the Holding Company Common Stock,
substantial dilution. Prospective investors should carefully review and consider
the factors described under "Risk Factors" and "Dilution".
8
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SELECTED CONSOLIDATED FINANCIAL DATA
The following tables present selected consolidated financial data for
First Federal at the dates and for the periods indicated. This information is
derived in part from, and should be read in conjunction with, the Consolidated
Financial Statements of First Federal included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
At September 30,
----------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands)
BALANCE SHEET DATA:
- -------------------
<S> <C> <C> <C> <C> <C>
Total assets..................................... $57,597(1) $61,432 $56,089 $52,549 $53,363
Loans receivable, net........................... 49,579(2) 48,605(2) 43,127(2) 41,081(2) 31,509(2)
Mortgage-backed securities....................... 1,292 2,278 2,693 4,441 9,447
Securities....................................... 1,000 1,000 1,000 1,000 3,554
Deposits......................................... 51,677 54,939 50,846 47,312 51,366
FHLB advances.................................... --- 1,088 --- 500 500
Stockholders' equity............................. 4,316 4,170 4,047 3,677 641
- ----------
</TABLE>
(1) Total assets declined from September 30, 1995 to September 30, 1996 as a
result of a planned reduction in deposits to lower excess cash.
(2) Including loans held for sale to the secondary market of $419,000, $1.8
million, $2.1 million, $6.6 million and $1.0 million at September 30, 1996,
1995, 1994, 1993 and 1992, respectively.
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands)
STATEMENT OF INCOME DATA:
- -------------------------
<S> <C> <C> <C> <C> <C>
Total interest income ................................ $ 4,828 $ 4,698 $ 4,020 $ 3,794 $ 4,772
Total interest expense ............................... 2,363 2,294 1,758 1,945 3,124
--------- ------- ------- ------- -------
Net interest income ................................ 2,465 2,404 2,262 1,849 1,648
Provision for loan losses ............................ (52) 27 (401)(2) -- 66
--------- ------- ------- ------- -------
Net interest income after provision for loan losses . 2,517 2,377 2,663 1,849 1,582
Service charges ...................................... 527 355 202 150 62
Gain on sales of loans, mortgage servicing rights,
mortgage-backed securities and securities ........... 343 213 908 853 478
Income (loss) from operation of foreclosed real estate (9) (2) -- 10 36
Other noninterest income ............................. 12 26 14 84 7
SAIF special assessment .............................. 333 -- -- -- --
Other noninterest expenses (operating expenses) ...... 2,715 2,648 3,096 2,180 1,658
--------- ------- ------- ------- -------
Income before income taxes ......................... 342 321 691 766 507
Income tax expense ................................... 108 110 234 221 112
--------- ------- ------- ------- -------
Income before extraordinary item and cumulative
effect of change in accounting for income taxes ... 234 211 457 545 395
Income tax benefit from utilizing net operating
loss carryforwards and cumulative effect of
change in accounting for income taxes .............. -- -- -- 137 106
--------- ------- ------- ------- -------
Net income ........................................... $ 234(1) $ 211 $ 457 $ 682 $ 501
========= ======= ======= ======= =======
PER SHARE DATA:
- --------------
Earnings per share(8) ................................ .61 .52 1.54 .47(7) N/A
</TABLE>
- ----------
(1) Excluding the nonrecurring September 1996 SAIF assessment, after tax net
income would have been $454,000.
(2) Reflects a negative loan loss expense from the settlement of a lawsuit
filed by First Federal which favorably impacted net income in fiscal 1994.
9
<PAGE>
<TABLE>
<CAPTION>
At or for the
Year Ended September 30,
--------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET RATIOS:
- ---------------------
Nonperforming assets to total
assets at end of year(6) .................. 1.46% .62% .87% .74% .76%
Total equity to total assets (end of year) . 7.49 6.79 7.22 7.00 1.20
Total equity to assets ratio (ratio of
average equity to average total assets) ... 7.27 6.91 7.11 4.23 .66
EARNINGS PERFORMANCE DATA:
- --------------------------
Interest rate spread information:
Average during year(3) ................... 4.11 3.97 4.20 3.67 3.08
End of year(4) ........................... 4.67 4.17 4.29 4.27 3.35
Net interest margin for the year(5) ........ 4.45 4.29 4.40 3.73 2.93
Average interest-earning assets as
a percentage of average interest-
bearing liabilities ....................... 108.01 107.95 106.00 101.51 97.45
Return on assets (ratio of net income to
average total assets) ..................... .40 .36 .84 1.32 .85
Return on assets, excluding special SAIF
assessment ............................... .77 .36 .84 1.32 .85
Return on total equity (ratio of net income
to average equity) ........................ 5.46 5.15 11.87 31.70 129.12
Return on total equity, excluding special
SAIF assessment ........................... 10.60 5.15 11.87 31.70 129.12
Noninterest expenses to average total assets 5.17 4.47 5.71 4.21 2.83
Noninterest expense to average total assets
excluding special SAIF assessment ......... 4.61 4.47 5.71 4.21 2.83
Other Data:
Number of deposit accounts ................. 7,903 7,266 5,073 4,345 4,465
Number of full-service offices ............. 2 2 2 1 1
</TABLE>
(3) Represents the difference between the average yield received on
interest-earning assets (primarily loans) and the average rate paid on
interest-bearing liabilities (primarily deposits).
(4) Represents the weighted average yield on interest-earning assets at the end
of the period minus the weighted average cost of liabilities at the end of
the period.
(5) Net interest income divided by average interest-earning assets.
(6) Nonperforming assets include loans that are 90 days or more delinquent as
well as repossessed assets.
(7) Reflects earnings from the date First Federal converted to stock form.
(8) Adjusted to reflect stock dividends paid to First Federal stockholders.
10
<PAGE>
RECENT FINANCIAL DATA
The selected financial and other data of First Federal set forth below
at and for the three and six months ended March 31, 1997 and March 31, 1996 were
derived from unaudited financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of the financial condition and results of operations for the
unaudited periods presented have been included. The results of operations and
other data presented for the six months ended March 31, 1997 are not necessarily
indicative of the results of operations which may be expected for the fiscal
year ending September 30, 1997. The information presented below is qualified in
its entirety by the detailed information and financial statements included
elsewhere in this Prospectus and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and the audited Financial Statements of First Federal
and Notes thereto included elsewhere in this Prospectus.
At March 31, At September 30,
1997 1996
----------- ----------------
(In Thousands)
BALANCE SHEET:
- --------------
Total assets............................ $ 62,681 57,597
Loans receivable, net................... 54,372(1) 49,579(1)
Mortgage-backed securities.............. 1,219 1,292
Securities.............................. --- 1,000
Deposits................................ 55,071 51,677
FHLB Advances........................... 2,200 ---
Stockholders' equity.................... 4,567 4,316
- ----------
(1) Including loans held for sale to the secondary market at month-end of
$1.4 million and $419,000, at March 31, 1997 and September 30, 1996,
respectively.
<TABLE>
<CAPTION>
For Three Months Ended For Six Months Ended
------------------------ -----------------------
March 31, March 31, March 31, March 31,
1997 1996 1997 1996
--------- --------- --------- ---------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME:
- --------------------
Total interest income...................................... $1,339 $1,196 $2,616 $2,412
Total interest expense..................................... 628 596 1,219 1,211
------ ------ ------ ------
Net interest income...................................... 711 600 1,397 1,201
Provision for loan losses.................................. --- (6) 2 (5)
------ ------ ------ ------
Net interest income after provision for loan losses...... 711 606 1,395 1,206
Service charges............................................ 146 119 314 244
Gain on sales of loans, mortgage servicing rights,
mortgage-backed securities and securities................ 11 87 59 174
Other noninterest income................................... 1 --- 9
Other noninterest expenses (operating expenses)............ 643 688 1,321 1,362
------ ------ ------ ------
Income before income taxes................................. 225 120 447 271
Income tax expense ........................................ 77 41 152 92
------ ------ ------ ------
Net income................................................. $ 148 $ 79 $ 295 $ 179
====== ====== ====== ======
PER SHARE DATA:
- ---------------
Earnings per share(6)...................................... .53 .24 .53 .24
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
For Three Months Ended For Six Months Ended
---------------------- --------------------
March 31, March 31, March 31, March 31,
1997 1996 1997 1996
--------- --------- --------- ---------
BALANCE SHEET RATIOS:
- ---------------------
<S> <C> <C> <C> <C>
Nonperforming assets to total
assets at end of period(4) ............... 1.65% 1.66% 1.65% 1.66%
Total equity to total assets (end of period) 7.29 7.29 7.29 7.29
Total equity to assets ratio (ratio of
average equity to average total assets) .. 7.26 7.25 7.35 7.15
EARNINGS PERFORMANCE DATA:
- --------------------------
Interest rate spread information:
Average during period(1) ................. 4.86 3.95 4.83 3.80
End of period(2) ......................... 4.51 3.90 4.51 3.90
Net interest margin for the period(3) ...... 4.87 4.40 4.91 4.27
Average interest-earning assets as a
percentage of average interest-bearing
liabilities .............................. 102.44 106.29 103.46 107.95
Return on assets (ratio of net income to
average total assets) .................... .95 .53 .97 .60
Return on total equity (ratio of net income
to average equity) ....................... 13.05 7.36 13.20 8.40
Noninterest expenses to average total assets 4.12 4.65 4.35 4.57
OTHER DATA:
- -----------
Number of deposit accounts ................. 7,381 6,707 7,381 6,707
Number of full-service offices ............. 2 2 2 2
</TABLE>
- ----------
(1) Represents the difference between the average yield received on
interest-earning assets (primarily loans) and the average rate paid on
interest-bearing liabilities (primarily deposits).
(2) Represents the weighted average yield on interest-earning assets at the end
of the period minus the weighted average cost of liabilities at the end of
the period.
(3) Net interest income divided by average interest-earning assets.
(4) Nonperforming assets include loans that are 90 days or more delinquent as
well as repossessed assets.
(5) Reflects earnings from the date First Federal converted to stock form.
(6) Adjusted to reflect stock dividends paid to First Federal stockholders.
12
<PAGE>
MANAGEMENT'S DISCUSSION OF RECENT RESULTS
FINANCIAL CONDITION
First Federal's total assets increased by $5.1 million to $62.7 million
at March 31, 1997 from $57.6 million at September 30, 1996. The increase was
primarily due to an increase in loans receivable, and to a lesser degree in
loans held for sale and cash.
Loans receivable (excluding loans held for sale) increased $3.8 million
to $53.0 million at March 31, 1997, compared to $49.2 million at September 30,
1996. During the six months ended March 31, 1997, First Federal originated $14.0
million of mortgage loans including $13.7 million secured by one- to four-family
residences, and $5.3 million in consumer loans. Approximately $1.3 million of
these mortgage loans represented refinancing of existing First Federal loans.
Deposits increased from $51.7 million at September 30, 1996 to $55.1
million at March 31, 1997 as a result of increased marketing of short-term
certificates of deposit. Accrued interest payable and other liabilities
increased $1.4 million from $1.6 million at September 30, 1996 to $3.0 million
at March 31, 1997 largely as a result of increased borrowings from the Federal
Home Loan Bank of Dallas to fund First Federal's increased consumer loan demand,
offset by the payment of escrowed funds in December 1996 for property taxes on
loans held by First Federal.
NONPERFORMING ASSETS AND LOAN LOSS PROVISION
Management establishes specific reserves for the estimated losses on
loans when it determines that losses are anticipated on these loans. The Bank
calculates any allowance for possible loan losses based upon its ongoing
evaluation of pertinent factors underlying the types and quality of its loans,
with particular emphasis on average historical loan losses during the preceding
three years. These factors include but are not limited to the current and
anticipated economic conditions, including uncertainties in the real estate
market, the level of classified assets, historical loan loss experience, a
detailed analysis of individual loans for which full collectability may not be
assured, a determination of the existence and fair value of collateral, the
ability of the borrower to repay and the guarantees securing such loans.
Management, as a result of this review process, recorded a provision for loan
losses in the amount of $2,000 for the three months ending March 31, 1997, as
compared to a $5,000 negative loan loss provision for the three months ending
March 31, 1996. The Bank's loan loss reserve balance as of March 31, 1997 was
$250,000 compared to the September 30, 1996 loan loss reserve of $247,000. Total
non-performing assets increased during the three month period ended March 31,
1997 to $1.0 million or 1.65% of total assets as compared to $863,000 or 1.05%
of total assets at September 30, 1996. The majority of this increase in
non-performing assets were automobile loans. Historical actual charge-offs from
loan losses over the past three years have averaged only $22,300 on an average
loan portfolio of $46.2 million.
COMPARISON OF SIX MONTHS ENDED MARCH 31, 1997 TO MARCH 31, 1996
First Federal reported net income after taxes of $295,000 for the six
months ended March 31, 1997, an increase of $116,000 or 6.48% as compared to
$179,000 in net income reported for the six months ended March 31, 1996. The
increase in earnings, as discussed in more detail below, resulted primarily from
an increase in First Federal's net interest margin and a decrease in operating
expenses, partially offset by a decrease in noninterest income.
Net interest income increased $196,000 to $1.4 million for the six
month period ended March 31, 1997 from $1.2 million for the prior period in
1996. This increase was attributable primarily to an increase in interest earned
on loans receivable, a decrease in rates paid on the Bank's deposit liabilities,
partially offset by interest paid on other borrowings. For the six months ended
March 31, 1997, the net interest margin (net interest income divided by average
interest earning assets) increased to 4.91%, as compared to 4.27% in the first
six months of 1996. The spread between the average yield on interest earning
assets and the average cost of funds was 4.51%
13
<PAGE>
at March 31, 1997 versus 3.90% at March 31, 1996. These increases resulted
primarily from higher yields on consumer loans and the upward repricing in the
renewals of 3-year balloon loans.
Noninterest income decreased $54,000 to $373,000 for the six months
ended March 31, 1997 from $427,000 for the six months ended March 31, 1996. This
decrease can be attributed to a $13,000 decrease in net gain on sale of
securities, a $102,000 decrease in net gain on sale of loans and mortgage
servicing rights, reflecting reduced mortgage banking activity, and a $9,000
decrease in other noninterest income, partially offset by a $70,000 increase in
service charges, which can be attributable to an increase in interest-bearing
checking accounts and fees associated with these types of accounts.
Noninterest expense decreased $41,000 to $1.3 million for the six
months ended March 31, 1997 from $1.4 million for the six months ended March 31,
1996. This decrease can primarily be attributed to a $42,000 decrease in
compensation and benefits expense, a $35,000 decrease in federal insurance
premiums, a $3,000 decrease in gain/loss on the sale of real estate owned and
$5,000 decrease in professional fees. This was offset by a increase of $2,000 in
occupancy and equipment expense, a $13,000 increase in data processing and a
$29,000 increase in other noninterest expense.
Income tax expense increased $60,000 to $152,000 for the six months
ended March 31, 1997 compared to $92,000 for the six months ended March 31, 1996
as a result of increased earnings. The net earnings reflected a tax rate of
34.0% and 33.9% for March 31, 1997 and March 31, 1996, respectively.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 TO MARCH 31, 1996
First Federal reported net income after taxes of $148,000 for the three
months ended March 31, 1997, an increase of $69,000 or 87.3% as compared to
$79,000 in net income reported for the three months ended March 31, 1996. The
increase in earnings, as discussed in more detail below, resulted primarily from
an increase in First Federal's net interest margin and a decrease in operating
expenses, partially offset by a decrease in noninterest income.
Net interest income increased $111,000 to $711,000 for the three month
period ended March 31, 1997 from $600,000 for the prior period in 1996. This
increase was attributable primarily to an increase in interest earned on loans
receivable, offset by an increase on interest paid on other borrowings. For the
three months ended March 31, 1997, the net interest margin increased to 4.87% as
compared to 4.40% at March 31, 1996. The spread between the average yield on
interest earning assets and the average cost of funds was 4.51% at March 31,
1997 versus 3.90% at March 31, 1996. These increases resulted primarily from
higher yields on consumer loans and the upward repricing in the renewals of
3-year balloon loans.
Noninterest income decreased by $45,000 to $157,000 for the three
months ended March 31, 1997 from $202,000 for the three months ended March 31,
1996. This decrease can be attributed to a $76,000 decrease in net gain on sale
of loans and mortgage servicing rights, reflecting reduced mortgage banking
activity, and a $1,000 decrease in other noninterest income, partially offset by
a $32,000 increase in service charges, which can be attributable to an increase
in interest-bearing checking accounts.
Noninterest expense decreased $45,000 to $643,000 for the three months
ended March 31, 1997 from $688,000 for the three months ended March 31, 1996.
This decrease can primarily be attributed to a $49,000 decrease in compensation
and benefits expense, due to a decrease in staffing, a $24,000 decrease in
federal insurance premiums, and an $8,000 decrease in gain/loss on the sale of
real estate owned. This was offset by a increase of $9,000 in occupancy and
equipment expense, a $5,000 increase in data processing and a $23,000 increase
in other noninterest expense.
Income tax expense increased $36,000 to $77,000 for the three months
ended March 31, 1997 compared to $41,000 for the three months ended March 31,
1996 as a result of increased earnings. The net earnings reflected a tax rate of
34.2% for both the March 31, 1997 and March 31, 1996 periods.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
First Federal's primary sources of funds are deposits and checking
accounts, principal and interest payments on loans and mortgage-backed
securities, proceeds from sales of loans and other funds provided from
operations. Additionally, First Federal may infrequently borrow funds from the
FHLB of Dallas or utilize other borrowings of funds based on need, comparative
costs and availability at the time.
While scheduled loan and mortgage-backed repayments and short-term
investments, and FHLB borrowings are relatively stable sources of funds, deposit
flows are unpredictable and are a function of external factors including
competition, the general level of interest rates, general economic conditions
and most recently the restructuring occurring in the thrift institution
industry.
First Federal maintains investments in liquid assets based on
management's assessment of cash needs, expected deposit flows, available yield
on liquid assets (both short-term and long-term) and the objectives of its
asset/liability management program. Several options are available to increase
liquidity, including reducing loan origination, increasing deposit marketing
activities, and increasing borrowings.
Federal regulations require insured institutions to maintain minimum
levels of liquid assets. As of March 31, 1997, the minimum regulatory liquidity
requirement was 5% of the sum of First Federal's average daily balance of net
withdrawable deposit accounts and borrowings payable in one year or less. At
March 31, 1997, First Federal's liquidity ratio was 7.32%. First Federal uses
its capital resources principally to meet its ongoing commitments to fund
maturing certificates of deposits and deposit withdrawals, repay borrowings,
fund existing and continuing loan commitments, maintain its liquidity and meet
operating expenses. At March 31, 1997, First Federal had commitments to
originate loans totalling $6.7 million. First Federal also had $473,000 of
outstanding unused lines of credit. If needed for liquidity purposes, at March
31, 1997, First Federal was eligible to borrow $21.9 million from the Federal
Home Loan Bank of Dallas, and had actually borrowed only $2.2 million. First
Federal considers its liquidity and capital resources to be adequate to meet its
foreseeable and long-term needs. First Federal expects to be able to fund or
refinance, on a timely basis, its material commitments and long-term
liabilities.
At March 31, 1997, the Bank had tangible capital of $4.6 million, or
7.27% of total assets which was $3.6 million above the minimum capital
requirement of $945,000 or 1.5% of total assets.
At March 31, 1997, the Bank had core capital of $4.6 million, or 7.27%
of total assets which was $2.7 million above the minimum capital requirement of
$1.9 million or 3.0%.
At March 31, 1997, the Bank had total risk based capital of $4.8
million and risk weighted assets of $45.4 million or total risk based capital of
10.59% of risk weighted assets. This amount was $1.2 million above the minimum
regulatory requirement of $3.6 million, or 8.0% of risk weighted assets.
15
<PAGE>
RISK FACTORS
The Holding Company Common Stock and Units offered by this Prospectus
involve a high degree of risk. In analyzing this Offering, the following risk
factors, in addition to those factors discussed elsewhere in this Prospectus,
should be considered by prospective investors before deciding whether to
purchase any Holding Company Common Stock or Units. The cautionary statements
set forth below and elsewhere in this Prospectus should be read as accompanying
forward looking statements included under "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Business" and elsewhere
herein. The risks described in the statements set forth below could cause the
Holding Company's and First Federal's results to differ materially from those
expressed in or indicated by such forward-looking statements. See "Disclosure
Regarding Forward-Looking Statements."
NONINTEREST EXPENSE
In accordance with its restructuring strategy, First Federal has in
recent years incurred above average noninterest expense levels, due primarily to
expenses related to its recent transition into current full service retail
banking. First Federal's Board of Directors believes that expenses have been
incurred for data processing, equipment, drive-in facilities and personnel
required for full-service retail banking, and that future additions to its
noninterest expenses (as a percentage of average assets) will be modest.
Moreover, management believes that First Federal is positioned to achieve
significant growth without substantial increases in noninterest expenses.
In this regard, during the six months ended March 31, 1997 net interest
income exceeded noninterest expense. See "Management's Discussion of Recent
Results." However, there can be no assurance that future operating income levels
will improve or that First Federal will be able to record net income in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
ADEQUACY OF LOAN LOSS ALLOWANCE
Management and the Board of Directors of First Federal regularly review
First Federal's loan portfolio and determine whether the allowance established
for loan losses is adequate. In making this evaluation, management and the Board
of Directors consider, among other matters, the fair value of the underlying
collateral, economic conditions, historical loan loss experience and other
factors that warrant recognition in providing for an adequate loan loss
allowance. Because future events affecting borrowers and loan collateral cannot
be predicted with any degree of certainty, there can be no absolute assurance
that existing allowances are adequate or that substantial increases to
allowances will not be necessary should the quality of any loan deteriorate as a
result of the factors discussed above. There is also no assurance that First
Federal's loss allowances will be adequate to cover costs and losses in
connection with any foreclosures or repossessions. Increases in allowances, if
necessary, are most probable in connection with the nonperforming assets and
other loans of concern discussed in this Prospectus. When future examinations
are conducted by the OTS or the FDIC, the examiners may require First Federal to
provide for higher loan loss allowances. See "Business -Loan Delinquencies;
Nonperforming Assets and Classified Assets" and "Regulation - Federal Regulation
of Thrift Institutions."
OFFERING PRICE OF HOLDING COMPANY COMMON STOCK ARBITRARILY DETERMINED
In order to finance the purchase for cash of the First Federal Common
Stock not exchanged for Holding Company Common Stock pursuant to the Merger, the
Holding Company is offering for sale the Holding Company Common Stock and the
Units. The price of the Holding Company Common Stock has been arbitrarily
established by the Board of Directors of the Holding Company in consultation
with Hoefer & Arnett and does not necessarily bear any relationship to any
established investment criteria of value such as book value, earnings or assets,
including the intrinsic value, if any, of the Holding Company or First Federal's
deposit base and its more than 30-year old franchise.
16
<PAGE>
RELIANCE ON CHIEF EXECUTIVE OFFICER
The successful operation of First Federal depends heavily upon the
active involvement of First Federal's current President and Chief Executive
Officer, J. Stanley Stephen, age 64, whose loss could have an adverse effect on
the Company. Mr. Stephen has been President and Chief Executive Officer of First
Federal since 1991. First Federal currently has no plans to purchase "key-man"
life insurance with respect to Mr. Stephen; however, it has recently entered
into an employment and supplemental retirement agreement with Mr. Stephen
wherein he agrees to work full-time with First Federal for at least the next
five years and will contribute over the next five years one-half of the monthly
cost to First Federal for his supplemental retirement. See "Management of First
Federal Employment Agreements."
DILUTION
Upon completion of the Offering, there will be an immediate and
substantial dilution of the net tangible book value of the Holding Company
Common Stock from the public offering price. This dilution results from the
payment of a premium paid as part of the merger consideration and expenses
incurred in connection with the Offering. As of March 31, 1997 the net tangible
book value per common share of First Federal was approximately $6.17 per share
(adjusted for the Exchange Ratio of First Federal Common Stock for Holding
Company Common Stock). After giving effect to the receipt of the minimum net
proceeds of the Offering, and assuming the payment of $4,326,000 to First
Federal shareholders who may elect to receive cash in the Merger (equating to
75% of the First Federal Holding Company Common Stock outstanding), the net
tangible book value would be $3.36 per share of Holding Company Common Stock as
of March 31, 1997. As a result of the assumptions stated above, investors would
suffer a dilution of $6.64 per share of Holding Company Common Stock from the
offering price of $10.00 as of March 31, 1997 based on the minimum amount of
Holding Company Common Stock sold pursuant to the Offering.
DIVIDENDS
Initially, it is not expected that the Holding Company will pay cash
dividends on the Holding Company Common Stock. Indeed, First Federal has paid
only stock dividends and not cash dividends on the First Federal Common Stock
previously sold in 1992. Accordingly, any investor who anticipates the need for
current cash dividends from this investment should not purchase any shares of
Holding Company Common Stock offered. The declaration and payment of future cash
dividends will be subject to, among other things, the level of First Federal's
regulatory capital relative to its capital requirements, the Holding Company's
and First Federal's then current and projected consolidated operating results,
financial condition, regulatory restrictions, future growth plans and other
factors the Board deems relevant. First Federal is required to pay cash
dividends of $88,000 per year on its outstanding preferred stock prior to any
dividends being paid to the Holding Company. The Holding Company will be
prohibited from paying dividends on junior securities such as the Holding
Company Common Stock unless all interest payments with respect to the Debentures
have been made. There can be no assurance that the Holding Company will be able
to pay dividends or, if dividends are permitted, that the Board of Directors
will determine to pay dividends on the Holding Company Common Stock. See
"Dividend Policy," "Regulation - Regulatory Capital Requirements" and "--
Limitation on Dividends and Other Capital Distributions."
INTEREST RATE RISK
First Federal's profitability, like that of many financial
institutions, is dependent to a large extent upon its net interest income, which
is the difference or "spread" between the interest it earns on interest-earning
assets, such as loans and, to a much lesser extent, securities and the interest
it pays on interest-bearing liabilities, such as deposits and borrowings. As a
result, First Federal's profitability may be adversely affected by rapid changes
in interest rates. First Federal generally attempts to maximize net interest
income by achieving a positive interest rate spread that can be sustained during
fluctuations in prevailing interest rates. First Federal believes its policies
are designed to reduce the impact of changes in interest rates on its net
interest income by maintaining a favorable match between the maturities or
repricing dates of its interest-earning assets and interest-bearing liabilities.
First Federal has implemented these policies generally by selling its long-term
fixed-rate mortgage loan originations, retaining its adjustable-rate and balloon
mortgage loans, and originating and retaining its short-term consumer loans.
17
<PAGE>
HOLDING COMPANY STRUCTURE; LIMITATIONS ON THE ABILITY OF THE HOLDING COMPANY TO
PAY HOLDING COMPANY COMMON STOCK DIVIDENDS AND PRINCIPAL AND INTEREST ON
DEBENTURES
As a holding company without significant assets other than its 100%
ownership of First Federal Common Stock, the Holding Company's ability to pay
cash dividends on the Holding Company Common Stock and to meet its other cash
obligations, including the payment of principal and interest on the Debentures,
is dependent upon the receipt of dividends from First Federal on the First
Federal Common Stock owned by the Holding Company.
First Federal is a legal entity separate and distinct from the Holding
Company, and has no obligation to pay any amount of the Debentures or to make
funds available therefor, whether by dividends or otherwise. The Debentures will
be direct unsecured obligations of the Holding Company only, and the Holding
Company will be solely responsible for all payment of principal and interest on
the Debentures. In a liquidation or bankruptcy, claims of Debenture holders
would be satisfied solely from the Holding Company's equity interest in First
Federal remaining after satisfaction of all creditors of First Federal,
including depositors, and thus are subordinated to those depositors and other
creditors. If the FDIC is appointed receiver, administrative expenses of the
receiver may have priority over the interest of the Holding Company.
The declaration of dividends by First Federal is subject to the
discretion of the Board of Directors of First Federal and applicable regulatory
requirements. While it is the present intention of the Board of Directors of
First Federal to declare dividends in an amount sufficient to provide the
Holding Company with the cash flow necessary to meet its debt service
obligations with respect to the Debentures, subject to applicable regulatory
restrictions, no assurance can be given that circumstances which would limit or
preclude the declaration of such dividends will not exist in the future. At
March 31, 1997, First Federal would have been permitted to pay $700,000 in
dividends on its capital stock without prior approval of the OTS. As part of its
Holding Company application, the Holding Company has requested from the OTS a
dividend of $212,000 to be distributed upon the Closing of the Offering.
See "Regulation - Limitations on Dividends and Other Capital Distributions."
LIMITED RIGHTS OF ACCELERATION UPON EVENTS OF DEFAULT
Holders of the Debentures may accelerate the payment of principal and
interest on the Debentures only in the case of certain events related to the
bankruptcy or insolvency of the Holding Company, the reorganization of the
Holding Company for the benefit of its creditors or the appointment of a
receiver or conservator for any of the Holding Company's major insured
depository institution subsidiaries (which at the date hereof included only
First Federal) and upon a default in the payment of principal or interest on, or
a default in the performance of any material covenant or agreement contained in,
the Debentures or Indenture. The Indenture does not contain any provisions that
would guarantee the ability of the Holding Company to make such accelerated
payments of principal and interest. If any Event of Default occurs and is
continuing, either the Trustee or the holders of not less than 25% in principal
amount of the then outstanding Debentures may declare the principal amount of
all Debentures, together with unpaid interest thereon, to be due and payable
immediately, subject in certain circumstances to rescission or waiver by the
holders of at least a majority in principal amount of Debentures. See
"Description of the Debentures - Events of Default."
SUBORDINATION
The payment of principal and interest on the Debentures is unsecured
and is subordinated in right of payment to all present and future Senior
Indebtedness and General Obligations (both as defined herein) of the Holding
Company. Senior Indebtedness is defined generally in the Indenture to include
indebtedness of the Holding Company for money borrowed or purchased (including
indebtedness of others guaranteed by the Holding Company), other than the
Debentures or any indebtedness or obligation as to which it is expressly
provided that such obligation is not Senior Indebtedness or ranks pari passu
with the Debentures. General Obligations are defined in the Indenture to include
all obligations of the Holding Company to make payment on account of claims of
general creditors, other than Senior Indebtedness, the Debentures and
indebtedness for money borrowed ranking pari passu with or subordinate to the
Debentures. See "Description of the Debentures - Subordination." The Holding
Company has neither Senior Indebtedness nor General Obligations outstanding. The
Indenture does not prohibit or limit the incurrence of Senior Indebtedness or
General Obligations by the Holding Company.
18
<PAGE>
Under the provisions set forth in the Indenture, no principal or
interest payments on the Debentures may be made if there shall have occurred and
be continuing a default in any payment with respect to Senior Indebtedness, or
an event of default with respect to any Senior Indebtedness permitting the
holders thereof to accelerate the maturity of such Senior Indebtedness. Remedies
available to holders of Senior Indebtedness in the event of a default may be
more extensive than those provided for in the Indenture, with the effect that an
event of default under any Senior Indebtedness will probably not constitute an
Event of Default (as defined) allowing acceleration of the principal and
interest under the Debentures. In the event, however, that the maturity of the
Debentures is accelerated based upon the occurrence of certain Events of
Default, the holders of all Senior Indebtedness will first be entitled to
receive payment in full of all amounts due or to become due thereon before the
Holders of the Debentures will be entitled to any payments. See "Description of
the Debentures - Subordination."
Although the Holding Company has no present plans to issue new debt,
the Holding Company may in the future consider the issuance of additional debt
to support its business operations and pay its obligations on the Units.
LIMITED COVENANTS
The covenants in the Indenture are limited, do not protect holders of
the Debentures in the event of a material adverse change in the Holding
Company's financial condition or results of operations and do not limit the
ability of the Holding Company to incur additional Senior Indebtedness or
General Obligations; therefore, neither the covenants nor the other provisions
contained in the Indenture should be considered a significant factor in
evaluating whether the Holding Company will be able to comply with its
obligations under the Units, including the obligation to pay principal or
interest on the Debentures. See "Description of the Debentures."
NO PRIOR MARKET FOR UNITS AND HOLDING COMPANY COMMON STOCK; POTENTIAL
ILLIQUIDITY OF UNITS AND HOLDING COMPANY COMMON STOCK
The Holding Company has never issued capital stock to the public and,
consequently, there is no existing market for the Holding Company Common Stock.
Although the Holding Company has received preliminary approval to list the
Holding Company Common Stock among the "Small-Cap Issues" on Nasdaq under the
symbol "____", there can be no assurance that the Holding Company will meet
Nasdaq listing requirements, which include a minimum market capitalization, a
minimum of 300 stockholders immediately upon the closing of the Offering and a
minimum of two market makers in the Holding Company Common Stock. In the event
that the Holding Company does not satisfy the criteria for listing on the
Nasdaq, it will seek to list its shares on the OTC Bulletin Board administered
by the NASD. Moreover, there can be no assurance that an active or liquid
trading market will develop, or that if a market develops, it will continue. A
public market having the desirable characteristics of depth, liquidity and
orderliness depends upon the presence in the marketplace of both willing buyers
and sellers of the Holding Company Common Stock at any given time, which is not
within the control of the Holding Company or any market maker. Accordingly,
there can be no assurance that purchasers will be able to sell their shares at
or above the price paid for the shares in the Offering. Investors should
consider, therefore, the potentially illiquid and long-term nature of an
investment in the Holding Company Common Stock. See "Market Information."
Prior to this offering, there have been no Units outstanding. There is
no public market for the Units and it is unknown whether an active and liquid
trading market for the Units will develop. The Holding Company has no present
intention to have the Units authorized for quotation on Nasdaq or any other
quotation system or listed on any securities exchange. Although there is no
obligation to do so, the Marketing Agent has informed the Holding Company that
it intends to make a market for the Units if the volume of trading and other
market-making considerations justify such an undertaking. If an active trading
market does develop, there can be no assurance that such a trading market will
continue.
19
<PAGE>
PROSPECTUS MUST BE CURRENT TO EXERCISE WARRANTS; NON-REGISTRATION IN CERTAIN
JURISDICTIONS OF SHARES OF COMMON STOCK UNDERLYING THE WARRANTS
The Warrants are not convertible or exercisable unless, at the time of
exercise, the Holding Company has a current prospectus covering the shares of
Common Stock issuable upon exercise of the Warrants and such shares of Common
Stock have been registered, qualified or deemed to be exempt under the
securities laws of the state of residence of the holders of such Warrants. There
can be no assurance that the Holding Company will maintain a current prospectus
or that the securities will be qualified or registered under any state laws.
CONCENTRATION OF LENDING ACTIVITIES
Substantially all of the aggregate principal amount of First Federal's
real estate mortgage loans are secured by one- to four-family residential
properties located in First Federal's primary market area. While First Federal
currently believes that its loans are adequately secured or reserved for and has
experienced average annual net charge-offs of approximately $22,300 on an
average loan portfolio of $46.2 million over the last three fiscal years, in the
event that real estate prices in its primary market area weaken or economic
conditions in its primary market area deteriorate, thereby reducing the value of
properties securing First Federal's loans, it is possible both that some
borrowers may default and that the value of the real estate collateral may be
insufficient to fully secure the loan. In either event, which is unforeseen at
this time, First Federal may experience increased levels of delinquencies and
related losses having an adverse impact on income and stockholders' equity.
RISKS ASSOCIATED WITH AUTOMOBILE LOANS
At September 30, 1996 First Federal had $9.4 million of automobile
loans, of which $2.3 million were issued pursuant to First Federal's "second
chance" auto program to sub-prime borrowers with less than perfect credit. First
Federal has had a policy of not purchasing any "second chance" auto loans.
Although First Federal has attempted to mitigate the credit risk by insuring
these loans, in the event of a default by the insurer, First Federal would
assume the entire credit risk. Further, automobiles rapidly depreciate. As a
consequence, in the absence of such credit-default insurance, the borrower's
continuing financial stability rather than the value of the vehicle is generally
relied upon for the repayment of the related receivable. This is especially true
with respect to loans originated by First Federal, because First Federal's
underwriting procedures, which include personal interviews with the borrower
prior to funding, are primarily based on the ability of the borrower to repay.
As a result, First Federal may permit the origination of a loan in excess of the
manufacturer's suggested retail price, in the case of new vehicles, or the value
established by used car reference publications. Therefore, a repossessed
automobile may not provide an adequate source of repayment of the outstanding
loan balance. Furthermore, the application of various federal and state laws,
including bankruptcy and insolvency laws, may limit the amount which can be
recovered on such loans. See "Business - Consumer Lending."
RISKS ASSOCIATED WITH ANTI-TAKEOVER PROVISIONS
Holding Company and Bank Governing Instruments. Certain provisions of
the Holding Company's certificate of incorporation and bylaws assist the Holding
Company in maintaining its status as an independent publicly owned corporation.
These provisions provide for, among other things, noncumulative voting for
directors, limitations on the calling of special meetings, a fair
price/supermajority vote requirement for certain business combinations and
certain notice requirements. Any or all of these provisions may serve to
entrench current management and to discourage potential proxy contests and other
takeover attempts, particularly those which have not been negotiated with the
Board of Directors.
Regulatory and Statutory Provisions. Federal law requires OTS approval
prior to the acquisition of "control" (as defined in OTS regulations) of an
insured institution, including a holding company thereof. In the event that
holders of revocable proxies for more than 25% of the shares of Holding Company
Common Stock acting as a group or in concert with other proxy holders seek,
among other things, to elect one-third or more of the Holding Company's Board of
Directors, to cause the Holding Company's shareholders to approve the
acquisition or corporate reorganization of the Holding Company or to exert a
continuing influence on a material aspect of the
20
<PAGE>
business operations of the Holding Company, such actions could be deemed to be a
change of control, subject to OTS approval. A Delaware statute also limits the
circumstances under which a Delaware corporation may engage in any business
combinations (as defined by the statute) with an interested shareholder (i.e.,
any person or entity that owns 15% or more of the voting stock). See
"Restrictions on Acquisitions of Stock and Related Takeover Defensive
Provisions."
Voting Control of Shares by the Board and Executive Officers. The
ownership of Holding Company Common Stock by First Federal's Board of Directors
and executive officers could render it more difficult to obtain majority support
for shareholder proposals opposed by the Board and management. Assuming the sale
of Holding Company Common Stock at the 150,000 shares minimum and 200,000 shares
maximum of the Offering, and assuming that First Federal's Board and executive
officers (13 persons) will receive approximately 110,000 of the approximately
150,000 shares of Holding Company Common Stock anticipated to be exchanged as
part of the Merger, then under such assumptions, such individuals would own
approximately 36.8% at the minimum and 31.5%, at the maximum, respectively, of
the shares to be outstanding upon completion of the Offering. Stock ownership by
directors and executive officers, if voted as a block or supported by sufficient
other shareholder votes, could enable the Board and management to block the
approval of transactions requiring the approval of 80% of the shareholders under
the Holding Company's Certificate of Incorporation. See "Description of Capital
Stock" and "Restrictions on Acquisitions of Stock and Related Takeover Defensive
Provisions."
REGULATORY OVERSIGHT
First Federal is subject to extensive regulation, supervision and
examination by the OTS, as its chartering authority and primary federal
regulator, and by the FDIC, which insures its deposits up to applicable limits.
First Federal is a member of the Federal Home Loan Bank System ("FHLB") and is
subject to certain limited regulation by the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board"). As the holding company for First
Federal, the Holding Company will also be subject to regulation and oversight by
the OTS. See "Regulation." Such regulation and supervision governs the
activities in which an institution can engage and is intended primarily for the
protection of the insurance fund and depositors. Regulatory authorities have
been granted extensive discretion in connection with their supervisory and
enforcement activities which are intended to strengthen the financial condition
of the banking industry, including the imposition of restrictions on the
operation of an institution, the classification of assets by the institution and
the adequacy of an institution's allowance for loan losses. See "Regulation -
Federal Regulation of Thrift institutions." Any change in regulators or in
applicable regulation, whether by the OTS, the FDIC, the Comptroller of the
Currency, the Federal Reserve Board or Congress could have a material adverse
impact on the Holding Company, First Federal and their respective operations. In
this regard, legislation has been introduced into Congress that would require
all federal thrift institutions to either convert to a national or a state
depository institution (either a bank or a thrift institution) by June 30, 1998.
No assurance can be given as to whether or in what form such legislation may be
enacted.
COMPETITION
First Federal experiences significant competition in its local market
area in both originating real estate and other loans and attracting deposits.
This competition arises from other thrift institutions as well as commercial
companies, mortgage companies, credit unions and national and local securities
firms. On September 30, 1996 First Federal's loan to deposit ratio was 95.9%,
reflecting the high use of its deposits and ability to generate loans. Such
competition may limit First Federal's growth in the future. See "Business -
Competition."
LIMITATIONS ON STOCK OWNERSHIP
With certain limited exceptions, federal regulations prohibit a person
or company or a group of persons deemed to be acting in concert from, directly
or indirectly, acquiring more than 10% of any class of voting stock or obtaining
the ability to control in any manner the election of a majority of the directors
or otherwise direct the management or policies of the Holding Company, without
prior notice or application to and approval of the OTS.
21
<PAGE>
THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY
PRO FORMA CONSOLIDATED BALANCE SHEET
The following Holding Company pro forma consolidated balance sheet and
statement of income illustrate the historical consolidated balance sheet and
consolidated statements of income of First Federal giving effect to the Merger
as if it had been effective on March 31, 1997 after giving effect to the pro
forma adjustments described in the notes to the Holding Company pro forma
consolidated financial statements. The Merger will be accounted for as a
leveraged buy-out, with the First Federal Common Stock beneficially held by the
directors and executive officers and exchanged for Holding Company Common Stock
contributed to the Holding Company recorded at its carrying value. The assets
acquired and liabilities assumed in the acquisition of the remainder of First
Federal will be recorded at their estimated fair values, with the excess of the
purchase price over the net fair value recorded as goodwill. This information
should be read in conjunction with the historical consolidated financial
statements of First Federal, including the notes thereto, which appear elsewhere
in this Prospectus. The pro forma adjustments reflect assumptions regarding (i)
the aggregate amount of cash to be paid assuming that the holders of 75% of the
stock of First Federal elect to be paid in cash by the Holding Company as a
result of the Merger and (ii) the consummation of the Offering. The pro forma
financial data is not indicative of the actual financial position that would
have occurred had the Merger been consummated on March 31, 1997 or that may be
obtained in the future.
22
<PAGE>
THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY
PRO FORMA CONSOLIDATED BALANCE SHEET
(In Thousands)
<TABLE>
<CAPTION>
March 31, 1997
-------------------------------------------------------------------------------
Bank Pro forma Adjustments Elimination Consolidated
Historical Holding Company Entries Pro forma
---------- --------------- ------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks .................... $ 2,603 $ 1,314 (1) $ (4,326)(3) $ -- $ 2,568
-- 3,400 (2) -- -- --
-- (423)(5) -- -- --
Interest-bearing deposits with
financial institutions ................... 1,523 -- -- -- 1,523
Mortgage-backed securities ................. 1,219 -- (25)(3) -- 1,194
Loans ...................................... 54,372 -- 407 (3) -- 54,779
Premises and equipment ..................... 1,028 -- -- -- 1,028
Goodwill ................................... -- -- 589 (3) -- 589
Deposit purchase accounting
adjustments ................................ -- -- 1,081 (3) -- 1,081
Investment in Bank ......................... -- 923 (6) 2,771 (3) (3,694)(7) --
Debt issuance costs ........................ -- 423 (5) -- -- 423
Interest receivable and other assets ....... 1,936 -- -- -- 1,936
--------- --------- --------- --------- ---------
Total assets ............................ $ 62,681 $ 5,637 $ 497 $ (3,694) $ 65,121
========= ========= ========= ========= =========
LIABILITIES
Deposits ................................... $ 55,071 $ -- $ -- $ -- $ 55,071
Other borrowings ........................... 2,200 -- -- -- 2,200
Debentures ................................. -- 3,400 (2) -- -- 3,400
Other liabilities .......................... 843 -- 497 -- 1,340
--------- --------- --------- --------- ---------
Total liabilities ....................... 58,114 3,400 497 -- 62,011
Minority interest-preferred stock .......... -- -- -- 873(9) 873
STOCKHOLDERS' EQUITY
Preferred stock ............................ 1 -- (1)(9) --
Common stock ............................... 2 1(6) -- (2)(7) 2
1(1)
Additional paid-in-capital ................. 2,743 922(6) -- (1,871)(7) 2,235
-- 1,313(1) -- (872)(9) --
Retained earnings .......................... 1,821 -- -- (1,821)(7) --
--------- --------- --------- --------- ---------
Total stockholders' equity .............. 4,567 2,237 -- (4,567) 2,237
--------- --------- --------- --------- ---------
Total liabilities and stockholders'
equity ............................... $ 62,681 $ 5,637 $ 497 $ (3,694) $ 65,121
========= ========= ========= ========= =========
PER SHARE DATA(4)
Holding Company common shares
outstanding ............................... 599,030 -- -- -- 299,758
Book value per Holding Company
common share ............................. $ 6.17 -- -- -- $ 7.46
Tangible book value per Holding
Company common share ..................... 6.17 -- -- -- 2.10
Offering price Holding Company
common stock ............................. -- -- -- -- 10.00
</TABLE>
23
<PAGE>
THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(In Thousands, except per share data)
<TABLE>
<CAPTION>
For the year ended
September 30, 1996
------------------------------------------------------
Pro forma
Adjustments
Bank Holding Consolidated
Historical Company Pro forma
----------- ------------- -----------
<S> <C> <C> <C>
INTEREST INCOME
Loans .............................................. $ 4,407 $ (81)(3) $ 4,326
Mortgage-backed securities ......................... 145 5 (3) 150
Other .............................................. 276 -- 276
----------- ------------- -----------
Total interest income .......................... 4,828 (76) 4,752
INTEREST EXPENSE
Deposits ........................................... 2,358 56(3) 2,414
Debentures ......................................... -- 391(2) 391
Other borrowings ................................... 5 -- 5
----------- ------------- -----------
Total interest expense .......................... 2,363 447 2,810
----------- ------------- -----------
Net Interest Income ................................ 2,465 (523) 1,942
Provision for loan losses .......................... (52) -- (52)
----------- ------------- -----------
Net interest income after provisions for loan losses 2,517 (523) 1,994
NONINTEREST INCOME
Other .............................................. 543 -- 543
Gains on sale of loans and servicing ............... 330 -- 330
----------- ------------- -----------
Total noninterest income ....................... 873 -- 873
----------- ------------- -----------
NONINTEREST EXPENSES
Compensation and benefits .......................... 1,337 -- 1,337
Amortization of intangibles ........................ -- 136(3) 136
Amortization of debt issue costs ................... -- 85(5) 85
Occupancy and equipment ............................ 335 -- 335
Other .............................................. 1,376 -- 1,376
----------- ------------- -----------
Total noninterest expenses ...................... 3,048 221 3,269
----------- ------------- -----------
Income/(loss) before federal income tax expense .... 342 (744) (402)
Income tax expense/(benefit) ....................... 108 (240)(8) (132)
----------- ------------- -----------
Net income/(loss) .................................. $ 234 $ (504) $ (270)
=========== ============= ===========
Weighted average common shares outstanding ......... 599,030 -- 299,758
Net income/(loss) per common share ................. .24 -- (1.19)
</TABLE>
24
<PAGE>
THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(In Thousands, except per share data)
<TABLE>
<CAPTION>
For the Six Months Ended
March 31, 1997
-------------------------------------------
Pro forma
Adjustments Con-
Bank Holding solidated
Historical Company Pro forma
------------ ------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans .............................................. $ 2,513 $ (40)(3) $ 2,473
Mortgage-backed securities ......................... 38 3(3) 41
Other .............................................. 65 -- 65
------------ ------------- -------------
Total interest income ........................... 2,616 (37) 2,579
INTEREST EXPENSE
Deposits ........................................... 1,186 28(3) 1,214
Debentures ......................................... -- 196(2) 196
Other borrowings ................................... 33 -- 33
------------ ------------- -------------
Total interest expense .......................... 1,219 224 1,443
------------ ------------- -------------
Net Interest Income ................................ 1,397 (261) 1,136
Provision for loan losses .......................... 2 -- 2
------------ ------------- -------------
Net interest income after provisions for loan losses 1,395 (261) 1,134
NONINTEREST INCOME
Other .............................................. 314 -- 314
Gains on sale of loans and servicing ............... 59 -- 59
------------ ------------- -------------
Total noninterest income ........................ 373 -- 373
NONINTEREST EXPENSES
Compensation and benefits .......................... 641 -- 641
Amortization of intangibles ........................ -- 68(3) 68
Amortization of debt issue costs ................... -- 43(5) 43
Occupancy and equipment ............................ 163 -- 163
Other .............................................. 517 -- 517
------------ ------------- -------------
Total noninterest expenses ...................... 1,321 111 1,432
------------ ------------- -------------
Income/(loss) before federal income tax expense .... 447 (372) 75
Income tax expense/(benefit) ....................... 152 (120)(8) 32
------------ ------------- -------------
Net income/(loss) .................................. $ 295 $ (252) $ 43
============ ============= =============
Weighted average common shares outstanding ......... 599,030 -- 299,758
Net income/(loss) per common share ................. $ .49 -- $ (.03)
</TABLE>
25
<PAGE>
NOTES TO THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) Reflects the estimated proceeds from the issuance and sale of 150,000
shares of the Holding Company Common Stock (par value $.01) in the
offering.
Gross proceeds $1,500,000
Estimated offering expenses (186,000)
----------
Net proceeds $1,314,000
==========
(2) Reflects the estimated proceeds from the issuance and sale of 3,400, 11.5%,
five-year Debentures, at $1,000 per unit. Each Debenture includes a
detachable warrant to purchase 9 shares of Holding Company Common Stock at
$12.50 per share. No value has been assigned to the Warrants. Interest cost
of $391,000 per year.
(3) Reflects goodwill related to purchase 75% of First Federal's Common Stock
for $4,326,000 (179,709 shares at $24.07 per share) as follows:
<TABLE>
<CAPTION>
Amortization
Annual
Life Amount
---- ------
<S> <C> <C> <C>
Purchase price (179,709 shares of First Federal
Common Stock, representing 75% of outstanding
common shares at $24.07 per share) $ 4,326,000
First Federal book value related to common
shares purchased 2,771,000
-------------
Excess purchase price over book value 1,555,000
-------------
Less adjustments to reflect fair value
Securities (25,000) 5 years $ 5,000
Loans 407,000 5 years (81,000)
Certificates of deposit 112,000 2 years (56,000)
Core deposit intangible 969,000 10 years (97,000)
Income tax effect of above (497,000)
adjustments at 34% federal rate -------------
Total adjustments 966,000
-------------
Goodwill $ 589,000 15 years (39,000)
=============
</TABLE>
(4) Net income and book value per common share for First Federal historical
reflects 2.5 exchange rate for Holding Company Common Stock, or 599,030
shares. Tangible book value excludes deposit intangibles and goodwill.
Warrants have not been included in shares outstanding. Consolidated pro
forma net income and book value per common share reflects 249,758 common
shares outstanding. Book value per common share excludes $873,000 of First
Federal's preferred stock. Net income per common share excludes $88,000 of
dividends on preferred stock. Tangible book value excludes goodwill and
deposit intangibles.
(5) Reflects debt issue costs of $423,000, to be amortized on a straight-line
basis over the five-year term of the Debentures ($85,000 per year).
(6) Reflects exchange of 59,903 common shares (25% of outstanding common
shares) of First Federal for 149,758 common shares (par value $0.01) of
Holding Company at historical book value (59,903 shares at $15.42/share =
$923,000).
(7) Elimination of intercompany accounts.
(8) Reflects tax rate of 34%.
(9) Reflects outside ownership of First Federal's preferred stock.
26
<PAGE>
DILUTION
Upon the successful completion of this Offering there will be a minimum
of approximately 300,000 and a maximum of approximately 350,000 shares of
outstanding Holding Company Common Stock.
As of March 31, 1997, the net tangible book value available to common
stockholders of First Federal amounted to $3.7 million or approximately $6.17
per share, adjusted for the Exchange Ratio. After giving effect to the issuance
and sale of 150,000 shares minimum and 200,000 shares maximum number of Shares
of Holding Company Common Stock offered hereby and the receipt of the net
proceeds thereof, the net tangible book value of the Holding Company will amount
to approximately $631,000 or $1.1 million or approximately $3.36 or $3.77 per
share of Holding Company Common Stock at the minimum and maximum number of
shares of the Holding Company Common Stock offered, respectively. As a result,
the purchasers of the Holding Company Common Stock offered hereby will incur an
immediate dilution ranging from approximately $6.64 to $6.23 per share of
Holding Company Common Stock, representing the difference between their purchase
at $10.00 per share and the net tangible book value per share of Holding Company
Common Stock after the Offering. This dilution results from the cash payment to
First Federal shareholders in exchange for their First Federal Common Stock in
the Merger and the expenses in connection with the Offering. It should be noted
that the calculations above were made without giving effect to the intrinsic
value, if any, of First Federal's deposit base and over 30-year franchise.
The following table indicates the dilution of the investment to the
investors.
<TABLE>
<CAPTION>
150,000 200,000
Shares Shares
(Minimum (Maximum
Number of Number of
Shares) Shares)
----------- ---------
<S> <C> <C>
Offering price per share of Holding Company Common Stock........................ $10.00 $10.00
Net tangible book value per share of Holding Company Common Stock
before offering (1)........................................................... 6.17 6.17
Pro-forma net tangible book value per share of Holding Company Common
Stock after offering (1)...................................................... 3.36 3.77
Increase per share of Holding Company Common Stock attributable to
payments for shares offered hereby............................................ 10.00 10.00
Dilution to investors .......................................................... 6.64 6.23
</TABLE>
- ----------
(1) Net tangible book value per share of Holding Company Common Stock is
determined by dividing the number of shares of Holding Company Common
Stock outstanding into the net tangible book value of the Holding
Company (tangible assets less liabilities). Reflects 2.5 exchange ratio
of First Federal Common Stock for Holding Company Common Stock.
27
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization,
including savings deposits, of First Federal at March 31, 1997 and the pro forma
capitalization of the Holding Company as of that date, after giving effect to
the completion of the Offering and based on other assumptions set forth in the
table, in "Pro Forma Data" and in "Use of Proceeds."
Pro Forma Holding Company
Consolidated Capitalization
---------------------------
March 31, 1997
---------------------------
(In Thousands)
Historical Pro Forma
---------- ---------
Deposits ................................................ $55,071 $55,071
Other Borrowings ........................................ 2,200 2,200
Debentures due .......................................... -- 3,400
------ -----
Total Senior Indebtedness, General Obligations
and Debentures....................................... $57,271 $60,671
======= =======
Stockholders' equity:
Preferred Stock, $.01 par value per shares to be
outstanding as shown .................................... $ 1 $ --
Holding Company Common Stock, par value $.01 per share:
Authorized - shares; to be outstanding as shown ......... 2 2
Additional paid-in capital .............................. 2,743 2,235
Retained earnings ....................................... 1,821 --
------- --------
Total stockholders' equity .............................. $ 4,567 $ 2,237
======= ========
28
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act, and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") that are based on the
current beliefs of the Holding Company's management as well as assumptions made
by and information currently available to the Holding Company's management. All
statements other than statements of historical facts included in this
Prospectus, including without limitation, statements under "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" regarding the Holding Company's and First Federal's
financial position, business strategy and plans and objectives of management of
the Holding Company and First Federal for future operations, are forward-looking
statements. When used in this Prospectus, the words "anticipate," "believe,"
"estimate," "expect" and "intend" and words or phrases of similar import, as
they relate to the Holding Company or First Federal or Holding Company
management, are intended to identify forward-looking statements. Although the
Holding Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no absolute assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from the Holding Company's expectations
("cautionary statements") are disclosed under "Risk Factors" and elsewhere in
this Prospectus, including, without limitation, in conjunction with the
forward-looking statements included in this Prospectus. Based upon changing
conditions, should any one or more of these risks or uncertainties materialize,
or should any underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated,
expected or intended. The Holding Company does not intend to update these
forward-looking statements. All subsequent written and oral forward-looking
statements attributable to the Holding Company, First Federal or persons acting
on their behalf are expressly qualified in their entirety by the applicable
cautionary statements.
USE OF PROCEEDS
Net proceeds from the sale of the Holding Company Common Stock and the
Units in the Offering are currently estimated at $___ million and $___ million,
at the minimum and maximum number of securities offered, respectively. This
amount is arrived at by subtracting the $_______ and $_______ estimated fees and
expenses of the Offering, including commissions, from $_________ and $_________,
which are the gross proceeds from the sale of the minimum and maximum number of
securities offered, respectively. In calculating expenses, it is assumed that a
minimum of 150,000 shares of Holding Company Common Stock will be sold at no
commission and 3,400 Units will be sold at a 7.0% commission. Actual expenses
may be more or less than those estimated.
The net proceeds will be used to purchase all of the shares of First
Federal Common Stock exchanged for cash pursuant to the Merger Agreement, repay
First Federal for expenses paid by First Federal in connection with the Merger
and Offering, and the balance, if any, will become part of the Holding Company's
general funds for use in its business. On an interim basis, the proceeds will be
invested by the Holding Company primarily in short-term marketable securities.
The Holding Company reserves the right to use the proceeds in any manner
authorized by law.
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<PAGE>
MARKET INFORMATION
The Holding Company has never issued capital stock to the public and,
consequently, there is no existing market for the Holding Company Common Stock.
Although the Holding Company has received preliminary approval to list the
Holding Company Common Stock among the "Small-Cap Issues" on Nasdaq under the
symbol "____", there can be no assurance that the Holding Company will meet
Nasdaq listing requirements, which include a minimum market capitalization, a
minimum of 300 stockholders immediately upon the closing of the Offering and a
minimum of two market makers in the Holding Company Common Stock. In the event
that the Holding Company does not satisfy the criteria for listing on the
Nasdaq, it will seek to list its shares on the OTC Bulletin Board administered
by the NASD. Moreover, there can be no assurance that an active or liquid
trading market will develop, or that if a market develops, it will continue. A
public market having the desirable characteristics of depth, liquidity and
orderliness depends upon the presence in the marketplace of both willing buyers
and sellers of the Holding Company Common Stock at any given time, which is not
within the control of the Holding Company or any market maker. Accordingly,
there can be no assurance that purchasers will be able to sell their shares at
or above the price paid for the shares in the Offering. Investors should
consider, therefore, the potentially illiquid and long-term nature of an
investment in the Holding Company Common Stock.
Prior to this offering, there have been no Units outstanding. There is
no public market for the Units and it is unknown whether an active and liquid
trading market for the Units will develop. The Holding Company has no present
intention to have the Units authorized for quotation on Nasdaq or any other
quotation system or listed on any securities exchange. Although there is no
obligation to do so, Hoefer & Arnett has informed the Holding Company that it
intends to make a market for the Units if the volume of trading and other
market-making considerations justify such an undertaking. If an active trading
market does develop, there can be no assurance that such a trading market will
continue.
DIVIDEND POLICY
Initially, it is not expected that the Holding Company will pay cash
dividends on the Holding Company Common Stock. Indeed, First Federal has paid
only stock dividends and no cash dividends on First Federal Common Stock
previously sold in 1992. Accordingly, any investor who anticipates the need for
current cash dividends from this investment should not purchase any shares of
Holding Company Common Stock offered. The declaration and payment of future cash
dividends will be subject to, among other things, the level of First Federal's
regulatory capital relative to its capital requirements, the Holding Company's
and First Federal's then current and projected consolidated operating results,
financial condition, regulatory restrictions, future growth plans and other
factors the Board deems relevant. First Federal is required to pay cash
dividends of $88,000 per year on its outstanding preferred stock prior to any
dividends being paid to the Holding Company. The Holding Company will be
prohibited from paying dividends on junior securities such as the Holding
Company Common Stock unless all interest payments with respect to the Debentures
have been made. There can be no assurance that the Holding Company will be able
to pay dividends or, if dividends are permitted, that the Board of Directors
will determine to pay dividends on the Holding Company Common Stock.
Delaware law generally limits dividends of the Holding Company to an
amount equal to the excess of its net assets (the amount by which total assets
exceed total liabilities) over its paid-in capital or, if there is no such
excess, to its net profits for the current and immediately preceding fiscal
year.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Holding Company has only recently been formed and, accordingly, has
no results of operations. The following discussion is intended to provide
information to facilitate the understanding and assessment of significant
changes and trends related to the financial condition of First Federal and the
results of its operations. This discussion and analysis should be read in
conjunction with First Federal's audited financial statements and notes thereto
included elsewhere in this Prospectus.
GENERAL
First Federal's major goals are to provide high quality full service
retail banking on a profitable basis to its customers through its offices
located in Bryan/College Station and its loan production offices located in its
expanded trade area between Dallas, Houston and Austin, Texas. First Federal
intends to continue to focus primarily on one- to four-family residential loans,
direct and indirect consumer lending, including home improvement loans and
construction loans, and commercial business loans, some of which are partially
guaranteed by the U.S. Small Business Administration. In addition, First Federal
also seeks to continue to improve its asset quality and continue to minimize, to
the extent possible, its vulnerability to changes in interest rates in order to
maintain a reasonable spread between its average yield on loans and securities
and its average cost of interest paid on deposits and borrowings.
First Federal's net interest income has historically been dependent
largely upon the difference ("spread") between the average yield earned
primarily on loans, and to a lesser extent mortgage-backed securities and other
securities ("interest-earning assets") and the average rate paid on savings and
other deposits and borrowings ("interest-bearing liabilities"), as well as the
relative amounts of such assets and liabilities. The interest rate spread
between interest-earning assets and interest-bearing liabilities is impacted by
several factors including economic and competitive conditions that influence
interest rates, loan demand, deposit flows, regulatory developments and the
types of assets and liabilities on its balance sheet.
Like all financial institutions, First Federal has always been subject
to interest rate risk because its interest-bearing liabilities (primarily
deposits) mature or reprice at different times, or on a different basis than its
interest-earning assets (primarily loans). First Federal's net income is also
affected by gains and losses on the sale of loans, loan servicing rights and
investments, provisions expensed for loan and other repossessed real estate
losses, service charge fees, loan servicing income, fees for other financial
services rendered, operating expenses and income taxes. First Federal believes
that building its earnings from net interest income and noninterest income, such
as the profitable sale of long-term, fixed rate loans to the secondary market
utilizing a fully-staffed residential loan department and SBA business loan
staff, along with income from service charges and fees on checking accounts from
its recent transition to full service retail banking, while continuing to reduce
operating expenses, can provide a stable foundation for successful operations.
Noninterest income can provide an excellent source of secondary income through
fees charged to customers for services rendered, without requiring additional
capital.
First Federal's recent restructuring to provide full service banking
and more convenience to its customers has caused an increase in First Federal's
operating expense levels which, despite the recent increase in net interest
income, resulted in First Federal's operating expenses exceeding its net
interest income for the fiscal year ending September 30, 1996. Since 1991, First
Federal has relied primarily on its noninterest income for net income. While
First Federal's noninterest income has been a relatively steady source of
income, it is highly dependent upon the ability of First Federal to originate
loans and realize profits on the sale of these loans and related servicing
rights to the secondary market and to increase its service charge and fee income
from additional checking accounts resulting from its recent transition to
full-service banking. Over the past year, the volume of origination and sale of
these residential mortgage loans by First Federal declined; however, First
Federal experienced an increase of $117,000 in profits from the sale of loans
and mortgage servicing rights in part due to the sale in 1996 of servicing
rights originated in previous years. First Federal believes this decline in the
volume of origination and sale of residential mortgage loans was caused by an
increase in the general market interest rates during the first part of fiscal
1996, and also by an ever-increasing number of residential mortgage lenders in
its primary trade area
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<PAGE>
competing for the same overall volume. Total noninterest income increased
$281,000 from 1995 to 1996, while noninterest expense increased $67,000
(excluding the one-time special SAIF assessment of $333,000 in 1996).
In order to offset this decline in First Federal's origination and sale
of residential mortgage loans to the secondary market, First Federal's senior
management is continuing to restructure its residential mortgage lending
department to improve further its efficiency and effectiveness while expanding
consumer and small business lending. In addition, senior management has
continued its effort to control operating expenses. Noninterest expense
(operating expenses which do not include interest paid on deposit accounts and
other borrowings) increased slightly from 4.47% of average assets for the year
ended September 30, 1995, to 4.60% for the year ended September 30, 1996
(excluding the SAIF assessment). Management believes that continuing this
strategy will help it meet the full-service banking needs of its customers in
its competitive market, contributing to increased checking accounts and service
charges and fee income therefrom.
ASSET/LIABILITY MANAGEMENT
First Federal, like all financial institutions, is subject to interest
rate risk to the degree that its interest-bearing liabilities mature or reprice
more rapidly, or on a different basis, than its interest-earning assets, some of
which may be longer term or fixed interest rate. Loans maturing within five
years total $40.3 million or 77.6% of total loans, while loans maturing over
five years total $11.6 million or 22.4% of total loans. At September 30, 1996,
only $2.2 million of its total residential loan portfolio of $30.5 million
consisted of long-term, fixed-rate loans which were predominantly originated
prior to 1980. As a continuing part of its financial strategy, First Federal
continually considers methods of managing any such asset/liability mismatch,
consistent with maintaining acceptable levels of net interest income.
In order to monitor and manage interest rate sensitivity and interest
rate spread, First Federal created an Asset/Liability Committee ("ALCO"),
composed of its President, Senior Vice President/Financial, Executive Vice
President of Operations and one outside Director. The responsibilities of the
ALCO are to assess First Federal's asset/liability mix and recommend strategies
that will enhance income while managing First Federal's vulnerability to changes
in interest rates.
First Federal's asset/liability management strategy has two goals.
First, First Federal seeks to build its net interest income and noninterest
income while adhering to its underwriting and lending guidelines. Second, and to
a lesser extent, First Federal seeks to increase the interest rate sensitivity
of its assets and decrease the interest rate sensitivity of its liabilities so
as to reduce First Federal's overall sensitivity to changes in interest rates.
First Federal places its primary emphasis on maximizing net interest margin,
while striving to better match the interest rate sensitivity of its assets and
liabilities. There can be no absolute assurance that this strategy will achieve
the desired results and will not result in substantial losses in the event of an
increase in interest rate risk.
As part of this strategy, management has recently emphasized growth in
noninterest-bearing deposits such as checking accounts or lower interest-bearing
savings deposits by offering full service retail banking. In order to minimize
the possible adverse impact that a rise in interest rates may have on net
interest income, First Federal has developed several strategies to manage its
interest rate risk. Primarily, First Federal is currently selling all newly-
originated one-to four-family residential mortgage loans which are saleable in
the secondary market--most of which are long-term fixed-rate loans. In addition,
First Federal currently offers three-year fixed rate balloon loans and other
adjustable rate loans, and has implemented an active, diversified short-term
consumer lending program, giving First Federal an opportunity to reprice its
loans on a more frequent basis.
NET PORTFOLIO VALUE
The OTS, First Federal's primary regulator has issued a proposed rule
for the calculation of an interest rate risk component for institutions with a
greater than "normal" (i.e., greater than 2%) level of interest rate risk
exposure ("NPV"). The OTS has not yet implemented the capital deduction for
interest rate risk. NPV is the difference between incoming and outgoing
discounted cash flows from assets, liabilities and off-balance sheet contracts.
This approach calculates the difference between the present value of expected
cash flows from assets and the present value of expected cash flows from
liabilities, as well as cash flows from off-balance sheet contracts. Under OTS
regulations, an institution's "normal" level of interest rate risk in the event
of an assumed change in
32
<PAGE>
interest rates is a decrease in the institution's NPV in an amount not exceeding
2% of the present value of its assets. The amount of that deduction is one-half
of the difference between (a) the institution's actual calculated exposure to a
200 basis point interest rate increase or decrease (whichever results in the
greater pro forma decrease in NPV) and (b) its "normal" level of exposure which
is 2% of the present value of its assets. If a capital deduction was required
for the September, 1996 reporting period, the deduction for risk-based capital
purposes would not be material to First Federal.
It has been, and continues to be, an objective of First Federal's Board
of Directors and management to manage interest rate risk. First Federal's
asset/liability policy, established by the Board of Directors, dictates
acceptable limits on the amount of change in NPV given certain changes in
interest rates. See "- Asset/Liability Management."
Presented below, as of December 31, 1996, is an analysis of First
Federal's interest rate risk as measured by changes in NPV for instantaneous and
sustained parallel shifts in the yield curve, in 100 basis point increments, up
and down 400 basis points in accordance with OTS regulations. As illustrated in
the table, NPV is more sensitive to rising rates than declining rates. This
occurs principally because, as rates rise, the market value of fixed-rate loans
declines due to both the rate increase and slowing prepayments. When rates
decline, First Federal does not experience a significant rise in market value
for these loans because borrowers prepay at relatively high rates. OTS
assumptions are used in calculating the amounts in this table.
Change in
Interest Rate Estimated At December 31, 1996
(Basis Points) NPV $ Change % Change
----------------- -------------- ------------ -----------------
(Dollars in Thousands)
+400 $6,236 $ (533) (8)%
+300 6,466 (303) (4)
+200 6,650 (119) (2)
+100 6,768 (1) ---
--- 6,769 --- ---
-100 6,630 (139) (2)
-200 6,563 (206) (3)
-300 6,639 (130) (2)
-400 6,820 51 1
Management reviews the OTS measurements on a quarterly basis. In
addition to monitoring selected measures on NPV, management also monitors
effects on net interest income resulting from increases or decreases in rates.
This measure is used in conjunction with NPV measures to identify excessive
interest rate risk. In the event of a 400 basis point change in interest rates,
First Federal would experience a 2% decrease in NPV in a declining rate
environment and a 8.0% decrease in a rising rate environment. As of December 31,
1996, an increase in interest rates of 200 basis points would have resulted in a
2% decrease in the present value of First Federal's assets, while a change in
the interest rates of negative 200 basis points would have resulted in a 3%
decrease in the present value of First Federal's assets.
In evaluating First Federal's exposure to interest rate risk, certain
shortcomings inherent in the method of analysis presented in the foregoing
tables must be considered. For example, although certain assets and liabilities
may have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Further, in the event of a change in interest rates, prepayment
and early withdrawal levels would likely deviate significantly from those
assumed in calculating the table. For example, projected passbook, money market
and checking account maturities may also materially change if interest rates
change. Finally, the ability of many borrowers to service their debt may
decrease in the event of an interest rate increase. First Federal considers all
of these factors in monitoring its exposure to interest rate risk.
33
<PAGE>
AVERAGE BALANCES, INTEREST RATES AND YIELDS
The following table presents for the periods indicated the total dollar
amount of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities
and the rates, expressed both in dollars and rates and the net interest margin.
No tax equivalent adjustments were made. Average balances are the beginning
balance for the year plus the ending balance for each month divided by thirteen,
and include the balances of non-accruing loans. The yield includes fees which
are considered adjustments to yields.
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------------------------------------------------
1996 1995 1994
----------------------------- ----------------------------- ------------------------------
Average Average Average
Outstanding Interest Outstanding Interest Outstanding Interest
Balance Earned Yield Balance Earned Yield Balance Earned Yield
------------ ---------- ------ ------------ --------- ------ ----------- --------- --------
(Dollars in Thousands)
Interest-earning
assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable, net.............. $48,185 $4,407 9.15% $47,464 $4,187 8.82% $ 43,009 $ 3,619 8.41%
Mortgage-backed securities........ 1,573 99 6.29 2,440 162 6.64 3,259 205 6.29
Securities......................... 1,000 46 4.60 1,000 42 4.20 1,000 33 3.30
Interest bearing deposits
with Federal Home Loan Bank....... 3,870 227 5.87 4,329 259 5.98 3,379 133 3.94
Other interest-earning assets...... 817 49 6.00 767 48 6.26 725 30 4.14
------------ ---------- ------------ --------- ----------- ---------
Total interest-earning assets... 55,445 4,828 8.71 56,000 4,698 8.39 51,372 4,020 7.83
Noninterest-earning assets.......... 3,478 3,255 2,804
------------ ------------ -----------
Total assets....................... $58,923 $59,255 $ 54,176
============ ============ ===========
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
1996 1995 1994
----------------------------- ------------------------------- --------------------------------
Average Average Average
Outstanding Interest Outstanding Interest Outstanding Interest
Balance Paid Cost Balance Paid Cost Balance Paid Cost
------- ------ ----- ------- ------ ---- ------- ------- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing liabilities:
Deposits............................ $51,243 $2,358 4.60% $49,793 $2,146 4.30% $47,786 $ 1,701 3.56%
FHLB advances....................... 89 5 5.62 2,085 148 7.10 679 57 8.39
------- ------ ----- ------- ------ ---- ------- ------- ----
Total interest-bearing liabilities 51,332 2,363 4.60 51,878 2,294 4.42 48,465 1,758 3.63
------ ----- ------ ---- ------- ----
Other liabilities(2)................ 3,306 3,282 1,860
------- ------- -------
Total liabilities .................. 55,160 50,325
Stockholders' equity................ 4,285 4,095 3,851
------- ------- -------
Total liabilities and
stockholders' equity............... $58,923 $59,255 $ 54,176
======= ======= =======
Net interest income;
interest rate spread................ $2,465 4.11% $2,404 3.97% $ 2,262 4.20%
====== ===== ====== ==== ======= ====
Net interest margin(1)............... 4.45% 4.29% 4.40%
===== ==== ====
Average interest-earning assets
to average interest-bearing
liabilities......................... 108.01% 107.95% 106.00%
======= ======= =======
</TABLE>
(1) Net interest margin is net interest income divided by average
interest-earning assets.
(2) Including noninterest-bearing deposits.
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<PAGE>
The following table sets forth the yields on loans, mortgage-backed
securities, securities and other interest-earning assets, the rates on savings
deposits and borrowings and the resultant interest rate spreads at the dates and
for the periods indicated.
<TABLE>
<CAPTION>
At September 30,
----------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted average yield on:
Loans receivable.......................................................... 9.35% 9.06% 8.44%
Mortgage-backed securities................................................ 6.59 6.94 6.05
Securities................................................................ 4.51 4.44 3.21
Other interest-earning assets............................................. 5.79 6.06 5.82
Combined weighted average yield on interest-earning assets................ 9.00 8.60 7.91
Weighted average rate paid on:
Deposits................................................................... 4.33 4.38 3.62
Borrowings................................................................. --- 7.10 ---
Combined weighted average rate paid on interest-bearing liabilities........ 4.33 4.43 3.62
Spread..................................................................... 4.67% 4.17% 4.29%
<CAPTION>
For the Year Ended
September 30,
--------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted average yield on:
Loans receivable............................................................. 9.15% 8.82% 8.41%
Mortgage-backed securities................................................... 6.29 6.64 6.29
Securities................................................................... 4.60 4.20 3.30
Other interest-earning assets................................................ 5.89 6.02 3.97
Combined weighted average yield on interest-earning assets.................. 8.71 8.39 7.83
Weighted average rate paid on:
Deposits..................................................................... 4.60 4.30 3.56
Borrowings................................................................... 5.62 7.10 8.39
Combined weighted average rate paid on interest-bearing liabilities......... 4.60 4.42 3.63
Spread........................................................................ 4.11 3.97 4.20
Net interest margin (net interest-earnings divided by average interest-earning
assets, with net interest-earnings equaling the difference
between the dollar amount of interest-earned and paid)...................... 4.45% 4.29% 4.40%
</TABLE>
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<PAGE>
The following schedule presents the dollar amount of changes in
interest income and interest expense for major components of interest-earning
assets and interest-bearing liabilities for the periods shown. It distinguishes
between the increase in interest income and interest expense related to higher
outstanding balances and that due to the levels and volatility of interest
rates. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
rate (i.e., changes in rate multiplied by old volume) and (ii) changes in volume
(i.e., changes in volume multiplied by old rate). For purposes of this table,
changes attributable to both rate and volume have been allocated proportionately
to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------------------------
1995 vs. 1996 1994 vs. 1995
----------------------------------- ----------------------------------
Increase Total Increase Total
(Decrease) Increase (Decrease) Increase
Due To (Decrease) Due To (Decrease)
------------------- -------- -------------------- ---------
Volume Rate Volume Rate
------ ---- ------ ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans................................................ $ 64 $156 $220 $387 $181 $568
Mortgage-backed securities.......................... (55) (8) (63) (54) 11 (43)
Securities........................................... --- 4 4 --- 9 9
Interest bearing deposits with Federal
Home Loan Bank..................................... (22) (10) (32) 44 82 126
Other interest-earning assets........................ 3 (2) 1 2 16 18
------ ---- ----- ------ ---- ----
Total interest-earning assets....................... (10) 140 130 379 299 678
------ ---- ----- ------ ---- -----
Interest-bearing liabilities:
Deposits............................................. 64 148 212 74 371 445
FHLB advances ....................................... (117) (26) (143) 108 (17) 91
------ ---- ----- ------ ---- ----
Total interest-bearing liabilities................. (53) 122 69 182 354 536
------ ---- ----- ------ ---- ----
Net interest income................................... $ 43 $ 18 $197 $ (55)
====== ==== ====== =====
Net increase in net interest income................... $ 61 $ 142
===== ======
</TABLE>
37
<PAGE>
RESULTS OF OPERATIONS
First Federal's results of operations are primarily dependent on its
net interest income--which is the difference between interest income on
interest-earning assets and interest expense on interest-bearing liabilities.
Interest income is a function of the average balances of interest-earning assets
outstanding during the period and the average yields earned on such assets.
Interest expense is a function of the average amount of interest-bearing
liabilities outstanding during the period and the average rates paid on such
liabilities. First Federal also generates noninterest income, such as income
from service charges and fees on checking accounts, loan servicing and other
fees and charges and gains on sales of loans and servicing rights. First
Federal's net income is also affected by the level of its noninterest expenses,
such as employee salaries and benefits, occupancy and equipment expenses, and
federal deposit insurance premiums.
COMPARISON OF FISCAL YEAR ENDED SEPTEMBER 30, 1996 TO SEPTEMBER 30, 1995
First Federal reported net income of $234,000 for the year ended
September 30, 1996 compared to $211,000 for the year ended September 30, 1995,
an increase of $23,000, or 10.9%. Excluding the nonrecurring September 1996 SAIF
assessment, after tax net income would have been $454,000. This represents a
115% increase over net income from the previous year. The increase in net income
resulted primarily from an increase in service charge income of $172,000 coupled
with an increase in gain on sale of loans and mortgage servicing rights of
$117,000. In addition, First Federal recorded a negative provision for loan
losses of ($52,000) for the year ended September 30, 1996 compared to $27,000
for the year ended September 30, 1995. These items were largely offset by a
$333,000 special SAIF assessment for SAIF insured deposits as a result of a
federal law enacted on September 30, 1996. These items are more fully discussed
below.
Net interest income increased $61,000 to $2.5 million for the year
ended September 30, 1996 from $2.4 million for the year ended September 30,
1995. This increase resulted primarily from increases in both the yield earned
and the average balance of First Federal's loan portfolio, offset in part by an
18 basis point increase in First Federal's cost of funds. The increase in the
yield on loans of 33 basis points was primarily the result of an increase in
consumer automobile loans which yield a higher rate of interest than traditional
mortgage loans and the origination of three year balloon loans at higher initial
rates. As a result, First Federal's net interest margin increased to 4.45% for
the year ended September 30, 1996 from 4.29% for the year ended September 30,
1995. The spread between the average yield on interest-earning assets and the
average cost of interest-bearing liabilities also increased from 3.97% for the
year ended September 30, 1995 to 4.11% for the year ended September 30, 1996.
First Federal recorded a $52,000 negative provision for loan losses for
the year ended September 30, 1996 compared to a $27,000 provision for loan
losses for the year ended September 30, 1995. The decrease in the provision for
loan losses was a result of management reevaluation of estimates used in
calculating the allowance for loan losses due to a decrease in delinquencies and
nonaccrual loans, continued low levels of actual charge-offs over the last three
fiscal years relative to the allowance for loan losses and the use of
credit-default loss insurance coverage for new automobile loans to limit First
Federal's loan loss exposure. The provision for loan losses is based on
management's periodic review of First Federal's loan portfolio which considers,
among other factors, past actual loan loss experience, the general prevailing
economic conditions, changes in the size, composition and risks inherent in the
loan portfolio, independent third-party loan reviews, and specific borrower
considerations such as the ability to repay the loan and the estimated value of
the underlying collateral. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review First Federal's
allowance for estimated losses on loans. Such agencies may require First Federal
to provide additions to the allowance based upon judgments which differ from
those of management.
Noninterest income increased to $873,000 for the year ended September
30, 1996 from $592,000 for the year ended September 30, 1995. The increase was
primarily due to increased service charge income of $172,000 resulting from
service charges assessed on a new checking account coupled with an increase in
return check charges. In addition, First Federal realized a $117,000 increase in
the gain on sale of loans and mortgage servicing rights due to a large extent to
the sale of all Federal Home Loan Mortgage Corporation ("FHLMC") servicing
rights.
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<PAGE>
Noninterest expense increased $400,000 to $3.0 million for the year
ended September 30, 1996 from $2.6 million for the year ended September 30, 1995
primarily as a result of a $333,000 special FDIC assessment on SAIF-insured
deposits which was enacted into law on September 30, 1996. As a result, First
Federal will experience a reduction in its SAIF insurance expense in future
periods. In addition, occupancy and equipment expense increased $37,000 due to
an increase in depreciation and the remodeling of the main office, and data
processing expense increased $37,000 as a result of First Federal's full year's
operations on the new data processing system, which was implemented to provide
full service retail banking to First Federal customers.
Income tax expense decreased $2,000 from $110,000 for the year ended
September 30, 1995 to $108,000 for the year ended September 30, 1996, reflecting
a tax rate of 31.6% for the year ended September 30, 1996 versus 34.3% for the
year ended September 30, 1995.
COMPARISON OF FISCAL YEAR ENDED SEPTEMBER 30, 1995 TO SEPTEMBER 30, 1994
First Federal reported net income of $211,000 for the year ended
September 30, 1995 compared to $193,000 net income in fiscal 1994, excluding
$264,000 (after-tax) additional net income due to the settlement of a lawsuit
filed by First Federal. Total net income for fiscal 1994 was $457,000, including
proceeds from the settlement of the lawsuit. Thus, the net income of $211,000
for the year ending September 30, 1995, was $246,000 less than the total net
income for the year ending September 30, 1994 (including income from settlement
of the law suit). In addition, for the years ending September 30, 1994, and
September 30, 1995, significant one-time expenses were incurred in connection
with the transition of First Federal into full-service retail banking.
Therefore, this decrease resulted primarily from an increase in the provision
for loan losses from a $401,000 (before-tax) negative provision (resulting from
the lawsuit recovery) to a $27,000 provision in 1995.
Net interest income increased $142,000 to $2.4 million for the year
ended September 30, 1995 from $2.3 million for 1994. This increase resulted
primarily from increases in both the yield earned and the average balance of
First Federal's loan portfolio, offset in part by an increase in First Federal's
cost of deposits reflecting an increase in general market interest rates and, to
a lesser extent, an increase in the average deposit balance. As a result, for
the year ended September 30, 1995, First Federal's net interest margin decreased
to 4.29% and the spread between the average yield on interest earning assets and
the average cost of funds decreased from 4.20% for 1994 to 3.97% for 1995.
During the year ended September 30, 1995, First Federal recorded a
provision for loan losses of $27,000 based on management's analysis of the loan
portfolio, as described above. During the year ended September 30, 1994, First
Federal recorded a negative loan loss provision of $401,000 primarily as a
result of $400,000 of proceeds received ($264,000 net of income tax) from the
settlement of a lawsuit filed by First Federal and related to a previously
charged-off pool of automobile loans.
Management will continue to monitor the appropriate factors when
considering future levels of provisions and the allowance for loan losses. While
management believes that it uses the best information available to determine the
allowance for estimated loan losses, unforeseen market conditions could result
in adjustments to the allowance for estimated loan losses and net earnings could
be significantly affected if circumstances differ substantially from the
assumptions used in determining the allowance. In addition, the OTS as part of
its review process may require First Federal to establish additional general or
specific allowances.
Noninterest income declined to $592,000 for the year ended September
30, 1995 from $1.1 million for the previous year, primarily due to a $695,000
decline in profits from the sale of loans and servicing rights. This drop in
profits reflects both a rising interest rate environment for the first half of
1995, and significant increased competition from additional residential mortgage
lenders in First Federal's primary trade area.
Noninterest expense declined by $448,000 to $2.6 million for the year
ended September 30, 1995 from $3.1 million for the year ended September 30,
1994. This decrease reflects management's continuing efforts to reduce expenses
in all areas of operations of First Federal, while at the same time absorbing
some one-time expenses in connection with the transition into full-service
retail banking.
39
<PAGE>
Income tax expense decreased $124,000 to $110,000 for the year ended
September 30, 1995 as compared to $234,000 for the previous year, reflecting the
lower 1995 pretax earnings of First Federal.
FINANCIAL CONDITION
First Federal's total assets were $57.6 million as of September 30,
1996 compared to $61.4 million at September 30, 1995, a decrease of $3.8
million, or 6.2%. The decrease was a direct result of a planned reduction of
high-cost deposits of $3.3 million resulting from management's decision to lower
excess cash on hand by decreasing higher cost deposits. In addition, First
Federal no longer had FHLB advances outstanding at September 30, 1996 compared
to $1.1 million at September 30, 1995.
Loans receivable (excluding loans held for sale at month end to the
secondary market) increased $2.4 million to $49.2 million at September 30, 1996
from $46.8 million at September 30, 1995. The increase resulted primarily from
the origination of credit-default insured auto loans. This increase was offset
by a decrease in cash and cash equivalents of $4.1 million due to the planned
reduction in high-cost deposits and the utilization of any remaining excess cash
balances to fund loan originations.
LIQUIDITY AND CAPITAL RESOURCES
First Federal's primary sources of funds are deposits, checking
accounts, principal and interest payments on loans and mortgage related
securities, proceeds from sales of long term, fixed-rate residential mortgage
loans and other funds provided from operations. Additionally, First Federal may
borrow funds from the Federal Home Loan Bank of Dallas or utilize particular
sources of funds based on need, comparative costs and availability at the time.
While scheduled loan and mortgage-backed securities repayments,
short-term investments, and FHLB borrowings are relatively stable sources of
funds, deposit flows are unpredictable and are a function of external factors
including competition, the general level of interest rates, general economic
conditions and most recently, the restructuring occurring in the thrift
institutions industry.
First Federal maintains investments in liquid assets based on
management's assessment of cash needs, expected deposit flows, availability of
advances from the FHLB, available yield on liquid assets (both short-term and
long-term) and the objectives of its asset/liability management program. Several
options are available to increase liquidity, including reducing loan
originations, increasing deposit marketing activities, and increasing borrowings
from the FHLB.
Federal regulations require insured institutions to maintain minimum
levels of liquid assets. At September 30, 1996, First Federal's regulatory
liquidity ratio was 8.27% or 3.27% above the 5% regulatory requirement. First
Federal uses its capital resources principally to meet its ongoing commitments
to fund maturing certificates of deposits and deposit withdrawals, repay
borrowings, fund existing and continuing loan commitments, maintain its
liquidity and meet operating expenses. At September 30, 1996, First Federal had
commitments to originate loans, including loans in process, totaling $7.6
million. First Federal also had $112,000 of outstanding unused lines of credit
and $175,000 of letters of credit. First Federal considers its liquidity and
capital resources to be adequate to meet its foreseeable short and long-term
needs. First Federal expects to be able to fund or refinance, on a timely basis,
its material commitments and long-term liabilities. First Federal also has the
ability, if needed, to borrow up to $20.3 million from the FHLB of Dallas for
liquidity purposes. At September 30, 1996, First Federal had no advances
outstanding from the Federal Home Loan Bank.
40
<PAGE>
First Federal's liquidity, represented by cash equivalents, is a
product of its operating, investing and financing activities. These activities
are summarized below for the periods indicated.
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, September 30,
1996 1995
------------- -------------
(In Thousands)
Operating Activities:
<S> <C> <C>
Net income.................................................. $ 234 $ 211
Adjustment to reconcile net income or loss to net
cash provided by operating activities...................... 1,811 583
------- -------
Net cash provided by operating activities................... 2,045 794
Net cash used in investing activities....................... (1,615) (5,433)
Net cash provided by (used in) financing activities......... (4,565) 5,120
------- -------
Net increase (decrease) in cash and cash equivalents........ (4,135) 481
Cash and cash equivalents at beginning of period............ 6,941 6,460
------- -------
Cash and cash equivalents at end of period.................. $ 2,806 $ 6,941
======= =======
</TABLE>
The primary investing activity of First Federal is lending. Loans
originated net of repayments and sales used $1.1 million and $5.3 million in
cash for the year ended September 30, 1996 and September 30, 1995, respectively.
During the years ended September 30, 1996 and 1995, deposits decreased $3.3
million (through a planned reduction of higher costing deposits) and increased
$4.1 million, respectively.
On April 22, 1993, First Federal issued 207,159 shares of common and
87,263 shares of preferred stock at $10 per share and received proceeds of $2.4
million, net of costs to convert from a mutual savings institution to a federal
stock institution and recapitalize First Federal. Prior to the conversion, First
Federal did not meet its minimum capital requirements. As a result, First
Federal was subject to conditions specified in a Consent Agreement dated
September 20, 1990 and an Operating Agreement dated August 28, 1992. With the
completion of the conversion, on July 1, 1993, the OTS terminated these
agreements. First Federal's tangible, core and risk- based capital was $4.3
million, $4.3 million and $4.6 million at September 30, 1996, which exceeded the
minimum required capital levels of $868,000, $1.7 million and $3.3 million,
respectively. See Note 10 of Notes to Consolidated Financial Statements.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and related financial data
presented herein have been prepared in accordance with generally accepted
accounting principles ("GAAP"), which require the measurement of financial
position and results of operations in terms of historical dollars without
considering changes in the relative purchasing power of money over time because
of inflation.
Unlike industrial companies, virtually all of First Federal's assets
and liabilities are monetary in nature. As a result, interest rates generally
have a more significant impact on a financial institution's performance than the
effects of general inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services. In the
current interest rate environment, the liquidity, maturity structure and quality
of First Federal's assets and liabilities are critical to the maintenance of
acceptable performance levels.
EFFECT OF NEW ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement of Financial Accounting
Standards No. 121 ("SFAS No. 121"), "Accounting for the Impairment of Long Lived
Assets and for Long Lived Assets to be Disposed Of." SFAS No. 121 requires that
long lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or circumstances indicate that the carrying amount of
an asset may not be recoverable. However, SFAS No. 121 does not apply to
financial instruments, core deposit intangibles, mortgage and other servicing
rights or
41
<PAGE>
deferred tax assets. The adoption of SFAS No. 121 for the year ending September
30, 1997 is not expected to have a material impact on the results of operations
or financial condition of First Federal.
In May 1995, the FASB issued Statement of Financial Accounting
Standards No. 122 ("SFAS No. 122"), "Accounting for Mortgage Servicing Rights."
SFAS No. 122 requires an institution that purchases or originates mortgage loans
and sells or securitizes those loans with servicing rights retained to allocate
the cost of the mortgage loans to the mortgage servicing rights and the loans
(without the mortgage servicing rights) based on their relative fair values. In
addition, institutions are required to assess impairment of the capitalized
mortgage servicing portfolio based on the fair value of those rights. SFAS No.
122 is effective for fiscal years beginning after December 15, 1995. SFAS No.
122 will be superseded by Statement of Financial Accounting Standards No. 125
after December 31, 1996. The adoption of SFAS No. 122 for the year ending
September 30, 1997 is not expected to have a material impact on the results of
operations or financial condition of First Federal.
In November 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 ("SFAS No. 123"), "Accounting for Stock Based Compensation,"
("SFAS No. 123"). This statement establishes financial accounting standard for
stock-based employee compensation plans. SFAS No. 123 permits First Federal to
choose either a new fair value based method or the current APB Opinion 25
intrinsic value based method of accounting for its stock-based compensation
arrangements. SFAS No. 123 requires pro forma disclosures of net earnings and
earnings per share computed as if the fair value based method had been applied
in financial statements of companies that continue to follow current practice in
accounting for such arrangements under Opinion 25. The disclosure provisions of
SFAS No. 123 are effective for fiscal years beginning after December 15, 1995
and are not expected to have a material impact on the results of operations or
financial condition of First Federal.
In June 1996, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 125 ("SFAS No. 125"),
"Accounting for Transfers and Extinguishments of Liabilities." SFAS No. 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. SFAS No. 125 requires a
consistent application of a financial-components approach that focuses on
control. Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, and derecognizes liabilities when extinguished. SFAS No. 125 also
supersedes SFAS No. 122 and requires that servicing assets and liabilities be
subsequently measured by amortization in proportion to and over the period of
estimated net servicing income or loss and requires assessment for asset
impairment or increases obligation based on their fair values. SFAS No. 125
applies to transfers and extinguishments occurring after December 31, 1996 and
early or retroactive application is not permitted. Because the volume and
variety of certain transactions will make it difficult for some entities to
comply, some provisions have been delayed by SFAS No. 127. Management
anticipates that the adoption of SFAS No. 125 will not have a material impact on
the financial condition or operations of First Federal.
In March 1997, the accounting requirements for calculating earnings per
share were revised. Basic earnings per share for 1998 and later will be
calculated solely on average common shares outstanding. Diluted earnings per
share will reflect the potential dilution of stock options and other common
stock equivalents. All prior calculations will be restated to be comparable to
the new methods. As First Federal has not had significant dilution from stock
options, the new calculation methods will not significantly affect future basic
earnings per share and diluted earnings per share.
BUSINESS
The Holding Company is a newly organized financial institution holding
company that was formed to acquire First Federal. Upon consummation of the
Offering and the Merger, the Holding Company will hold all of the outstanding
shares of First Federal, and First Federal will be the Holding Company's sole
subsidiary. At present, the Holding Company does not have any assets, and does
not conduct any significant business. The Holding Company and First Federal are
headquartered in Bryan, Texas. The executive offices of the Holding Company and
First Federal are located at 2900 Texas Avenue, Bryan, Texas 77802 and its
telephone number at that address is (409) 779-2900.
42
<PAGE>
As a community-oriented, independent financial institution, First
Federal offers a range of retail banking services through its offices located in
Bryan-College Station, Texas. First Federal is principally engaged in the
business of attracting deposits from the general public and using such deposits,
together with other funds, to originate mortgage loans secured by owner occupied
one- to four-family residential properties in its primary market area. To a
lesser extent, First Federal also originates construction, direct and indirect
consumer loans, SBA partially guaranteed business loans, small commercial real
estate and small to medium commercial business loans.
MARKET AREA
First Federal conducts operations through its offices located in
Bryan-College Station, Texas. Management considers the Bryan-College Station
area, Brazos, Burleson, Grimes, Leon, Madison, Robertson and Washington
counties, Texas, to be its primary market area for deposits and lending
activities. The Bryan-College Station area is characterized as a college
community, centered around Texas A&M University. The University's annual budget
of over $622 million is responsible for the vast majority of the government jobs
in the area. Government service provides 39.4% of the jobs in the community and
is primarily responsible for the comparative stability the area has enjoyed
throughout most of the 1980's. Population growth trends within First Federal's
market area have shown increases at rates exceeding those of the State and
unemployment rates have been consistently lower than those of the rest of the
State. During the past five years, a number of independent depository
institutions have been acquired in the Brazos County area, some by out-of-state
multi-bank holding companies. Currently, there are only one other thrift
institution and two state savings banks operating in the area. Consequently,
management believes that the opportunity exists for the expansion of First
Federal's lending and deposit gathering activities as one of the few remaining
independent, community-owned financial institutions now offering full service
retail banking.
LENDING ACTIVITIES
GENERAL
The principal lending activity of First Federal is originating first
mortgage real estate loans secured by owner occupied one- to four-family
residential property, along with an expanding consumer loan program. All long
term, fixed rate conventional mortgage loans are sold immediately to the
secondary market.
SINGLE-FAMILY RESIDENTIAL REAL ESTATE LENDING. A substantial portion of
the loans originated for portfolio by First Federal are conventional mortgage
loans (i.e., not guaranteed or insured by agencies of the federal government)
which are secured by residential properties; however, most do not conform with
the requirements for sale to Federal National Mortgage Association (the "FNMA")
or FHLMC (i.e., conforming loans), because they exceed the maximum loan to value
ratio to qualify for sale to FNMA or FHLMC, have credit deficiencies (which in
certain cases will result in First Federal securing the loan by additional
collateral), the borrower has an insufficient employment history or the property
does not qualify due to its rural location or lack of comparability for
appraisal purposes. Loans which do not comply with FNMA or FHLMC underwriting
requirements are held in First Federal's loan portfolio.
First Federal also originates construction loans, small commercial real
estate and small to medium commercial business loans. In addition, First Federal
has begun to originate SBA loans and Farmers Home Administration rural home
loans for moderate income home buyers. In order to diversify its assets and
increase the proportion of interest rate sensitive assets in its portfolio,
First Federal also has in the past purchased mortgage-backed securities.
Currently, however, First Federal is able to attract sufficient loans to
maintain a high loan-to-deposit ratio and thereby maximize the utilization of
its deposits. Thus, it has not acquired any securities for several years.
Most of First Federal's mortgage-backed securities, and a significant
number of its residential loans were made before the 1980's on a long term,
fixed rate basis. Accordingly, in the event of a change in interest rates, the
yield in those First Federal loans remaining in that category will change much
less quickly than its deposits, which are, for the most part, of the short term
variety. Accordingly, First Federal is vulnerable to an increase in interest
rates on those loans, which at September 30, 1996, represented only $2.2 million
of its $30.5 million in
43
<PAGE>
residential loans. First Federal's current policy is not to invest in long term,
fixed rate mortgage-backed securities or retain long term, fixed rate loans. In
order to reduce First Federal's vulnerability to changes in interest rates,
First Federal has increased its originations of three-year balloon and
adjustable rate one- to four-family residential mortgage loans, consumer
(especially automobile) and construction loans. At September 30, 1996, First
Federal had $19.7 million of three year balloon loans and $9.6 million of
adjustable rate loans out of a total of $51.9 million in gross loans.
Loan originations come primarily from walk-in customers, real estate
brokers, homebuilders and other contractors. All loans in which the aggregate
lending relationship is under $50,000 are approved by First Federal's senior
management and all loan applications for over $50,000 aggregate debt to one
borrower are approved by the Board of Directors.
First Federal requires, in connection with the origination and purchase
of residential real estate loans, title insurance and fire and casualty
insurance coverage, as well as flood insurance where appropriate, to protect
First Federal's interest. The cost of this insurance coverage is paid by the
borrower.
Loan Portfolio Composition. The following table sets forth information
concerning the composition of First Federal's loan portfolio, including
mortgage-backed securities, in dollar amounts and in percentages (before
deductions for loans in process, deferred fees and discounts and allowances for
losses) as of the dates indicated.
<TABLE>
<CAPTION>
September 30,
----------------------------------------------------------------------
1996 1995 1994
----------------------- --------------------- ----------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans
Residential ................................... $30,477 58.70% $30,966 61.10% $27,128 59.76%
Residential held for sale ..................... 419 .80 1,840 3.63 2,114 4.66
Commercial .................................... 4,175 8.04 3,643 7.19 3,062 6.74
Construction .................................. 4,365 8.41 4,261 8.41 4,838 10.66
------- ----- ------- ----- ------- -----
Total real estate loans .................... 39,436 75.95 40,710 80.33 37,142 81.82
Other Loans:
Consumer loans:
Deposit accounts ............................ 967 1.86 705 1.39 789 1.74
Purchased automobile receivables ............ -- -- 4 .01 10 .02
Automobile .................................. 9,435 18.17 7,634 15.06 6,600 14.54
Other ....................................... 1,490 2.87 980 1.94 580 1.28
------- ----- ------- ----- ------- -----
Total consumer loans ....................... 11,892 22.90 9,323 18.40 7,979 17.58
Commercial business loans .................... 595 1.15 643 1.27 271 .60
------- ----- ------- ----- ------- -----
Total other loans .......................... 12,487 24.05 9,966 19.67 8,250 18.18
------- ----- ------- ----- ------- -----
Total loans ................................ 51,923 100.00 50,676 100.00 45,392 100.00
Less:
Undisbursed portion of construction loans ..... 1,966 3.79 1,664 3.28 1,847 4.07
Consumer loans in process ..................... -- -- -- -- -- --
Deferred fees and discounts ................... 128 .25 87 .17 92 .20
Deferred income ............................... 3 .01 3 .01 13 .03
Allowance for losses on loans ................. 247 .48 317 .63 313 .69
------- ----- ------- ----- ------- -----
Net loans .................................. $49,579 95.47% $48,605 95.91% $43,127 95.01%
======= ===== ======= ===== ======= =====
</TABLE>
44
<PAGE>
The following table shows the fixed- and adjustable-rate composition of
First Federal's loan portfolio at the dates indicated.
<TABLE>
<CAPTION>
September 30,
------------------------------------------------------------------------
1996 1995 1994
-------------------- ---------------------- -----------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
Fixed-Rate Loans:
<S> <C> <C> <C> <C> <C> <C>
Real estate:
Residential.................................. $22,931 44.16% $24,739 48.81% $27,128 59.76%
Residential held for sale.................... 419 .80 1,840 3.63 2,114 4.66
Commercial................................... 2,162 4.17 2,824 5.57 3,062 6.74
Construction................................. 4,365 8.41 4,261 8.41 4,838 10.66
------- ----- ------- ----- ------- -----
Total real estate loans................... 29,877 57.54 33,664 66.42 37,142 81.82
Consumer loans................................ 11,892 22.90 9,323 18.40 7,979 17.58
Commercial business loans..................... 595 1.15 643 1.27 271 0.60
------- ----- ------- ----- ------- -----
Total fixed-rate loans..................... 42,364 81.59 43,630 86.09 45,392 100.00
------- ----- ------- ----- ------- -----
Adjustable-Rate Loans:
Real estate:
Residential.................................. 7,546 14.54 6,227 12.29 --- ---
Commercial................................... 2,013 3.87 819 1.62 --- ---
------- ----- ------- ----- ------- -----
Total adjustable rate loans............... 9,559 18.41 7,046 13.91 --- ---
------- ----- ------- ----- ------- -----
Total loans............................... 51,923 100.00 50,676 100.00 45,392 100.00
Less:
Undisbursed portion of construction loans..... 1,966 3.79 1,664 3.28 1,847 4.07
Consumer loans in process..................... --- --- --- --- --- ---
Deferred fees and discounts................... 128 0.25 87 0.17 92 0.20
Deferred income............................... 3 0.01 3 0.01 13 0.03
------- ----- ------- ----- ------- -----
Allowance for losses on loans................. 247 0.48 317 0.63 313 0.69
------- ----- ------- ----- ------- -----
Net loans.................................. $49,579 95.47% $48,605 95.91% $43,127 95.01%
======= ===== ======= ===== ======= =====
</TABLE>
First Federal has the authority to purchase loans and loan
participations, but has elected not to do so since 1991.
45
<PAGE>
The following table shows the origination, purchase and repayment
activities for loans of First Federal for the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
Loans Funded:
<S> <C> <C> <C>
Real estate - residential(2)...................... $19,104 $87,908(1) $92,316(1)
- commercial...................... 1,026 1,281 393
- construction or development..... 5,697 6,223 7,159
Non-real estate - consumer........................ 8,534 7,065 7,261
- commercial business............. 1,980 1,065 579
-------- ---------- -----------
Total loans originated......................... 36,341 103,542 107,708
Loans Sold:
Loans sold........................................... 13,839 81,838(1) 86,336(1)
Principal repayments and refinancings................ 21,255 16,420 20,316
-------- ---------- -----------
Total reductions..................................... 35,094 98,258 106,652
Decrease in other items, net......................... (273) 194 990
-------- ---------- -----------
Net increase......................................... $ 974 $ 5,478 $ 2,046
======== ========== ===========
</TABLE>
- ---------------
(1) Includes activity attributable to a mortgage warehouse facility previously
extended to an independent mortgage company.
(2) Includes refinancings of loans from First Federal's portfolio.
At September 30, 1996, First Federal serviced $966,000 in loans for
others.
46
<PAGE>
The following schedule illustrates the maturities of First Federal's
loan portfolio, excluding loans held for sale at September 30, 1996. Loans which
have adjustable or renegotiable interest rates and amortizing loans are shown as
maturing in the period during which the loan is contractually due. This schedule
does not reflect the effects of possible prepayments or enforcement of
due-on-sale clauses.
Real Estate
---------------------------------------------------------
Residential Commercial Construction
------------------ ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
Amount Rate Amount Rate Amount Rate
------ -------- ------ -------- ------ --------
(Dollars in Thousands)
Due During
Years Ended
September 30,
1997(1)................ $ 7,565 8.42 $ 507 9.13% $4,365 9.18
1998 and 1999.......... 12,717 9.26 1,168 9.36 --- ---
2000 and 2001.......... 893 9.40 925 9.55 --- ---
2002 to 2006........... 1,073 8.89 86 11.25 --- ---
2006 to 2016........... 1,988 8.99 643 9.81 --- ---
2017 and following..... 6,660 8.98 846 8.75 --- ---
------ ------ ------
$30,896 8.97 $4,175 9.36% $4,365 9.18
====== ===== ====== ===== ====== =====
Consumer Business Total
------------------- ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
Amount Rate Amount Rate Amount Rate
------ -------- ------ ------- ------ --------
(Dollars in Thousands)
Due During
Years Ended
September 30,
1997(1)............... $1,585 8.60% $ 280 9.72% $14,302 8.72%
1998 and 1999......... 3,818 11.00 --- --- 17,703 9.64
2000 and 2001......... 6,397 13.28 79 9.96 8,294 12.41
2002 to 2006.......... 71 11.80 86 10.81 1,316 9.33
2006 to 2016.......... 21 8.00 150 11.00 2,802 9.28
2017 and following.... --- --- --- --- 7,506 8.95
------- ----- -------
$11,892 11.91% $ 595 10.23% $51,923 9.70%
======= ======= ===== ====== ======= ======
- -------------
(1) Includes demand loans, loans having no stated maturity and overdraft loans.
47
<PAGE>
The total amount of loans due after September 30, 1997 which have fixed
rates of interest (including 3- year balloon home loans and other types of loans
with balloon maturities) is $28.0 million while the total amount of loans due
after such date which have floating or adjustable rates of interest is $9.6
million.
ONE-TO-FOUR-FAMILY RESIDENTIAL REAL ESTATE LENDING
One of First Federal's primary lending programs is the origination of
loans secured by mortgages on owner-occupied one- to four-family residences.
Historically (before the 1980's), most of First Federal's residential loans were
made on a fixed rate basis and had contractual maturity (and amortization
schedules) of 30, or to a lesser extent, 15 years. Since 1979, however, in order
to increase the interest rate sensitivity of its residential loan portfolio,
First Federal has emphasized the origination of non-conforming three year
balloon loans (generally with 30 year amortization schedules). At September 30,
1996, $19.7 million or 37.9%, of First Federal's gross loan portfolio consisted
of three-year fixed-rate balloon loans on one- to four-family residences. On the
same date, First Federal had $3.7 million of other fixed-rate residential loans
or 7.1% of the gross loan portfolio. All of these loans were secured by
residential (primarily owner-occupied) properties located in the State of Texas,
with a majority located in First Federal's primary market area.
First Federal's residential loans are generally underwritten and
documented to permit their sale in the secondary market. In the event they are
non-conforming to secondary market standards, First Federal will underwrite such
loans to the extent feasible in accordance with such standards. First Federal
evaluates both the borrower's ability to make principal and interest payments
and the value of the property (and any other collateral) that will secure the
loan. One- to four-family loan originations are generally made in amounts up to
90% of the appraised value of the security property. The determination as to
whether to lend in excess of 80% of the appraised value is made on a
case-by-case basis and is based on a variety of factors, including the
borrower's payment history, length of employment and debt to income ratio, as
well as the quality of the security property. First Federal neither requires nor
obtains private mortgage insurance on its loans. As a result of its higher
loan-to-value ratios and the absence of private mortgage insurance, in the event
of a foreclosure, First Federal is subject to a greater risk of loss on the
disposition of such property in the event of a decrease in value of the
property. First Federal has, however, had a very limited loss experience on such
loans. See " -- Loan Delinquencies; Nonperforming Assets and Classified Assets."
Over the past three fiscal years, First Federal has experienced an average of
only $22,300 in actual annual net charge-offs, resulting from an average total
loan portfolio of $46.2 million.
First Federal's residential mortgage loans customarily include
"due-on-sale" clauses, which are provisions giving First Federal 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 where the loan
is not repaid in full. First Federal generally enforces these due-on-sale
clauses primarily on fixed rate residential mortgage loans to the extent
permitted by law.
MORTGAGE-BACKED SECURITIES
First Federal has a limited portfolio of mortgage-backed securities
which are held-to-maturity. Such mortgage-backed securities can serve as
collateral for borrowings and, through repayments, as a source of liquidity. For
information regarding the carrying and market values of First Federal's
mortgage-backed securities portfolio, see Note 2 of the Notes to Financial
Statements. Under First Federal's risk-based capital requirement,
mortgage-backed securities have a risk weight of 20% (or 0% in the case of GNMA
securities) in contrast to the 50% risk weight carried by residential loans with
a loan to value ratio of 80% or less. See "Regulation."
Consistent with First Federal's asset/liability policy, approximately
91.9% of First Federal's mortgage-backed securities carry adjustable interest
rates.
48
<PAGE>
The following table sets forth the book value of First Federal's
mortgage-backed securities at the dates indicated.
September 30,
-----------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
Issuers:
Federal Home Loan Mortgage Corporation....... $ 872 $1,672 $2,037
Federal National Mortgage Association........ 420 551 594
Government National Mortgage Association..... --- 55 62
------ ------ ------
Total.................................... $1,292 $2,278 $2,693
====== ====== ======
The following table sets forth the contractual maturities of First
Federal's mortgage-backed securities at September 30, 1996. Not considered in
the preparation of the table below is the effect of prepayments, periodic
principal repayments and the adjustable rate nature of these instruments.
<TABLE>
<CAPTION>
Due in
---------------------------------------------------------------------------
6 Months 6 Months 1 to 3 to 5 5 to 10 10 to 20 Over 20 Balance
or Less to 1 Year 3 Years Years Years Years Years Outstanding
------- --------- ------- ----- ----- ----- ----- -----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal Home Loan $ --- $ --- $ --- $ --- $ 5 $231 $636 $ 872
Mortgage Corporation.......
Federal National --- --- --- --- --- 95 325 420
Mortgage Association.......
------- ------- ------- ------- ------- ------ ----- -------
Total................. $ --- $ --- $ --- $ --- $ 5 $326 $961 $1,292
======= ======= ======= ======= ======= ====== ===== =======
</TABLE>
First Federal's mortgage-backed and other securities portfolios are
managed in accordance with a written investment policy adopted by the Board of
Directors. Investments may be made in accordance with the policy and approval by
its Investment Committee. At the present time, First Federal does not have any
investments that are available-for-sale or for trading purposes.
The OTS has issued guidelines regarding management oversight and
accounting treatment for securities, loans, mortgage-backed securities and
derivative securities. The guidelines require thrift institutions to carry
securities at market value unless it can be demonstrated that a class of
securities is intended to be held-to- maturity. As of September 30, 1996, First
Federal held $1.3 million and $1.0 million, respectively, of principal amount of
mortgage-backed securities and other securities which First Federal has the
intent and ability to hold until maturity. As of such date, these securities had
a market value of $1.3 million and $1.0 million, respectively.
CONSUMER LENDING
Federal laws and regulations permit federally chartered thrift
institutions to make secured and unsecured consumer loans up to a maximum of 35%
of their total assets less permissible investments in commercial paper and
corporate debt. In addition, federal thrift institutions have lending authority
above the 35% limit for certain consumer loans such as home improvement loans,
mobile home loans, credit card loans and educational loans.
49
<PAGE>
As part of management's strategy to shorten the average effective
maturity and increase the average yield of its interest-earning assets, First
Federal offers various consumer loans, including but not limited to automobile
and home improvement loans. First Federal also offers loans to its depositors on
the security of their deposit accounts. First Federal discourages unsecured
loans.
First Federal currently originates substantially all of its consumer
loans in its primary market area. Direct loans are made when First Federal
extends credit directly to the borrower. First Federal has more recently
increased the origination of consumer loans. In September 1991, First Federal
began purchasing motor vehicle installment sales contracts on an indirect basis
from selected automobile dealers pursuant to an agreement established between
the dealer and First Federal ("Dealer Agreement"). In fiscal 1996, First Federal
expanded this lending by initiating a 100% credit default insured indirect
automobile loan origination program for sub-prime borrowers involving dealers in
First Federal's primary market area ("Second Chance Auto Loans"). First
Federal's Second Chance Auto Loan program may be expanded to automobile dealers
in the triangle between Dallas, Houston and Austin. Second Chance Auto Loans
have been insured up to $25,000 per loan through Midland Risk Insurance Company
which reinsures its exposure through Constitution Reinsurance Corporation of New
York. Midland Risk and Constitution Reinsurance carry ratings of B and A+
respectively, by A.M. Best's, an insurance rating company. At September 30,
1996, Second Chance Auto Loans totalled $2.3 million.
First Federal may elect in the future to make certain automobile loans
to sub-prime borrowers without credit-default insurance, but with special loan
loss reserves which First Federal believes to be adequate to protect against any
future loan losses.
Second Chance Auto Loans are underwritten according to credit-default
insurance guidelines while other sales contracts are underwritten pursuant to
First Federal's guidelines. Each sales contract is fully amortizing and provides
for level payments over the term of the contract. The contracts are non-recourse
to the originating dealer and are purchased, in First Federal's sole discretion,
from the dealers on a case-by-case basis, after First Federal reviews the
credit-worthiness of the borrower. On Second Chance Auto Loans, First Federal
conducts an interview with the borrower prior to approving the loan for the
purchase of the automobile.
Second Chance Auto Loan contracts are reviewed by First Federal's
automobile loan specialist and monthly reviews are conducted by an independent
outside audit firm, representing the agent for the credit default insurance
company. All monthly audits to date have reflected First Federal's substantial
compliance with credit underwriting guidelines of the credit-default insurance
company. Factors considered under both First Federal's and credit-default
insurance guidelines include, among others, the durability and useful life of
the vehicle being financed in conjunction with the term of the loan and the
stability and creditworthiness of the buyer. Used vehicles are generally not
financed longer than 60 months, to credit-worthy borrowers.
Under both First Federal's and credit-default insurance guidelines the
maximum amount financed may not exceed 120% of current wholesale value of the
vehicle or dealer's cost (traditionally 100% of current retail value), although
the primary focus is on the ability of the borrower to repay the loan rather
than the value of underlying collateral. The amount financed by First Federal
will generally be up to 120% of the current wholesale value or dealer cost, plus
the cost of service and warranty contracts and premiums for physical damage,
credit life and disability insurance obtained in connection with the vehicle or
the financing (such amounts in addition to the sales price, collectively the
"Additional Vehicle Costs"). Accordingly, the amount financed by First Federal
under an installment contract generally does not, in the case of new vehicles,
exceed the manufacturer's suggested retail price of the financed vehicle plus
the Additional Vehicle Costs. In the case of used vehicles, the amount financed
may be 120% of the current wholesale value, as assigned by one of the three
standard reference sources for dealers of used cars and the Additional Vehicle
Costs. First Federal will generally use the "NADA Official Used Car Guide" to
obtain a value to assign to a used vehicle for underwriting purposes.
All automobile dealers enter into a "Dealer Agreement" with First
Federal. First Federal has two forms of Dealer Agreements which are
substantially similar except that dealers selling loans pursuant to the "Second
Chance" Program are not required to establish dealer reserves. Otherwise, the
Dealer Agreement
50
<PAGE>
provides for a reserve account to be established consisting of a minimum balance
to be maintained at First Federal. The reserve account is used by First Federal
to protect against excess interest payments to the dealer due to loan
prepayments, payoffs, or for repossession expenses plus any losses due to
repossessions. Minimum reserve balances and the method of disbursement are
outlined in each Dealer Agreement. If the reserve account falls below agreed
upon levels, the dealer is required to increase the balance up to the agreed
upon minimum amount. Dealers are also required to make an immediate deposit to
cover any shortages under this type of Dealer Agreement. At September 30, 1996
First Federal had $2.9 million of automobile loans requiring dealer reserves.
Consumer loans may entail greater risk than do residential mortgage
loans, particularly in the case of consumer loans which are unsecured or secured
by rapidly depreciable assets such as automobiles. First Federal makes a very
limited amount of unsecured loans. In such cases, any repossessed collateral for
a defaulted consumer loan may not provide an adequate source of repayment of the
outstanding loan balance as a result of the greater likelihood of damage, loss
or depreciation. The remaining deficiency may not warrant further substantial
collection efforts against the borrower. In addition, consumer loan collections
are dependent on the borrower's continuing financial stability, and thus are
more likely to be adversely affected by job loss, divorce, illness or personal
bankruptcy. Furthermore, the application of various federal and state laws,
including federal and state bankruptcy and insolvency laws, may limit the amount
which can be recovered on such loans. Such loans may also give rise to claims
and defenses by a consumer loan borrower against an assignee of such loan such
as First Federal, and a borrower may be able to assert against such assignee
claims and defenses which it has against the seller of the underlying
collateral. Consumer loan delinquencies may often increase over time as the
loans age. First Federal has attempted to mitigate this risk by implementing
new, stricter credit underwriting standards. At September 30, 1996,
approximately 1% of First Federal's consumer loans were nonperforming. Included
in these new credit standards is emphasis on the proven cash flow of the
borrower to pay such loan back. However, there can be no assurance that First
Federal's consumer loan delinquencies and repossessions will not increase in the
future.
CONSTRUCTION LENDING
First Federal makes construction loans to individuals for the
construction of their residences and to builders primarily for the construction
of contracted-for (custom) residences and to a much lesser extent for residences
that have not been pre-sold.
Construction loans to individuals for their residences generally have
terms of 9 months and are made on a non-amortizing (interest only, payable
monthly), balloon basis, to be repaid from the permanent mortgage loan. First
Federal's construction loans are generally made either as the initial stage of a
combination loan (i.e., with a commitment from First Federal to provide
permanent financing upon completion of the project) or with a takeout obligation
(commitment to provide permanent financing) by a third party. Residential
construction loans are generally underwritten pursuant to the same guidelines
used for originating permanent residential loans. At September 30, 1996, First
Federal had $4.0 million of residential construction loans to borrowers who have
indicated to First Federal that they intend to live in the properties upon
completion of construction.
Construction loans are generally made up to a maximum loan-to-value
ratio of 80% based on an independent appraisal and estimate of costs.
Construction loans involve additional risk attributable to the fact that loan
funds are advanced upon the security of the project under construction, which is
more difficult to value prior to the completion of construction. Because of the
uncertainties inherent in estimating construction costs and the market for the
home upon completion, it is relatively difficult to evaluate the total loan
funds required to complete a project, the related loan-to-value ratios, and the
likelihood of ultimate success of the project. In evaluating a construction
loan, First Federal considers the reputation of the borrower and the contractor,
the amount of the borrower's equity (down payment) in the project, independent
appraisal valuations and review of cost estimates, and, if applicable,
pre-construction sale and market information. Progress payments during
construction of homes are generally made only after inspection by an
independent, licensed real estate inspector. Construction loans to borrowers
other than owner occupants also involve many of the same risks discussed below
regarding commercial real estate loans and tend to be more sensitive to general
economic conditions than
51
<PAGE>
many other types of loans. First Federal generally discourages loans intended
for the construction of speculative homes.
COMMERCIAL REAL ESTATE LENDING
In order to enhance the yield of its assets, First Federal originated a
limited amount of construction and permanent loans secured by commercial real
estate. First Federal's permanent commercial real estate loan portfolio includes
loans secured by churches, small office buildings, and other business
properties. First Federal generally makes only commercial real estate loans
secured by income producing property. At September 30, 1996, First Federal had
one commercial real estate loan in excess of $250,000 which is secured by a
first lien on a home that was converted to a shopping area. This loan had a
balance of $300,000 at September 30, 1996 and is performing in accordance with
its loan terms.
The following table presents information as to the locations and types
of properties securing First Federal's commercial real estate loans at September
30, 1996.
Number
of Principal
Loans Balance
----- -------
(Dollars in Thousands)
Bryan area:
Churches................................. 6 $ 389
Land..................................... 19 365
Multi-family residential................. 3 941
Office buildings......................... 26 2,480
------- --------
Total.................................... 54 $4,175
======= ========
Commercial real estate loans included in First Federal's portfolio have
terms generally ranging from 3 to 5 year balloon and 20-25 year amortization
schedules.
First Federal generally will not originate or purchase a commercial
real estate loan with a balance of greater than 80% of the appraised value of
the underlying collateral. Land and developed building lot loans are
individually negotiated and secured by properties located in First Federal's
principal market area. First Federal requires that any such appraisal be
performed by independent, professionally designated and qualified appraisers.
Senior management of First Federal reviews all independent appraisals prior to
funding any loan. In originating or purchasing any loan, First Federal considers
the creditworthiness of the borrower and value of the underlying collateral, in
addition to the level of experience of the contractor. Creditworthiness is
determined by considering the character, experience, management ability and
financial strength of the borrower, and the ability of the property securing the
loan to generate adequate funds to cover both operating expenses and debt
service.
Commercial real estate lending affords First Federal an opportunity to
receive interest at rates generally higher than those obtainable from
residential lending. Commercial real estate lending, however, entails a higher
level of risk than loans secured by one- to four-family residences. This greater
risk is due to several factors, including the concentration of principal in a
limited number of loans and borrowers, the effects of general economic
conditions on income producing properties and the increased difficulty of
evaluating and monitoring these types of loans. Furthermore, the repayment of
loans secured by commercial real estate is typically dependent upon the
successful operation of the related real estate project and thus may be subject
to a greater extent to adverse conditions in the real estate market or the
economy generally. If the cash flow from the pro ject is reduced (for example,
if leases are not obtained or renewed), the borrower's ability to repay the loan
may be impaired. For these reasons, First Federal limits the amount of
commercial real estate loans held in its loan portfolio.
52
<PAGE>
COMMERCIAL BUSINESS LENDING
First Federal has historically engaged in a very limited level of
commercial business lending. At September 30, 1996, First Federal had $595,000
in commercial business loans outstanding. As of the same date, First Federal's
largest commercial business loan, $103,000 to an established homebuilder, was
secured by a first lien on six developed residential real estate lots in a
residential subdivision, and is current with interest monthly and principal
reductions made based on lot sales in accordance with the loan terms.
Unlike residential mortgage loans, which generally are made on the
basis of the borrower's ability to make repayment from employment and other
income and which are secured by real property, the value of which tends to be
relatively easily ascertainable, business loans can be of higher risk and
typically are made on the basis of the borrower's ability to make repayment from
the cash flow of his business and to a lesser extent, the borrowers net worth
and liquid assets. First Federal's commercial business loans are generally
secured by business assets such as commercial real estate, and to a much lesser
extent, accounts receivable, inventory and equipment. As a result, the
availability of funds for the repayment of business loans may be substantially
dependent on the success of the business itself. Further, the collateral
securing the loans may depreciate over time, may be difficult to appraise and
may fluctuate in value based on the success of the business and the economy
generally. Partial guarantees (75% or more) by the Small Business Administration
are generally required for commercial business loans primarily secured by
accounts receivable, inventory and equipment.
LOAN DELINQUENCIES; NONPERFORMING ASSETS AND CLASSIFIED ASSETS
When a borrower fails to make a required payment on a loan, First
Federal attempts to cause the deficiency to be cured by contacting the borrower
as soon as possible. In most cases, deficiencies are cured promptly. After a
payment is 5 days past due, First Federal's collections department will contact
the borrower by telephone and letter and continue that contact on a regular
basis. After a payment is 60 days past due, First Federal may send the borrower
a demand letter. When deemed appropriate by senior management, First Federal
institutes action to foreclose on the property. If foreclosed on, real property
is sold at a public sale and may be purchased by First Federal. A decision as to
whether and when to initiate foreclosure proceedings is based on such factors as
the amount of the outstanding loan in relation to the original indebtedness, the
extent of delinquency and the borrower's ability and willingness to cooperate in
curing delinquencies. First Federal has experienced minimum foreclosure and
losses thereon, over the past three years.
53
<PAGE>
The following table sets forth information concerning delinquent
mortgage and other loans at September 30, 1996 in dollar amounts and as a
percentage of First Federal's total loan portfolio. The amounts presented
represent the total remaining principal balances of the related loans, rather
than the actual payment amounts which are overdue.
<TABLE>
<CAPTION>
Loans Delinquent at September 30, 1996
-------------------------------------------------------------
Total
90 Days Delinquent
30-59 Days 60-89 Days and Over Loans
---------- ---------- -------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Residential Real Estate:
Number of loans..................... 29 4 1 34
Amount.............................. $1,918 $197 $ 18 $2,133
Percent of total loans.............. 6.29% 0.65% 0.06% 7.0%
Commercial Real Estate:
Number of loans..................... 2 --- --- 2
Amount.............................. $ 55 $ --- $ --- $ 55
Percent of total loans.............. 1.32% ---% ---% 1.32%
Consumer:
Number of loans..................... 54 9 4 67
Amount.............................. $605 $103 $130 $ 838
Percent of total loans.............. 4.85% 0.82% 1.04% 6.71%
Total:
Number of loans..................... 85 13 5 103
Amount.............................. $2,578 $300 $148 $3,026
Percent of total loans.............. 4.97% 0.58% 0.28% 5.83%
</TABLE>
54
<PAGE>
The table below sets forth the amounts and categories of nonperforming
assets in First Federal's loan portfolio. Loans are placed on non-accrual status
when the collection of principal and/or interest become doubtful and in any
event when payments thereon are more than 90 days past due. For all years
presented, First Federal has had no troubled debt restructurings which involve
forgiving a portion of interest or principal on any loans. Foreclosed assets may
include assets acquired in settlement of loans.
September 30,
-------------------------------
1996 1995 1994
---- ---- ----
(Dollars in Thousands)
Non-accruing loans:
Residential............................... $ 18 $143 $ 201
Consumer.................................. 38 32 46
---- ---- ----
Total................................... 56 175 247
---- ---- ----
Accruing loans delinquent more than 90 days:
Residential............................... --- --- 46
Commercial Real Estate.................... --- --- 10
Consumer.................................. 122 2 ---
---- ---- ----
Total................................... 122 2 56
---- ---- ----
Foreclosed assets:
Residential............................... 577 130 130
Commercial real estate.................... --- --- ---
Other Repossessed Assets (Vehicles)....... 108 76 57
---- ---- ----
Total................................... 685 206 187
---- ---- ----
Total nonperforming assets.................. $ 863 $ 383 $ 490
==== ==== ====
Total as a percentage of
total assets at end of period............. 1.50% 0.62% 0.87%
==== ==== ====
For the most part, nonperforming assets at September 30, 1996 consisted
of residential homes located in First Federal's principal market area.
As of September 30, 1996, there were no concentrations of loans in any
types of industry which exceed 10% of First Federal's total loans, that are not
included as a loan category in the table above.
At September 30, 1996 non-accruing loans totaled $56,000. Interest
income recognized and foregone relative to these loans approximated $4,000 and
$1,000, respectively, for the year ended September 30, 1996.
Other Loans of Concern. As of September 30, 1996 there was an aggregate
of $400,000 of loans including non-accruing loans with respect to which known
information about the possible credit problems of the borrowers or the cash
flows of the security properties have caused management to have some doubts as
to the ability of the borrowers to comply with present loan repayment terms and
which may result in the future inclusion of such items in the nonperforming
assets categories.
Loans being monitored include three one- to four-family loans totaling
$128,000, and 29 consumer loans totaling $272,000 at September 30, 1996. See "
- -- Consumer Lending."
55
<PAGE>
Classified Assets. Federal regulations require that each insured
institution classify its own assets on a regular basis. In addition, in
connection with examinations of insured institutions, the Principal Regulatory
Agency has authority to identify problem assets and, if appropriate, require
them to be classified. 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
characteristics that the weaknesses make collection or liquidation in full on
the basis of currently existing facts, conditions and values questionable, and
there is 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. Assets classified as substandard or doubtful
require the institution to establish general allowances (reserves) for loan
losses. If an asset or portion thereof is classified as Loss, the institution
must either establish specific allowances, (reserves) for loan losses 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 the
institution's regulatory capital under the risk-based capital standard, while
specific loss allowances do not qualify as regulatory capital. If an institution
does not agree with an examiner's classification of an asset, it may appeal this
determination to the District Director. Generally, all assets of First Federal
which have been classified are included in the discussion below of nonperforming
assets and assets for which repayment by the borrower may be in doubt.
In connection with the filing of its periodic reports with the
Principal Regulatory Agency and in accordance with its classification of assets
policy, First Federal regularly reviews the problem loans in its portfolio to
determine whether any loans require classification in accordance with applicable
regulations. Classified assets, as described above, of First Federal at
September 30, 1996 were as follows:
(In Thousands)
Substandard.......................... $1,086
Doubtful............................. ---
Loss................................. ---
------
$1,086
======
ALLOWANCE FOR LOSSES ON LOANS
Management's policy is to establish allowances for loan losses based on
historical data, economic trends and projections, an assessment of the
borrower's overall financial condition, the type and value of any collateral
securing such loans and other relevant factors so as to attempt to cover any
potential losses known to management. Management's policy is to establish
allowances for losses on real estate owned sufficient to value such real estate
at the lower of cost or estimated net realizable value based on current,
independent appraisals when it determines that losses are expected to be
incurred on the underlying properties. While management believes that it uses
the best information available to make such determinations, future adjustments
could be necessary and net income could be affected if circumstances differ
substantially from the assumptions used in making the initial determination.
56
<PAGE>
The following table sets forth an analysis of First Federal's allowance
for loan losses.
Year Ended September 30,
------------------------------
1996 1995 1994
---- ---- ----
(Dollars in Thousands)
Balance at beginning of period............ $ 317 $ 313 $ 339
Charge-offs............................... (23) (27) (39)
Recoveries................................ 5 4 414
Provisions for losses on loans............ (52) 27 (401)
----- ---- -----
Balance at end of period.................. $ 247 $ 317 $ 313
===== ==== =====
Ratio of net charge-offs during the
period to average loans outstanding
during the period...................... .04% .05% (.87)%
===== ==== =====
The allocation of the allowance for losses on loans at the dates
indicated is summarized as follows:
<TABLE>
<CAPTION>
September 30,
----------------------------------------------------------------------------------------------
1996 1995 1994
--------------------------- ----------------------------- -------------------------------
Percent of Loans Percent of Loans Percent of Loans
in Each Category in Each Category in Each Category
Amount to Total Loans Amount to Total Loans Amount to Total Loans
------ -------------- ------ -------------- ------ --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate............. $120 75.95% $223 80.72% $ 191 81.82%
Other................... 127 24.05 94 19.28 122 18.18
---- ------ ---- ------ ----- ------
Total................ $247 100.00% $317 100.00% $ 313 100.00%
==== ====== ==== ====== ===== ======
</TABLE>
For information on First Federal's allowance for losses on real estate
owned, See Note 5 of the Notes to Financial Statements in the Annual Report to
Stockholders filed as Exhibit 13 hereto.
INVESTMENT ACTIVITIES
First Federal's assets, other than loans and some mortgage-backed
securities receivable, are invested primarily in interest-bearing deposits with
banks, other thrift institutions and the FHLB of Dallas, United States
government and agency securities and FHLB stock. First Federal is required by
federal regulations to maintain a minimum amount of liquid assets that may be
invested in specified securities and is also permitted to make certain other
security investments. First Federal maintains liquidity in excess of regulatory
requirements. Cash flow projections are regularly reviewed and updated to assure
that adequate liquidity is provided. As of September 30, 1996, First Federal's
liquidity ratio (liquid assets as a percentage of net withdrawable savings and
current borrowings) was 8.27% as compared to the regulatory requirement of 5%.
At September 30, 1996, First Federal had no borrowings from the FHLB; however,
First Federal had the ability, if needed, to borrow up to $20.3 million from the
FHLB of Dallas for liquidity purposes.
57
<PAGE>
The following table sets forth the composition of First Federal's
securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------------
1996 1995 1994
------------------ ------------------ -------------------
Book Market Book Market Book Market
Value Value Value Value Value Value
----- ----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits with FHLB.................. $1,145 $1,145 $5,666 $5,666 $4,940 $4,940
Federal agency obligations........................... 1,000 1,000 1,000 988 1,000 949
FHLB stock........................................... 845 845 796 796 748 748
------ ------ ------ ------ ------ ------
Total liquid assets, securities and FHLB stock. $2,990 $2,990 $7,462 $7,450 $6,688 $6,637
====== ====== ====== ====== ====== ======
Average remaining life or term to repricing.......... --- 0.13 years 0.30 years
</TABLE>
SOURCES OF FUNDS
General. Deposit accounts have traditionally been the principal source
of First Federal's funds for use in lending and for other general business
purposes. In addition to deposits, First Federal derives funds from loan
repayments and cash flows generated from operations. Scheduled loan payments are
a relatively stable source of funds, while deposit inflows and outflows and the
related cost of such funds have varied. Borrowings may be used on a short-term
basis to compensate for seasonal reductions in deposits or deposit inflows at
less than projected levels and may be used on a longer term basis to support
expanded lending activities in order to minimize excess cash in hand over and
above liquidity requirements.
Deposits. First Federal attracts both short-term and long-term deposits
from its primary market area and has not actively sought deposits outside of
this area. First Federal offers regular passbook accounts, NOW accounts,
commercial and personal checking accounts (including its new "Golden Eagle"
checking designed for persons of age 50 or more, and its new "30 Something"
checking designed for persons between 30 and 49 years of age), money market
deposit accounts, fixed interest rate certificates of deposits with varying
maturities, and negotiated rate $95,000 or above jumbo certificates of deposit
("Jumbo CDs"). At September 30, 1996, First Federal had $2.6 million in "Golden
Eagle" accounts and $50,000 in its brand new "30 Something" accounts.
Deposit account terms vary, according to the minimum balance required,
the time period the funds must remain on deposit and the interest rate, among
other factors. First Federal regularly evaluates the internal cost of funds,
surveys rates offered by competing institutions, reviews its cash flow
requirements for lending and liquidity and makes rate changes when deemed
appropriate. In order to decrease the volatility of its deposits, First Federal
imposes penalties up to 30 days of interest for certificates maturing one year
or less and 90 days for certificates over one year on early withdrawal on its
certificates of deposit. First Federal has become more susceptible to short-term
fluctuations in deposit flows, as customers have become more interest rate
conscious. In addition, First Federal has not been willing to pay higher rates
to retain deposits that may not be profitably deployed. First Federal does not
have any brokered deposits and has no present intention to accept or solicit
such deposits.
In 1994 First Federal attempted to increase its passbook accounts
through a marketing campaign emphasizing the community involvement of First
Federal with all segments of the population in its trade area. Among the
measures which have been undertaken in connection with this marketing campaign
are an increase in the proportion of First Federal's employees that speak
Spanish, advertising in Spanish language publications, direct contact with local
Hispanic community organizations and the opening of a new office at a later date
in an area with a significant Hispanic influence. After its conversion to
bank-type data processing in the spring of
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1995, First Federal has increased its checking or transaction accounts through
an aggressive marketing campaign aimed at, among others, local college students
and faculty, with the new branch in College Station, Texas, (immediately south
of Bryan) opened in the first half of 1994. Recently, it acquired a site for a
new full-service branch located at a key intersection in northern Bryan. This
immediate area presently has no nearby banking facility servicing its financial
needs.
The following table sets forth the deposit flows at First Federal
during the periods indicated. Net increase (decrease) refers to the amount of
deposits during a period less the amount of withdrawals during the period. In
order to reduce excess cash on hand, First Federal implemented a planned
reduction in higher cost deposits from 1995 to 1996.
Year Ended September 30,
-------------------------------------
1996 1995 1994
---- ---- ----
(Dollars in Thousands)
Opening balance...................... $54,939 $50,846 $47,312
Net deposits (withdrawals)........... (4,916) 2,592 1,833
Interest credited.................... 1,654 1,501 1,701
------- -------- -------
Ending balance....................... $51,677 $54,939 $50,846
======== ======== =======
Net increase (decrease).............. $(3,262) $ 4,093 $ 3,534
======== ======== =======
Percent increase (decrease).......... (5.94)% 8.05% 7.47%
======== ======== =======
The following table sets forth the dollar amount of savings deposits,
by interest rate range, in the various types of deposit programs offered by
First Federal at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
----------------------------------------------------------------------
1996 1995 1994
--------------------- ------------------- -------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ ---------- ------ --------
(Dollars in Thousands)
Certificate accounts:
<S> <C> <C> <C> <C> <C> <C>
0.00 - 2.99 ......................... $ -- ---% $ -- ---% $ 59 0.1%
3.00 - 4.99 ......................... 16,448 31.8 12,854 23.4 28,689 56.4
5.00 - 6.99 ......................... 17,505 33.9 23,371 42.5 5,943 11.7
7.00 - 8.99 ......................... 933 1.8 921 1.7 -- --
9.00 - 9.99 ......................... -- -- -- -- -- --
------- ----- ------- ----- ------- -----
Total Certificate Accounts ........... 34,886 67.5 37,146 67.6 34,691 68.2
Other Accounts:
Passbook accounts .................... 4,177 8.1 5,014 9.1 5,039 9.9
NOW and Other Demand Deposit ......... 5,387 10.4 4,117 7.5 3,510 6.9
Accounts
Money market accounts ................ 4,653 9.0 5,650 10.3 5,486 10.8
Commercial checking accounts ......... 1,185 2.3 1,295 2.4 1,660 3.3
Other noninterest-bearing accounts ... 1,389 2.7 1,717 3.1 460 0.9
------- ----- ------- ----- ------- -----
Total other accounts ................. 16,791 32.5 17,793 32.4 16,155 31.8
------- ----- ------- ----- ------- -----
Total deposits ....................... $51,677 100.0% $54,939 100.0% $50,846 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
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<PAGE>
At September 30, scheduled maturities of certificates of deposit are as
follows
1999 and
1997 1998 thereafter Total
---- ---- ---------- -----
(In Thousands)
3% to 4.99%............... $14,882 $ 1,322 $ 244 $16,448
5% to 6.99%............... 9,972 4,488 3,045 17,505
7% to 9.99%............... --- --- 933 933
------- ------- ------ --------
Total................ $24,854 $ 5,810 $4,222 $34,886
======= ======= ====== ========
The following table indicates the amount of First Federal's
certificates of deposit by time remaining until maturity as of September 30,
1996.
<TABLE>
<CAPTION>
Maturity
--------------------------------------------------
3 Months 3 to 6 6 to 12 Over 12
or Less Months Months Months Total
------- ------ ------ ------ -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Certificates of deposit less than $100,000.......... $6,355 $7,028 $8,564 $ 8,679 $30,626
Certificates of deposit of $100,000 or more......... 1,003 1,104 800 1,353 4,260
------ ------ ------ -------- -------
Total............................................... $7,358 $8,132 $9,364 $ 10,032 $34,886
====== ====== ====== ======== =======
</TABLE>
BORROWINGS
First Federal's borrowings primarily have been advances from the FHLB
of Dallas. As a member of the FHLB of Dallas, First Federal is required to own
capital stock in the FHLB of Dallas and is authorized to apply for advances from
the FHLB of Dallas. Each FHLB credit program has its own interest rate, which
may be fixed or variable, and range of maturities. The FHLB of Dallas may
prescribe the acceptable uses to which these advances may be put, as well as
limitations on the size of the advances and repayment provisions. Federal law
requires that all long-term FHLB advances be for the purpose of financing
residential housing and members must meet community lending standards in order
to have continued access to long-term FHLB advances. First Federal does not
expect that these limitations will have a significant impact on its access to
FHLB advances.
The following table sets forth the maximum month-end balance and
average balance of FHLB advances and other borrowings during the periods
indicated.
Year Ended September 30,
---------------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
Maximum Balance:
FHLB advances............................ $1,088 $1,088 $2,004
Average Balance:
FHLB advances............................ $ 89 $2,085 $ 679
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The following table sets forth certain information as to First
Federal's FHLB advances and other borrowings at the dates indicated.
September 30,
----------------------------------
1996 1995 1994
---- ---- ----
(Dollars in Thousands)
FHLB advances............................ $ --- $1,088 $ ---
Other borrowings......................... --- --- ---
Total borrowings......................... $ --- $1,008 $ ---
======= ====== ======
Weighted average interest rate of
FHLB advances............................ ---% 7.10% ---%
Weighted average interest rate of
other borrowings......................... --- N/A N/A
SERVICE CORPORATION
Federally chartered institutions are permitted to invest in the capital
stock, obligations, or other specified types of securities of subsidiaries
(referred to as "service corporations") and to make loans to such subsidiaries,
and joint ventures in which such subsidiaries are participants, in an aggregate
amount not exceeding 2% of an institution's assets, plus an additional 1% of
assets if the amount over 2% is used for specified community or inner city
development purposes. In addition, federal regulations permit institutions to
make specified loans to such subsidiaries under its general lending authority.
In addition, such institutions are authorized to invest unlimited amounts in
subsidiaries that are engaged solely in activities in which the parent
institution may engage.
First Federal's service corporation, First Service Corporation of
Bryan, is currently inactive. At September 30, 1996, First Federal had a total
investment of $13,000 in its service corporation. See "Regulation - Federal
Regulation of Thrift Institutions."
COMPETITION
First Federal faces strong competition both in originating loans and in
attracting deposits. Competition in originating loans comes primarily from other
thrift institutions, commercial banks and mortgage companies who also make loans
located in First Federal's primary market area. First Federal competes for loans
principally on the basis of the interest rates and loan fees it charges, the
types of loans it originates and the quality of service it provides to
borrowers.
First Federal faces substantial competition in attracting deposits from
other thrift institutions, commercial banks, money market and mutual funds,
credit unions and other investment vehicles. The ability of First Federal to
attract and retain deposits depends on its ability to provide an investment
opportunity that satisfies the requirements of investors as to rate of return,
liquidity, risk and other factors. First Federal competes for these deposits by
offering a variety of deposit accounts at competitive rates and convenient
business hours.
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New, innovative checking accounts have been recently introduced by
First Federal. These accounts are targeted to those individuals age 50 or over
("Golden Eagle Account") and age 30 to 49 ("30 Something Account"), both of
which include special benefits and planned trips.
First Federal considers its primary market for deposits and lending
activities to be the Bryan-College Station area (Brazos County), and the
surrounding counties of Burleson, Grimes, Leon, Madison, Robertson and
Washington county, Texas. This area may be characterized principally as a
college community centered around Texas A&M University; however, during 1995 and
1996 additional private businesses have located in the area. A significant
portion of the region's deposit base is comprised of depositors associated with
Texas A&M University. At September 30, 1996 there was one thrift institution,
one state savings bank and seven commercial banks with offices in Bryan-College
Station, Texas, where First Federal's principal offices and full-service branch
are located.
EMPLOYEES
At September 30, 1996, First Federal had a total of 50 employees,
including 12 part-time employees. First Federal's employees are not represented
by any collective bargaining group. Management considers its employee relations
to be good.
DESCRIPTION OF PROPERTY OWNED
First Federal owns the building and land for its main office at 2900
Texas Avenue, Bryan, Texas, which was built in 1956 and acquired by First
Federal in 1978. This office now has 8,700 square feet and is situated on almost
an acre of land with over 200 feet of frontage situated on the principal
thoroughfare in Bryan- College Station. The net depreciated net book value of
this office and land (with recent parking lot improvements) was $325,000 at
September 30, 1996. An expansion of 800 square feet was added in 1995, and
additional drive-in facilities were added in 1994.
First Federal also opened and owns a branch office at 2202 Longmire in
College Station in March of 1994. This office has approximately 2320 square feet
and is situated on almost two acres of land. The book value of this office and
land was $316,000 at September 30, 1996.
Management's present intentions are to develop a branch in northern
Bryan to better serve the Hispanic and minority community, low income population
and other residents in this part of the community not presently served with a
nearby banking facility, and has recently acquired a site at a key intersection
in northern Bryan. Management believes its current check clearing capability can
service these additional accounts.
First Federal maintains a database of depositor and borrower customer
information. The net book value of the data processing and computer equipment
and software utilized by First Federal at September 30, 1996 was $71,000.
LEGAL PROCEEDINGS
First Federal is, from time to time, a party to certain lawsuits
arising in the ordinary course of its business. First Federal believes that none
of these lawsuits would, if adversely determined, have a material adverse effect
on its financial condition.
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<PAGE>
REGULATION
GENERAL
First Federal is a federally chartered thrift institution, the deposits
of which are federally insured and backed by the full faith and credit of the
United States Government. Accordingly, First Federal is subject to broad federal
regulation and oversight extending to all its operations. First Federal is a
member of the FHLB of Dallas and is subject to certain limited regulation by the
Board of Governors of the Federal Reserve System ("Federal Reserve Board"). As
the thrift institution holding company of First Federal, the Holding Company
also will be subjected to federal regulation and oversight. The purpose of the
regulation of the Holding Company and other holding companies is to protect
subsidiary thrift institutions. First Federal is a member of the Savings
Association Insurance Fund ("SAIF") and the deposits of First Federal are
insured by the FDIC. As a result, the FDIC has certain regulatory and
examination authority over First Federal.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
FEDERAL REGULATION OF THRIFT INSTITUTIONS
The OTS has extensive authority over the operations of thrift
institutions. As part of this authority, First Federal is required to file
periodic reports with the OTS and is subject to periodic examination by the OTS
and the FDIC. The last regular OTS examination of First Federal was as of June
17, 1996. Under agency scheduling guidelines, it is likely that another
examination will be initiated within 18 months of the last exam. When these
examinations are conducted by the OTS and the FDIC, the examiners may require
First Federal to provide for higher general or specific loan loss reserves. All
thrift institutions are subject to a semi-annual assessment, based upon the
thrift institution's total assets, to fund the operations of the OTS. First
Federal's OTS assessment for the expense of examinations for the fiscal year
ended September 30, 1996, was $20,876.
The OTS also has extensive enforcement authority over all thrift
institutions and their holding companies, including First Federal and the
Holding Company. This enforcement authority includes, among other things, the
ability to assess civil money penalties, to issue cease-and-desist or removal
orders and to initiate injunctive actions. In general, these enforcement actions
may be initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS. Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS is required.
In addition, the investment, lending and branching authority of First
Federal is prescribed by federal laws and it is prohibited from engaging in any
activities not permitted by such laws. For instance, no thrift institution may
invest in non-investment grade corporate debt securities. In addition, the
permissible level of investment by federal associations in loans secured by
non-residential real property may not exceed 400% of total capital, except with
approval of the OTS. Federal thrift institutions are also generally authorized
to branch nationwide. First Federal is in compliance with the noted
restrictions.
First Federal's general permissible lending limit for
loans-to-one-borrower is equal to the greater of $500,000 or 15% of unimpaired
capital and surplus (except for loans fully secured by certain readily
marketable collateral, in which case this limit is increased to 25% of
unimpaired capital and surplus). At September 30, 1996, First Federal's legal
lending limit under this restriction was $647,000. First Federal is in
compliance with the loans-to-one-borrower limitation.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, internal controls and audit systems, interest
rate risk exposure and compensation and other employee benefits. Any institution
which fails to comply with these standards must submit a compliance plan. A
failure to submit a plan or to comply with an
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<PAGE>
approved plan will subject the institution to further enforcement action. First
Federal has adopted these OTS guidelines.
INSURANCE OF ACCOUNTS AND REGULATION BY THE FDIC
First Federal is a member of the SAIF, which is administered by the
FDIC. Deposits are insured up to applicable limits by the FDIC and such
insurance is backed by the full faith and credit of the United States
Government. As insurer, the FDIC imposes deposit insurance premiums and 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 risk
to the FDIC. The FDIC also has the authority to initiate enforcement actions
against thrift institutions, after giving the OTS an opportunity to take such
action, and may terminate the deposit insurance if it determines that the
institution has engaged in unsafe or unsound practices or is in an unsafe or
unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 8%) and considered healthy
pay the lowest premium while institutions that are less than adequately
capitalized (i.e., core or Tier 1 risk- based capital ratios of less than 4% or
a risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions will be made by the FDIC for each semi-annual assessment period.
First Federal was a "well-capitalized" institution as of September 30,
1996.
The FDIC is authorized to increase assessment rates, on a semiannual
basis, if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. The FDIC may also impose special assessments on SAIF members to repay
amounts borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC.
For the first six months of 1995, the assessment schedule for BIF
members and SAIF members ranged from .23% to .31% of deposits. As is the case
with the SAIF, the FDIC is authorized to adjust the insurance premium rates for
banks that are insured by the BIF of the FDIC in order to maintain the reserve
ratio of the BIF at 1.25% of BIF insured deposits. As a result of the BIF
reaching its statutory reserve ratio the FDIC revised the premium schedule for
BIF insured institutions to provide a range of .04% to .31% of deposits. The
revisions became effective in the third quarter of 1995. In addition, the BIF
rates were further revised, effective January 1996, to provide a range of 0% to
.27%. The SAIF rates, however, were not adjusted. At the time the FDIC revised
the BIF premium schedule, it noted that, absent legislative action (as discussed
below), the SAIF would not attain its designated reserve ratio until the year
2002. As a result, SAIF insured members would continue to be generally subject
to higher deposit insurance premiums than BIF insured institutions until, all
things being equal, the SAIF attained its required reserve ratio.
In order to eliminate this disparity and any competitive disadvantage
between BIF and SAIF member institutions with respect to deposit insurance
premiums, legislation to recapitalize the SAIF was enacted in September 1996.
The legislation required a one-time assessment to be imposed on all deposits
assessed at the SAIF rates, as of March 31, 1995, in order to recapitalize the
SAIF. It also provided for the merger of the BIF and the SAIF on January 1, 1999
if no thrift institutions then exist. The special assessment rate was
established at .657% of deposits by the FDIC and the resulting assessment of
$333,000 ($220,000 net of tax effect) accrued by First Federal as of September
30, 1996 and paid by First Federal in November, 1996. This special assessment
significantly increased noninterest expense and adversely affected First
Federal's results of operations for the year ended September 30, 1996. As a
result of the special assessment, as of January 1, 1997, First Federal's deposit
insurance premiums were reduced to .065% based upon its current risk
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<PAGE>
classification and the new assessment schedule for SAIF insured institutions.
These premiums are subject to change in future periods.
Prior to the enactment of the legislation, a portion of the SAIF
assessment imposed on thrift institutions was used to repay obligations issued
by a federally chartered corporation to provide financing ("FICO") for resolving
the thrift crisis in the 1980s. Although the FDIC has proposed that the SAIF
assessment be equalized with the BIF assessment schedule, effective October 1,
1996, SAIF-insured institutions will continue to be subject to a FICO assessment
as a result of this continuing obligation. Although the legislation also now
requires assessments to be made on BIF-assessable deposits for this purpose,
effective January 1, 1997, that assessment will be limited to 20% of the rate
imposed on SAIF assessable deposits until the earlier of December 31, 1999 or
when no thrift institution continues to exist, thereby imposing a greater burden
on SAIF member institutions such as First Federal. Thereafter, however,
assessments on BIF-member institutions will be made on the same basis as
SAIF-member institutions. The rates established by the FDIC to implement this
requirement for all FDIC-insured institutions is 6.5 basis points assessment on
SAIF deposits and 1.3 basis points on BIF deposits until BIF insured
institutions participate fully in the assessment. At such time the assessment is
anticipated to be about 2.4 basis points for all FDIC-insured institutions. The
rates may be revised in future periods due to changes in the BIF and SAIF
assessment base.
REGULATORY CAPITAL REQUIREMENTS
Federally insured thrift institutions, such as First Federal, are
required to maintain a minimum level of regulatory capital. The OTS has
established capital standards, including a tangible capital requirement, a
leverage ratio (or core capital) requirement and a risk-based capital
requirement applicable to such thrift institutions. These capital requirements
must be generally as stringent as the comparable capital requirements for
national banks. The OTS is also authorized to impose capital requirements in
excess of these standards on individual associations on a case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital for calculating compliance with
the requirement.
The OTS regulations establish special capitalization requirements for
thrift institutions that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities solely as agent for
its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership. For excludable
subsidiaries the debt and equity investments in such subsidiaries are deducted
from assets and capital. First Federal was not subject to any such deduction at
September 30, 1996.
At September 30, 1996, First Federal had tangible capital of $4.3
million, or 7.5% of adjusted total assets, which is approximately $3.4 million
above the minimum requirement of 1.5% of adjusted total assets in effect on that
date.
The capital standards also require core capital equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including a limited amount of purchased credit card
relationships. As a result of the prompt corrective action provisions discussed
below, however, a thrift institution must maintain a core capital ratio of at
least 4% to be considered adequately capitalized unless its supervisory
condition is such to allow it to maintain a 3% ratio. At September 30, 1996,
First Federal had no intangibles which were subject to these tests.
At September 30, 1996, First Federal had core capital equal to $4.3
million, or 7.5% of adjusted total assets, which is $2.6 million above the
minimum leverage ratio requirement of 3% as in effect on that date.
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<PAGE>
The OTS risk-based requirement requires thrift institutions to have
total capital of at least 8% of risk- weighted assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. The
OTS is also authorized to require a thrift institution to maintain an additional
amount of total capital to account for concentration of credit risk and the risk
of non-traditional activities. At September 30, 1996 First Federal had no
capital instruments that qualify as supplementary capital and $247,000 of
general loss reserves, which was less than 1.25% of risk-weighted assets.
Certain exclusions from capital and assets are required to be made for
the purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. First Federal had no such
exclusions from capital and assets at September 30, 1996.
In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet items, will be multiplied by a risk weight,
ranging from 0% to 100%, based on the risk inherent in the type of asset. For
example, the OTS has assigned a risk weight of 50% for prudently underwritten
permanent one- to four-family first lien mortgage loans not more than 90 days
delinquent and having a loan to value ratio of not more than 80% at origination
unless insured to such ratio by an insurer approved by the FNMA or FHLMC.
OTS regulations also require that every thrift institution with more
than normal interest rate risk exposure to deduct from its total capital, for
purposes of determining compliance with such requirement, an amount equal to 50%
of its interest-rate risk exposure multiplied by the present value of its
assets. This exposure is a measure of the potential decline in the net portfolio
value of a thrift institution, greater than 2% of the present value of its
assets, based upon a hypothetical 200 basis point increase or decrease in
interest rates (whichever results in a greater decline). Net portfolio value is
the present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. The rule will not become effective until the OTS
evaluates the process by which thrift institutions may appeal an interest rate
risk deduction determination. It is uncertain as to when this evaluation may be
completed. Any thrift institution with less than $300 million in assets and a
total capital ratio in excess of 12% is exempt from this requirement unless the
OTS determines otherwise.
On September 30, 1996, First Federal had total capital of $4.6 million
and risk-weighted assets of $43.7 million, or total capital of 10.6% of
risk-weighted assets. This amount was $1.2 million above the 8% requirement in
effect on that date.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against thrift institutions that fail to meet
their capital requirements. The OTS is generally required to take action to
restrict the activities of an "undercapitalized association" (generally defined
to be one with less than either a 4% core capital ratio, a 4% Tier 1
risked-based capital ratio or an 8% risk-based capital ratio). Any such
association must submit a capital restoration plan and until such plan is
approved by the OTS may not increase its assets, acquire another institution,
establish a branch or engage in any new activities, and generally may not make
capital distributions. The OTS is authorized to impose the additional
restrictions that are applicable to significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any
company controlling an undercapitalized association must agree that it will
enter into a limited capital maintenance guarantee with respect to the
institution's achievement of its capital requirements.
Any thrift institution that fails to comply with its capital plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios
of less than 3% or a risk-based capital ratio of less than 6%) must be made
subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory
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<PAGE>
restrictions on its activities in addition to those applicable to significantly
undercapitalized associations. In addition, the OTS must appoint a receiver (or
conservator with the concurrence of the FDIC) for a thrift institution, with
certain limited exceptions, within 90 days after it becomes critically
undercapitalized.
At September 30, 1996, First Federal fell within the regulatory
definition of "well capitalized".
Any undercapitalized association is also subject to the general
enforcement authority of the OTS and the FDIC, including the appointment of a
conservator or a receiver.
The OTS is also generally authorized to reclassify an association into
a lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on First
Federal or the Holding Company may have a substantial adverse effect on the
Holding Company's operations and profitability and the value of the Holding
Company Common Stock. As stated above, at September 30, 1996, First Federal was
"well-capitalized".
LIMITATIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS
OTS regulations impose various restrictions or requirements on
associations with respect to their ability to make distributions of capital,
which include dividends, stock redemptions or repurchases, cash-out mergers and
other transactions charged to the capital account. OTS regulations also prohibit
an association from declaring or paying any dividends or from repurchasing any
of its stock if, as a result, the regulatory capital of the association would be
reduced below the amount required to be maintained for the liquidation account
established in connection with its mutual to stock conversion.
Generally thrift institutions, such as First Federal, that before and
after the proposed distribution meet their capital requirements, may make
capital distributions during any calendar year equal to the greater of 100% of
net income for the year-to-date plus 50% of the amount by which the lesser of
the association's tangible, core or risk-based capital exceeds its capital
requirement for such capital component, as measured at the beginning of the
calendar year, or 75% of its net income for the most recent four quarter period.
However, an association deemed to be in need of more than normal supervision by
the OTS may have its dividend authority restricted by the OTS. First Federal has
not been so notified and therefore may pay dividends in accordance with this
general authority.
Thrift institutions proposing to make any capital distribution need
only submit written notice to the OTS 30 days prior to such distribution. Thrift
institutions that do not, or would not meet their current minimum capital
requirements following a proposed capital distribution, however, must obtain OTS
approval prior to making such distribution. The OTS may object to the
distribution during that 30-day notice period based on safety and soundness
concerns. See " -- Regulatory Capital Requirements."
The OTS has proposed regulations that would revise the current capital
distribution restrictions. Under the proposal a thrift institution may make a
capital distribution restrictions. Under the proposal a thrift institution may
make a capital distribution without notice to the OTS provided that it has a
CAMEL 1 or 2 rating, is not of supervisory concern, and would remain adequately
capitalized (as defined in the OTS prompt corrective action regulations)
following the proposed distribution. Thrift institutions that would remain
adequately capitalized following the proposed distribution but do not meet the
other noted requirements must notify the OTS 30 days prior to declaring a
capital distribution. The OTS stated it will generally regard as permissible
that amount of capital distributions that do not exceed 50% of the institution's
excess regulatory capital plus net income to date during the calendar year. A
thrift institution may not make a capital distribution without prior approval of
the OTS and the FDIC if it is under capitalized before, or as a result of, such
a distribution. As under the current rule, the OTS may object to a capital
distribution if it would constitute an unsafe or unsound practice. No absolute
assurance may be given as to whether or in what form the regulations may be
adopted.
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First Federal is not aware at this time of any restriction on dividends
that could be imposed upon it by the OTS or the FDIC.
LIQUIDITY
All thrift institutions, including First Federal, are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. For a discussion of what First Federal
includes in liquid assets, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources." This liquid asset ratio requirement may vary from time to time
(between 4% and 10%) depending upon economic conditions and savings flows of all
thrift institutions. At the present time, the minimum liquid asset ratio is 5%.
In addition, short-term liquid assets (e.g., cash, certain time
deposits, certain bankers acceptances and short-term United States Treasury
obligations) currently must constitute at least 1% of the association's average
daily balance of net withdrawable deposit accounts and current borrowings.
Penalties may be imposed upon associations for violations of either liquid asset
ratio requirement. At September 30, 1996, First Federal was in compliance with
both requirements, with an overall liquid asset ratio of 8.27% and a short-term
liquid assets ratio of 8.27%.
ACCOUNTING
An OTS policy statement applicable to all thrift institutions clarifies
and re-emphasizes that the investment activities of a thrift institution must be
in compliance with approved and documented investment policies and strategies,
and must be accounted for in accordance with GAAP. Under the policy statement,
management must support its classification of and accounting for loans (i.e.,
whether held for investment, sale or trading) and securities (held-to-maturity
available-for-sale or trading) with appropriate documentation. First Federal is
in compliance with these amended rules.
The OTS accounting regulations, which may be made more stringent than
GAAP by the OTS, require that transactions be reported in a manner that best
reflects their underlying economic substance and inherent risk and that
financial reports must incorporate any other accounting regulations or orders
prescribed by the OTS.
QUALIFIED THRIFT LENDER TEST
All thrift institutions, including First Federal are required to meet a
qualified thrift lender ("QTL") test to avoid certain restrictions on their
operations. This test requires a thrift institution to have at least 65% of its
portfolio assets (as defined by regulation) in qualified thrift investments on a
monthly average for nine out of every 12 months on a rolling basis. As an
alternative, the thrift institution may maintain 60% of its assets in those
assets specified in Section 7701(a)(19) of the Internal Revenue Code. Under
either test, such assets primarily consist of residential housing related loans
and investments. At September 30, 1996, First Federal met the test and has
always met the test since its effectiveness.
Any thrift institution that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a thrift institution and a national bank, and it is limited
to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a
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<PAGE>
bank holding company and become subject to all restrictions on bank holding
companies. See "- Holding Company Regulation."
COMMUNITY REINVESTMENT ACT
Under the Community Reinvestment Act ("CRA"), every FDIC insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking practices 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 OTS, in connection with the examination of First
Federal, 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, such as a merger or the establishment of a branch, by First
Federal. An unsatisfactory rating may be used as the basis for the denial of an
application by the OTS.
The federal banking agencies, including the OTS, have recently revised
the CRA regulations and the methodology for determining an institution's
compliance with the CRA. Due to the heightened attention being given to the CRA
in the past few years, First Federal may be required to devote additional funds
for investment and lending in its local community.
First Federal was examined for CRA compliance in 1996 and received a
rating of satisfactory.
TRANSACTIONS WITH AFFILIATES
Generally, transactions between a thrift institution or its
subsidiaries and its affiliates are required to be on terms as favorable to the
association as transactions with non-affiliates. In addition, certain of these
transactions, such as loans to an affiliate, are restricted to a percentage of
the association's capital. Affiliates of First Federal include the Holding
Company and any company which is under common control with First Federal. In
addition, a thrift institution may not lend to any affiliate engaged in
activities not permissible for a bank holding company or acquire the securities
of most affiliates. First Federal's subsidiaries are not deemed affiliates;
however, the OTS has the discretion to treat subsidiaries of thrift institutions
as affiliates on a case by case basis.
Certain transactions with directors, officers or controlling persons
are also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must be made on terms substantially the same as for loans to unaffiliated
individuals.
HOLDING COMPANY REGULATION
The Holding Company will be an independent, unitary thrift institution
holding company subject to regulatory oversight by the OTS. As such, the Holding
Company is required to register and file reports with the OTS and is subject to
regulation and examination by the OTS. In addition, the OTS has enforcement
authority over the Holding Company and its non-thrift institution subsidiaries
which permits the OTS to restrict or prohibit activities that are determined to
be a serious risk to the subsidiary thrift institution.
As a unitary thrift institution holding company, the Holding Company
generally is not subject to activity restrictions. If the Holding Company
acquires control of another thrift institution as a separate subsidiary, it
would become a multiple thrift institution holding company, and the activities
of the Holding Company and any of its subsidiaries (other than First Federal or
any thrift institution) would become subject to activity restrictions comparable
to those applicable to bank holding companies unless such other associations
each qualify as a QTL and were acquired in a supervisory acquisition.
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If First Federal fails the QTL test, the Holding Company must obtain
the approval of the OTS prior to continuing after such failure, directly or
through its other subsidiaries, any business activity other than those approved
for multiple thrift institution holding companies or their subsidiaries. In
addition, within one year of such failure the Holding Company must register as,
and will become subject to, the restrictions applicable to bank holding
companies.
The activities authorized for a bank holding company are more limited
than are the activities authorized for a unitary or multiple thrift institution
holding company. See "--Qualified Thrift Lender Test."
The Holding Company must obtain approval from the OTS before acquiring
control of any SAIF- insured association. Such acquisitions are generally
prohibited if they result in a multiple thrift institution holding company
controlling thrift institutions in more than one state. However, such interstate
acquisitions are permitted based on specific state authorization or in a
supervisory acquisition of a failing thrift institution.
FEDERAL SECURITIES LAW
The stock of the Holding Company will be registered with the Securities
and Exchange Commission (the "SEC") under the Exchange Act. The Holding Company
will be subject to the information, proxy solicitation, insider trading
restrictions and other requirements of the SEC under the Exchange Act.
Holding Company stock held by persons who are affiliates (generally
officers, directors and principal shareholders) of the Holding Company may not
be resold without registration or unless sold in accordance with certain resale
restrictions set forth under Rule 144 of the Securities Act. If the Holding
Company meets specified current public information requirements, each affiliate
of the Holding Company is able to sell in the public market, without
registration, a limited number of shares in any three-month period.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board requires all depository institutions to
maintain noninterest bearing reserves at specified levels against their
transaction accounts (primarily checking and NOW checking accounts). At
September 30, 1996, First Federal was in compliance with these reserve
requirements. The balances maintained to meet the reserve requirements imposed
by the Federal Reserve Board may be used to satisfy liquidity requirements that
may be imposed by the OTS. See "-- Liquidity."
Thrift institutions are authorized to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Bank.
FEDERAL HOME LOAN BANK SYSTEM
First Federal is a member of the FHLB of Dallas, which is one of 12
regional FHLBs, that administers the home financing credit function of thrift
institutions. Each FHLB serves as a reserve or central bank 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 the board of directors of the FHLB which are subject to the oversight of the
Federal Housing Finance Board. All advances from the FHLB are required to be
fully secured by sufficient collateral as determined by the FHLB. In addition,
all long-term advances are required to provide funds for residential home
financing.
As a member, First Federal is required to purchase and maintain stock
in the FHLB of Dallas. At September 30, 1996, First Federal had $845,000 in FHLB
stock, which was in compliance with this requirement. In past years, First
Federal has received substantial dividends on its FHLB stock. Over the past five
fiscal years such dividends have averaged 4.80% and were 5.96% for fiscal year
1996.
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Under federal law the FHLBs are required to provide funds for the
resolution of troubled thrift institutions and to contribute to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of First Federal's FHLB stock may result in a corresponding
reduction in First Federal's capital.
For the year ended September 30, 1996, dividends paid by the FHLB of
Dallas to First Federal totaled $49,279, which constitute a $969 increase over
the amount of dividends received in fiscal year 1995. The $12,359 dividend
received for the quarter ended September 30, 1996 reflects an annualized rate of
5.85%, or 0.37% below the rate for fiscal 1995.
FEDERAL AND STATE TAXATION
Thrift institutions such as First Federal that meet certain
definitional tests relating to the composition of assets and other conditions
prescribed by the Internal Revenue Code of 1986, as amended (the "Code"), are
permitted to establish reserves for bad debts and to make annual additions
thereto which may, within specified formula limits, be taken as a deduction in
computing taxable income for federal income tax purposes. The amount of the bad
debt reserve deduction is computed under the experience method.
Under the experience method, the bad debt reserve deduction is an
amount determined under a formula based generally upon the bad debts actually
sustained by the thrift institution over a period of years.
For the years beginning before December 1, 1996, a percentage of
specially computed taxable income could be used to compute a thrift
institution's bad debt reserve deduction under the percentage of taxable income
method (the "percentage bad debt deduction").
To the extent earnings appropriated to a thrift institution's bad debt
reserves for "qualifying real property loans" and deducted for federal income
tax purposes exceeded the allowable amount of such reserves computed under the
experience method and to the extent of the association's supplemental reserves
for losses on loans ("Excess"), such Excess may not, without adverse tax
consequences, be utilized for the payment of cash dividends or other
distributions to a shareholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses). As of September 30, 1996, First Federal's Excess accumulated through
September 30, 1988 for tax purposes totaled approximately $643,000.
With the passage of the Small Business Job Protection Act of 1996 on
August 20, 1996, the availability of the percentage bad debt deduction was
repealed for tax years beginning after December 1, 1995. For the first tax year
beginning after December 31, 1995 and thereafter, thrift institutions, such as
First Federal will be required to utilize the experience method referred to
above in computing the tax bad debt deduction for qualifying and nonqualifying
loans.
In addition, thrift institutions such as First Federal are required to
recapture the excess of the tax bad debt reserves for qualifying and
nonqualifying loans as of the end of the last tax year beginning before January
1, 1996 over the balance of those reserves as of the end of the "base year" into
taxable income evenly over a six year period beginning with the first tax year
that begins after December 31, 1995. The base year is the last tax year
beginning before January 1, 1988. As of September 30, 1996, the balance of the
tax bad debt reserves to be recaptured under the new law totaled approximately
$350,000.
If the institution meets the "Residential Loan Requirement" explained
below, the reserve recapture can be deferred for the first or second tax year
beginning after December 31, 1995, or both. However, in any case, the six year
reserve recapture period must begin no later than the third tax year beginning
after December 31, 1995.
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The Residential Loan Requirement is met for a particular year if the
principal amount of home purchase and improvement loans originated in that year
exceeds the "base amount." The base amount is the average of such lending
activity for the six most recent tax years beginning before January 1, 1996. For
purposes of determining this average, the institution can elect to eliminate the
years with the highest and lowest lending activity from the calculation.
In addition to the regular income tax, corporations, including thrift
institutions such as First Federal, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on alternative
minimum taxable income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less any available
exemption. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax and net operating losses can offset no more
than 90% of alternative minimum taxable income. For taxable years beginning
after 1986 and before 1996, corporations, including thrift institutions such as
First Federal, are also subject to an environmental tax equal to 0.12% of the
excess of alternative minimum taxable income for the taxable year (determined
without regard to net operating losses and the deduction for the environmental
tax) over $2 million.
First Federal and its consolidated subsidiary have been audited by the
IRS with respect to consolidated federal income tax returns through September
30, 1987. With respect to years examined by the IRS, either all deficiencies
have been satisfied or sufficient reserves have been established to satisfy
asserted deficiencies. In the opinion of management, any examination of still
open returns (including returns of subsidiaries and predecessors of, or entities
merged into, First Federal) would not result in a deficiency which could have a
material adverse effect on the financial condition of First Federal and its
consolidated subsidiaries.
State Taxation. The State of Texas does not have a corporate income
tax, but it does have a corporate franchise tax to which First Federal is
subject.
The tax for the year 1992 (which was paid by First Federal for the
first time prior to May 15, 1992), is the higher of 0.25% of taxable capital
(usually the amount of paid in capital plus retained earnings) or 4.5% of "net
taxable earned surplus." "Net taxable earned surplus" is net income for federal
income tax purposes increased by the compensation of directors and executive
officers. Net income cannot be reduced by net operating loss carryforwards from
years prior to 1991, and operating loss carryovers are limited to five years.
Delaware Taxation. As a Delaware holding company, the Holding Company
is exempted from Delaware corporate income tax but is required to file an annual
report with and pay an annual fee to the State of Delaware. The Holding Company
is also subject to an annual franchise tax imposed by the State of Delaware.
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MANAGEMENT OF THE HOLDING COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of the Holding Company is currently identical to
the Board of Directors of First Federal. See "Management of First Federal -
Directors." Directors of the Holding Company will serve one-year terms. The
Holding Company currently intends to compensate its directors for their services
on the Holding Company Board.
The executive officers of the Holding Company are elected annually and
hold office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors. The executive
officers of the Holding Company are the identical to the executive officers of
First Federal. See "Management of First Federal -Executive Officers." It is not
currently anticipated that the executive officers of the Holding Company will
receive any remuneration in their capacity as Holding Company executive
officers. For information regarding compensation of directors and executive
officers of First Federal, see "Management of First Federal - Meetings and
Committees of the Board of Directors of First Federal" and "- Executive
Compensation."
INDEMNIFICATION
The certificate of incorporation of the Holding Company provides that a
director or officer of the Holding Company shall be indemnified by the Holding
Company to the fullest extent authorized by the General Corporation Law of the
State of Delaware against all expenses, liability and loss reasonably incurred
or suffered by such person in connection with his activities as a director of
officer or as a director or officer of another company, if the director or
officer held such position at the request of the Holding Company. Delaware law
requires that such director, officer employee or agent, in order to be
indemnified, must have acted in good faith and in a manner reasonably believed
to be not opposed to the best interests of the Holding Company and, with respect
to any criminal action or proceeding, did not have reasonable cause to believe
his conduct was unlawful.
The certificate of incorporation of the Holding Company and Delaware
law also provide that the indemnification provisions of such certificate and the
statute are not exclusive of any other right which a person seeking
indemnification may have or later acquire under any statute, provision of the
certificate of incorporation or bylaws of the Holding Company, agreement, vote
of shareholders or disinterested directors, or otherwise.
These provisions may have the effect of deterring shareholder
derivative actions, since the Holding Company may ultimately be responsible for
expenses for both parties to the action.
In addition, the certificate of incorporation of the Holding Company
and Delaware law also provide that the Holding Company may maintain insurance,
at its expense, to protect itself and any director, officer, employee or agent
of the Holding Company or another corporation, partnership, joint venture, trust
or other enterprise against any expense, liability or loss, whether or not the
Holding Company has the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
The Holding Company intends to obtain such insurance.
MANAGEMENT OF FIRST FEDERAL
DIRECTORS
The direction and control of First Federal is vested in its Board of
Directors. The Board of Directors of First Federal currently consists of ten
members. The directors are divided into three classes, with approximately
one-third of the directors elected at each annual meeting of First Federal.
Because the Holding Company will, after the Merger, own all of the issued and
outstanding shares of capital stock of First Federal, the Holding Company
through its directors will elect the directors of First Federal in the future.
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The following table sets forth certain information as of December 31,
1996 regarding the directors of First Federal.
<TABLE>
<CAPTION>
Position(s) Held Director Term
Name With First Federal Age Since(1) Expires
------------------- ------------------------------- ---- --------- --------
<S> <C> <C> <C> <C>
J. Stanley Stephen Director, President/ 64 1991 1997
Chief Executive Officer
Ken Hayes Director 57 1993 1997
Charles Neelley Director, Secretary/ 67 1993 1997
Treasurer
George Koenig Director, Executive 52 1996 1997
Vice-President
Ernest A. Wentrcek Vice Chairman of the Board 68 1965 1998
Robert H. Conaway Director 43 1995 1998
Richard L. Peacock Chairman of the Board 78 1965 1999
Jack W. Lester, Jr. Director, Assistant Secretary/ 56 1992 1999
Treasurer
Phil Hobson Director 64 1993 1999
J. Roland Ruffino Director 46 1995 1999
</TABLE>
- ----------
(1) Includes service on First Federal's Board of Directors prior to its
conversion to a stock institution in 1993.
The principal occupation of each Director of First Federal is set forth
below. All Directors have held their present position for at least five years
unless otherwise indicated.
J. Stanley Stephen. Mr. Stephen was appointed President and Chief
Executive Officer in February 1991. From 1965 until 1986, Mr. Stephen worked
with First Bank and Trust, Bryan, Texas and served as Executive Vice President,
President, Chairman and Chief Executive Officer and Senior Chairman until he
retired in 1986. From June 1986 until February 1990, Mr. Stephen was President
and Chief Executive Officer of University National Bank, College Station, Texas.
Mr. Stephen was a financial institutions consultant from March until October
1990.
In the past five years, Mr. Stephen has been involved in several
lawsuits, most of which were commenced by him in the early 1980's against
financial institutions outside the Bryan-College Station area. The lawsuits
sought compensatory damages against those lenders for failure to honor loan
commitments and other related claims with respect to several real estate
partnerships of which Mr. Stephen was a partner but not a managing partner.
Those financial institutions filed counter-claims against the real estate
partnerships and their individual partners for amounts previously advanced.
Subsequent to the commencement of litigation by Mr. Stephen, certain of
those financial institutions were taken over by their respective Federal
regulatory agencies, including the FDIC.
In addition, the FDIC filed suit against the officers and directors of
certain failed institutions, including those with which Mr. Stephen was
previously associated with, alleging various civil causes of action arising from
their activities as directors and/or officers -- which Mr. Stephen and his
fellow directors and officers disputed. Mr. Stephen has never been accused of
any criminal wrongdoing by any regulatory agency. Currently all lawsuits in
which Mr. Stephen was a party have either been successfully dismissed or
settled. In addition, in June of 1994, Mr. Stephen successfully completed a
personal plan of reorganization under the federal bankruptcy laws. The OTS has
never objected to Mr. Stephen serving as President of First Federal since 1991.
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Mr. Stephen has provided new senior management at First Federal, since
his arrival in early 1991, to successfully convert it from a mutual savings
association to a new, federal stock institution through a community public stock
offering, as well as returning First Federal to profitability. In addition,
under Mr. Stephen's direction, First Federal has now expanded its home,
consumer, commercial, and SBA lending in the Bryan- College Station market area,
and now meets the regulatory definition of a "well capitalized" financial
institution. Also, under his direction, First Federal opened a Loan Production
Office in Waco, Texas in 1993, a full-service banking facility in College
Station, Texas in early 1994, a loan production office in Huntsville, Texas in
July 1995, and a Mortgage Loan Production office in College Station in 1996. In
addition, First Federal has recently acquired a site for a new full-service
banking facility to be located at a key intersection in the northern portion of
Bryan, which is currently not served by any nearby banking facility. During his
tenure as President/CEO, he has re-structured First Federal to begin providing
full-service retail banking -- through the addition of experienced personnel,
re-training existing staff, converting data processing and adding facilities to
provide for the future, long-term growth of First Federal.
Ken Hayes. Mr. Hayes is the owner of Aggieland Travel, located in
College Station, a full-service travel agency.
Charles Neelley. Mr. Neelley is retired from Texas A&M University and
the travel agency business. In November 1995, Mr. Neelley was elected
Secretary/Treasurer of the Board.
Richard L. Peacock. Mr. Peacock has been retired since 1983 from a
privately owned retail office supply and furniture business located in Bryan,
Texas. In November 1995, Mr. Peacock was elected Chairman of the Board.
Ernest A. Wentrcek. Mr. Wentrcek was the Secretary and/or Treasurer of
First Federal's Board of Directors until 1995 when he was elected Vice Chairman
of the Board of Directors. Mr. Wentrcek is the President and owner of W&W
Builders/Realtors, a real estate sales, rentals and property management company
located in Bryan, Texas. In September 1988, he retired as the Associate Director
for Business Affairs of the Texas Engineering Extension Service, Texas A&M
University System, a vocational education organization. He is the Vice Chairman
of the Finance Committee of the Supreme Lodge of the Slavonic Benevolent Order
of the State of Texas (SPJST). Mr. Wentrcek is a licensed Real Estate Broker and
a member of the Bryan-College Station Board of Realtors and the Multiple Listing
Service. He is also a member of the American Legion Post 159-Bryan.
Jack W. Lester, Jr. Mr. Lester is currently retired. Prior to his
retirement, he was the owner and operator of a leading women's apparel store
located in Bryan, Texas. In November 1995, Mr. Lester was elected Assistant
Secretary/Treasurer of the Board.
Phil Hobson. Dr. Hobson is a professor of veterinary medicine at Texas
A&M University, a position he has held since 1965.
J. Roland Ruffino. Mr. Ruffino is a partner of Readfield Meats, Inc., a
long-time leading retail meat market located in Bryan, Texas.
Robert H. Conaway. Mr. Conaway is the founder and President of Progress
Supply located in Bryan, Texas, a distributor of wholesale supply plumbing
fixtures.
George Koenig. Mr. Koenig is currently serving as executive vice
president of First Federal. Mr. Koenig was previously employed as an operating
officer with a local financial institution located in Bryan, Texas.
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EXECUTIVE OFFICERS
Each of the executive officers of First Federal will retain his or her
office in First Federal after the Merger. Officers are elected annually by the
Board of Directors of First Federal. There are no arrangements or understandings
between the officers and any other person pursuant to which such officer was
selected.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
Meetings of First Federal's Board of Directors are generally held on a
monthly basis, with Special Meetings held on an as needed basis. The Board of
Directors met 14 times during the fiscal year ended September 30, 1996. No
incumbent Director of First Federal attended fewer than 75% of the total number
of board meetings held by the Board of Directors and the total number of
meetings held by the committees of the Board of Directors on which he served,
during fiscal year 1996.
The Board of Directors has standing Executive, Audit, Asset/Liability,
Investments, Insurance and Finance, Loan, Personnel, Policy, Compliance, Stock
Option and Business Development committees.
The Executive Committee is currently composed of Directors Stephen
(Chairman), Wentrcek, Peacock, Neelley and Hobson. This Committee meets as
needed and handles major policy questions between regularly scheduled board
meetings. The Committee met two times during fiscal 1996.
The Audit Committee is currently composed of Directors Wentrcek
(Chairman), G. Williams, Peacock, Neelley, Lester and Hayes. The Committee
currently meets as necessary on matters concerning annual audits and internal
audit findings. This Committee met two times during fiscal 1996.
The Asset/Liability Committee is currently composed of Directors
Stephen (Chairman), Koenig and Hobson and Officer Hegar. The Committee meets
quarterly to deal with matters concerning asset/liability composition,
interest-rate risk exposure and liquidity investment. This Committee met five
times during fiscal 1996.
The Investment, Insurance and Finance Committee is currently composed
of Directors Stephen, Wentrcek and Ruffino and officer Hegar (Chairman). The
Committee usually meets quarterly to handle matters concerning investment
policies and decisions and insurance of First Federal's personnel and property.
This Committee met 12 times during fiscal 1996.
The Loan Committee consists of all members of the Board of Directors on
a rotating basis with three outside Directors constituting a quorum. The Loan
Committee approves all loans originated by First Federal in excess of $50,000
and ratifies all loans at the monthly meeting of the Board of Directors. The
Loan Committee met 18 times during fiscal 1996.
The Personnel Committee is currently composed of Directors Stephen,
Neelley, Peacock (Chairman), Wentrcek and Hayes and Officer Hegar. The Committee
meets as needed to review staffing, compensation and comparative data to
establish and recommend to the Board salary ranges for employees and designated
officers. This Committee met five times during fiscal 1996.
The Policy Committee consists of Directors Stephen (Chairman), Peacock,
G. Williams, Conaway and Wentrcek and meets as needed to review First Federal's
operating policies. The Policy Committee met three times during fiscal 1996.
The Compliance Committee is responsible for reviewing compliance
policies with First Federal's regulatory activities. It currently consists of
Directors Lester (Chairman), Hobson, Peacock and Koenig. This Committee met two
times during fiscal 1996.
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The Stock Option Committee is composed of Directors Wentrcek and
Peacock. This Committee is responsible for the administration of the stock
option and incentive plan. The Committee did not meet during fiscal 1996.
The Business Development Committee consists of Directors Neelley
(Chairman), Peacock, Conaway, Ruffino, Koenig and Stephen, along with Advisory
Director, Arthur Davila. This Committee did not meet during fiscal 1996.
The entire Board of Directors acts as a nominating committee for
selecting nominees for election as Directors. While the Board of Directors of
First Federal will consider nominees recommended by stockholders, the Board has
not actively solicited such nominations.
DIRECTOR COMPENSATION
Outside Directors received $225.00 for each board meeting attended and
$75.00 for each Loan Committee meeting attended.
EXECUTIVE COMPENSATION
The following table sets forth information regarding compensation paid
by First Federal to its Chief Executive Officer for services rendered during the
periods indicated. No executive officer of First Federal made in excess of
$100,000 during the fiscal year ended September 30, 1996. Mr. Stephen
voluntarily reduced his salary in 1995 and 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
----------------------------------
Annual Compensation Awards Payout
- ---------------------------------------------------------------------- --------------------- ----------
Restricted
Other Annual Stock Options/ LTIP All Other
Name and Principal Salary Bonus Compensation Award(s) SARs Payout Compensation
Position Year ($) ($) ($) ($) (#) ($) ($)
- ------------------------- ------ ----------- -------- ---------------- ---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. Stanley Stephen 1996 $89,875 $ --- $ --- $ --- --- --- $ ---
President and Chief 1995 91,233 --- --- --- --- --- ---
Executive Officer 1994 102,000 --- --- --- --- --- ---
</TABLE>
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The following table sets forth information regarding the number and value
of stock options at December 31, 1996 held by First Federal's Chief Executive
Officer. No stock options were exercised during fiscal 1996.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISED IN LAST FISCAL YEAR
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)(1)
Shares Value --------------------------- ----------------------------
Name Acquired Realized Exercisable Unexercisable Exercisable Unexercisable
on Exercise (#) ($)
- ----------------------- ----------------- ------------ -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Stanley Stephen --- --- 4,143 --- $4,143 ---
</TABLE>
(1) Represents an option to purchase Common Stock awarded to First Federal's
Chief Executive Officer based upon the last available sale price of $11.00
per share at March 31, 1996 and an exercise price of $10.00 per share.
EMPLOYMENT AGREEMENTS
First Federal has entered into employment agreements with J.
Stanley Stephen, George Koenig, Mary L. Hegar and Kay Watson. The employment
agreements are designed to assist First Federal in maintaining a stable and
competent management team after the Merger. The continued success of First
Federal depends to a significant degree on the skills and competence of its
officers. These agreements have been filed with the OTS as part of the
application of the Holding Company for approval to become a thrift holding
company. The employment agreements provide for annual base salary in an amount
not less than the officer's salary as of that date. These agreements provide for
an initial term of two years in the case of Mr. Stephen and one year in the case
of Mr. Koenig, Ms. Hegar and Ms. Watson. The agreements provide for termination
upon death, termination of employment for cause or certain events specified by
OTS regulations.
The agreements provide that in the event the employee is
involuntarily terminated without cause, he or she shall receive one's year's
base salary and continued health benefits for one year. In the event that such
termination of employment occurs in connection with or within 12 months after a
change in control of First Federal, he or she shall receive instead a lump sum
equal to 200% of his or her "base amount" and continued health benefits for the
remainder of the term of the agreement, provided that such benefits are subject
to reduction to prevent any amount from becoming non-deductible by First Federal
pursuant to Section 280G of the Internal Revenue Code of 1986, as amended. For
purposes of the employment agreements, a "change in control" is defined as an
event that would require the filing of an application or notice under 12 C.F.R.
Part 574 or certain other events which generally occur upon the acquisition of
control of 10% or more of the Company's voting stock.
First Federal has also entered in a new employment agreement
with Mr. Stephen, which will supersede and replace the agreement described
above, effective July 1, 1997. The new agreement provides for an initial term of
three years, commencing July 1, 1997, and a base salary not less than his
current based salary, provided that the amount actually paid as salary shall be
reduced during the first five years of the agreement by one-half of the cost to
First Federal of his supplemental retirement benefit. The agreement gives Mr.
Stephen the right to elect to cease serving as President and Chief Executive
Officer and to commence serving as a consultant to First Federal at a fee of
$58,200 per year. In addition, the agreement provides a supplemental retirement
benefit for Mr. Stephen, in an amount such that, when added to his benefit under
the
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qualified retirement plan, he will receive up to 70% of the average of his
annual salary and bonus during the three years out of the prior ten years in
which he received the highest salary and bonus. Mr. Stephen's right to the
supplemental retirement benefit vests at 20% per year commencing July 1, 1997,
and will vest completely if he discontinues his employment due to disability.
The agreement further provides that if First Federal terminates Mr. Stephen's
employment other than for cause, without his consent, it shall pay him his
salary for the then-remaining term of the agreement and consulting fees until
June 30, 2002.
Based on their current salaries, if Mr. Stephen, Mr. Koenig, Ms. Hegar
or Ms. Watson were terminated as of December 31, 1997, under circumstances
entitling him or her to severance pay as described above, he or she would have
been entitled to receive a lump sum cash payment of approximately $179,750,
$105,000, $93,000 and $70,000, respectively.
BENEFIT PLANS
First Federal currently provides health care benefits to its
employees, including hospitalization and comprehensive medical insurance, life
and disability insurance, subject to certain deductibles and other limitations.
DEFINED BENEFIT PENSION PLAN
First Federal also sponsors a defined benefit pension plan (the
"Pension Plan"). Employees are eligible to participate in the Pension Plan on
January 1, or July 1 following the completion of twelve months of service,
provided they have attained at least age 20 1/2.
Effective January 1, 1994 a participant's normal retirement
benefit is a monthly benefit equal to 2.1% of Average Monthly Compensation times
Years of Service not to exceed 15. The benefit is accrued fractionally over the
participant's Years of Service. The participant's accrued benefit is equal to
the greater of (a) the Frozen Accrued Benefit as of December 31, 1993, and (b)
the participants accrued benefit calculated using the formula as stated above.
In the event of total and permanent disability, a participant
becomes fully vested with respect to his accrued normal retirement benefit. The
participant may receive an actuarially reduced benefit at the time of his
disability retirement provided the participant is age 50 or older and has 15
years of service.
Participants make no contributions to the Pension Plan. The
employer pays the entire cost of the Pension Plan.
The following table illustrates annual pension benefits payable
upon retirement to employees based on various levels of compensation and years
of service and assuming payment in the form of a straight- life annuity.
Average Annual
Compensation Years of Service
- -------------- ------------------------------------------------
10 20 30 40
------ ----- ------ --------
$40,000................... 667 667 987 1,234
50,000................... 833 833 1,234 1,542
60,000................... 1,000 1,000 1,481 1,851
80,000................... 1,333 1,333 1,974 2,468
100,000................... 1,667 1,667 2,468 3,085
120,000................... 2,000 2,000 2,962 3,703
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CERTAIN TRANSACTIONS
First Federal, like many financial institutions, has followed a
policy of granting to officers, directors and employees, loans secured by the
borrower's residence, along with certain consumer loans, if the borrower is
credit-worthy. All loans to First Federal's officers and directors are made in
the ordinary course of business and on the same terms, including interest rate
and collateral, and conditions as those of comparable transactions prevailing at
the time, and do not involve more than the normal risk of collectibility or
present other unfavorable features.
THE OFFERING
This Offering is being made to finance the purchase of all of
the outstanding shares of First Federal Common Stock not exchanged for Holding
Company Common Stock pursuant to the Merger Agreement. Shares of Holding Company
Common Stock and Units are being offered to members of the general public. See
"Offering and Sale of Holding Company Common Stock and Units." Orders for shares
of Holding Company Common Stock and Units will be subject to the minimum and
maximum purchase limitations. See " - -Subscription Procedures."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the pro
forma beneficial ownership of Holding Company Common Stock upon the completion
of the Offering of each of the directors of First Federal and all directors and
executive officers as a group. The table assumes that (i) the directors and
executive officers acquire the amount of Holding Company Common Stock set forth
in the preceding table, (ii) 150,000 shares are issued as part of the Merger and
(iii) 150,000 minimum shares and 200,000 maximum shares of Holding Company
Common Stock are issued.
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There are no arrangements known to the registrant, including
any pledge by any person of securities of the registrant, the operation of which
may at a subsequent date result in a change in control of the registrant.
<TABLE>
<CAPTION>
Indicated
Holding Percent of Percent of
Bank Shares Company share Class at Class at
Beneficially Percent of ownership after Minimum of Maximum of
Beneficial Owner Owned(1) Class the Merger Offering Offering
- ----------------------------------- -------------- ------------ ----------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
DIRECTORS
Richard L. Peacock 3,868 1.62 8,288 2.76% 2.37%
Ernest A. Wentrcek 3,868 1.62 8,288 2.76 2.37
Jack W. Lester 13,707 5.72 10,650 3.55 3.04
Ken Hayes 1,781 .74 570 .19 .16
Phil Hobson 24,705 10.31 1,250 .42 .36
Charles Neelley 22,915 9.56 53,405 17.81 15.26
J. Roland Ruffino 6,765 2.82 5,800 1.93 1.66
Robert H. Conaway 18,135 7.57 10,000 3.36 2.86
George Koenig 56 .02 140 .05 .04
J. Stanley Stephen 7,771 3.24 9,070 3.02 2.59
EXECUTIVE OFFICERS
Mary L. Hegar 750 .31 1,875 .62 .54
Kay Watson 115 .05 288 .10 .08
Lily Watson 231 .10 578 .19 .17
Directors and executive officers
of First Federal as a group
(13 persons) 104,667 43.68 110,202 36.76 31.50
</TABLE>
- ----------
(1) Amounts include shares held directly and jointly with family members, as
well as shares which are held in retirement accounts, or held by certain
members of the named individuals' families, or held by trusts of which the
named individual is a trustee or substantial beneficiary, with respect to
which shares the respective Directors may be deemed to have sole or shared
voting and/or investment power. Amounts also include stock option awards of
4,143 and 1,553 to President Stephen and some non-employee Directors at the
time of First Federal's conversion to stock form, respectively.
OFFERING AND SALE OF HOLDING COMPANY COMMON STOCK AND UNITS
The Holding Company is offering a minimum of 150,000 shares and a
maximum of 200,000 shares of Holding Company Common Stock at a cash price of
$24.07 per share, and a minimum of $3.4 million and a maximum of $3.7 million in
Units. Subscriptions to purchase Holding Company Common Stock or Units must be
received by the Marketing Agent by not later than __:__ _.m., Bryan, Texas time,
on ___________, 1997, subject to the Holding Company's right to extend the
subscription period until ______, 1997 or terminate the Offering at any time
(the "Expiration Date").
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SUBSCRIPTION PROCEDURES
Persons may subscribe for the shares of Holding Company Common Stock or
Units offered by completing, signing and delivering or mailing a subscription
order form, together with payment in full for the number of shares for which
such person is subscribing by cashiers' check, draft, or wire transfer payable
in next day funds to the Marketing Agent. Notwithstanding the foregoing, the
Marketing Agent shall have the right, in its sole discretion, to permit
investors to submit irrevocable orders together with legally binding commitments
for payment of Units for which they subscribe at any time prior to the
Expiration Date with payment to be received at any time prior to 24 hours before
completion of the Offering. These subscriptions must be received by the Escrow
Agent by __:__ _.m., Central time on the Expiration Date. Consummation of the
Offering through release of the funds in the Escrow Account to the Holding
Company and delivery of certificates representing shares of Holding Company
Common Stock or Units will occur as soon as possible after the Expiration Date,
subject to the satisfaction of certain conditions precedent in the agency
agreement entered into between the Holding Company and the Marketing Agent (the
"Agency Agreement").
The Holding Company reserves the right to reject any subscriptions
prior to release of the funds in the Escrow Account to the Holding Company, in
whole or in part, for any reason whatsoever and may, in its sole discretion,
elect to accept those subscriptions for a lesser number of shares than is
subscribed for by any person. The Holding Company reserves the right to allocate
shares of Holding Company Common Stock and Units in any manner as it, in its
sole discretion, deems appropriate. If the Holding Company terminates the
Offering in its entirety, all subscription funds will be refunded in full with
interest actually earned thereon, without deduction.
Pending receipt of subscriptions for the minimum shares, all
subscription funds will be deposited into a separate, interest-bearing Escrow
Account for the benefit of subscribers of the Holding Company Common Stock and
Units. Subscription funds may, at the direction of the Marketing Agent, be
invested in short term federal funds sold, government obligations and
certificates of deposit. Subject to the satisfaction of certain conditions
precedent in the Agency Agreement, the subscription funds will be released to
the Holding Company if, prior to the Expiration Date, at least $1,500,000 in
Holding Company Common Stock and $3,400,000 in Units are subscribed for and
accepted by the Holding Company. Certificates evidencing shares of Holding
Company Common Stock and Units will be issued to subscribers as soon as
practicable after closing of the Offering and the Merger and release of the
funds from the Escrow Account. If the minimum amount of securities are not
subscribed for and accepted by the Holding Company by the Expiration Date, or
the conditions precedent to consummation of the Offering are not satisfied or
waived, all subscription funds will be refunded to subscribers as soon as
possible, with interest, if any, actually earned and received on a subscriber's
funds deposited in the Escrow Account, without deduction for any charges or
expenses. The Holding Company will pay the expenses of the Escrow Agent as an
expense of the Offering. After any and all refunds have been made of funds
received for subscriptions, the Holding Company and its directors and officers
will have no further liability to any prospective investor with respect to
rejected or canceled subscriptions.
MARKETING ARRANGEMENTS
To assist the Holding Company in marketing the Units offered hereby and
to consult with the Holding Company in connection with the Holding Company's
offering of the Common Stock, the Holding Company has retained Hoefer & Arnett,
a recognized investment banking firm, which is registered with the Commission as
a broker-dealer and a member of the NASD. The Marketing Agent will use its best
efforts to sell the Units to those members of the public to whom a Prospectus is
delivered. The Holding Company has agreed to pay the Marketing Agent a
commission of 7.0% of the aggregate dollar amount of Units sold by the Marketing
Agent. The Holding Company will reimburse the Marketing Agent for its reasonable
and accountable expenses up to $60,000, including legal fees.
Pursuant to the Agency Agreement, the Marketing Agent, its officers,
directors and controlling persons of the Marketing Agent will be indemnified
against all losses, claims, damages, or liabilities, and all legal or other
expenses incurred by them in connection with the investigation or defense
thereof to which they may
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become subject under the securities laws or common law that arise out of the
Offering or their engagement (excluding acts by the Marketing Agent of willful
misconduct or gross negligence).
Officers and directors of the Holding Company may participate in the
solicitation of offers to purchase Holding Company Common Stock and Units. It is
anticipated that the Holding Company's directors and officers may hold
informational meetings to review the prospectus with potential purchasers and to
discuss the terms and provisions of the Holding Company Common Stock and Units.
The Holding Company will rely on Rule 3a4-1 of the 1934 Act, and sales of
Holding Company Common Stock and Units will be conducted within the requirements
of Rule 3a4-1, so as to permit officers and directors to participate in the sale
of Holding Company Common Stock and Units. No officer or director of the Holding
Company will be compensated in connection with his or her participation by the
payment of commissions or other remuneration based either directly or indirectly
on the transactions in the Holding Company Common Stock and Units.
OFFERING PRICE OF HOLDING COMPANY COMMON STOCK ARBITRARILY DETERMINED
The purchase price of the Holding Company Common Stock has been
determined arbitrarily by the Board of Directors based on, among other things,
the amount of capital necessary to enable the Holding Company to accomplish the
Merger and does not necessarily bear any relation to any established investment
criteria of value such as book value, earnings or assets or the intrinsic value,
if any, of the Holding Company or First Federal. As a result, there can be no
assurance that the price of the Holding Company Common Stock will not fall below
its purchase price after the completion of the Offering.
TRANSFER AGENT
The Holding Company will act as its own transfer agent, registrar,
dividend disbursing agent and redemption agent for the shares of Holding Company
Common Stock and the Units.
RESTRICTIONS ON ACQUISITIONS OF STOCK AND
RELATED TAKEOVER DEFENSIVE PROVISIONS
Although the Board of Directors of the Holding Company is not aware of
any effort that might be made to obtain control of the Holding Company after the
Merger, the Board believes, as discussed below, that it is appropriate to
include certain provisions as part of the Holding Company's certificate of
incorporation to protect the interests of the Holding Company and its
shareholders from takeovers which the Board of Directors of the Holding Company
might conclude are not in the best interests of First Federal, the Holding
Company or the Holding Company's shareholders. The Holding Company intends to
operate First Federal as an independent, predominantly community-owned financial
institution.
The following discussion is a summary of all material provisions of the
Holding Company's certificate of incorporation and bylaws and certain other
regulatory provisions, which may be deemed to have an"anti- takeover" effect and
could potentially discourage or even prevent a bid for the Holding Company which
might otherwise result in shareholders receiving a premium for their stock.
Further, ownership restrictions imposed by federal law could potentially serve
as a basis to invalidate or otherwise restrict the use or exercise by management
or others of revocable proxies. The following description of certain of these
provisions is necessarily general and, with respect to provisions contained in
the Holding Company's certificate of incorporation and bylaws and First
Federal's charter and bylaws, reference should be made in each case to the
document in question, each of which is part of First Federal's application to
the OTS and the Holding Company's Registration Statement filed with the SEC. See
"Available Information."
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<PAGE>
PROVISIONS OF THE HOLDING COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
Directors. Certain provisions of the Holding Company's certificate of
incorporation and bylaws will impede changes in majority control of the Board of
Directors. The Holding Company's certificate of incorporation provides that the
Board of Directors of the Holding Company will be elected annually. The Holding
Company's certificate of incorporation provides that the size of the Board of
Directors may be increased or decreased only by a majority vote of the Board.
The certificate of incorporation also provides that any vacancy occurring in the
Board of Directors, including a vacancy created by an increase in the number of
directors, shall be filled for the remainder of the unexpired term by a majority
vote of the directors then in office. The certificate of incorporation further
provides that, to be eligible to serve as a director, persons must meet certain
eligibility criteria. Finally, the bylaws impose certain notice and information
requirements in connection with the nomination by shareholders of candidates for
election to the Board of Directors or the proposal by shareholders of business
to be acted upon at an annual meeting of shareholders.
The certificate of incorporation provides that a director may only be
removed for cause by the affirmative vote of 80% of the shares eligible to vote.
Restrictions on Call of Special Meetings. The certificate of
incorporation of the Holding Company provides that a special meeting of
shareholders may be called only pursuant to a resolution adopted by a majority
of the Board of Directors. Shareholders are not authorized to call a special
meeting.
Absence of Cumulative Voting. The Holding Company's certificate of
incorporation provides that there shall be no cumulative voting rights in the
election of directors.
Authorization of Preferred Stock. The certificate of incorporation of
the Holding Company authorized 1,000,000 shares of serial preferred stock, $.01
par value. The Holding Company is authorized to issue preferred stock from time
to time in one or more series subject to applicable provisions of law, and the
Board of Directors is authorized to fix the designations, powers, preferences
and relative participating, optional and other special rights of such shares,
including voting rights (which could be multiple or as a separate class) and
conversion rights. In the event of a proposed merger, tender offer or other
attempt to gain control of the Holding Company that the Board of Directors does
not approve, it might be possible for the Board of Directors to authorize the
issuance of a series of preferred stock with rights and preferences that would
impede the completion of such a transaction. An effect of the possible issuance
of preferred stock, therefore, may be to deter a future takeover attempt. The
Board of Directors has no present plans or understandings for the issuance of
any preferred stock and does not intend to issue any preferred stock except on
terms which the Board deems to be in the best interests of the Holding Company
and its shareholders.
Procedures for Certain Business Combinations. The Holding Company's
certificate of incorporation requires that certain business combinations, as
defined therein, between the Holding Company (or any majority-owned subsidiary
thereof) and a 25% or more shareholder either (i) be approved by at least 80% of
the total number of outstanding voting shares, voting as a single class, of the
Holding Company, (ii) be approved by a majority of the continuing Board of
Directors (i.e., persons serving prior to the 25% shareholder becoming such and
who are not affiliated with the 25% shareholder) or (iii) involve consideration
per share generally equal to the highest per share price paid by such 25%
shareholder to acquire its stock.
Amendment to Certificate of Incorporation and Bylaws. Amendments to the
Holding Company's Certificate of Incorporation must be approved by a majority
vote of the Holding Company's Board of Directors and also by a majority of the
outstanding shares of the Holding Company's voting stock; provided, however,
that approval by at least 80% of the outstanding voting stock is generally
required to amend certain provisions (i.e., provisions relating to number,
classification, election and removal of directors; amendment of bylaws; call of
special shareholder meetings; offers to acquire and acquisitions of control;
director liability; certain business combinations; power of indemnification; and
amendments to provisions relating to the foregoing in the certificate of
incorporation.)
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The bylaws may be amended by a majority vote of the Board of Directors
or the affirmative vote of at least 80% of the total votes eligible to be voted
at a duly constituted meeting of shareholders.
Purpose and Takeover Defensive Effects of the Holding Company's
Certificate of Incorporation and Bylaws. The Board of Directors of First Federal
believes that the provisions described above are prudent and will reduce the
Holding Company's vulnerability to takeover attempts and certain other
transactions which have not been negotiated with and approved by its Board of
Directors. These provisions will also assist the Holding Company in the orderly
deployment of the Offering proceeds into productive assets during the initial
period after the Offering. The Board of Directors believes these provisions are
in the best interests of First Federal and of the Holding Company and its
shareholders. In the judgment of the Board of Directors, the Holding Company's
Board will be in the best position to determine the true value of the Holding
Company and to negotiate more effectively for what may be in the best interests
of its shareholders. Accordingly, the Board of Directors believes that it is in
the best interests of the Holding Company and its shareholders to encourage
potential acquirors to negotiate directly with the Board of Directors of the
Holding Company and that these provisions will encourage such negotiations and
discourage hostile takeover attempts. It is also the view of the Board of
Directors that these provisions should not discourage persons from proposing a
merger or other transaction at prices reflective of the true value of the
Holding Company and which is in the best interests of all shareholders.
Attempts to take over financial institutions and their holding
companies have become increasingly common. Takeover attempts which have not been
negotiated with and approved by the Board of Directors present to shareholders
the risk of a takeover on terms which may be less favorable than might otherwise
be available. A transaction which is negotiated and approved by the Board of
Directors, on the other hand, can be carefully planned and undertaken at an
opportune time in order to obtain maximum value for the Holding Company and its
shareholders, with due consideration given to matters such as the management and
business of the acquiring corporation and maximum strategic development of the
Holding Company's assets.
Effect of Takeover Defenses on Shareholder Interests. An unsolicited
takeover proposal can seriously disrupt the business and management of a
corporation and cause it great expense. Although a tender offer or other
takeover attempt may be made at a price substantially above then current market
prices, such offers are sometimes made for less than all of the outstanding
shares of a target company. As a result, shareholders may be presented with the
alternative of partially liquidating their investment at a time that may be
disadvantageous, or retaining their investment in an enterprise which is under
different management and whose objectives may not be similar to those of the
remaining shareholders. The concentration of control, which could result from a
tender offer or other takeover attempt, could also deprive the Holding Company's
remaining shareholders of the benefits of certain protective provisions of the
Exchange Act, if the number of beneficial owners becomes less than the 300 at
which Exchange Act registration is required.
Potential Negative Impact of Takeover Defenses on Shareholder
Interests. Despite the belief of First Federal and the Holding Company as to the
benefits to shareholders of these provisions of the Holding Company's
certificate of incorporation and bylaws, these provisions may also have the
effect of discouraging a future takeover attempt which would not be approved by
the Holding Company's Board, but pursuant to which shareholders may receive a
substantial premium for their shares over then current market prices. As a
result, shareholders who might desire to participate in such a transaction may
not have any opportunity to do so. Such provisions will also render the removal
of the Holding Company's Board of Directors and management more difficult. The
Board of Directors, however, has concluded that the potential benefits outweigh
the possible disadvantages.
Pursuant to applicable law, at any annual or special meeting of its
shareholders, the Holding Company may adopt additional charter provisions
regarding the acquisition of its equity securities that would be permitted to a
Delaware corporation. The Holding Company and First Federal do not presently
intend to propose the adoption of further restrictions on the acquisition of the
Holding Company's equity securities.
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OTHER RESTRICTIONS ON ACQUISITIONS OF STOCK
Delaware Anti-Takeover Statute. The State of Delaware has enacted
legislation which provides that subject to certain exceptions a publicly held
Delaware corporation may not engage in any business combination with an
"interested shareholder" for three years after such shareholder became an
interested shareholder, unless, among other things, the interested shareholder
acquired at least 85% of the corporation's voting stock in the transaction that
resulted in the shareholder becoming an interested shareholder. This legislation
generally defines "interested shareholder" as any person or entity that owns 15%
or more of the corporation's voting stock. The term "business combination" is
defined broadly to cover a wide range of corporate transactions, including
mergers, sales of assets, issuances of stock, transactions with subsidiaries and
the receipt of disproportionate financial benefits. Under certain circumstances,
either the board of directors or both the board and two-thirds of the
shareholders other than the acquiror may approve a given business combination
and thereby exempt the corporation from the operation of the statute.
However, these statutory provisions do not apply, among other
situations, to Delaware corporations with fewer than 2,000 shareholders or which
do not have voting stock listed on a national exchange or listed for quotation
with a registered national securities association. While the Holding Company has
applied to have its shares quoted on the Nasdaq System, no prediction can be
made as to whether the Holding Company will have 2,000 shareholders.
Federal Regulation. Federal law provides that no company, "directly or
indirectly or acting in concert with one or more persons, or through one or more
subsidiaries, or through one or more transactions," may acquire "control" of a
savings association at any time without the prior approval of the OTS. In
addition, federal regulations require that, prior to obtaining control of a
savings association, a person, other than a company, must give 60 days' prior
notice to the OTS and have received no OTS objection to such acquisition of
control. Any company that acquires such control becomes a "savings and loan
holding company" subject to registration, examination and regulation as a
savings and loan holding company. Under federal law (as well as the regulations
referred to below) the term "savings association" includes state and federally
chartered SAIF- insured institutions and federally chartered savings
institutions whose accounts are insured by the FDIC's BIF, and holding companies
thereof.
Control, as defined under federal law, means ownership of, control of
or holding irrevocable proxies representing more than 25% of any class of voting
stock, control in any manner of the election of a majority of the savings
association's directors, or a determination by the OTS that the acquiror has the
power to direct, or directly or indirectly to exercise a controlling influence
over, the management or policies of the institution. Acquisition of more than
10% of any class of a savings association's voting stock, if the acquiror also
is subject to any one of eight "control factors," constitutes a rebuttable
determination of control under the regulations. Such control factors include the
acquiror being one of the two largest shareholders. The determination of control
may be rebutted by submission to the OTS, prior to the acquisition of stock or
the occurrence of any other circumstances giving rise to such determination, of
a statement setting forth facts and circumstances which would support a finding
that no control relationship will exist and containing certain undertakings. The
regulations provide that persons or companies which acquire beneficial ownership
exceeding 10% or more of any class of a savings association's stock must file
with the OTS a certification form that the holder is not in control of such
institution, is not subject to a rebuttable determination of control and will
take no action which would result in a determination or rebuttable determination
of control without prior notice to or approval of the OTS, as applicable.
Therefore, a warrant holder who, upon exchange of warrants would acquire
ownership of more than 10% of the issued and outstanding of the Holding
Company's Common Stock, must obtain OTS's approval prior to exercise.
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DESCRIPTION OF CAPITAL STOCK
HOLDING COMPANY CAPITAL STOCK
The 4,000,000 shares of capital stock authorized by the Holding Company
certificate of incorporation are divided into two classes, consisting of
3,000,000 shares of Holding Company Common Stock (par value $.01 per share) and
1,000,000 shares of serial preferred stock (par value $.01 per share). The
Holding Company currently expects to issue between 150,000 shares and 200,000
shares of Holding Company Common Stock in the Offering and an additional 150,000
shares in exchange for First Federal Common Stock as part of the Merger and no
shares of serial preferred stock. The aggregate par value of the issued shares
will constitute the capital account of the Holding Company on a consolidated
basis. Upon issuance, the shares will not be subject to further sale or
assessment. The balance of the purchase price of Holding Company Common Stock,
less expenses of the Offering, will be reflected as paid-in capital on a
consolidated basis. See "Capitalization."
Each share of the Holding Company Common Stock will have the same
relative rights and will be identical in all respects with each other share of
the Holding Company Common Stock. THE HOLDING COMPANY COMMON STOCK WILL
REPRESENT NON-WITHDRAWABLE CAPITAL, WILL NOT BE OF AN INSURABLE TYPE AND WILL
NOT BE INSURED OR GUARANTEED BY THE FDIC.
Under Delaware law, the holders of the Holding Company Common Stock
will possess exclusive voting power in the Holding Company. Each shareholder
will be entitled to one vote for each share held on all matters voted upon by
shareholders, subject to the limitation discussed under "Restrictions on
Acquisitions of Stock and Related Takeover Defensive Provisions - Provisions of
the Holding Company's Certificate of Incorporation and Bylaws - Limitation on
Voting Rights." If the Holding Company issues preferred stock subsequent to the
Conversion, holders of the preferred stock may also possess voting rights.
Liquidation or Dissolution. In the unlikely event of the liquidation or
dissolution of the Holding Company and First Federal, the holders of the Holding
Company Common Stock will be entitled to receive -- after payment or provision
for payment of all debts and liabilities of the Holding Company (including all
deposits in First Federal and accrued interest thereon) and after distribution
of the Liquidation Account previously established upon the conversion of First
Federal from the mutual to stock form in 1993 -- all assets of the Holding
Company available for distribution, in cash or in kind. If preferred stock is
issued subsequent to the Offering, the holders thereof may have a priority over
the holders of Holding Company Common Stock in the event of liquidation or
dissolution.
Preemptive Rights. Holders of Holding Company Common Stock will be
entitled to preemptive rights with respect to any shares which may be issued.
The Holding Company Common Stock will not be subject to call for redemption,
and, upon receipt by the Holding Company of the Purchase Price therefor, each
share of the Holding Company Common Stock will be fully paid and nonassessable.
Preferred Stock. After the Merger, the Board of Directors of the
Holding Company will be authorized to issue preferred stock in series and to fix
and state the voting powers, designations, preferences and relative,
participating, optional or other special rights of the shares of each such
series and the qualifications, limitations and restrictions thereof. Preferred
stock may rank prior to the Holding Company Common Stock as to dividend rights,
liquidation preferences, or both, and may have full or limited voting rights.
The holders of preferred stock will be entitled to vote as a separate class or
series under certain circumstances, regardless of any other voting rights which
such holders may have.
Except as discussed above, the Holding Company has no present plans for
the issuance of the additional authorized shares of Holding Company Common Stock
or for the issuance of any shares of preferred stock. In the future, the
authorized but unissued and unreserved shares of Holding Company Common Stock
will be available for general corporate purposes including but not limited to
possible issuance as stock dividends or stock splits, in future mergers or
acquisitions, under a cash dividend reinvestment and stock purchase plan, in a
future underwritten or other public offering, or under an employee stock
ownership plan. The authorized but
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unissued shares of preferred stock will similarly be available for issuance in
future mergers or acquisitions, in a future underwritten public offering or
private placement or for other general corporate purposes. Except as described
above or as otherwise required to approve the transaction in which the
additional authorized shares of Holding Company Common Stock or authorized
shares of preferred stock would be issued, no shareholder approval will be
required for the issuance of these shares. Accordingly, the Board of Directors
of the Holding Company, without shareholder approval, can issue preferred stock
with voting and conversion rights which could adversely affect the voting power
of the holders of Holding Company Common Stock.
Restrictions on Acquisitions. See "Restrictions on Acquisitions of
Stock and Related Takeover Defensive Provisions" for a description of certain
provisions of the Holding Company's certificate of incorporation and bylaws
which may affect the ability of the Holding Company's shareholders to
participate in certain transactions relating to acquisitions of control of the
Holding Company.
Dividends. Upon consummation of the purchase of all of First Federal's
outstanding First Federal Common Stock, the Holding Company's only assets will
be First Federal common stock, and a portion of the proceeds from the Offering.
Dividends from First Federal will be an important source of income for the
Holding Company. Should First Federal elect or be required by its regulators to
retain its income, the ability of the Holding Company to pay dividends to its
own shareholders may be adversely affected. Furthermore, if at any time in the
future the Holding Company owns less than 80% of the outstanding stock of First
Federal, certain tax benefits under the Code as to inter-company distributions
will not be fully available to the Holding Company and it will be required to
pay federal income tax on a portion of the dividends received from First
Federal, thereby reducing the amount of income available for distribution to the
shareholders of the Holding Company. For further information concerning the
ability of First Federal to pay dividends to the Holding Company, see "Dividend
Policy," "Regulation - Regulatory Capital Requirements" and " -- Limitation on
Dividends and Other Capital Distributions."
DESCRIPTION OF THE DEBENTURES
The Debentures are to be issued pursuant to an Indenture, dated as of
________, 1997 (the "Indenture"), between the Holding Company and
_____________________________, as Trustee (the "Trustee").
The following is a summary of the material terms of the Debentures and
the Indenture. This summary is qualified in its entirety by reference to all of
the provisions of the Indenture, including the definitions therein of certain
terms. The following summary does not purport to be complete and should be read
in conjunction with the Indenture. Wherever particular sections or defined terms
of the Indenture are referred to, such sections or defined terms are
incorporated herein by reference, and the statements made herein are qualified
in their entirety by such reference. Capitalized terms not otherwise defined in
this section of the Prospectus shall have the meanings ascribed to them in the
Indenture. In this regard, the term "Holding Company" in this section of the
Prospectus refers to The Bryan - College Station Financial Holding Company on an
unconsolidated basis. The form of Indenture and the Debentures have been filed
with the Commission as an exhibit to the Registration Statement of which this
Prospectus is a part. Copies of the Indenture may be obtained from the
Underwriters.
GENERAL
The Debentures will be unsecured subordinated obligations of the
Holding Company, will be limited to an aggregate principal amount of $__________
and will mature on __________, 2002. The Debentures will bear interest at the
rate per annum shown on the front cover of this Prospectus from __________, 1997
or from the most recent Interest Payment Date to which interest has been paid or
provided for, payable quarterly on the 15th calendar day of July, October,
January and April of each year (or the next succeeding business day if the 15th
calendar day is not a business day), commencing July 15, 1997, to the Person in
whose name the Debenture (or any predecessor Debenture) is registered at the
close of business on the Regular Record Date for such interest, which shall be
______ or ___________ (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date.
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Principal of and premium, if any, and interest on the Debentures will
be payable at the office or agency of the Holding Company in Bryan, Texas, and
the transfer of Debentures will be registrable at the offices of the Trustee in
_______, ________. In addition, payment of interest may, at the option of the
Holding Company, be made by check mailed to the address of the Person entitled
thereto as it appears in the Security Register.
The Debentures will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple thereof. No
service charge will be made for any registration of transfer or exchange of
Debentures, but the Holding Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Because the Holding Company is a holding company, its rights and the
rights of its creditors, including the Holders of the Debentures, to participate
in the assets or earnings of any Subsidiary through the payment of dividends or
otherwise will be subject to the prior claims of the Subsidiary's creditors,
except to the extent that the Holding Company may itself be a creditor with
recognized claims against the Subsidiary.
SUBORDINATION
The payment of the principal and premium, if any, and interest on, the
Debentures will, to the extent set forth in the Indenture, be subordinated in
right of payment to the prior payment in full of all Senior Indebtedness (as
defined). In certain events of insolvency, the payment of the principal of and
interest on the Debentures will, to the extent set forth in the Indenture, also
be effectively subordinated in right of payment to the prior payment in full of
all General Obligations (as defined). Upon any payment or distribution of assets
to creditors upon any liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors, marshalling of assets or any
bankruptcy, insolvency or similar proceedings of the Holding Company, the
holders of all Senior Indebtedness will first be entitled to receive payment in
full of all amounts due thereon before the Holders of the Debentures will be
entitled to receive any payment in respect of the principal of or premium, if
any, or interest on, the Debentures. If, upon any such payment or distribution
of assets to creditors, there remains, after giving effect to such subordination
provisions in favor of the holders of Senior Indebtedness, any amount of cash,
property or securities available for payment or distribution in respect of
Debentures (as defined in the Indenture, "Excess Proceeds") and if, at such
time, any creditors in respect of General Obligations have not received payment
in full of all amounts due or to become due on or in respect of such General
Obligations, then such Excess Proceeds shall first be applied to pay or provide
for the payment in full of such General Obligations before any payment or
distribution may be made in respect of the Debentures. In the event of the
acceleration of the maturity of any Debentures, the holders of all Senior
Indebtedness will first be entitled to receive payment in full of all amounts
due or to become due thereon before the Holders of Debentures will be entitled
to receive any payment upon the principal of or premium, if any, or interest on,
the Debentures. No payments on account of principal, premium, if any, or
interest, in respect of the Debentures may be made if there shall have occurred
and be continuing a default in any payment with respect to Senior Indebtedness
or an event of default with respect to any Senior Indebtedness permitting the
holders thereof to accelerate the maturity thereof.
By reason of such subordination, in the event of insolvency, creditors
of the Holding Company who are not holders of Senior Indebtedness or of the
Debentures may recover less, ratably, than holders of Senior Indebtedness and
may recover more, ratably, than the Holders of Debentures.
"Senior Indebtedness" is defined to mean the principal of (and premium,
if any) and interest on the following, whether outstanding at the date of
execution of the Indenture or thereafter incurred, assumed or created: (a)
indebtedness of the Holding Company for money borrowed or purchased, similar
obligations arising from off-balance- sheet guarantees and direct credit
substitutes, and obligations associated with derivative products such as
interest and foreign exchange rate contracts, commodity contracts, and similar
arrangements, and (b) any deferrals, renewals, extensions and refundings of any
such Senior Indebtedness; other than (i) any indebtedness or obligation as to
which, in the instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is expressly provided that such obligation (A) is
not Senior Indebtedness with respect
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to the Debentures or (B) ranks pari passu with the Debentures and (ii)
indebtedness evidenced by the Debentures.
"General Obligations" means all obligations of the Holding Company to
make payment on account of claims of general creditors, other than (A)
obligations on account of Senior Indebtedness and (B) obligations on account of
the Debentures and indebtedness for money borrowed ranking pari passu with or
subordinate to the Debentures. "Claim" shall have the meaning assigned thereto
in Section 101(5) of the Bankruptcy Code of 1978, as amended to the date of the
Indenture. The term "indebtedness for money borrowed" when used with respect to
the Holding Company is defined to mean any obligation of, or any obligation
guaranteed by, the Holding Company for the repayment of borrowed money, whether
or not evidenced by bonds, debentures, notes or other written instruments.
As of September 30, 1996, the Holding Company had no Senior
Indebtedness and no General Obligations outstanding. The Holding Company may
from time to time incur additional indebtedness constituting Senior
Indebtedness. The Indenture does not prohibit or limit the incurrence of
additional Senior Indebtedness and General Obligations.
The subordination provisions of the Indenture described herein are
intended for the benefit of holders of Senior Indebtedness and are not intended
for the benefit of creditors in respect of General Obligations. The Holding
Company and the Trustee may amend the Indenture to reduce or eliminate the
rights of creditors in respect of General Obligations without the consent of
such creditors or the Holders of Debentures.
LIMITATIONS ON DIVIDENDS, REDEMPTIONS, ETC.
The Indenture provides that the Holding Company will not (i) declare or
pay any dividend or make any other distribution on any Junior Securities, except
dividends or distributions payable in Junior Securities, or (ii) purchase,
redeem or otherwise acquire or retire for value any Junior Securities, except
Junior Securities acquired upon conversion thereof into other Junior Securities,
or (iii) permit a Subsidiary to purchase, redeem or otherwise acquire or retire
for value any Junior Securities if, at the time such dividend, distribution,
purchase, redemption or other acquisition is effected, a default in the payment
of any interest upon any Debenture when it becomes due and payable or a default
in the payment of the principal of (or premium, if any, on) any Debenture at its
Maturity shall have occurred and be continuing.
The term "Junior Securities" means (i) shares of Holding Company Common
Stock, (iii) any other non- debt securities of the Holding Company (whether or
not such other securities are convertible into Junior Securities), or (iv) debt
securities of the Holding Company (other than the Debentures) as to which, in
the instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such debt securities are not Senior
Indebtedness with respect to, or do not rank pari passu with, the Debentures.
EVENTS OF DEFAULT
The Indenture defines an Event of Default with respect to the
Debentures as any one of the following events: (i) certain events of bankruptcy
of the Holding Company or receivership of any Major Depository Institution
Subsidiary (as defined in the Indenture); (ii) default for 30 days in payment of
interest on any Debenture; (iii) default in payment of principal of (or premium,
if any, on) any Debenture when the same shall become due and payable, whether at
Stated Maturity, by acceleration or otherwise; (iv) failure by the Holding
Company for 60 days after due notice to remedy a default in performance or the
breach of any material representation, covenant or warranty in the Indenture; or
(v)(A) failure by the Holding Company or any Subsidiary to pay indebtedness for
money borrowed in an aggregate principal amount exceeding $1.0 million when due
or upon the expiration of any applicable period of grace with respect to such
principal amount; or (B) acceleration of the maturity of any indebtedness of the
Holding Company or any Subsidiary for borrowed money in excess of $1.0 million
if such failure to pay or acceleration results from a default under the
instrument giving rise to, or securing, such indebtedness and is not annulled
within 10 days after due notice has been given, unless the validity of such
default is contested by the Holding Company in good faith by appropriate
proceedings.
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First Federal Savings Bank will currently be upon consummation of the Merger the
only Major Depository Institution Subsidiary of the Holding Company. If any
Event of Default occurs and is continuing, either the Trustee or the Holders of
not less than 25% in principal amount of the outstanding Debentures may declare
the principal amount of all Debentures to be due and payable immediately, but
upon certain conditions such declaration may be rescinded and annulled and past
defaults may be waived by the Holders of a majority in principal amount of the
Outstanding Debentures on behalf of the Holders of all Debentures. In case an
Event of Default shall occur and be continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee deems most
effectual. The Indenture does not contain any provisions that would provide
protection to Holders of the Debentures against a sudden and significant decline
in credit quality of the Holding Company, resulting from any takeover,
recapitalization or similar restructuring of the Holding Company.
The Indenture provides that the Trustee will give to the Holders of the
Outstanding Debentures notice of any default known to it if uncured or not
waived; provided, however, that such notice shall not be given until at least 30
days after the occurrence of a default with respect to the Outstanding
Debentures. The term "default", with respect to the Outstanding Debentures for
the purpose only of this provision, means the happening of any event which is,
or after notice or lapse of time or both would become, an Event of Default.
The Indenture provides that, subject to the duty of the Trustee during
default to act with the required standard of care, the Trustee will not be under
an obligation to exercise any of its rights or powers under the Indenture at the
request or direction of any of the Holders, unless such Holders shall have
offered to the Trustee reasonable security or indemnity. The Indenture provides
that the Holders of a majority in principal amount of the Outstanding Debentures
may direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or other power
conferred on the Trustee, provided that the Trustee may decline to act if such
direction is contrary to law or the Indenture and may take other action deemed
proper that is not inconsistent with such direction.
The Indenture includes a covenant that the Holding Company will file
annually with the Trustee a certificate of no default, or specifying any default
that exists.
CONSOLIDATION, MERGER AND SALES OF ASSETS
The Holding Company, without the consent of the Holders of any of the
Debentures under the Indenture, may consolidate with or merge into any other
Person or convey, transfer or lease its properties and assets substantially as
an entirety to any Person, provided that: (i) the successor is a Person
organized and validly existing under the laws of any domestic jurisdiction; (ii)
the successor Person, if other than the Holding Company, assumes the Holding
Company's obligations with respect to the Debentures and under the Indenture,
(iii) after giving effect to the transaction, no default, and no event which,
after notice or lapse of time or both would become a default, shall have
occurred and be continuing; and (iv) certain other conditions are met.
LIMITATION ON SUITS
No Holder of any Debenture shall have the right to institute any
proceeding, judicial or otherwise, with respect to the Indenture, or for the
appointment of a receiver or trustee, or for any other remedy under the
Indenture, unless: (i) such Holder has previously given written notice to the
Trustee of a continuing default; (ii) the Holders of not less than 25% in
principal amount of the Outstanding Debentures shall have made written request
to the Trustee to institute proceedings in respect of such Default; (iii) such
Holder(s) shall have offered to the Trustee reasonable indemnity against the
costs, expenses and liabilities to be incurred in compliance with such request;
(iv) the Trustee for 60 days after its receipt of such notice, request and offer
of indemnity has failed to institute any such proceeding; and (v) no direction
inconsistent with such written request has been given to the Trustee during such
60-day period by the Holders of a majority in principal amount of the
Outstanding Debentures.
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MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the
Holding Company and the Trustee with the consent of the Holders of not less than
66-2/3% in principal amount of the Outstanding Debentures; provided, however,
that no such modification or amendment may, without the consent of the Holding
Company and the Holder of each Outstanding Debenture affected thereby, (i)
change the Stated Maturity of the principal of, or any installment of interest
on, any Debenture, (ii) reduce the principal amount of, or the premium or
interest on, any Debenture, (iii) change the place or currency of payment of
principal of, or premium or rate of interest on, any Debenture, (iv) impair the
right to institute suit for the enforcement of any payment on or with respect to
any Debenture, (v) adversely affect the right to convert Debentures, (vi) modify
the subordination provisions in a manner adverse to the Holders of the
Debentures, (vii) reduce the above-stated percentage of Outstanding Debentures
necessary to modify or amend the Indenture or (viii) reduce the percentage of
aggregate principal amount of Outstanding Debentures necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Debentures may on behalf of the Holders of all of the Debentures
waive any past default under the Indenture, except a default in the payment of
principal of (or premium, if any) or interest on any Debenture.
DESCRIPTION OF WARRANTS
Each Unit issued in this Offering will contain nine Warrants, each of
which will entitle the holder thereof to purchase one share of the Holding
Company's Common Stock at an exercise price of $12.50 at any time prior to 5:00
p.m., Eastern Time on _______, 2002. The number of shares purchasable upon
exercise of the Units and the exercise price shall be subject to adjustment to
reflect among other things, stock dividends on or stock splits of the Holding
Company Common Stock or reclassification of its shares of Holding Company Common
Stock. In such situation, the number of shares purchasable upon exercise will be
adjusted so that the Warrant holder shall be entitled to receive the kind and
number of shares which the holder thereof would have owned or been entitled to
receive after the occurrence of any of such events if the Units had been
exercised prior thereto. The exercise price will be adjusted accordingly. It is
not anticipated that the Units will be traded publicly, and therefore investors
may experience substantial difficulty liquidating their investment in the Units.
If a market should develop for the Units, the market price may be greater or
less than the portion of each Unit's price which is attributable to the Warrants
offered hereby. The Warrants have no value other than as the right to acquire
Holding Company Common Stock at the exercise price. The Warrants do not confer
upon the holders thereof any of the rights or privileges of a stockholder.
Accordingly, the Warrants do not entitle holders thereof to receive any
dividends, to vote, to call meetings or to receive any distribution upon a
liquidation of the Company. The Holding Company has authorized and reserved for
issuance a number of shares of Holding Company Common Stock sufficient to
provide for the exercise of the rights represented by the Warrants. Shares
issued upon exercise of the Warrants will be fully paid and nonassessable.
Warrants not exercised prior to 5:00 p.m., Central Time, on ___________, 2002
shall become null and void.
The Warrants may be exercised during the exercise period stated above
by delivery of the Warrant Certificate, with the subscription form on the
reverse side of the Warrant Certificate fully executed, to the Holding Company
with a check payable to the Holding Company in an amount equal to the Warrant
exercise price multiplied by the number of shares of Holding Company Common
Stock being purchased. The Holding Company or its transfer agent will issue a
new Warrant Certificate representing the unexercised but not expired Warrants.
The Warrants will be detachable and may trade separately from the Debentures.
A complete statement of the terms and conditions pertaining to the
Warrants is contained in the Warrant Certificate, copies of which can be
obtained from the Holding Company. The description contained in this Prospectus
is qualified in its entirety by the text of the Warrant Certificate.
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FEDERAL INCOME TAX CONSIDERATIONS
INTEREST
Interest paid on the Debentures will be taxable as ordinary income.
REDEMPTION
Upon a redemption of the Debentures, an original holder will recognize
gain or loss equal to the difference between the amount of cash received (other
than cash received on account of accrued interest) and the holder's tax basis in
the Debentures received. Such gain or loss will be capital gain or loss,
provided that the Debentures were held as capital assets, and will be long-term
gain or loss if the Debentures were held for more than one year.
SALE OR EXCHANGE
The sale or exchange of Debentures or Holding Company Common Stock to
or with a person other than the Holding Company will result in the recognition
of gain or loss equal to the difference between the consideration received
(i.e., cash plus the fair market value of other property) and the holder's tax
basis in such Debentures or Holding Company Common Stock. Such gain or loss will
be capital gain or loss, if the Debentures were held as capital assets, and will
be long-term if the holding period for such Debentures or Holding Company Common
Stock exceeds one year.
BACKUP WITHHOLDING
Holders of Debentures may be subject to backup withholding on interest
and on the proceeds of any redemption or other disposition of Debentures.
Generally, backup withholding applies only when the taxpayer fails to furnish or
certify a proper taxpayer identification number or when the taxpayer is notified
by the Internal Revenue Service that the taxpayer has failed to report payments
of interest or dividends properly. Holders should consult their own tax advisors
regarding their qualification for exemption from backup withholding and the
procedure for obtaining any applicable exemption.
LEGAL MATTERS
The legality of the Holding Company Common Stock and Debentures will be
passed upon for the Holding Company by Silver, Freedman & Taff, LLP (a
partnership including professional corporations), 1100 New York Avenue, N.W.,
Washington, D.C., special counsel to First Federal. Silver, Freedman & Taff, LLP
has consented to the reference herein to its opinion. Certain legal matters will
be passed upon for Hoefer & Arnett by Bracewell & Patterson, LLP, Houston,
Texas.
EXPERTS
The Consolidated Financial Statements of First Federal Savings Bank of
Bryan and its subsidiary as of September 30, 1994, 1995 and 1996 and for each of
the years in the three year period ended September 30, 1996 included in this
Prospectus/Proxy Statement have been audited by Crowe, Chizek and Company LLP,
independent certified public accountants. Such Consolidated Financial Statements
have been included herein in reliance upon the report of Crowe, Chizek and
Company LLP, appearing elsewhere herein, and upon the au thority of such firm as
experts in accounting and auditing.
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FIRST FEDERAL SAVINGS BANK
Index to Consolidated Financial Statements
Page
----
Report of Independent Auditors................................ F-2
Consolidated Statements of Financial Condition
September 30, 1994 and 1995...................................... F-4
Consolidated Statements of Income
Years ended September 30, 1994, 1995 and 1996.................... F-5
Consolidated Statements of Stockholders' Equity
Years ended September 30, 1994, 1995 and 1996..................... F-5
Consolidated Statements of Cash Flows
Years ended September 30, 1994, 1995 and 1996..................... F-6
Notes to Consolidated Financial Statements
Years Ended September 30, 1994, 1995 and 1996..................... F-8
All schedules are omitted because the required information is not
applicable or is included in the Consolidated Financial Statements and related
Notes.
FINANCIAL STATEMENTS OF THE HOLDING COMPANY HAVE NOT BEEN PROVIDED
BECAUSE THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY HAS NOT CONDUCTED
ANY OPERATIONS TO DATE AND HAS NOT BEEN CAPITALIZED.
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REPORT OF INDEPENDENT AUDITORS
The Board of Directors
First Federal Savings Bank
Bryan, Texas
We have audited the accompanying consolidated statements of financial condition
of First Federal Savings Bank and its wholly-owned subsidiary, First Service
Corporation of Bryan, as of September 30, 1996 and 1995 and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended September 30, 1996. These financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First Federal
Savings Bank and its wholly-owned subsidiary, First Service Corporation of
Bryan, as of September 30, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended September 30,
1996 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Bank
changed its method of accounting for securities for the year ended September 30,
1995.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Oak Brook, Illinois
November 9, 1996
F-1
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CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 1996 and 1995
In thousands, except share data
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,661 $ 1,275
Interest-bearing deposits in other financial institutions 1,145 5,666
----------- -----------
Total cash and cash equivalents 2,806 6,941
Securities held-to-maturity (fair value:
1996 - $1,000; 1995 - $988) (Note 2) 1,000 1,000
Mortgage-backed securities held-to-maturity (fair value:
1996 - $1,261; 1995 - $2,247) (Note 2) 1,292 2,278
Loans held for sale, net of unrealized loss of $14 in 1996
and 1995 419 1,840
Loans receivable, net (Note 3) 49,160 46,765
Federal Home Loan Bank stock 845 796
Foreclosed real estate (Note 5) 577 130
Premises and equipment (Note 6) 924 1,034
Accrued interest receivable 329 377
Other assets 245 271
----------- -----------
$ 57,597 $ 61,432
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits (Note 7) $ 51,677 $ 54,939
Advance payments by borrowers for insurance and taxes 783 910
Advance from Federal Home Loan Bank (Note 8) - 1,088
Deferred income taxes (Note 12) 86 146
Accrued interest payable and other liabilities 735 179
----------- -----------
53,281 57,262
Commitments and contingent liabilities (Note 11)
Stockholders' equity (Note 10)
Preferred stock - par value $.01 per share (liquidation preference of
$873,000); authorized 200,000 shares,
issued 87,263 shares 1 1
Common stock - par value $.01 per share; authorized
433,000 shares, issued 239,612 and 228,282 shares at
September 30, 1996 and 1995, respectively 2 2
Additional paid-in capital 2,743 2,630
Retained earnings, substantially restricted 1,570 1,537
----------- -----------
4,316 4,170
----------- -----------
$ 57,597 $ 61,432
=========== ===========
</TABLE>
F-2
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Years ended September 30, 1996, 1995, and 1994
In thousands, except per share data
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest income
Loans $ 4,407 $ 4,187 $ 3,619
Securities 46 42 33
Mortgage-backed securities 99 162 205
Other 276 307 163
----------- ----------- -----------
Total interest income 4,828 4,698 4,020
Interest expense
Deposits 2,358 2,146 1,701
Other borrowings 5 148 57
----------- ----------- -----------
Total interest expense 2,363 2,294 1,758
----------- ----------- -----------
NET INTEREST INCOME 2,465 2,404 2,262
Provision for loan losses (Note 3) (52) 27 (401)
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,517 2,377 2,663
Noninterest income
Service charges 527 355 202
Gain on sale of loans (Note 4) 125 109 501
Gain on sale of mortgage servicing rights (Note 4) 205 104 407
Gain on sale of mortgage-backed securities (Note 2) 13 - -
Operation of foreclosed real estate (9) (2) -
Other 12 26 14
----------- ----------- -----------
Total noninterest income 873 592 1,124
Noninterest expense
Compensation and benefits 1,337 1,284 1,569
Occupancy and equipment expense 335 298 282
SAIF special assessment 333 - -
Federal insurance premiums 125 116 134
Net loss on real estate owned, including
provision for losses 8 12 19
Loan expense 33 61 120
Office supplies 73 85 100
Professional fees 179 167 196
Advertising 57 55 73
Data processing 148 111 132
Telephone 57 57 45
Other 363 402 426
----------- ----------- -----------
Total noninterest expense 3,048 2,648 3,096
----------- ----------- -----------
</TABLE>
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Years ended September 30, 1996, 1995, and 1994
In thousands, except per share data
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
INCOME BEFORE INCOME TAX EXPENSE $ 342 $ 321 $ 691
Income tax expense (Note 12) 108 110 234
----------- ----------- -----------
NET INCOME $ 234 $ 211 $ 457
=========== =========== ===========
Earnings per common share (Note 1) $ .61 $ .52 $ 1.54
</TABLE>
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended September 30, 1996, 1995, and 1994
In thousands, except per share data
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Additional
Preferred Common Paid-In Retained
Stock Stock Capital Earnings Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at
September 30, 1993 $ 1 $ 2 $ 2,419 $ 1,255 $ 3,677
Issuance of 10,321
common shares as
5% stock dividend - - 103 (103) -
Net income - - - 457 457
Dividends
($1.00 per
preferred share) - - - (87) (87)
----------- ----------- ----------- ----------- -----------
Balance at
September 30, 1994 1 2 2,522 1,522 4,047
Issuance of 10,802
common shares as
5% stock dividend - - 108 (108) -
Net income - - - 211 211
Dividends ($1.00 per
preferred share) - - - (88) (88)
----------- ----------- ----------- ----------- -----------
Balance at
September 30, 1995 1 2 2,630 1,537 4,170
Issuance of 11,330
common shares as
5% stock dividend - - 113 (113) -
Net income - - - 234 234
Dividends ($1.00 per
preferred share) - - - (88) (88)
----------- ----------- ----------- ----------- -----------
Balance at
September 30, 1996 $ 1 $ 2 $ 2,743 $ 1,570 $ 4,316
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended September 30, 1996, 1995, and 1994
In thousands
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 234 $ 211 $ 457
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 167 154 118
Amortization of premiums and discounts
on mortgage-backed securities, net 5 2 -
Proceeds from sale of mortgage loans 13,839 81,838 86,336
Origination of loans held for sale (12,293) (81,423) (81,441)
Market value adjustment of loans held-for-sale - (32) 46
Change in deferred loan origination fees (41) (62) (32)
Change in deferred income taxes (60) 38 155
Change in deferred gain on real estate owned - (10) -
Net (gains) losses on sales of
Real estate owned 1 9 7
Mortgage-backed securities (13) - -
Mortgage loans (125) (109) (501)
Mortgage servicing rights (205) (104) (407)
Provision for losses on loans and real
estate owned (45) 30 (389)
Federal Home Loan Bank stock dividend (49) (48) (31)
Change in
Accrued interest receivable 48 (71) (23)
Other assets 26 397 (434)
Accrued interest payable and other
liabilities 556 (26) (121)
------------ ------------ ------------
Net cash provided by operating
activities 2,045 794 3,740
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans receivable (2,677) (5,690) (6,134)
Principal payments on mortgage-backed
securities 418 413 1,748
Proceeds from sale of mortgage-backed securities 576 - -
Proceeds from sale of mortgage servicing rights 205 104 407
Capital expenditures on premises and
equipment, net (57) (231) (589)
Capital expenditures on foreclosed real estate (83) (32) -
Proceeds from sale of real estate owned 3 3 90
------------ ------------ ------------
Net cash used in investing activities (1,615) (5,433) (4,478)
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended September 30, 1996, 1995, and 1994
In thousands
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ (3,262) $ 4,093 $ 3,534
Net increase (decrease) in advance payments
by borrowers for insurance (127) 49 127
Proceeds from other borrowings - 1,088 -
Repayment of other borrowings (1,088) - (500)
Dividends paid on preferred stock (88) (110) (65)
------------ ------------ ------------
Net cash provided by (used in) financing
activities (4,565) 5,120 3,096
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents (4,135) 481 2,358
Cash and cash equivalents at beginning of year 6,941 6,460 4,102
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,806 $ 6,941 $ 6,460
============ ============ ============
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 2,369 $ 2,288 $ 1,755
Income taxes paid (received) 139 (98) 232
Supplemental disclosure of noncash investing
activities
Net transfer between loans and real estate
acquired through foreclosure (375) (17) (8)
Cash dividends declared, not paid - - 22
Transfer of investment and mortgage-backed
securities to held-to-maturity upon adoption
of SFAS No. 115 - 3,693 -
Transfer of securities to available-for-sale at
fair value 563 - -
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accompanying consolidated financial statements
include the accounts of First Federal Savings Bank and its wholly-owned
subsidiary, First Service Corporation of Bryan. All significant intercompany
balances and transactions have been eliminated.
Business: First Federal Savings Bank (the Bank) is a federally chartered savings
bank and member of the Federal Home Loan Bank (FHLB) system which maintains
insurance on deposit accounts with the Savings Association Insurance Fund (SAIF)
of the Federal Deposit Insurance Corporation.
Operations: The Bank makes residential, commercial real estate and consumer
loans primarily in Brazos County of Texas. Substantially all loans are secured
by specific items of collateral, including real estate, residences, and consumer
assets.
Use of Estimates in the Preparation of Financial Statements: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
Securities: Effective October 1, 1994, the Bank adopted the provisions of
Statement of Financial Accounting Standards No. 115 (SFAS No. 115), "Accounting
for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires
corporations to classify debt securities as held-to-maturity, trading, or
available-for-sale. Securities are classified as held-to-maturity when
management has the intent and the Bank has the ability to hold those securities
to maturity. Premiums and discounts are recognized in interest income using
methods that approximate the level-yield method. Management classified all of
the Bank's investments and mortgage-backed securities as held-to-maturity,
therefore, the adoption of this statement did not have an effect on the
financial position or operations of the Bank.
Loans Receivable: Loans receivable are stated at unpaid principal balances, less
the allowance for loan losses, and deferred loan origination fees and discounts.
Allowance for Loan Losses: Because some loans may not be repaid in full, the
Bank has established an allowance for loan losses. Increases to the allowance
are recorded by a provision for loan losses charged to expense. Estimating the
risk of the loss and the amount of loss on any loan is necessarily subjective.
Accordingly, the allowance is maintained by management at a level considered
adequate to cover possible losses that are currently anticipated based on past
loss experience, general economic conditions, information about specific
borrower situations including their financial position and collateral values,
and other factors and estimates which
F-8
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
are subject to change over time. While management may periodically allocate
portions of the allowance for specific problem loan situations, the whole
allowance is available for any loan charge-offs that occur. A loan is
charged-off against the allowance by management as a loss when deemed
uncollectible, although collection efforts continue and future recoveries may
occur.
In May 1993, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 114 (SFAS No. 114), "Accounting by Creditors
for Impairment of a Loan". SFAS No. 114 (as modified by No. 118), effective for
the Bank beginning October 1, 1995, requires the measurement of impaired loans,
based on the present value of expected cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's observable
market price or the fair value of collateral if the loan is collateral
dependent. Under this standard, loans considered to be impaired are reduced to
the present value of expected future cash flows or to the fair value of
collateral, by allocating a portion of the allowance for loan losses to such
loans. If these allocations cause the allowance for loan losses to be increased,
such increase is reported as a provision for loan losses. The effect of adopting
SFAS No. 114 was not material to the Bank's consolidated financial position or
results of operations during 1995.
Smaller balance homogeneous loans are defined as residential first mortgage
loans secured by one-to-four family residences, residential construction loans,
and share loans and are evaluated collectively for impairment. Commercial real
estate loans are evaluated individually for impairment. Normal loan evaluation
procedures, as described in the second preceding paragraph, are used to identify
loans which must be evaluated for impairment. In general, loans classified as
"doubtful" or "loss" are considered impaired while loans classified as
"substandard" are individually evaluated for impairment. Depending on the
relative size of the credit relationship, late or insufficient payments of 30 to
90 days will cause management to reevaluate the credit under its normal loan
evaluation procedures. While the factors which identify a credit for
consideration for measurement of impairment, or nonaccrual, are similar, the
measurement considerations differ. A loan is impaired when the economic value
estimated to be received is less than the value implied in the original credit
agreement. A loan is placed in nonaccrual when payments are more than 90 days
past due unless the loan is adequately collateralized and in the process of
collection. Although impaired loan and nonaccrual loan balances are measured
differently, impaired loan disclosures under SFAS Nos. 114 and 118 are not
expected to differ significantly from nonaccrual and renegotiated loan
disclosures.
Recognition of Income on Loans: Interest on loans is accrued over the term of
the loans based on the principal balance outstanding. Where serious doubt exists
as to the collectibility of a loan, the accrual of interest is discontinued.
F-9
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loan Fees and Costs: The Bank defers loan origination fees, net of certain
direct loan origination costs. The net amount deferred is netted against loans
in the balance sheet and is recognized in interest income as a yield adjustment
over the contractual term of the loan, adjusted for prepayments.
Loan Sales: The Bank sells a portion of its mortgage loan production in the
secondary market. The Bank obtains sales commitments on these loans immediately
prior to making the origination commitment. Loans classified as held for sale
are carried at the lower of cost or market value. Net unrealized losses are
recognized by charges to income.
Premises and Equipment: The Bank's premises and equipment are stated at cost
less accumulated depreciation. The Bank's premises and related furniture and
equipment are depreciated using the straight-line method over their estimated
useful lives. Maintenance and repairs are charged to expense, and improvements
are capitalized.
Foreclosed Real Estate: Real estate acquired through foreclosure and similar
proceedings is carried at the lower of cost (fair value of the asset at the date
of foreclosure) or fair value less estimated costs to sell. Losses on
disposition, including expenses incurred in connection with the disposition, are
charged to operations. Valuation allowances are recognized when the fair value
less selling expenses is less than the cost of the asset. Changes in the
valuation allowance are charged or credited to income.
Statement of Cash Flows: Cash and cash equivalents are defined to include the
Bank's cash on hand, demand balances, interest-bearing deposits with financial
institutions and investments in certificates of deposit with original maturities
of less than three months.
Income Taxes: The Bank records income tax expense based on the amount of taxes
due on its tax return plus deferred taxes computed on the expected future tax
consequences of temporary differences between the carrying amounts and tax bases
of assets and liabilities, using enacted tax rates, in accordance with Statement
of Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income
Taxes".
Earnings Per Common Share: Earnings per share is calculated by dividing the net
earnings (less preferred stock dividend) by the weighted average number of
common shares outstanding and common stock equivalents attributable to
outstanding stock options, when dilutive. The weighted average number of the
Bank's shares of common stock used to calculate the 1996, 1995, and 1994
earnings per share was 239,612, after giving retroactive effect to the stock
dividends.
F-10
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impact of New Accounting Standards: In March 1995, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". SFAS No. 121 requires that the long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or circumstances indicate that the carrying amount of an asset may not be
recoverable. However, SFAS No. 121 does not apply to financial instruments, core
deposit intangibles, mortgage and other servicing rights, or deferred tax
assets. The adoption of SFAS No. 121 had no material effect on the Bank's income
or financial condition.
In May 1995, the FASB issued Statement of Financial Accounting Standards No. 122
(SFAS No. 122), "Accounting for Mortgage Servicing Rights". SFAS No. 122
requires an institution that purchases or originates mortgage loans and sells or
securitizes those loans with servicing rights retained to allocate the total
cost of the mortgage loans to the mortgage servicing rights and the loans
(without the mortgage servicing rights) based on their relative fair values. In
addition, institutions are required to assess impairment of the capitalized
mortgage servicing portfolio based on the fair value of those rights. SFAS No.
122 is effective for fiscal years beginning after December 31, 1995. The
adoption of this statement is not expected to have a material impact on the
Bank's earnings or financial condition. As discussed below, SFAS No. 122 will be
superseded by SFAS No. 125 after December 31, 1996.
In June 1996, the FASB released Statement of Financial Accounting Standards No.
125 (SFAS No. 125), "Accounting for Transfers and Extinguishments of
Liabilities". SFAS No. 125 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
SFAS No. 125 requires a consistent application of a FINANCIAL-COMPONENTS
APPROACH that focuses on control. Under that approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, and derecognizes liabilities when
extinguished. SFAS No. 125 also supersedes SFAS No. 122 and requires that
servicing assets and liabilities be subsequently measured by amortization in
proportion to and over the period of estimated net servicing income or loss and
requires assessment for asset impairment or increased obligation based on their
fair values. SFAS No. 125 applies to transfers and extinguishments occurring
after December 31, 1996 and early or retroactive application is not permitted.
Management anticipates that the adoption of SFAS No. 125 will not have a
material impact on the financial condition or operations of the Bank.
In November 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, (SFAS No. 123), "Accounting for Stock-Based Compensation". This
statement establishes financial accounting standards for stock-based employee
compensation plans. SFAS No. 123 permits the Bank to choose either a new fair
value-based method or the current APB Opinion 25 intrinsic value-based method of
accounting for its stock-based compensation arrangements.
F-11
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SFAS No. 123 requires pro forma disclosures of net earnings and earnings per
share computed as if the fair value-based method has been applied in financial
statements of companies that continue to follow current practice in accounting
for such arrangements under APB Opinion 25. SFAS No. 123 applies to all
stock-based employee compensation plans adopted in years beginning after
December 15, 1995 in which an employer grants shares of its stock or other
equity instruments to employees except for employee stock ownership plans. The
adoption of SFAS No. 123 is not expected to have a material impact on the Bank's
earnings or financial condition.
Reclassifications: Certain reclassifications were made to the 1995 financial
statements to make them comparable to the 1996 presentation.
NOTE 2 - SECURITIES
The amortized cost and fair values of securities held-to-maturity at September
30, are as follows (in thousands):
<TABLE>
<CAPTION>
1 9 9 6
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. government agency security $ 1,000 $ - $ - $ 1,000
=========== =========== =========== ===========
FHLMC certificates $ 872 $ 2 $ (31) $ 843
FNMA certificates 420 3 (5) 418
----------- ----------- ----------- -----------
$ 1,292 $ 5 $ (36) $ 1,261
=========== =========== =========== ===========
<CAPTION>
1 9 9 5
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. government agency security $ 1,000 $ - $ (12) $ 988
=========== =========== =========== ===========
GNMA certificates $ 55 $ 1 $ - $ 56
FHLMC certificates 1,672 13 (41) 1,644
FNMA certificates 551 4 (8) 547
----------- ----------- ----------- -----------
$ 2,278 $ 18 $ (49) $ 2,247
=========== =========== =========== ===========
</TABLE>
F-12
<PAGE>
NOTE 2 - SECURITIES (Continued)
On December 1, 1995, the Bank reclassified certain held-to-maturity securities
as available-for-sale in accordance with "A Guide to Implementation of Statement
115 on Accounting for Certain Investments in Debt and Equity Securities." The
amortized cost and unrealized gain on the securities transferred were $563,000
and $13,000, respectively.
The $1,000,000 U.S. government agency security matures on October 1, 1996.
Expected maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties. Mortgage-backed securities have varying maturities.
Gross sales of securities during 1996 totaled $576,000 with gross gains of
$13,000. There were no sales of investment or mortgage-backed securities during
1995.
NOTE 3 - LOANS
Loans receivable at September 30 are summarized as follows:
<TABLE>
<CAPTION>
In thousands
1996 1995
----------- -----------
<S> <C> <C>
First mortgage loans
Principal balances:
Secured by one-to-four-family residences $ 30,477 $ 30,966
Secured by other properties 4,175 3,643
Construction loans 4,365 4,261
----------- -----------
39,017 38,870
Less:
Undisbursed portion of loans (1,966) (1,664)
Net deferred loan origination fees (128) (87)
Deferred gain (3) (3)
----------- -----------
Total first mortgage loans 36,920 37,116
Consumer and other loans
Principal balances:
Automobile loans 9,435 7,634
Home equity and second mortgage 151 193
Loans secured by deposit accounts 967 705
Commercial loans 595 643
Purchased automobile and lease pools - 4
Other consumer loans 1,339 787
----------- -----------
Total consumer and other loans 12,487 9,966
Less allowance for loan losses: (247) (317)
----------- -----------
$ 49,160 $ 46,765
=========== ===========
</TABLE>
F-13
<PAGE>
NOTE 3 - LOANS (Continued)
A summary of the activity in the allowance for loan losses follows:
<TABLE>
<CAPTION>
In thousands
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year $ 317 $ 313 $ 339
Provision charged to operations (52) 27 (401)
Charge-offs (23) (27) (39)
Recoveries 5 4 414
----------- ----------- -----------
Balance at end of year $ 247 $ 317 $ 313
=========== =========== ===========
</TABLE>
The Bank recorded a recovery of $401,000 during 1994 primarily as a result of
proceeds received from a lawsuit involving a previously charged-off pool of
loans.
There were no impaired loans at September 30, 1996. Nonaccrual loans totaled
approximately $56,000, $175,000, and $247,000 at September 30, 1996, 1995, and
1994, respectively. The approximate amounts of interest income that would have
been recorded under the original terms of such loans and the interest income
actually recognized for the years ended September 30, are summarized below:
<TABLE>
<CAPTION>
In thousands
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Interest that would have been recorded $ 5 $ 17 $ 21
Interest income recognized (4) (9) (6)
----------- ----------- -----------
Interest income foregone $ 1 $ 8 $ 15
=========== =========== ===========
</TABLE>
The largest portion of the Bank's loans are originated for the purpose of
enabling borrowers to purchase residential real estate property secured by first
liens on such property. At September 30, 1996, approximately 62% of the Bank's
loans were secured by owner-occupied, one-to-four-family residential property.
The Bank requires collateral on all loans and generally maintains loan-to-value
ratios of 80% or less.
The Bank has granted loans to certain officers and directors of the Bank.
Related-party loans are made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unrelated persons and do not involve more than normal risk of
collectibility. All loans are current in their contractual payments for both
principal and interest.
F-14
<PAGE>
NOTE 3 - LOANS (Continued)
Activity in the loan accounts of executive officers, directors, and principal
shareholders is as follows:
<TABLE>
<CAPTION>
In thousands
1996 1995
---- ----
<S> <C> <C>
Balance at beginning of year $ 734 $ 574
Loans disbursed 566 223
Principal repayments (471) (63)
Change in persons classified as related parties (130) -
----------- -----------
Balance at end of year $ 699 $ 734
=========== ===========
</TABLE>
NOTE 4 - SECONDARY MORTGAGE MARKET OPERATIONS
The following summarizes the Bank's secondary mortgage market activities:
<TABLE>
<CAPTION>
In thousands
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Proceeds from sale of mortgage loans $ 13,839 $ 81,838 $ 86,336
=========== =========== ===========
Gain on sale of mortgage loans $ 125 $ 109 $ 501
Gain on sale of mortgage servicing rights 205 104 407
----------- ----------- -----------
$ 330 $ 213 $ 908
=========== =========== ===========
Loans serviced for others $ 966 $ 4,738 $ 1,986
=========== =========== ===========
</TABLE>
NOTE 5 - FORECLOSED REAL ESTATE
Properties which the Bank has acquired in settlement of mortgage loans are as
follows:
<TABLE>
<CAPTION>
In thousands
1996 1995
----------- -----------
<S> <C> <C>
Total cost $ 584 $ 133
Allowance for losses (7) (3)
----------- -----------
Carrying amount $ 577 $ 130
=========== ===========
</TABLE>
F-15
<PAGE>
NOTE 5 - FORECLOSED REAL ESTATE (Continued)
Activity in the allowance for losses for foreclosed real estate is summarized
below:
<TABLE>
<CAPTION>
In thousands
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year $ 3 $ 19 $ 18
Provision charged to income 7 3 12
Charge-offs, net of recoveries (3) (19) (11)
----------- ----------- -----------
Balance at end of year $ 7 $ 3 $ 19
=========== =========== ===========
</TABLE>
NOTE 6 - PREMISES AND EQUIPMENT
A summary of premises and equipment at September 30 is as follows:
In thousands
1996 1995
----------- -----------
Land $ 235 $ 235
Buildings and improvements 741 732
Furniture and equipment 1,007 954
----------- -----------
Total cost 1,983 1,921
Accumulated depreciation (1,059) (887)
----------- -----------
$ 924 $ 1,034
=========== ===========
NOTE 7 - DEPOSITS
Certificate of deposit accounts with a minimum denomination of $100,000 or more
totaled $4,260,000 and $4,481,000 at September 30, 1996 and 1995, respectively.
F-16
<PAGE>
NOTE 7 - DEPOSITS (Continued)
At September 30, 1996, scheduled maturities of certificates of deposit are as
follows:
Year Ending In Thousands
----------- ------------
September 30, 1997 $ 24,854
September 30, 1998 5,810
September 30, 1999 2,026
September 30, 2000 2,121
September 30, 2001 and thereafter 75
-----------
$ 34,886
NOTE 8 - OTHER BORROWINGS
Other borrowings at September 30, 1995 consist of a revolving line of credit
with the Federal Home Loan Bank of Dallas (FHLB) to fund loans originated for
sale by the Bank. The line is secured by the underlying loans and bears a
variable interest rate which reprices daily. The interest rate at September 30,
1995 was 7.10%. This line was closed during 1996.
NOTE 9 - BENEFIT PLANS
During 1993, the Bank's Board of Directors adopted a stock option and incentive
plan (the Plan) that was subsequently ratified by the stockholders. Under the
Plan, options for 18,479 shares of common stock at $10.00 per share were granted
to the directors and officers of the Bank. During the fiscal year 1996, 5,018
stock options expired due to the resignation of an officer and a director who
did not exercise their options. At September 30, 1996, 13,461 options were
outstanding.
The Bank has a defined benefit pension plan covering substantially all of the
employees. The benefits are based on years of service and an employee's
compensation during the highest five years out of the last ten years of
employment. The Bank's funding policy is to contribute each year an amount which
satisfies the regulatory funding standards. The contributions are invested in a
Lincoln National Group Variable Annuity Contract.
F-17
<PAGE>
NOTE 9 - BENEFIT PLANS (Continued)
The funded status of the plan is as follows:
<TABLE>
<CAPTION>
In thousands
September 30,
1996 1995
---- ----
<S> <C> <C>
Accumulated benefit obligation, including vested
benefits of $353 and $303, respectively $ (385) $ (339)
=========== ===========
Projected benefit obligation for service rendered to date $ (498) $ (471)
Plan assets at fair value (Lincoln National Group
Variable Annuity Contract) 333 296
----------- -----------
Projected benefit obligation in excess of plan assets (165) (175)
Unrecognized transition obligation which is being
recognized over 25 years 118 125
Unrecognized net loss 43 51
----------- -----------
Accrued pension (cost) benefit recorded on statement
of financial condition $ (4) $ 1
=========== ===========
</TABLE>
In accordance with Statement of Financial Accounting Standards No. 87, the Bank
has recorded an additional minimum liability to recognize a pension obligation
equal to the unfunded accumulated benefit obligation (shown as accrued interest
payable and other liabilities) with an equal amount reflected as an intangible
asset.
<TABLE>
<CAPTION>
In thousands
Year ended September 30,
-----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net pension cost includes the following components:
Service cost earned during the period $ 73 $ 40 $ 34
Interest cost 25 28 25
Actual return on plan assets (16) (13) (14)
Net amortization and deferral 7 7 6
----------- ----------- -----------
Net periodic pension cost $ 89 $ 62 $ 51
=========== =========== ===========
The assumptions used to develop the net periodic pension cost were:
Discount rate 7% 7% 7%
Expected long-term rate of return on assets 7% 7% 7%
Rate of increase in compensation levels 5% 5% 5%
</TABLE>
F-18
<PAGE>
NOTE 10 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier I
capital as defined in the regulations to risk-weighted assets as defined, and of
Tier I capital to average assets as defined. As of September 30, 1996, the most
recent notification from the Office of Thrift Supervision categorized the Bank
as well capitalized under the regulatory framework for prompt corrective action.
To be categorized as well capitalized, the Bank must maintain minimum total
risk-based, Tier I risk-based, Tier I leverage ratios. There are no conditions
or events since that notification that management believes have changed the
institution's category.
As of September 30, 1996, the Bank's total risk-based, Tier I risk-based, and
Tier I leverage ratios exceeded the regulatory minimums for being considered
well capitalized. The total risk-based capital ratio exceeded the well
capitalized standard of 10.0% by 2.9% or approximately $123,000. Tier I
risk-based capital was greater than the well capitalized minimum of 6.0% by 7.6%
or approximately $328,000. The Tier I leverage ratio was 7.3%, approximately
$97,000, greater than the well capitalized minimum of 5.0%.
Current regulations also require savings institutions to have minimum regulatory
tangible capital equal to 1.5% of total assets, a core capital ratio of 3%, and
a risk-based capital ratio equal to 8% of risk-adjusted assets as defined by
regulation. The following is a reconciliation of the Bank's capital under
generally accepted accounting principles (GAAP) to regulatory capital at
September 30, 1996.
F-19
<PAGE>
NOTE 10 - REGULATORY MATTERS (Continued)
<TABLE>
<CAPTION>
% of
% of Adjusted % of Risk
Tangible Tangible Core Tangible Risk-based Adjusted
Capital Assets Capital Assets Capital Assets
--------- ------- ---------- -------- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
GAAP capital $ 4,316 7.46% $ 4,316 7.46% $ 4,316 10.05%
Regulatory general
valuation allowances - - - - 247 .57
--------- ------- ---------- -------- ---------- ----
Regulatory capital -
computed 4,316 7.46 4,316 7.46 4,563 10.62
Capital adequacy
requirement 868 1.50 1,736 3.00 3,347 8.00
--------- ---- ---------- ----- ---------- ----
Excess regulatory
capital over minimum $ 3,448 5.96% $ 2,580 4.46% $ 1,216 2.62%
========= ==== ========== ==== ========== ====
</TABLE>
Accordingly, management considers the capital requirements to have been met.
Regulations also include restrictions on loans to one borrower; certain types of
investments and loans; loans to officers, directors, and principal shareholders;
brokered deposits; and transactions with affiliates.
Federal regulations require the Bank to comply with a Qualified Thrift Lender
(QTL) test which requires that 65% of assets be maintained in housing-related
finance and other specified assets. If the QTL test is not met, limits are
placed on growth, branching, new investments, FHLB advances, and dividends, or
the institution must convert to a commercial bank charter. Management considers
the QTL test to have been met.
In 1991, the Board of Directors of the Bank adopted a Plan of Conversion to
convert from a federal mutual savings and loan association to a stock savings
and loan association. On April 22, 1993, the Bank sold 207,159 shares of common
stock at $10 per share and received proceeds of $1,549,000, net of conversion
expenses, and sold 87,263 shares of Series A redeemable preferred stock at $10
per share and received proceeds of $873,000. Series A preferred stock has a $
.01 par value, is nonvoting and entitles the holder to a $10 per share
liquidation preference. The stock bears non-cumulative quarterly dividends at an
annual rate of 10%. At the Bank's option, the stock can be redeemed after two
years.
NOTE 11 - COMMITMENTS, CONTINGENT LIABILITIES AND CONCENTRATIONS
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments consist of commitments to make loans and fund lines of
credit and loans-in-process. The Bank's exposure to credit loss in the event of
nonperformance by the other party to these financial instruments is represented
by the contractual amount of these instruments. The Bank follows the same credit
policy to make such commitments as it uses for on-balance-sheet items.
F-20
<PAGE>
NOTE 11 - COMMITMENTS, CONTINGENT LIABILITIES AND CONCENTRATIONS (Continued)
At September 30, these financial instruments are summarized as follows:
In thousands
Contract
Amount
------
1996 1995
---- ----
Financial instruments whose contract amounts
represent credit risk:
Commitments to make loans $ 5,651 $ 1,565
Loans-in-process 1,966 1,664
Lines of credit 112 4,733
Commitments to sell loans 278 1,229
Letters of credit 175 70
The Bank had $5,422,000 of fixed rate commitments to originate loans, ranging
from 7.0% to 10.25% at September 30, 1996. The commitments have terms of 75
days. Since many commitments to make loans expire without being used, the amount
above does not necessarily represent future cash commitments. Collateral may be
obtained upon exercise of a commitment. The amount of collateral is determined
by management and may include commercial and residential real estate and other
business and consumer assets.
Financial instruments which potentially subject the Bank to concentrations of
credit risk include interest-bearing deposit accounts in other financial
institutions and loans. At September 30, 1996, the Bank had deposit accounts
with balances totaling approximately $1,145,000 at the Federal Home Loan Bank of
Dallas. Concentrations of loans are described in Note 3.
The Bank is, from time to time, a party to certain lawsuits arising in the
ordinary course of its business. The Bank believes that none of these lawsuits
would, if adversely determined, have a material adverse effect on its financial
condition, results of operations, or capital.
During September 1996, the Bank entered into a noncancelable operating lease for
office space relating to mortgage operations. The lease expires August 31, 1998
but has options for renewal through the year 2006. Projected minimum payments
under the terms of the lease, not including insurance and maintenance, are
$20,632 and $18,913 for years ended September 30, 1997 and 1998, respectively.
F-21
<PAGE>
NOTE 11 - COMMITMENTS, CONTINGENT LIABILITIES AND CONCENTRATIONS
(Continued)
The deposits of savings institutions such as the Bank are presently insured by
the Savings Association Insurance Fund (SAIF), which, along with the Bank
Insurance Fund (BIF), is one of the two insurance funds administered by the
Federal Deposit Insurance Corporation (FDIC). However, it is not anticipated
that SAIF will be adequately recapitalized until 2002, absent a substantial
increase in premium rates or the imposition of special assessments or other
significant developments, such as a merger of the SAIF and the BIF. Accordingly,
a recapitalization plan was signed into law on September 30, 1996 which provides
for a special assessment of an estimated .65% of all SAIF-insured deposit
balances as of March 31, 1995. The Bank's liability for the special assessment,
totaling approximately $217,000 net of taxes, was recorded in September 1996.
NOTE 12 - INCOME TAX EXPENSE
The provision for income tax expense consists of the following:
<TABLE>
<CAPTION>
In thousands
Year Ended
September 30,
------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Current income tax expense $ 168 $ 72 $ 79
Deferred income tax expense (benefit) (60) 38 155
----------- ----------- -----------
$ 108 $ 110 $ 234
=========== =========== ===========
</TABLE>
The provision for income tax differs from that computed at the statutory
corporate tax rate as follows:
<TABLE>
<CAPTION>
In thousands
Year Ended
September 30,
------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Tax expense at statutory rate (34%) $ 116 $ 109 $ 235
Other tax effects (8) 1 (1)
----------- ----------- -----------
$ 108 $ 110 $ 234
=========== =========== ===========
</TABLE>
F-22
<PAGE>
NOTE 12 - INCOME TAX EXPENSE (Continued)
The Bank has qualified under provisions of the Internal Revenue Code which
permit it to deduct from taxable income a provision for bad debts which differs
from the provision charged to income in the financial statements. Retained
earnings at September 30, 1996 include approximately $643,000, representing tax
bad debt provisions through 1986, for which no deferred federal income tax
liability has been recorded.
Tax legislation passed in August 1996 now requires all thrift institutions to
deduct a provision for bad debts for tax purposes based on actual loss
experience and recapture the excess bad debt reserve accumulated in the tax
years after 1986. The related amount of deferred tax liability which must be
recaptured is $124,000 and is payable over a six-year period, beginning in
fiscal year 1997.
Deferred tax assets (liabilities) are comprised of the following at September
30:
<TABLE>
<CAPTION>
In thousands
1996 1995
---- ----
<S> <C> <C>
Deferred loan fees $ 10 $ 30
SAIF assessment 112 -
Other 1 -
---------- -----------
Total deferred tax assets 123 30
Depreciation (23) (36)
Federal Home Loan Bank stock dividends (111) (94)
Loans, principally due to allowance for losses (75) (46)
---------- -----------
Total deferred tax liabilities (209) (176)
----------- -----------
Net deferred tax liabilities $ (86) $ (146)
=========== ===========
</TABLE>
Management has not recorded a valuation allowance based on previous taxes paid
and its estimate of future taxable income.
F-23
<PAGE>
NOTE 13 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The approximate carrying amount and estimated fair value of financial
instruments is as follows:
<TABLE>
<CAPTION>
September 30, 1996
-------------------------------
Approximate
Carrying Estimated
Amount Fair Value
------ ----------
<S> <C> <C>
Financial assets
Cash and cash equivalents $ 2,806 $ 2,806
Securities 2,292 2,261
Loans, net of allowance for loan losses 49,160 49,537
Loans held for sale 419 419
Federal Home Loan Bank stock 845 845
Accrued interest receivable 329 329
Financial liabilities
Demand deposits (12,614) (12,614)
Savings deposits (4,177) (4,177)
Time deposits (34,886) (35,075)
Advance payments by borrowers for taxes and insurance (783) (783)
Accrued interest payable (25) (25)
</TABLE>
For the purposes of above, the following assumptions were used:
Cash and Cash Equivalents: The estimated fair values for cash and cash
equivalents are based on their carrying values due to the short-term nature of
these assets.
Securities: The fair values of securities are based on the quoted market value
for the individual security or its equivalent.
Loans: The estimated fair value for loans has been determined by calculating the
present value of future cash flows based on the current rate the Bank would
charge for similar loans with similar maturities, applied for an estimated time
period until the loan is assumed to be repriced or repaid.
Federal Home Loan Bank Stock: The fair value of Federal Home Loan Bank stock is
assumed to approximate its carrying value.
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
NOTE 13 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
Deposit Liabilities: The estimated fair value for time deposits has been
determined by calculating the present value of future cash flows based on
estimates of rates the Bank would pay on such deposits, applied for the time
period until maturity. The estimated fair values of interest-bearing demand and
savings deposits are assumed to approximate their carrying values as management
establishes rates on these deposits at a level that approximates the local
market area. Additionally, these deposits can be withdrawn on demand.
Accrued Interest: The fair values of accrued interest receivable and payable are
assumed to equal their carrying values.
Advance Payments by Borrowers for Taxes and Insurance: The fair value of advance
payments by borrowers for taxes and insurance approximates the carrying value.
Off-Balance-Sheet Instruments: Off-balance-sheet items consist principally of
unfunded loan commitments. The fair value of these commitments is not material.
Other assets and liabilities of the Bank not defined as financial instruments,
such as property and equipment, are not included in the above disclosures. Also
not included are nonfinancial instruments typically not recognized in financial
statements such as the value of core deposits and similar items.
While the above estimates are based on management's judgment of the most
appropriate factors, there is no assurance that if the Bank disposed of these
items on September 30, 1996, the fair value would have been achieved, because
the market value may differ depending on the circumstances. The estimated fair
values at September 30, 1996 should not necessarily be considered to apply at
subsequent dates.
See accompanying notes to consolidated financial statements.
F-25
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
- -----------------------------------------------------
Set forth below is an estimate of the amount of fees and expenses
(other than underwriting discounts and commissions) to be incurred in connection
with the issuance of the shares and units.
Counsel fees and expenses................................... $ 67,500
Accounting fees and expenses................................ *
Marketing Agent fees........................................ *
Marketing Agent's counsel fees and expenses................. *
Printing, postage and mailing............................... 20,000
Registration and Filing Fees................................ *
Blue Sky fees and expenses.................................. *
Trustee fee.................................................
Other expenses.............................................. *
TOTAL.................................................. $ *
--------
- ------------------
(*) To be completed by amendment.
Item 14. Indemnification of Directors and Officers
- ---------------------------------------------------
Article Eleventh of the Holding Company's Certificate of Incorporation
provides for indemnification of directors and officers of the Holding Company
against all expense, liability and loss (including attorneys' fees, court costs,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) incurred in any actual, threatened or potential proceeding, except
to the extent that such indemnification is limited by Delaware law and such law
cannot be varied by contract or bylaw. Article Eleventh also provides for the
authority to purchase insurance with respect thereto.
Section 145 of the General Corporation Law of the State of Delaware
authorizes a corporation's Board of Directors to grant indemnity under certain
circumstances to directors and officers, when made, or threatened to be made,
parties to certain proceedings by reason of such status with the corporation,
against judgments, fines, settlements and expenses, including attorneys' fees.
In addition, under certain circumstances such persons may be indemnified against
expenses actually and reasonably incurred in defense of a proceeding by or on
behalf of the corporation. Similarly, the corporation, under certain
circumstances, is authorized to indemnify directors and officers of other
corporations or enterprises who are serving as such at the request of the
corporation, when such persons are made, or threatened to be made, parties to
certain proceedings by reason of such status, against judgments, fines,
settlements and expenses, including attorneys' fees; and under certain
circumstances, such persons may be indemnified against expenses actually and
reasonably incurred in connection with the defense or settlement of a proceeding
by or in the right of such other corporation or enterprise. Indemnification is
<PAGE>
permitted where such person (I) was acting in good faith; (ii) was acting in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation or other corporation or enterprise, as appropriate; (iii) with
respect to a criminal proceeding, has no reasonable cause to believe his conduct
was unlawful; and (iv) was not adjudged to be liable to the corporation or other
corporation or enterprise (unless the court where the proceeding was brought
determines that such person is fairly and reasonably entitled to indemnity).
Unless ordered by a court, indemnification may be made only following a
determination that such indemnification is permissible because the person being
indemnified has met the requisite standard of conduct. Such determination may be
made (I) by the Board of Directors of the Holding Company by a majority vote of
a quorum consisting of directors not at the time parties to such proceeding; or
(ii) if such a quorum cannot be obtained or the quorum so directs, then by
independent legal counsel in a written opinion; or (iii) by the stockholders.
Section 145 also permits expenses incurred by directors and officers in
defending a proceeding to be paid by the corporation in advance of the final
disposition of such proceedings upon the receipt of an undertaking by the
director or officer to repay such amount if it is ultimately determined that he
is not entitled to be indemnified by the corporation against such expenses.
Item 15. Recent Sales of Unregistered Securities
- -------------------------------------------------
The Registrant is newly incorporated, solely for the purpose of acting
as the holding company of First Federal Savings Bank pursuant to the Merger
Agreement (filed as Exhibit 2 herein), and no sales of its securities have
occurred to date, other than the sale of one share of the Registrant's stock to
its incorporator for the purpose of qualifying the Registrant to do business in
the State of Delaware.
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
- ----------------------------------------------------
(a) Exhibits:
1 Form of Agency Agreement*
2 Agreement and Plan of Merger
3.1 Certificate of Incorporation of the Holding Company
3.2 Bylaws of the Holding Company
3.3 Charter of First Federal
3.4 Bylaws of First Federal
4.1 Form of Stock Certificate of the Holding Company*
4.2 Indenture, including Form of Debenture
4.3 Form of Warrant*
5.1 Opinion of Silver, Freedman & Taff, L.L.P. with Respect to Legality
of Stock
5.2 Opinion of Silver, Freedman & Taff, L.L.P. with respect to Legality of
Debentures
5.3 Opinion of Silver, Freedman & Taff, L.L.P. with respect to Legality of
Warrants
10.1 1993 Stock Option and Incentive Plan
10.2 Form of Employment Agreement of J. Stanley Stephen
10.3 Form of Employment Agreement of George Koenig
10.4 Form of Employment Agreement of Mary Lynn Hegan
10.5 Form of Employment Agreement of Kay Watson
23.1 Consent of Silver, Freedman & Taff, L.L.P.
23.2 Consent of Crowe, Chizek & Company, L.L.P.
24 Power of Attorney (set forth on signature page)
25 Statement of eligibility of trustee
99 Stock Order Form and Order Form Instructions
- ----------
* To be filed supplementally or by amendment.
<PAGE>
Item 17. Undertakings
- ----------------------
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(I) To include any Prospectus required by Section 10(a)(3 ) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and it will be governed by the final adjudication
of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Bryan, State
of Texas on May 29, 1997.
THE BRYAN-COLLEGE STATION FINANCIAL
HOLDING COMPANY
By: /s/ J. Stanley Stephen
---------------------------------
J. Stanley Stephen, President and
Chief Executive Officer
(DULY AUTHORIZED REPRESENTATIVE)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints J. Stanley Stephen and Mary Lynn Hegar
his true and lawful attorneys-in-fact and agents, with full power of
substitution and re-substitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all said
attorneys-in-fact and agents or their substitutes or substitute may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
/s/ J. Stanley Stephen /s/ Mary Lynn Hegar
- -------------------------------------------- ---------------------------------------------
J. Stanley Stephen, Director, Mary Lynn Hegar, Vice President,
President and Chief Executive Officer Secretary and Chief Financial Officer
(CHIEF OPERATING OFFICER) (PRINCIPAL FINANCIAL OFFICER)
Date: May 29, 1997 Date: May 29, 1997
/s/ Richard L. Peacock /s/ Ernest A. Wentrcek
- -------------------------------------------- ---------------------------------------------
Richard L. Peacock, Chairman of the Board Ernest A. Wentrcek, Vice Chairman of the
Date: May 29, 1997 Board
Date: May 29, 1997
/s/ Charles Neelley /s/ George Koenig
- -------------------------------------------- ---------------------------------------------
Charles Neelley, Director and Secretary/ George Koenig, Director and Executive Vice-
Treasurer President
Date: May 29, 1997 Date: May 29, 1997
/s/ Jack W. Lester /s/ Robert H. Conaway
- -------------------------------------------- ---------------------------------------------
Jack W. Lester, Director and Assistant Robert H. Conaway, Director
Secretary/Treasurer Director Date: May 29, 1997
Date: May 29, 1997
/s/ Ken Hayes /s/ Phil Hobson
- -------------------------------------------- ---------------------------------------------
Ken Hayes, Director Phil Hobson, Director
Date: May 29, 1997 Date: May 29, 1997
/s/ J. Roland Ruffino
- --------------------------------------------
J. Rolan Ruffino, Director
Date: May 29, 1997
</TABLE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 30, 1997
REGISTRATION NO. 333-________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------------
EXHIBITS
TO
FORM S-1
UNDER
THE SECURITIES ACT OF 1933
-----------------------------------------
THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY
2900 TEXAS AVENUE
BRYAN, TEXAS 77802
================================================================================
<PAGE>
EXHIBIT INDEX
EXHIBITS:
1 Form of Agency Agreement*
2 Agreement and Plan of Merger
3.1 Certificate of Incorporation of the Holding Company
3.2 Bylaws of the Holding Company
3.3 Charter of First Federal
3.4 Bylaws of First Federal
4.1 Form of Stock Certificate of The Holding Company*
4.2 Indenture, Including Form of Debenture
4.3 Form of Warrant*
5.1 Opinion of Silver, Freedman & Taff, L.L.P. with respect to Legality of
Stock
5.2 Opinion of Silver, Freedman & Taff, L.L.P. with respect to Legality of
Debentures
5.3 Opinion of Silver, Freedman & Taff, L.L.P. with respect to Legality of
Warrants
10.1 1993 Stock Option And Incentive Plan
10.2 Form of Employment Agreement of J. Stanley Stephen
10.3 Form of Employment Agreement of George Koenig
10.4 Form of Employment Agreement of Mary Lynn Hegan
10.5 Form of Employment Agreement of Kay Watson
23.1 Consent of Silver, Freedman & Taff, L.L.P.
23.2 Consent of Crowe, Chizek & Company, L.L.P.
24 Power of Attorney (set forth on signature page)
25 Statement of Eligibility of Trustee
27 Financial Data Schedule
99 Stock Order Form and Order Form Instructions
- ----------
* To be filed supplementally or by amendment.
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement"), is made and entered
into by and among FIRST FEDERAL SAVINGS BANK, a federally-chartered capital
stock thrift institution ("First Federal"), NEW FIRST FEDERAL SAVINGS BANK, a
federally-chartered capital stock thrift institution in the process of
organization ("New Bank"), the sole stockholder of the Holding Company, J.
Stanley Stephen (the "Holding Company Stockholder") and THE BRYAN-COLLEGE
STATION FINANCIAL HOLDING COMPANY, a Delaware business corporation (the "Holding
Company"), effective as of the date executed by all of the parties.
WITNESSETH:
WHEREAS, First Federal is a capital stock thrift institution duly
organized and existing under the laws of the United States of America and having
its principal office in Bryan, Texas, with authorized capital stock consisting
of three million shares of common stock, par value $.01 per share ("First
Federal Common Stock"), of which 239,612 shares are issued and outstanding, and
one million shares of serial preferred stock (First Federal Preferred Stock), of
which 87,263 shares are issued and outstanding;
WHEREAS, New Bank is a capital stock thrift institution in the process
of organization under the laws of the United States of America, which is
proposed to be a subsidiary of the Holding Company and to have authorized
capital stock consisting of one million shares of common stock, par value $.01
per share ("New Bank Stock");
WHEREAS, the Holding Company is a capital stock corporation duly
organized and existing under the laws of Delaware, with authorized capital stock
consisting of three million shares of common stock, par value $.01 per share
("Holding Company Common Stock") of which one share is issued and outstanding,
and one million shares serial preferred stock, of which no shares are issued and
outstanding;
WHEREAS, the Holding Company has issued one share of its common stock
to the Holding Company Stockholder in return for $10.00 cash consideration;
WHEREAS, the Holding Company proposes to purchase one share of the
common stock of New Bank for $10.00;
WHEREAS, it is the desire of the parties to this Agreement to adopt a
plan of reorganization providing for the formation of a thrift institution
holding company; and
WHEREAS, a majority of the respective Boards of Directors of First
Federal, New Bank, and the Holding Company have approved and authorized the
execution of this Agreement pursuant to which the plan of reorganization,
including the merger of New Bank into First Federal, will be implemented;
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and in order to prescribe the plan of
reorganization and merger, including its terms and conditions, the mode of
carrying the same into effect, the manner and basis of stockholders of First
Federal exchanging their First Federal Common Stock for Holding Company Common
Stock or selling their First Federal Common Stock and such other details and
provisions as are deemed necessary or proper, the parties hereby agree as
follows:
ARTICLE I
MERGER AND REORGANIZATION
1.1 Subject to the conditions hereinafter set forth, New Bank shall be
merged into First Federal under the Charter of First Federal at the Effective
Date (as defined in Article XI hereof) of the merger (the "Merger"). The Merger
shall be effected pursuant to the provisions of, and with the effect provided
in, the applicable provisions of the laws of the United States of America and
the Rules and Regulations of the Office of Thrift Supervision.
1.2 On the Effective Date, the resulting thrift institution in the
Merger shall be First Federal (hereinafter referred to as the "Surviving
Institution" whenever reference is made to it as of the Effective Date of the
Merger or thereafter) which will continue to operate as a thrift institution
under its present name as "First Federal Savings Bank." The Charter and Bylaws
of First Federal in effect on the Effective Date shall be the Charter and Bylaws
of the Surviving Institution. The established offices and facilities of First
Federal immediately prior to the Merger shall become the established offices and
facilities of the Surviving Institution. The locations of the home office and
any other offices of the Surviving Institution are set forth in Schedule A
attached hereto.
1.3 On the Effective Date of the Merger, New Bank shall cease to exist
separately and shall be merged with and into First Federal in accordance with
the provisions of this Agreement and Plan of Merger and in accordance with the
provisions of applicable laws, rules and regulations, and all of the assets and
property of every kind and character, real, personal and mixed, tangible and
intangible, choses in action, rights and credits then owned by New Bank or which
would inure to it, shall immediately, by operation of law and without any
conveyance or transfer and without any further act or deed, be vested in and
become the property of the Surviving Institution, which shall have, hold and
enjoy the same in its own right as fully and to the same extent as the same were
possessed, held and enjoyed by New Bank prior to such Merger. The Surviving
Institution shall be deemed to be and shall be a continuation of the entity and
identity of New Bank and First Federal and all of the rights and obligations of
New Bank and First Federal shall remain unimpaired and the Surviving
Institution, on the Effective Date of such Merger, shall succeed to all such
rights and obligations and the duties and liabilities connected therewith on
such Effective Date.
1.4 On the Effective Date of the Merger, there will be no holders of
deposit accounts, transaction accounts, savings accounts or certificates of
deposit issued by New Bank. Holders of deposit accounts, transaction accounts,
savings accounts or certificates of deposit of First Federal as of the Effective
Date of the Merger shall continue to be holders of the same interest of the
Surviving Institution without change as to withdrawal value or other rights. No
existing
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deposit account, transaction account, savings account or certificate of deposit
holder shall have any of his rights impaired by virtue of the Merger
contemplated hereby.
1.5 The directors and officers of the Surviving Institution on the
Effective Date shall be those persons who are directors and officers,
respectively, of First Federal immediately before the Effective Date.
Information with respect to the directors of the Surviving Institution is set
forth in Schedule B attached hereto. The committees of the Board of Directors of
the Surviving Institution on the Effective Date shall be the same as, and shall
be composed of the same persons who were serving on, committees appointed by the
Board of Directors of First Federal as they exist immediately before the
Effective Date. The committees, if any, of officers of the Surviving Institution
on the Effective Date shall be the same as, and shall be composed of the same
officers who were serving on, the committees of officers of First Federal as
they exist immediately before the Effective Date.
1.6 Except as expressly prohibited by applicable laws, all corporate
acts, plans, policies, applications, agreements, orders, registrations,
licenses, approvals and authorizations of First Federal and New Bank, their
respective stockholders, Boards of Directors, committees elected or appointed by
their Boards of Directors, and their respective officers and agents, which were
valid and effective immediately before the Effective Date, shall be taken for
all purposes at and after the Effective Date as the acts, plans and policies,
applications, agreements, orders, registrations, licenses, approvals and
authorizations of the Surviving Institution and shall be as effective and
binding thereon as the same were with respect to First Federal and New Bank
immediately before the Effective Date.
ARTICLE II
CONVERSION, EXCHANGE AND CANCELLATION OF SHARES
2.1 Conversion of First Federal Common Stock. At the Effective Date, by
virtue of the Merger and without any action on the part of the holder thereof,
the Holding Company, First Federal or any other party to the Agreement, First
Federal Common Stock issued and outstanding immediately prior to the Effective
Date shall cease to be outstanding and shall, subject to the provisions of
Sections 2.2 and 2.3 hereof, be converted into and become the right to receive
either:
(a) such number of shares of Holding Company Common
Stock equal to the product of 2.5 multiplied by the number
of shares of First Federal Common Stock to be converted
("Stock Distribution");
(b) an amount in cash equal to $24.07 per share (the
"Cash Distribution"),
as the holder thereof shall elect or be deemed to have elected as provided in
Section 2.2 of this Agreement (the aggregate of the Cash Distributions and the
Stock Distributions payable or issuable pursuant to the Merger is sometimes
hereinafter referred to as the "Merger Consideration"); provided, however, that
any shares of First Federal Common Stock held by First Federal, other than in a
fiduciary capacity or as a result of debts previously contracted, shall be
cancelled and shall not be exchanged for the Merger Consideration.
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2.2 Election Procedures.
(a) An election form and other appropriate and customary
transmittal materials (which shall specify that delivery shall be effected, and
risk of loss and title to the certificates theretofore representing First
Federal Common Stock shall pass, only upon proper delivery of such certificates
to the exchange agent designated by Holding Company, or to the Holding Company
in its capacity as exchange agent, as determined by the Holding Company (the
"Exchange Agent"), in such form as First Federal and the Holding Company shall
mutually agree ("Election Form") shall be mailed approximately 25 days prior to
the anticipated Effective Date or on such other date as First Federal and the
Holding Company shall mutually agree (the "Mailing Date") to each holder of
record of First Federal Common Stock as of five business days prior to the
Mailing Date ("Election Form Record Date").
(b) Each Election Form shall specify the amount of Merger
Consideration receivable for each share of First Federal Common Stock in the
Cash Distribution and the Stock Distribution and shall permit a holder to elect
to receive, as provided in Section 2.2 of this Agreement, (i) the Stock
Distribution for all of his shares (in which case, such holder's shares shall be
deemed to be and shall be referred to herein as "Stock Election Shares"), (ii)
the Cash Distribution for certain designated shares (in which case, such
holder's shares so designated shall be deemed to be and shall be referred to
herein as "Cash Election Shares") with the remaining shares being converted to
the Stock Distribution as Stock Election Shares, or (iii) the Cash Distribution
for all of his shares.
(c) Any shares of First Federal Common Stock with respect to
which the holder thereof shall not, as of the Election Deadline (as defined
below), have made an election to receive either the Cash Distribution or the
Stock Distribution (such holder's shares being deemed to be and shall be
referred to herein as "No Election Shares") by submission to the Exchange Agent
of an effective, properly completed Election Form shall be deemed to be Cash
Election Shares. Any holder of 1% or more of First Federal Common Stock
(determined as of the Effective Date) that shall not, on or before the Election
Deadline, have delivered to the Exchange Agent a tax certification confirming
his present intention not to sell, exchange, or otherwise dispose of any Holding
Company Common Stock (a "Tax Certification") received in the Merger shall be
deemed to have made a timely election to receive the Cash Distribution for all
of his shares, and all shares of First Federal Common Stock held by such holder
shall be deemed to be Cash Election Shares for all purposes of this Agreement,
including Section 2.1. (The parties acknowledge that the foregoing sentence will
preclude a holder that acquires additional shares of First Federal Common Stock
and becomes a holder of 1% or more of such shares after the Election Deadline
from receiving the Stock Distribution.) "Election Deadline" means 5:00 p.m.,
local time, on the 20th day following the Mailing Date, or such other time and
date as the Holding Company and First Federal shall mutually agree.
(d) First Federal shall promptly make available one or more Election
Forms as may be reasonably requested by all persons who become holders (or
beneficial owners) of First Federal Common Stock between the Election Form
Record Date and close of business on the business day prior to the Election
Deadline, and First Federal shall provide to the Exchange Agent all information
reasonably necessary for it to perform as specified herein.
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(e) Any such election shall have been properly made only if the
Exchange Agent shall have actually received a properly completed Election Form
by the Election Deadline. An Election Form shall be deemed properly completed
only if accompanied by one or more certificates (or customary affidavits and
indemnification regarding the loss or destruction of such certificates or the
guaranteed delivery of such certificates) representing all shares of First
Federal Common Stock covered by such Election Form, together with duly executed
transmittal materials included in the Election Form and in the case of holders
of 1% or more of the outstanding First Federal Common Stock, a Tax Certification
if any such holder elects the Stock Distribution, in whole or in part. Any
Election Form may be revoked or changed by the person submitting such Election
Form at or prior to the Election Deadline. In the event an Election Form is
revoked prior to the Election Deadline, the shares of First Federal Common Stock
represented by such Election Form shall become No Election Shares and First
Federal shall cause the certificates representing First Federal Common Stock to
be promptly returned without charge to the person submitting the Election Form
upon written request to that effect from the person who submitted the Election
Form. Subject to the terms of this Agreement and of the Election Form, the
Exchange Agent shall have reasonable discretion to determine whether any
election, revocation or change has been properly or timely made and to disregard
immaterial defects in the Election Forms, and any good faith decisions of the
Exchange Agent regarding such matters shall be binding and conclusive. Neither
the Holding Company nor the Exchange Agent shall be under any obligation to
notify any person of any defect in an Election Form.
(f) Allocation Procedures. Within ten business days after the Effective
Date, or as soon thereafter as practicable, the Holding Company shall cause the
Exchange Agent to effect the allocation among the holders of First Federal
Common Stock of rights to receive Holding Company Common Stock or cash in the
Merger as follows:
(i) Stock Elections Less Than The Minimum Stock Value, If
shares of Holding Company Common Stock that would be issued in the
Merger upon conversion of the Stock Election Shares represents less
than 20% of the shares of First Federal Common Stock outstanding (the
"Minimum Stock Value"), then the Holding Company will be permitted to
allocate cash and stock pro rata to those shareholders electing the
Cash Distribution (other than Dissenting Shares as defined in Section
2.3) in such amount as would result in at least 20% of First Federal
Common Stock to be exchanged for Holding Company Common Stock;
provided, however, that the Holding Company may pay cash for First
Federal Common Stock which, if exchanged for Holding Company Common
Stock in the Merger would result in adverse accounting treatment, as
determined by independent accountants for the Holding Company, and that
any pro rata distribution of cash and stock pursuant to this Section
2.2(f)(i) shall be based on the amount Stock Election Shares excluding
any Stock Election Shares exchangeable for cash due to such accounting
considerations. For purposes of determining the Minimum Stock Value
under this Section 2.2(f)(i) and Section 2.2(f)(ii) below, all
Dissenting Shares shall be deemed Cash Election Shares.
(ii) Stock Elections Greater Than The Maximum Stock Value. If
the shares of Holding Company Common Stock that would be issued in the
Merger upon the conversion of the Stock Election Shares is greater than
49% of the shares of First Federal Common Stock outstanding (the
"Maximum Stock Value"), then the Holding Company will be permitted to
allocate cash and stock pro rata to those shareholders electing the
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Stock Distribution in such amount as would result in less than 49% of
First Federal Common Stock being exchanged for Holding Company Common
Stock in the Merger; provided, however, that the Holding Company may
pay cash for First Federal Common Stock which, if exchanged for Holding
Company Common Stock in the Merger would result in adverse accounting
treatment, as determined by independent accountants for the Holding
Company, and that any pro rata distribution of cash and stock pursuant
to this Section 2.2(f)(i) shall be based on the amount of Stock
Election Shares excluding any Stock Election Shares exchangeable for
cash due to such accounting considerations. Merger Consideration shall
be paid in accordance with the Election Forms subject to the provisions
of Section 2.2(c). No Election Shares shall be converted into the right
to receive cash.
2.3 Dissenting Shares. Any record holder of First Federal's Common
Stock may require First Federal to pay the fair or appraised value of his or her
First Federal Common Stock, determined as of the Effective Date of the Merger,
by complying with Section 552.14 of the Office of Thrift Supervision ("OTS")
Rules and Regulations. The computation of fair or appraised value of such shares
(the "Dissenting Shares") will exclude any element of value arising from the
accomplishment or expectation of the Merger. Notwithstanding any other provision
of this Agreement, any Dissenting Shares shall not, after the Effective Date, be
entitled to vote for any purpose or receive any dividends or other distributions
and shall be entitled only to such rights as are afforded in respect of
Dissenting Shares pursuant to the OTS Regulations.
2.4 Exchange Procedures.
(a) In accordance with Section 2.2(a) herein, holders
of record of certificates formerly representing shares of First Federal Common
Stock (the "Certificates") shall be instructed to tender such Certificates to
the Exchange Agent pursuant to a letter of transmittal that the Exchange Agent
shall deliver or cause to be delivered to such holders, which letter of
transmittal shall be included with the Election Forms distributed pursuant to
Section 2.2(a).
(b) The Holding Company or, at the election of the
Holding Company, the Exchange Agent, shall accept Certificates upon compliance
with such reasonable terms and conditions as the Holding Company or the Exchange
Agent may impose to effect an orderly exchange thereof in accordance with
customary exchange practices. All Certificates shall be appropriately endorsed
or accompanied by such instruments of transfer as the Holding Company or the
Exchange Agent may require.
(c) Each outstanding Certificate shall until duly
surrendered to the Holding Company or the Exchange Agent be deemed to evidence
ownership of the Merger Consideration into which the First Federal Common Stock
previously represented by such Certificate shall have been converted pursuant to
this Agreement.
(d) Subject to Section 2.3, after the Effective Date,
holders of Certificates shall cease to have rights with respect to First Federal
Common Stock previously represented by such Certificates, and their sole rights
shall be to exchange such Certificates for the Merger Consideration provided for
in this Agreement. After the Effective Date, there shall be no further transfer
on the records of First Federal of Certificates, and if such Certificates are
presented to First Federal for transfer, they shall be cancelled against
delivery of the Merger Consideration
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provided therefor in this Agreement. Neither the Exchange Agent nor the Holding
Company shall be obligated to deliver the Merger Consideration to which any
former holder of First Federal Common Stock is entitled as a result of the
Merger until such holder surrenders the Certificates as provided herein. No
dividends declared will be remitted to any person entitled to receive Holding
Company Common Stock under this Agreement until such person surrenders the
Certificates representing the right to receive such Holding Company Common
Stock, at which time such dividends shall be remitted to such person, without
interest and less any taxes that may have been imposed thereon. [CERTIFICATES
SURRENDERED FOR EXCHANGE BY ANY PERSON CONSTITUTING AN "AFFILIATE" OF FIRST
FEDERAL FOR PURPOSES OF RULE 145 OF THE SECURITIES ACT OF 1933, AS AMENDED
(TOGETHER WITH THE RULES AND REGULATIONS THEREUNDER, THE "SECURITIES ACT"),
SHALL NOT BE EXCHANGED FOR HOLDING COMPANY COMMON STOCK UNTIL THE HOLDING
COMPANY HAS RECEIVED A WRITTEN AGREEMENT FROM SUCH PERSON IN THE FORM ATTACHED
AS EXHIBIT C.] Neither the Exchange Agent nor any party to this Agreement nor
any affiliate thereof shall be liable to any holder of stock represented by any
Certificate for any consideration paid to a public official pursuant to
applicable abandoned property, escheat or similar laws. The Holding Company and
the Exchange Agent shall be entitled to rely upon the stock transfer books of
First Federal to establish the identity of those persons entitled to receive the
Merger Consideration specified in this Agreement, which books shall be
conclusive with respect thereto. In the event of a dispute with respect to
ownership of stock represented by any Certificate, the Holding Company and the
Exchange Agent shall be entitled to deposit any Merger Consideration represented
thereby in escrow with an independent third party and thereafter be relieved
with respect to any claims thereto.
2.5 No Fractional Shares. Notwithstanding any other provision of this
Agreement, neither certificates nor scrip for fractional shares of Holding
Company Common Stock shall be issued in the Merger. Each holder who otherwise
would have been entitled to a fraction of a share of Holding Company Common
Stock shall receive the number of shares rounded up to the next whole number of
shares.
2.6 First Federal Preferred Shares. First Federal preferred stock
currently issued and outstanding will remain issued and outstanding First
Federal Preferred Stock. The Merger will not change any of the terms or
conditions of First Federal Preferred Stock, and holders of First Federal
Preferred Stock will not have any election in the Merger.
2.7 New Bank Stock. The outstanding share of New Bank Stock issued to
the Holding Company shall be cancelled and converted into a share of First
Federal Common Stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HOLDING COMPANY
The Holding Company hereby represents and warrants as follows:
3.1 The Holding Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. At the
Effective Date, the Holding Company will have corporate power to carry on its
business as then to be conducted and will be
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qualified to do business in every jurisdiction in which the character and
location of the assets to be owned by it or the nature of the business to be
transacted by it require qualification.
3.2 The Holding Company has no subsidiaries other than New Bank at the
date of this Agreement. Between the date hereof and the Effective Date, the
Holding Company will not create or acquire any subsidiaries, other than New
Bank, without the consent of First Federal.
3.3 The authorized capital stock of the Holding Company consists on
the date hereof of three million shares of Holding Company Common Stock, par
value $.01 per share, and one million shares of serial preferred stock. Except
as set forth above or as contemplated by this Agreement or necessary for the
effectuation of the Merger, as of the date hereof, the Holding Company has one
share of its capital stock issued and outstanding and does not have any
outstanding subscriptions, options or other agreements or commitments obligating
it to issue shares of its capital stock.
3.4 Compliance with the terms and provisions of this Agreement by the
Holding Company will not conflict with or result in a breach of any of the
terms, conditions or provisions of any judgment, order, injunction, decree or
ruling of any court or governmental authority, domestic or foreign, or of any
agreement or instrument to which the Holding Company is a party, or constitute a
default thereunder.
3.5 The execution, delivery and performance of this Agreement have
been duly authorized by the Board of Directors of the Holding Company and have
been approved by the Holding Company Common Stockholders.
3.6 The Holding Company has complete and unrestricted power to enter
into and to consummate the transactions contemplated by this Agreement, subject
to approval of this Agreement and the Merger by the Holding Company Stockholder
and the provisions of Section 7.3 hereof.
3.7 On or prior to the Effective Date, the Holding Company will have
available the funds necessary to convert and exchange the outstanding First
Federal Common Stock to be converted and exchanged pursuant to the Merger as
provided herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FIRST FEDERAL
First Federal hereby represents and warrants as follows:
4.1 First Federal is a capital stock thrift institution duly
organized, validly existing and in good standing under the laws of the United
States of America, and is duly authorized to carry on its business as it is now
being conducted.
4.2 The authorized capital stock of First Federal consists on the date
hereof of three million shares of First Federal Common Stock, par value $.01 per
share, of which 239,612 shares
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are issued and outstanding, and one million shares of serial preferred stock, of
which 87,263 shares are issued and outstanding.
4.3 Compliance with the terms and provisions of this Agreement by
First Federal will not conflict with, constitute a default under or result in a
breach of any of the terms, conditions or provisions of any judgment, order,
injunction, decree or ruling of any court or governmental authority, domestic or
foreign, or of any agreement or instrument to which First Federal is a party.
4.4 The execution, delivery and performance of this Agreement have
been duly authorized by the Board of Directors of First Federal.
4.5 First Federal has complete and unrestricted power to enter into
and to consummate the transactions contemplated by this Agreement, subject to
the provisions of Section 7.3 hereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF NEW BANK
New Bank hereby represents and warrants as follows:
5.1 New Bank, at the direction of the Holding Company, will apply to
the Office of Thrift Supervision to be chartered as a capital stock thrift
institution, and immediately before the Effective Date will be duly organized,
validly existing and in good standing under the laws of the United States of
America, and duly authorized to carry on the business of an interim federal
thrift institution.
5.2 The authorized capital stock of New Bank is proposed to consist of
one million shares of New Bank Stock, par value $.01 per share. Except for the
share of New Bank Stock issued to the Holding Company for the effectuation of
the Merger, prior to the Merger, New Bank will not have any shares of its stock
issued and outstanding. There are no outstanding subscriptions, options or other
arrangements or commitments obligating New Bank to issue any shares of its
capital stock.
5.3 Compliance with the terms and provisions of this Agreement by New
Bank will not conflict with, constitute a default under or result in a breach of
any of the terms, conditions or provisions of any judgment, order, injunction,
decree or ruling of any court or governmental authority, domestic or foreign, or
of any agreement or instrument to which New Bank is, or upon organization will
be, a party.
5.4 Prior to the Merger, the execution, delivery and performance of
this Agreement will be duly authorized by the Board of Directors of New Bank and
will be approved by the Holding Company as the sole stockholder of New Bank.
5.5 New Bank has complete and unrestricted power to enter into and to
consummate the transaction contemplated by this Agreement, subject to the
approval of this Agreement and
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the Merger by the Holding Company as sole stockholder of New Bank and the
provisions of Section 7.3 hereof.
ARTICLE VI
OBLIGATIONS OF THE PARTIES PENDING THE EFFECTIVE DATE
6.1 Prior to the Effective Date, (i) New Bank shall complete its
organization and have directors who shall be duly elected and qualified, (ii)
the Holding Company shall complete its organization and have directors who shall
be duly elected and qualified, and (iii) this Agreement shall be duly submitted
to the stockholders of First Federal for the purpose of considering and acting
upon this Agreement in the manner required by law. Each party shall use its best
efforts to obtain the requisite approvals of this Agreement and the transactions
contemplated herein and, after obtaining such approval, the parties through
their respective officers and directors, shall execute and file with the
appropriate regulatory authorities all documents and papers, and the parties
shall take every reasonable action, necessary to comply with and to secure such
approval of this Agreement and the transactions contemplated herein as may be
required by all applicable statutes, rules and regulations.
ARTICLE VII
CONDITIONS PRECEDENT TO THE CONSUMMATION OF
THE MERGER AND REORGANIZATION
The obligations of the parties hereto to consummate the Merger and the
reorganization contemplated hereby shall be subject to the conditions that on or
before the Effective Date:
7.1 Each of the parties hereto shall have performed and complied with
all of its obligations hereunder which are to be complied with or performed on
or before the Effective Date.
7.2 This Agreement and related transactions contemplated hereby shall
have been duly and validly authorized, approved and adopted at a meeting of
stockholders duly and properly called for such purpose by First Federal by an
affirmative vote of at least 50 percent of the outstanding voting stock of First
Federal plus one affirmative vote, all in accordance with the applicable
regulations of the Office of Thrift Supervision.
7.3 Orders, consents and approvals, in form and substance reasonably
satisfactory to all the parties hereto, shall have been entered by the Office of
Thrift Supervision, (or there shall have been received satisfactory assurance
that such orders, consents or approvals are not required), granting the
authority necessary for consummation of the transactions contemplated by this
Agreement pursuant to the provisions of the Rules and Regulations of the Office
of Thrift Supervision, all other requirements prescribed by law and the rules
and regulations of any other regulatory authority having jurisdiction over the
transactions contemplated herein shall have been satisfied.
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7.4 There shall have been received from Crowe, Chizek & Company LLP,
accountants to First Federal, an opinion to the effect that:
1. No gain or loss will be recognized on the receipt of the
Holding Company Common Stock by First Federal common
shareholders who receive solely Holding Company Common Stock
in exchange for First Federal Common Stock (IRC Section
351(a)). Gain, but not loss, will be recognized by First
Federal common shareholders who receive both Holding Company
Common Stock and cash in exchange for First Federal Common
Stock, but in an amount not in excess of the cash received
(IRC Section 351(b)).
2. No gain or loss will be recognized by the Holding Company on
the receipt of cash and First Federal Common Stock solely in
exchange for shares of Holding Company Common Stock (IRC
Section 1032).
3. The basis of the Holding Company Common Stock received by a
First Federal common shareholder will be the same as the
adjusted basis of the First Federal Common Stock surrendered
in exchange therefor, decreased by the amount of any cash
received, and increased by any gain recognized in the exchange
(IRC Section 358).
4. The holding period of the Holding Company Stock received by a
First Federal common shareholder in exchange for the transfer
of First Federal Common Stock will include the period during
which the First Federal Common Stock surrendered in exchange
therefor was held, provided that the First Federal Common
Stock was held as a capital asset on the date of the exchange
(IRC Section 1223(1)).
5. The basis of the First Federal Common Stock received by the
Holding Company will be the same as the basis of the First
Federal Common Stock in the hands of the First Federal common
shareholders immediately prior to the exchange, increased by
any gain recognized by the First Federal common shareholders
in the exchange (IRC Section 362(a)).
6. The holding period of the First Federal Common Stock received
by Holding Company will include the period during which the
First Federal Common Stock was held by the First Federal
common shareholders (IRC Section 1223(2)).
7. Gain or loss, if any, will be recognized by a First Federal
common shareholder who receives solely cash in exchange for
the transfer of First Federal Common Stock.
7.6 Holders of no more than 80% of First Federal Common Stock shall
elect to receive cash as Merger Consideration (approximately $4.6 million of
cash elections).
7.7 The Holding Company will have successfully completed a public
offering for at least 100,000 shares of Holding Company Common Stock, and at
least $3,900,000 of Units, each Unit consisting of debentures and warrants to
purchase Holding Company Common Stock.
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7.8 No good faith action, suit or proceeding shall have been
instituted or shall have been threatened before any court or other governmental
body or by any public authority to restrain, enjoin or prohibit the Merger and
reorganization contemplated herein, or which might restrict the operation of the
business of the Surviving Institution or the ownership of the capital stock of
the Surviving Institution or the exercise of any rights with respect thereto by
the Holding Company, or subject any of the parties hereto or any of their
directors or officers to any liability, fine, forfeiture, or penalty on the
grounds that the transactions contemplated hereby, the parties hereto or their
directors or officers, have breached or will breach any applicable law or
regulation, or have otherwise acted improperly in connection with the
transactions contemplated hereby, and with respect to which the parties hereto
have been advised by counsel that, in the opinion of such counsel, such action,
suit or proceeding raises substantial questions of law or fact which could
reasonably be decided adversely to any party hereto or its directors or
officers.
ARTICLE VIII
ADDITIONAL CONDITIONS PRECEDENT
8.1 Each obligation of the Holding Company and New Bank to be
performed on or prior to the Effective Date shall be subject to the
satisfaction, on or before the Effective Date, of the following additional
conditions:
(a) The representations and warranties made by First Federal and
by New Bank in this Agreement shall be true as though such
representations and warranties had been made or given on and as of the
Effective Date; and
(b) The Holding Company shall have received an opinion of Silver,
Freedman & Taff, L.L.P. which shall be to the effect that:
(i) First Federal is duly organized, validly existing
and in good standing under the laws of the United States of
America and the Rules and Regulations of the Office of Thrift
Supervision;
(ii) the execution and delivery of this Agreement did
not, and the consummation of the Merger and reorganization
contemplated hereby will not, violate any provisions of the
Charter or Bylaws of First Federal;
(iii) New Bank is a capital stock thrift institution,
duly organized, validly existing and in good standing under
the laws of the United States of America and Rules and
Regulations of the Office of Thrift Supervision;
(iv) the execution and delivery of this Agreement did
not, and the consummation of the Merger and reorganization
contemplated hereby will not, violate any provisions of the
Charter or Bylaws of New Bank; and
(v) the Boards of Directors and stockholders of First
Federal and New Bank have taken all corporate action required
by their respective Charters and Bylaws and by the Rules and
Regulations of the Office of Thrift Supervision to
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authorize the execution and delivery of this Agreement and to
approve the Merger and reorganization in accordance with the
terms of this Agreement; First Federal and New Bank have
obtained the requisite approvals from the Office of Thrift
Supervision to consummate the Merger and reorganization
contemplated by this Agreement; and this Agreement is a legal,
valid and binding agreement of First Federal and New Bank in
accordance with its terms, except to the extent that
enforceability may be limited by bankruptcy laws, insolvency
laws, or other laws affecting the rights of creditors
generally or the rights of creditors of thrift institutions
the accounts of which are insured by the Federal Deposit
Insurance Corporation or which are subject to regulation by
the Office of Thrift Supervision, including but not limited to
laws relating to the availability of equitable remedies.
8.2 Each obligation of First Federal to be performed on or prior to
the Effective Date shall be subject to the satisfaction, on or before the
Effective Date, of the following additional conditions:
(a) The representations and warranties made by the Holding
Company and by New Bank contained in this Agreement shall be true as
though such representations and warranties had been made or given at
and as of the Effective Date;
(b) This Agreement and the transactions contemplated hereby shall
have been duly and validly authorized, approved and adopted by the
Holding Company and by New Bank; and
(c) First Federal shall have received an opinion of Silver,
Freedman & Taff, L.L.P. which shall be to the effect that:
(i) The Holding Company is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware;
(ii) The Holding Company has corporate power to execute and
deliver this Agreement; the Board of Directors and the Holding
Company Stockholder have taken all action required by its
Certificate of Incorporation and Bylaws to authorize such
execution and delivery, to approve the Merger and reorganization
contemplated hereby and to authorize the issuance of the shares
of Holding Company Common Stock necessary to consummate the
Merger and reorganization; and this Agreement is the legal, valid
and binding agreement of the Holding Company in accordance with
its terms, except to the extent that enforceability may be
limited by bankruptcy laws, insolvency laws, or other laws
affecting the rights of the creditors generally, including but
not limited to laws relating to the availability of equitable
remedies;
(iii) New Bank is a capital stock thrift institution duly
organized, validly existing and in good standing under the laws
of the United States of America and the Rules and Regulations of
the Office of Thrift Supervision;
(iv) New Bank has corporate power to execute, deliver and
perform this Agreement; the Board of Directors and the
stockholder of New Bank have taken
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all action required by its Charter and Bylaws and by the Rules
and Regulations of the Office of Thrift Supervision to authorize
such execution, delivery and performance and to approve the
Merger; and this Agreement is the legal, valid and binding
agreement of New Bank in accordance with its terms, except to the
extent that enforceability may be limited by bankruptcy laws,
insolvency laws, or other laws affecting the rights of creditors
generally or the rights of creditors of thrift institutions the
accounts of which are insured by the Federal Deposit Insurance
Corporation or which are subject to regulation by the Office of
Thrift Supervision, including but not limited to laws relating to
the availability of equitable remedies; and
(v) The Holding Company and New Bank have obtained or will
obtain the requisite approvals from the Office of Thrift
Supervision to consummate the Merger and reorganization
contemplated by this Agreement.
In rendering opinions provided for in this Agreement, counsel may rely
upon opinions of other counsel and, as to matters of fact, upon certificates of
public officials and of any officer or officers of First Federal, New Bank and
the Holding Company.
ARTICLE IX
AMENDMENTS
First Federal, the Holding Company and New Bank, by mutual consent of
their respective Boards of Directors or incorporators, as the case may be, to
the extent permitted by law, may amend, modify, supplement and interpret this
Agreement in such manner as may be mutually agreed upon by them in writing at
any time before or after the approval and adoption thereof by the stockholders
of First Federal, provided, however, that no such amendment, modification,
supplement or interpretation shall have a materially adverse impact on First
Federal or its stockholders except with the approval of the stockholders of
First Federal.
ARTICLE X
TERMINATION AND ABANDONMENT
10.1 Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated and the Merger and
reorganization abandoned at any time (whether before or after the approval and
adoption thereof by the stockholders of First Federal) prior to the Effective
Date:
(a) By mutual consent of the parties hereto;
(b) By the Holding Company or New Bank, if any condition set
forth in Sections 7.1 through 7.8 of Article VII or Section 8.1 of
Article VIII has not been met or has not been validly waived or if; or
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(c) By First Federal, if any condition set forth in Sections
7.1 through 7.8 of Article VII or Section 8.2 of Article VIII has not
been met or has not been validly waived or if the holders of more than
10 percent of the outstanding voting stock of First Federal deliver
properly to First Federal a demand for appraisal and payment for
shares pursuant to 12 C.F.R. Section 552.14.
10.2 An election by a party hereto to terminate this Agreement and
abandon the Merger as provided in Section 10.1 shall be exercised on behalf of
such thrift institution or corporation by its Board of Directors or
incorporators, as may be the case.
10.3 In the event of the termination of this Agreement pursuant to the
provisions of Section 10.1 hereof, this Agreement shall become void and have no
effect and create no liability on the part of any of the parties hereto or their
respective incorporators, directors, officers or stockholders in respect to this
Agreement.
10.4 Any of the terms or conditions of this Agreement (other than the
necessary approvals of stockholders and government authorities) may be waived at
any time by the party which is entitled to the benefit thereof, by action taken
by its Board of Directors; provided, however, that such action shall be taken
only if, in the judgment of the Board of Directors taking the action, such
waiver will not have a materially adverse effect on the benefits intended under
this Agreement to be afforded to the stockholders of First Federal.
ARTICLE XI
EFFECTIVE DATE
The effective date of the Merger ("Effective Date") shall be the last
day of the calendar month during which the last to occur of the following events
takes place: (i) the Merger is approved by the Office of Thrift Supervision and
the Articles of Combination are executed by the Office of Thrift Supervision,
(ii) all other required regulatory approvals have been obtained, and (iii) all
other conditions to the Merger herein set forth have been met. The Boards of
Directors of First Federal, New Bank and the Holding Company each specifically
and expressly delegate to their respective chief executive officers the
authority to change, by mutual consent of such officers, the Effective Date of
the Merger if necessary to properly and efficiently accomplish the Merger.
However, in no event shall the Merger become effective unless and until approved
by the Office of Thrift Supervision.
ARTICLE XII
TERMINATION OF REPRESENTATIONS AND
WARRANTIES AND CERTAIN AGREEMENTS
The respective representations, warranties, covenants and agreements
of the parties hereto in Articles III, IV and V hereof shall expire with, and be
terminated and extinguished by, the Merger and reorganization pursuant to this
Agreement at the time of the consummation thereof on the Effective Date. None of
the parties shall be under any liability whatsoever with respect
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<PAGE>
to any such representation, warranty, covenant or agreement which does not
survive the Merger and reorganization, it being intended that the sole remedy of
the parties for a breach of any such representation, warranty, covenant or
agreement shall be to elect not to proceed with the Merger and reorganization if
such breach has resulted in the failure to satisfy a condition precedent to such
party's obligation to consummate the transactions contemplated hereby.
ARTICLE XIII
MISCELLANEOUS
13.1 This Agreement embodies the entire agreement among the parties
and there have been and are no agreements, representations or warranties among
the parties other than those set forth or provided for herein.
13.2 Any number of counterparts hereof may be executed and each such
counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one instrument.
13.3 Any notice or waiver to be given to any party shall be in writing
and shall be deemed to have been duly given if delivered, mailed, or sent by
prepaid telegram, addressed to such party at 2900 Texas Avenue, Bryan, Texas
77802.
13.4 The captions contained in this Agreement are solely for
convenient reference and shall not be deemed to affect the meaning or
interpretation of any paragraph hereof.
13.5 First Federal will pay all fees and expenses incurred in
connection with the transactions contemplated by this Agreement.
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IN WITNESS WHEREOF, First Federal, New Bank and the Holding Company
each under the authority of its Board of Directors, and Richard E. Belcher have
caused this Agreement to be executed with the intent to be legally bound hereby.
FIRST FEDERAL SAVINGS BANK
ATTEST:
By: /s/ Charles Neelley By: /s/ J. Stanley Stephen
Charles Neelley, Secretary J. Stanley Stephen,
President and Chief Executive Officer
Date: Date:
NEW FIRST FEDERAL SAVINGS
ATTEST: BANK
By: /s/ Charles Neelley By: /s/J. Stanley Stephen
Charles Neelley, Secretary J. Stanley Stephen
President and Chief Executive Officer
Date: Date:
ATTEST: THE BRYAN-COLLEGE STATION
FINANCIAL HOLDING COMPANY
By: /s/ Charles Neelley By: /s/ J. Stanley Stephen
Charles Neelley, Secretary J. Stanley Stephen
President and Chief Executive Officer
Date: Date:
Witness:
/s/ Charles Neelley /s/ J. Stanley Stephen
Charles Neelley J. Stanley Stephen
Date: Date:
17
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SCHEDULE A
OFFICES OF SURVIVING INSTITUTION
MAIN OFFICE
2900 Texas Avenue
Bryan, Texas 77802
BRANCH OFFICE
2200 Longmire
College Station, Texas
LOAN PRODUCTION OFFICES
510 N. Valley Mills Drive
Waco, Texas 76710
701 Normal Park, Suite 208E
Huntsville, Texas 77340
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SCHEDULE B
DIRECTORS OF SURVIVING INSTITUTION
Term
Name Address Expires
---- ------- -------
J. Stanley Stephen 2900 Texas Avenue 1997
Bryan, Texas 77802
Ken Hayes 2900 Texas Avenue 1997
Bryan, Texas 77802
Charles Neelley 2900 Texas Avenue 1997
Bryan, Texas 77802
George Koenig 2900 Texas Avenue 1997
Bryan, Texas 77802
Ernest A. Wentrcek 2900 Texas Avenue 1998
Bryan, Texas 77802
Robert H. Conaway 2900 Texas Avenue 1998
Bryan, Texas 77802
Richard L. Peacock 2900 Texas Avenue 1999
Bryan, Texas 77802
Jack W. Lester, Jr. 2900 Texas Avenue 1999
Bryan, Texas 77802
Phil Hobson 2900 Texas Avenue 1999
Bryan, Texas 77802
J. Roland Ruffino 2900 Texas Avenue 1999
Bryan, Texas 77802
Successor or substitute directors may be named, subject to compliance
with the requirements of applicable law and the Charter and Bylaws of the
Surviving Institution.
19
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY
The Bryan-College Station Financial Holding Company, a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, hereby certifies as follows:
The Bryan-College Station Financial Holding Company, a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "Corporation") does hereby certify:
1. The name of the corporation is The Bryan-College Station Financial
Holding Company. The Bryan-College Station Financial Holding Company was
originally incorporated under the same name, and the original Certificate of
Incorporation was filed with the Secretary of State of the State of Delaware on
December 10, 1996.
2. The Corporation has not received payment for any of its stock.
3. This Amended and Restated Certificate of Incorporation, approved and
adopted by the sole incorporator, restates and integrates and further amends the
provisions of the Certificate of Incorporation of this corporation in accordance
with Sections 241 and 245 of the General Corporation Law of the State of
Delaware.
3. The Restated Certificate of Incorporation was duly adopted in
accordance with the applicable provisions of Section 245 of the General
Corporation Law of the State of Delaware.
4. The text of the Amended and Restated Certificate of Incorporation is
hereby restated and further amended to read in its entirety as follows:
FIRST: The name of the Corporation is The Bryan-College Station
Financial Holding Company (hereinafter sometimes referred to as the
"Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent at that
address is The Corporation Trust Company.
<PAGE>
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
FOURTH:
A. The total number of shares of all classes of stock which
the Corporation shall have the authority to issue is four million (4,000,000)
consisting of:
1. One million (1,000,000) shares of preferred stock,
par value one cent ($.01) per share (the "Preferred Stock");
and
2. Three million (3,000,000) shares of common stock,
par value one cent ($.01) per share (the "Common Stock").
B. Each holder of any of the shares of the Common Stock of the
corporation shall be entitled to a preemptive right to purchase or subscribe for
any unissued stock of any class of voting stock or any additional shares of any
class to be issued by reason of any increase of the authorized capital stock of
the corporation of any class, or bonds, certificates of indebtedness, debentures
or other securities convertible into voting stock of the corporation, or
carrying any rights to purchase stock of any class of voting stock, whether said
unissued stock shall be issued for cash, property, or any other lawful
consideration, and, without limitation of the foregoing, shall have such a
preemptive right with respect to such shares or other securities offered for
sale if they (a) are issued or optioned by the board of directors to effect a
merger or consolidation or for a consideration other than cash; and (b) are part
of the shares or other securities of the corporation originally authorized in
its certificate of incorporation in excess of the shares which are issued in the
initial public offering of the corporation's common stock (including shares
exchanged for subsidiary common stock simultaneously therewith). If such
preemptive right is not exercised within thirty (30) calendar days of the date
upon which notice of a transaction is delivered to such holder the preemptive
right shall be deemed waived as to such securities.
C. The Board of Directors is hereby expressly authorized,
subject to any limitations prescribed by law, to provide for the issuance of the
shares of Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware (such certificate being hereinafter
referred to as a "Preferred Stock Designation"), to establish from time to time
the number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and any qualifications, limitations or restrictions thereof. The number of
authorized shares of the Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative vote of
the holders of a majority of the Common Stock, without a vote of the holders of
the Preferred Stock, or of any series thereof, unless a vote of any such holders
is required pursuant to the terms of any Preferred Stock Designation.
2
<PAGE>
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors. In addition to the
powers and authority expressly conferred upon them by Statute or by this
Certificate of Incorporation or the By-laws of the Corporation, the directors
are hereby empowered to exercise all such powers and do all such acts and things
as may be exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by
written ballot unless the By-laws so provide.
C. Subject to the rights of holders of any class or series of
Preferred Stock, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not be effected by
any consent in writing by such stockholders.
D. Subject to the rights of holders of any class or series of
Preferred Stock, special meetings of stockholders of the Corporation may be
called only by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of directors which the Corporation would have if
there were no vacancies on the Board of Directors (the "Whole Board").
E. Stockholders shall not be permitted to cumulate their votes
for the election of directors.
SIXTH:
A. The number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board. The directors, other than those who may be elected
by the holders of any class or series of preferred stock, shall be elected for a
term of one year, with the term of office to expire at the conclusion of the
first annual meeting of stockholders, with each director to hold office until
his or her successor shall have been duly elected and qualified. At each annual
meeting of stockholders, commencing with the first annual meeting, directors
elected to succeed those directors whose terms expire shall be elected for a
term of office to expire at the first succeeding annual meeting of stockholders
after their election, with each director to hold office until his or her
successor shall have been duly elected and qualified.
B. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, newly created directorships resulting from any
increase in the authorized number of directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled only by a majority
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<PAGE>
vote of the directors then in office, though less than a quorum, and directors
so chosen shall hold office for a term expiring at the annual meeting of
stockholders at which the term of office of the class to which they have been
elected expires, and until such director's successor shall have been duly
elected and qualified. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
C. Advance notice of stockholder nominations for the election
of directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
By-laws of the Corporation.
D. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any directors, or the entire Board of
Directors, may be removed from office at any time, but only for cause (as such
term is defined under the applicable law of the State of Delaware) and only by
the affirmative vote of the holders of at least 80% of the voting power of all
of the then-outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors, voting together as a single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend
or repeal the By-laws of the Corporation. Any adoption, amendment or repeal of
the By-laws of the Corporation by the Board of Directors shall require the
approval of a majority of the Whole Board. The stockholders shall also have
power to adopt, amend or repeal the By-laws of the Corporation. In addition to
any vote of the holders of any class or series of stock of this Corporation
required by law or by this Certificate of Incorporation, the affirmative vote of
the holders of at least 80% of the voting power of all of the then-outstanding
shares of the capital stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class, shall be required to
adopt, amend or repeal any provisions of the By-laws of the Corporation.
EIGHTH:
A. In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly provided in this
Section:
1. any merger or consolidation of the Corporation or
any Subsidiary (as hereinafter defined) with (i) any Interested
Stockholder (as hereinafter defined) or (ii) any other corporation
(whether or not itself an Interested Stockholder) which is, or after
such merger or consolidation would be, an Affiliate (as hereinafter
defined) of an Interested Stockholder; or
2. any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of
transactions) to or with any Interested Stockholder, or any Affiliate
of any Interested Stockholder, of any assets of the Corporation or any
Subsidiary having an aggregate Fair Market Value (as hereafter
4
<PAGE>
defined) equaling or exceeding 25% or more of the combined assets of
the Corporation and its Subsidiaries; or
3. the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any Interested
Stockholder or any Affiliate of any Interested Stockholder in exchange
for cash, securities or other property (or a combination thereof)
having an aggregate Fair Market Value equaling or exceeding 25% of the
combined assets of the Corporation and its Subsidiaries except pursuant
to an employee benefit plan of the Corporation or any Subsidiary
thereof; or
4. the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by or on behalf
of any Interested Stockholder or any Affiliate of any Interested
Stockholder; or
5. any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation, or any
merger or consolidation of the Corporation with any of its Subsidiaries
or any other transaction (whether or not with or into or otherwise
involving an Interested Stockholder) which has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding
shares of any class of equity or convertible securities of the
Corporation or any Subsidiary which is directly or indirectly owned by
any Interested Stockholder or any Affiliate of any Interested
Stockholder (a "Disproportionate Transaction"); provided, however, that
no such transaction shall be deemed a Disproportionate Transaction if
the increase in the proportionate ownership of the Interested
Stockholder or Affiliate as a result of such transaction is no greater
than the increase experienced by the other stockholders generally;
shall require the affirmative vote of the holders of at least 80% of the voting
power of the then-outstanding shares of stock of the Corporation entitled to
vote in the election of directors (the "Voting Stock"), voting together as a
single class. Such affirmative vote shall be required notwithstanding the fact
that no vote may be required, or that a lesser percentage may be specified, by
law or by any other provisions of this Certificate of Incorporation or any
Preferred Stock Designation or in any agreement with any national securities
exchange or quotation system or otherwise.
The term "Business Combination" as used in this Article EIGHTH shall
mean any transaction which is referred to in any one or more of paragraphs 1
through 5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall
not be applicable to any particular Business Combination, and such Business
Combination shall require only the affirmative vote of the majority of the
outstanding shares of capital stock entitled to vote, or such vote as is
required by law or by this Certificate of Incorporation, if, in the case of any
Business Combination that does not involve any cash or other consideration being
received by
5
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the stockholders of the Corporation solely in their capacity as stockholders of
the Corporation, the condition specified in the following paragraph 1 is met or,
in the case of any other Business Combination, all of the conditions specified
in either of the following paragraphs 1 and 2 are met:
1. The Business Combination shall have been approved
by a majority of the Disinterested Directors (as hereinafter defined).
2. All of the following conditions shall have been
met:
(a) The aggregate amount of the cash and the
Fair Market Value as of the date of the consummation of the
Business Combination of consideration other than cash to be
received per share by the holders of Common Stock in such
Business Combination shall at least be equal to the higher of
the following:
I. (if applicable) the Highest Per
Share Price, including any brokerage commissions,
transfer taxes and soliciting dealers' fees, paid by
the Interested Stockholder or any of its Affiliates
for any shares of Common Stock acquired by it (X)
within the two-year period immediately prior to the
first public announcement of the proposal of the
Business Combination (the "Announcement Date"), or
(Y) in the transaction in which it became an
Interested Stockholder, whichever is higher.
II. the Fair Market Value per share
of Common Stock on the Announcement Date or on the
date on which the Interested Stockholder became an
Interested Stockholder (such latter date is referred
to in this Article EIGHTH as the "Determination
Date"), whichever is higher.
(b) The aggregate amount of the cash and the
Fair Market Value as of the date of the consummation of the
Business Combination of consideration other than cash to be
received per share by holders of shares of any class of
outstanding Voting Stock other than Common Stock shall be at
least equal to the highest of the following (it being intended
that the requirements of this subparagraph (b) shall be
required to be met with respect to every such class of
outstanding Voting Stock, whether or not the Interested
Stockholder has previously acquired any shares of a particular
class of Voting Stock):
I. (if applicable) the Highest Per
Share Price (as hereinafter defined), including any
brokerage commissions, transfer taxes and soliciting
dealers' fees, paid by the Interested Stockholder for
any shares of such class of Voting Stock acquired by
it (X) within the two-
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year period immediately prior to the Announcement
Date, or (Y) in the transaction in which it became an
Interested Stockholder, whichever is higher;
II. (if applicable) the highest
preferential amount per share to which the holders of
shares of such class of Voting Stock are entitled in
the event of any voluntary or involuntary
liquidation, dissolution or winding up of the
Corporation; and
III. the Fair Market Value per share
of such class of Voting Stock on the Announcement
Date or on the Determination Date, whichever is
higher.
(c) The consideration to be received by
holders of a particular class of outstanding Voting Stock
(including Common Stock) shall be in cash or in the same form
as the Interested Stockholder has previously paid for shares
of such class of Voting Stock. If the Interested Stockholder
has paid for shares of any class of Voting Stock with varying
forms of consideration, the form of consideration to be
received per share by holders of shares of such class of
Voting Stock shall be either cash or the form used to acquire
the largest number of shares of such class of Voting Stock
previously acquired by the Interested Stockholder. The price
determined in accordance with subparagraph B.2 of this Article
EIGHTH shall be subject to appropriate adjustment in the event
of any stock dividend, stock split, combination of shares or
similar event.
(d) After such Interested Stockholder has
become an Interested Stockholder and prior to the consummation
of such Business Combination; (i) except as approved by a
majority of the Disinterested Directors, there shall have been
no failure to declare and pay at the regular date therefor any
full quarterly dividends (whether or not cumulative) on any
outstanding stock having preference over the Common Stock as
to dividends or liquidation; (ii) there shall have been (X) no
reduction in the annual rate of dividends paid on the Common
Stock (except as necessary to reflect any subdivision of the
Common Stock), except as approved by a majority of the
Disinterested Directors, and (Y) 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 Common Stock,
unless the failure to so increase such annual rate is approved
by a majority of the Disinterested Directors; and (iii)
neither such Interested Stockholder nor any of its Affiliates
shall have become the beneficial owner of any additional
shares of Voting Stock except as part of the transaction which
results in such Interested Stockholder becoming an Interested
Stockholder.
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(e) After such Interested Stockholder has
become an Interested Stockholder, such Interested Stockholder
shall not have received the benefit, directly or indirectly
(except proportionately as a stockholder), of any loans,
advances, guarantees, pledges or other financial assistance or
any tax credits or other tax advantages provided by the
Corporation, whether in anticipation of or in connection with
such Business Combination or otherwise.
(f) A proxy or information statement
describing the proposed Business Combination and complying
with the requirements of the Securities Exchange Act of 1934
and the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations) shall be
mailed to stockholders of the Corporation at least 30 days
prior to the consummation of such Business Combination
(whether or not such proxy or information statement is
required to be mailed pursuant to such Act or subsequent
provisions).
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a group
acting in concert, a corporation, a partnership, an association, a
joint venture, a pool, a joint stock company, a trust, an
unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing
of securities.
2. "Interested Stockholder" shall mean any Person
(other than the Corporation or any holding company or Subsidiary
thereof) who or which:
(a) is the beneficial owner, directly or
indirectly, of more than 25% of the voting power of the
outstanding Voting Stock; or
(b) is an Affiliate of the Corporation and
at any time within the two-year period immediately prior to
the date in question was the beneficial owner, directly or
indirectly, of 25% or more of the voting power of the
then-outstanding Voting Stock; or
(c) is an assignee of or has otherwise
succeeded to any shares of Voting Stock which were at any time
within the two-year period immediately prior to the date in
question beneficially owned by any Interested Stockholder, 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.
3. A Person shall be a "beneficial owner" of any
Voting Stock:
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(a) which such Person or any of its
Affiliates or Associates (as hereinafter defined) beneficially
owns, directly or indirectly within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934, as in effect on
December 10, 1996; or
(b) which such Person or any of its
Affiliates or Associates has (i) the right to acquire (whether
such right is exercisable 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, or (ii)
the right to vote pursuant to any agreement, arrangement or
understanding (but neither such Person nor any such Affiliate
or Associate shall be deemed to be the beneficial owner of any
shares of Voting Stock solely by reason of a revocable proxy
granted for a particular meeting of stockholders, pursuant to
a public solicitation of proxies for such meeting, and with
respect to which shares neither such Person nor any such
Affiliate or Associate is otherwise deemed the beneficial
owner); or
(c) which are beneficially owned, directly
or indirectly within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, as in effect on December 10,
1996, by any other Person with which such Person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purposes of acquiring, holding, voting
(other than solely by reason of a revocable proxy as described
in Subparagraph (b) of this Paragraph 3) or in disposing of
any shares of Voting Stock;
provided, however, that, in the case of any employee stock ownership or
similar plan of the Corporation or of any Subsidiary in which the
beneficiaries thereof possess the right to vote any shares of Voting
Stock held by such plan, no such plan nor any trustee with respect
thereto (nor any Affiliate of such trustee), solely by reason of such
capacity of such trustee, shall be deemed, for any purposes hereof, to
beneficially own any shares of Voting Stock held under any such plan.
4. For the purpose of determining whether a Person is
an Interested Stockholder pursuant to Paragraph 2 of this Section C,
the number of shares of Voting Stock deemed to be outstanding shall
include shares deemed owned through application of Paragraph 3 of this
Section C but shall not include any other shares of Voting Stock which
may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or
options, or otherwise.
5. "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as in
effect on December 10, 1996.
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6. "Subsidiary" means any corporation of which a
majority of any class of equity security is owned, directly or
indirectly, by the Corporation; provided, however, that for the
purposes of the definition of Interested Stockholder set forth in
Paragraph 2 of this Section C, the term "Subsidiary" shall mean only a
corporation of which a majority of each class of equity security is
owned, directly or indirectly, by the Corporation.
7. "Disinterested Director" means any member of the
Board of Directors who is unaffiliated with the Interested Stockholder
and was a member of the Board of Directors prior to the time that the
Interested Stockholder became an Interested Stockholder, and any
director who is thereafter chosen to fill any vacancy on the Board of
Directors or who is elected and who, in either event, is unaffiliated
with the Interested Stockholder, and in connection with his or her
initial assumption of office is recommended for appointment or election
by a majority of Disinterested Directors then on the Board of
Directors.
8. "Fair Market Value" means: (a) in the case of
stock, the highest closing sales price of the stock during the 30-day
period immediately preceding the date in question of a share of such
stock of the Nasdaq System or any system then in use, or, if such stock
is admitted to trading on a principal United States securities exchange
registered under the Securities Exchange Act of 1934, Fair Market Value
shall be the highest sale price reported during the 30-day period
preceding the date in question, or, if no such quotations are
available, the Fair Market Value on the date in question of a share of
such stock as determined by the Board of Directors in good faith, in
each case with respect to any class of stock, appropriately adjusted
for any dividend or distribution in shares of such stock or in
combination or reclassification of outstanding shares of such stock
into a smaller number of shares of such stock, and (b) 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 the Board of
Directors in good faith.
9. Reference to "Highest Per Share Price" shall in
each case with respect to any class of stock reflect an appropriate
adjustment for any dividend or distribution in shares of such stock or
any stock split or reclassification of outstanding shares of such stock
into a greater number of shares of such stock or any combination or
reclassification of outstanding shares of such stock into a smaller
number of shares of such stock.
10. In the event of any Business Combination in which
the Corporation survives, the phrase "consideration other than cash to
be received" as used in Subparagraphs (a) and (b) of Paragraph 2 of
Section B of this Article EIGHTH shall include the shares of Common
Stock and/or the shares of any other class of outstanding Voting Stock
retained by the holders of such shares.
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D. A majority of the Disinterested Directors of the
Corporation shall have the power and duty to determine for the purposes of this
Article EIGHTH, on the basis of information known to them after reasonable
inquiry, (a) whether a person is an Interested Stockholder; (b) the number of
shares of Voting Stock beneficially owned by any person; (c) whether a person is
an Affiliate or Associate of another; and (d) whether the assets which are the
subject of any Business Combination have, or the consideration to be received
for the issuance or transfer of securities by the Corporation or any Subsidiary
in any Business Combination has an aggregate Fair Market Value equaling or
exceeding 25% of the combined assets of the Corporation and its Subsidiaries. A
majority of the Disinterested Directors shall have the further power to
interpret all of the terms and provisions of this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed
to relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least 80% of the voting power of all of the then-outstanding
shares of the Voting Stock, voting together as a single class, shall be required
to alter, amend or repeal this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any
offer of another Person (as defined in Article EIGHTH hereof) to (A) make a
tender or exchange offer for any equity security of the Corporation, (B) merge
or consolidate the Corporation with another corporation or entity or (C)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, may, in connection with the exercise of its judgment
in determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, the social and economic effect of acceptance of such offer on the
Corporation's present and future customers and employees and those of its
Subsidiaries (as defined in Article EIGHTH hereof); on the communities in which
the Corporation and its Subsidiaries operate or are located; on the ability of
the Corporation to fulfill its corporate objectives as a financial institution
holding company and on the ability of its subsidiary financial institution to
fulfill the objectives of a federally insured financial institution under
applicable statutes and regulations.
TENTH:
A. Except as set forth in Section B of this Article TENTH, in
addition to any affirmative vote of stockholders required by law or this
Certificate of Incorporation, any direct or indirect purchase or other
acquisition by the Corporation of any Equity Security (as hereinafter defined)
of any class from any Interested Person (as hereinafter defined) shall require
the affirmative vote of the holders of at least 80% of the Voting Stock of the
Corporation that is not beneficially owned (as hereinafter defined) by such
Interested Person, voting together as
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a single class. Such affirmative vote shall be required notwithstanding the fact
that no vote may be required, or that a lesser percentage may be specified, by
law or by any other provisions of this Certificate of Incorporation or any
Preferred Stock Designation or in any agreement with any national securities
exchange or quotation system, or otherwise. Certain defined terms used in this
Article TENTH are as set forth in Section C below.
B. The provisions of Section A of this Article TENTH shall not
be applicable with respect to:
1. any purchase or other acquisition of securities
made as part of a tender or exchange offer by the Corporation or a
Subsidiary (which term, as used in this Article TENTH, is as defined in
the first clause of Section C.6 of Article EIGHTH hereof) of the
Corporation to purchase securities of the same class made on the same
terms to all holders of such securities and complying with the
applicable requirements of the Securities Exchange Act of 1934 and the
rules and regulations thereunder (or any subsequent provision replacing
such Act, rules or regulations);
2. any purchase or acquisition made pursuant to an
open market purchase program approved by a majority of the Board of
Directors, including a majority of the Disinterested Directors (which
term, as used in this Article TENTH, is as defined in Article EIGHTH
hereof); or
3. any purchase or acquisition which is approved by a
majority of the Board of Directors, including a majority of the
Disinterested Directors, and which is made at no more than the Market
Price (as hereinafter defined), on the date that the understanding
between the Corporation and the Interested Person is reached with
respect to such purchase (whether or not such purchase is made or a
written agreement relating to such purchase is executed on such date),
of shares of the class of Equity Security to be purchased.
C. For the purposes of this Article TENTH:
1. The term Interested Person shall mean any Person
(other than the Corporation, Subsidiaries of the Corporation, pension,
profit sharing, employee stock ownership or other employee benefit
plans of the Corporation and its Subsidiaries, entities organized or
established by the Corporation or any of its Subsidiaries pursuant to
the terms of such plans and trustees and fiduciaries with respect to
any such plan acting in such capacity) that is the direct or indirect
beneficial owner of 25% or more of the Voting Stock of the Corporation,
and any Affiliate or Associate of any such person.
2. The Market Price of shares of a class of Equity
Security on any day shall mean the highest sale price of shares of such
class of Equity Security on such day, or, if that day is not a trading
day, on the trading day immediately preceding such day,
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on the national securities exchange or the Nasdaq System or any other
system then in use on which such class of Equity Security is traded.
3. The term Equity Security shall mean any security
described in Section 3(a)(11) of the Securities Exchange Act of 1934,
as in effect on December 10, 1996, which is traded on a national
securities exchange or the Nasdaq System or any other system then in
use.
4. For purposes of this Article TENTH, all references
to the term Interested Stockholder in the definition of Disinterested
Director shall be deemed to refer to the term Interested Person.
5. Beneficial ownership shall be determined pursuant
to Rule 13d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934 (or any successor rule or statutory provision),
or, if said Rule 13d-3 shall be rescinded and there shall be no
successor rule or statutory provision thereto, pursuant to said Rule
13d-3 as in effect on December 10, 1996; provided, however, that a
person shall, in any event, also be deemed the "beneficial owner" of
any Common Stock:
(a) which such person or any of its
affiliates beneficially owns, directly or indirectly; or
(b) which such person or any of its
affiliates has (i) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding (but
shall not be deemed to be the beneficial owner of any voting
shares solely by reason of an agreement, contract, or other
arrangement with this Corporation to effect any transaction
which is described in any one or more of the clauses of
Section A of Article EIGHTH) or upon the exercise of
conversion rights, exchange rights, warrants, or options or
otherwise, or (ii) sole or shared voting or investment power
with respect thereto pursuant to any agreement, arrangement,
understanding, relationship or otherwise (but shall not be
deemed to be the beneficial owner of any voting shares solely
by reason of a revocable proxy granted for a particular
meeting of stockholders, pursuant to a public solicitation of
proxies for such meeting, with respect to shares of which
neither such person nor any such affiliate is otherwise deemed
the beneficial owner); or
(c) which are beneficially owned, directly
or indirectly, by any other person with which such first
mentioned person or any of its affiliates acts as a
partnership, limited partnership, syndicate or other group
pursuant to any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of any
shares of capital stock of this Corporation;
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and provided further, however, that (1) no director or officer of this
Corporation (or any affiliate of any such director or officer) shall,
solely by reason of any or all of such directors or officers acting in
their capacities as such, be deemed, for any purposes hereof, to
beneficially own any Common Stock beneficially owned by any other such
director or officer (or any affiliate thereof), and (2) neither any
employee stock ownership or similar plan of this Corporation or any
subsidiary of this Corporation nor any trustee with respect thereto (or
any affiliate of such trustee) shall, solely by reason of such capacity
of such trustee, be deemed, for any purposes hereof, to beneficially
own any Common Stock held under any such plan. For purposes of
computing the percentage beneficial ownership of Common Stock of a
person, the outstanding Common Stock shall include shares deemed owned
by such person through application of this subsection but shall not
include any other Common Stock which may be issuable by this
Corporation pursuant to any agreement, or upon exercise of conversion
rights, warrants or options, or otherwise. For all other purposes, the
outstanding Common Stock shall include only Common Stock then
outstanding and shall not include any Common Stock which may be
issuable by this Corporation pursuant to any agreement, or upon the
exercise of conversion rights, warrants or options, or otherwise.
ELEVENTH:
A. Each person who was or is made a party or is threatened to
be made a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a director or an
officer of the Corporation or is or was serving at the request of the
Corporation as a director or officer of another corporation, including, without
limitation, any Subsidiary (as defined in Article EIGHTH herein), partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a director or officer or
in any other capacity while serving as a director or officer, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than such law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
court costs, judgments, fines, ERISA excise taxes or penalties and amounts paid
in settlement) reasonably incurred or suffered by such indemnitee in connection
therewith; provided, however, that, except as provided in Section C hereof with
respect to proceedings to enforce rights to indemnification, the Corporation
shall indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part thereof)
was authorized by the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this
Article shall include the right to be paid by the Corporation the expenses
(including incidental expenses) incurred in defending any such proceeding in
advance of its final disposition (hereinafter an
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"advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication"), that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article shall be contract rights
and such rights shall continue as to an indemnitee who has ceased to be a
director or officer and shall inure to the benefit of the indemnitee's heirs,
executors and administrators.
C. If a claim under Section A or B of this Article is not paid
in full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in any
such suit, or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall also be
entitled to be paid the expense of prosecuting or defending such suit. In (i)
any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking the Corporation shall be entitled to recover such expenses upon a
final adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the indemnitee has not met such
applicable standard of conduct, shall create a presumption that the indemnitee
has not met the applicable standard of conduct or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this Article or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of
expenses conferred in this Article shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, regulation,
the Corporation's Certificate of Incorporation, By-laws, agreement, vote of
stockholders or Disinterested Directors or otherwise.
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E. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to
time by a majority vote of the disinterested directors, grant rights to
indemnification and to the advancement of expenses to any employee or agent of
the Corporation to the fullest extent of the provisions of this Article with
respect to the indemnification and advancement of expenses of directors and
officers of the Corporation.
G. Notwithstanding the foregoing, for so long as the
Corporation is a depository institution holding company, this Article ELEVENTH
shall be subject to any limitation imposed by applicable federal law or
regulation upon the indemnification by similarly situation depository
institution holding companies.
TWELFTH: A director of this Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is hereafter
amended to further eliminate or limit the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law, as so
amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
THIRTEENTH: The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; provided, however, that,
notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80% of the voting power of all of
the then-outstanding shares of the capital stock of the Corporation entitled to
vote generally in the election of directors , voting together as a single class,
shall be required to amend or repeal this Article THIRTEENTH, clause B of
Article FOURTH, clauses C or D of Article FIFTH, Article SIXTH, Article SEVENTH,
Article EIGHTH, Article TENTH or Article ELEVENTH.
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FOURTEENTH: The name and mailing address of the sole incorporator is as
follows:
NAME MAILING ADDRESS
J. Stanley Stephen 2900 Texas Avenue
Bryan, Texas 77802
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I, THE UNDERSIGNED, being the incorporator, for the purpose of forming
a corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation, do certify that the facts herein stated are
true, and, accordingly, have hereto set my hand this 21st day of April, 1997.
/s/ J. Stanley Stephen
------------------------------------
J. Stanley Stephen, Incorporator
THE BRYAN - COLLEGE STATION FINANCIAL HOLDING COMPANY
BY-LAWS
ARTICLE I
STOCKHOLDERS
Section 1. Annual Meeting.
An annual meeting of the stockholders, for the election of directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix.
Section 2. Special Meetings.
Subject to the rights of the holders of any class or series of
preferred stock of The Bryan- College Station Holding Company (hereinafter the
"Corporation"), special meetings of stockholders of the Corporation may be
called only by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of directors which the Corporation would have if
there were no vacancies on the Board of Directors (hereinafter the "Whole
Board").
Section 3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten nor more than 60 days before the
date on which the meeting is to be held, to each stockholder entitled to vote at
such meeting, except as otherwise provided herein or required by law (meaning,
here and hereinafter, as required from time to time by the Delaware General
Corporation Law or the Certificate of Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than 30
days after the date for which the meeting was originally noticed, or if a new
record date is fixed for the adjourned meeting, written notice of the place,
date and time of the adjourned meeting shall be given in conformity herewith. At
any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
At any meeting of the stockholders, the holders of at least one-third
of all of the shares of the stock entitled to vote at the meeting, present in
person or by proxy, shall constitute a quorum for all purposes, unless or except
to the extent that the presence of a larger number may be required by law. Where
a separate vote by a class or classes is required, a majority of the shares of
such class or classes, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to that vote on that
matter.
<PAGE>
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by law,
those present at such adjourned meeting shall constitute a quorum, and all
matters shall be determined by a majority of the votes cast at such meeting.
Section 5. Organization.
Such person as the Board of Directors may have designated or, in the
absence of such a person, the President of the Corporation or, in his or her
absence, such person as may be chosen by the holders of a majority of the shares
entitled to vote who are present, in person or by proxy, shall call to order any
meeting of the stockholders and act as chairman of the meeting. In the absence
of the Secretary of the Corporation, the secretary of the meeting shall be such
person as the chairman appoints.
Section 6. Conduct of Business.
(a) The chairman of any meeting of stockholders shall
determine the order of business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seem to him
or her in order.
(b) At any annual meeting of the stockholders, only such
business shall be conducted as shall have been brought before the meeting (i) by
or at the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the Corporation
and also to the President of the Corporation. To be timely, a stockholder's
notice must be delivered or mailed to and received at the principal executive
offices of the Corporation not less than 60 days prior to the anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced by more than twenty days, or delayed by
more than 60 days from such anniversary date, notice by the stockholder to be
timely must be so delivered not later than the close of business on the later of
the 60th day prior to such annual meeting or the eighth day following the day on
which notice of the date of the annual meeting was mailed or public announcement
of the date of such meeting is first made. A stockholder's notice to the
Secretary and the President shall set forth as to each matter such stockholder
proposes to bring before the annual meeting (i) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and address, as
they appear on the Corporation's books, of the stockholder who proposed such
business, (iii) the class and number of shares of the Corporation's capital
stock that are
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beneficially owned by such stockholder and (iv) any material interest of such
stockholder in such business. Notwithstanding anything in these By-laws to the
contrary, no business shall be brought before or conducted at an annual meeting
except in accordance with the provisions of this Section 6(b). The Chairman of
the meeting or other person presiding over the annual meeting shall, if the
facts so warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 6(b) and, if he should so determine, he shall so declare to the meeting
and any such business so determined to be not properly brought before the
meeting shall not be transacted. Notwithstanding the compliance of a shareholder
with the procedures set forth above, the presiding officer may declare out of
order any business proposed to be brought before the meeting if he determines
that such proposal addresses matters not appropriate for consideration of the
shareholders, including without limitation, proposals for actions which would be
illegal for the Corporation or which address matters involving the day-to-day
operations of the Corporation which would ordinarily be within the purview of
the board of directors or its designee.
At any special meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting by or at the
direction of the Board of Directors.
(c) Only persons who are nominated in accordance with the
procedures set forth in these By-laws shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders at which directors are to
be elected only (i) by or at the direction of the Board of Directors or (ii) by
any stockholder of the Corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures set forth in
this Section 6(c). Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made by timely notice in writing
to the Secretary and President of the Corporation. To be timely, a stockholder's
notice shall be delivered or mailed to and received at the principal executive
offices of the Corporation not less than 60 days prior to the date of the
meeting; provided, however, that in the event that less than 40 days' notice of
the date of the meeting is first given or made to stockholders, by public
announcement or mail, notice by the stockholder to be timely must be so received
not later than the close of business on the eighth day following the day on
which such notice of the date of the meeting was mailed or public announcement
was first made. Such stockholder's notice shall set forth (i) as to each person
whom such stockholder proposes to nominate for election or re-election as a
director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including such person's written consent to being named
in the proxy statement as a nominee and to serving as a director if elected);
and (ii) as to the stockholder giving the notice: (x) the name and address, as
they appear on the Corporation's books, of such stockholder and (y) the class
and number of shares of the Corporation's capital stock that are beneficially
owned by such stockholder. At the request of the Board of Directors, any person
nominated by the Board of Directors for election as a director 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. No person
shall be eligible for election as a director of the Corporation unless nominated
in accordance with the provisions of this Section 6(c). The Chairman of the
meeting or other person presiding at the meeting shall, if the facts so warrant,
determine that a nomination was not made in accordance with such provisions and,
if he or she should so determine, he or she shall so declare to the meeting and
the defective nomination shall be disregarded.
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Section 7. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to vote
may vote in person or by proxy authorized by an instrument in writing (or as
otherwise permitted under applicable law) by the stockholder or his duly
authorized attorney-in-fact filed in accordance with the procedure established
for the meeting. Proxies solicited on behalf of the management shall be voted as
directed by the stockholder or in the absence of such direction, as determined
by a majority of the Board of Directors. No proxy shall be valid after eleven
months from the date of its execution except for a proxy coupled with an
interest.
Each stockholder shall have one vote for every share of stock entitled
to vote which is registered in his or her name on the record date for the
meeting, except as otherwise provided herein or in the Certificate of
Incorporation of the Corporation or as required by law.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefore by a stockholder entitled to vote or his or her proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballot, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballot shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or as provided in the Certificate of
Incorporation, all other matters shall be determined by a majority of the votes
cast.
Section 8. Stock List.
The officer who has charge of the stock transfer books of the
Corporation shall prepare and make, in the time and manner required by
applicable law, a list of stockholders entitled to vote and shall make such list
available for such purposes, at such places, at such times and to such persons
as required by applicable law. The stock transfer books shall be the only
evidence as to the identity of the stockholders entitled to examine the stock
transfer books or to vote in person or by proxy at any meeting of stockholders.
Section 9. Consent of Stockholders in Lieu of Meeting.
Subject to the rights of the holders of any class or series of
preferred stock of the Corporation, any action required or permitted to be taken
by the stockholders of the Corporation must be effected at a duly called annual
or special meeting of stockholders of the Corporation and may not be effected by
any consent in writing by such stockholders.
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Section 10. Inspectors of Election
The Board of Directors shall, in advance of any meeting of
stockholders, appoint one or more persons as inspectors of election, to act at
the meeting or any adjournment thereof and make a written report thereof, in
accordance with applicable law.
ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers, Number and Term of Office.
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. The number of directors shall be
as provided for in the Certificate of Incorporation. The Board of Directors
shall annually elect a Chairman of the Board and a President of the Corporation
from among its members and shall designate, when present, either the Chairman of
the Board or the President to preside at its meetings.
The directors, other than those who may be elected by the holders of
any class or series of preferred stock, shall be elected for a term of one year,
with the term of office to expire at the conclusion of the first annual meeting
of stockholders, with each director to hold office until his or her successor
shall have been duly elected and qualified. At each annual meeting of
stockholders, commencing with the first annual meeting, directors elected to
succeed those directors whose terms expire shall be elected for a term of office
to expire at the first succeeding annual meeting of stockholders after their
election, with each director to hold office until his or her successor shall
have been duly elected and qualified.
Section 2. Vacancies and Newly Created Directorships.
Subject to the rights of the holders of any class or series of
preferred stock then outstanding, newly created directorships resulting from any
increase in the authorized number of directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled only by a majority vote of the
directors then in office, though less than a quorum, and directors so chosen
shall hold office for a term expiring at the annual meeting of stockholders at
which the term of office of the class to which they have been elected expires,
and until such director's successor shall have been duly elected and qualified.
No decrease in the number of authorized directors constituting the Board shall
shorten the term of any incumbent director.
Section 3. Regular Meetings.
Regular meetings of the Board of Directors shall be held at such place
or places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.
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Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by a majority
of the directors then in office (rounded up to the nearest whole number) or by
the President and shall be held at such place, on such date, and at such time as
they or he or she shall fix. Notice of the place, date, and time of each such
special meeting shall be given to each director by whom it is not waived by
mailing written notice not less than five days before the meeting or by
telegraphing or telexing or by facsimile transmission of the same not less than
twenty-four (24) hours before the meeting. Unless otherwise indicated in the
notice thereof, any and all business may be transacted at a special meeting.
Section 5. Quorum.
At any meeting of the Board of Directors, a majority of the authorized
number of directors then constituting the Board shall constitute a quorum for
all purposes. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date, or time, without further
notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted
in such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
Section 8. Powers.
The Board of Directors may, except as otherwise required by law,
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, including, without limiting the generality of the
foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with
law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form
as it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
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(4) To remove any officer of the Corporation with or without
cause, and from time to time to devolve the powers and duties of any officer
upon any other person for the time being;
(5) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans and employment agreements for
directors, officers, employees and agents of the Corporation and its
subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and
other benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent with
these By-laws, for the management of the Corporation's business and affairs.
Section 9. Compensation of Directors.
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
Board of Directors.
Section 10. Qualification of Directors. Each director shall at all times be the
beneficial owner of not less than 300 shares of capital stock of The
Bryan-College Station Financial Holding Company.
ARTICLE III
COMMITTEES
Section 1. Committees of the Board of Directors.
The Board of Directors, by a vote of a majority of the Board of
Directors, may from time to time designate committees of the Board, with such
lawfully delegable powers and duties as it thereby confers, to serve at the
pleasure of the Board and shall, for those committees and any others provided
for herein, elect a director or directors to serve as the member or members,
designating, if it desires, other directors as alternate members who may replace
any absent or disqualified member at any meeting of the committee. Any committee
so designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law if the resolution which designated the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or
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disqualified member. The President of the Corporation shall serve as a member of
each Committee of the Board of Directors, except for the Audit Committee or the
Compensation Committee.
Section 2. Conduct of Business.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; a majority of the members shall
constitute a quorum unless the committee shall consist of one or two members, in
which event one member shall constitute a quorum; and all matters shall be
determined by a majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent thereto in writing,
and the writing or writings are filed with the minutes of the proceedings of
such committee. Minutes of all committee meetings shall be provided to the Board
of Directors at each meeting of the Board for its review.
Section 3. Nominating Committee.
The Board of Directors may appoint a Nominating Committee of the Board,
consisting of not less than three members, one of which shall be the President
if, and only so long as, the President remains in office as a member of the
Board of Directors. The Nominating Committee shall have authority (i) to review
any nominations for election to the Board of Directors made by a stockholder of
the Corporation pursuant to Section 6(c)(ii) of Article I of these By-laws in
order to determine compliance with such By-law and (ii) to recommend to the
Whole Board nominees for election to the Board of Directors to replace those
directors whose terms expire at the annual meeting of stockholders next ensuing.
ARTICLE IV
OFFICERS OF THE CORPORATION
Section 1. Generally.
(a) The Board of Directors as soon as may be practicable after
the annual meeting of stockholders shall choose a President, a Secretary and a
Treasurer and from time to time may choose such other officers as it may deem
proper. The President shall be chosen from among the directors. Any number of
offices may be held by the same person.
(b) The term of office of all officers shall be until the next
annual election of officers and until their respective successors are chosen,
but any officer may be removed from office at any time by the affirmative vote
of a majority of the authorized number of directors then constituting the Board
of Directors.
(c) All officers chosen by the Board of Directors shall each
have such powers and duties as generally pertain to their respective offices,
subject to the specific provisions of this Article IV. Such officers shall also
have such powers and duties as from time to time may be conferred by the Board
of Directors or by any committee thereof.
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Section 2. President.
The President shall be the chief executive officer and, subject to the
control of the Board of Directors, shall have general power over the management
and oversight of the administration and operation of the Corporation's business
and general supervisory power and authority over its policies and affairs. The
President shall see that all orders and resolutions of the Board of Directors
and of any committee thereof are carried into effect. The President shall also
have the authority to hire and terminate any officers junior to the President.
Each meeting of the Board of Directors shall be presided over by such
officer as has been designated by the Board of Directors or, in his absence, by
such officer or other person as is chosen at the meeting. The Secretary or, in
the Secretary's absence, the General Counsel of the Corporation or such officer
as has been designated by the Board of Directors or, in his absence, such
officer or other person as is chosen by the person presiding, shall act as
secretary of each meeting of the stockholders or the Board of Directors.
Section 3. Vice President.
The Vice President or Vice Presidents, if any, shall perform the duties
of the President in his absence or during his disability to act. In addition,
the Vice Presidents shall perform the duties and exercise the powers usually
incident to their respective offices and/or such other duties and powers as may
be properly assigned to them from time to time by the Board of Directors, the
Chairman of the Board or the President.
Section 4. Secretary.
The Secretary or an Assistant Secretary shall issue notices of
meetings, shall keep their minutes, shall have charge of the seal and the
corporate books, shall perform such other duties and exercise such other powers
as are usually incident to such offices and/or such other duties and powers as
are properly assigned thereto by the Board of Directors, the Chairman of the
Board or the President.
Section 5. Treasurer.
The Treasurer shall have charge of all monies and securities of the
Corporation, other than monies and securities of any division of the Corporation
which has a treasurer or financial officer appointed by the Board of Directors,
and shall keep regular books of account. The funds of the Corporation shall be
deposited in the name of the Corporation by the Treasurer with such banks or
trust companies or other entities as the Board of Directors from time to time
shall designate. The Treasurer shall sign or countersign such instruments as
require his signature, shall perform all such duties and have all such powers as
are usually incident to such office and/or such other duties and powers as are
properly assigned to him by the Board of Directors, the Chairman of the Board or
the President, and may be required to give bond, payable by the Corporation, for
the faithful performance of his duties in such sum and with such surety as may
be required by the Board of Directors.
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Section 6. Assistant Secretaries and Other Officers.
The Board of Directors may appoint one or more assistant secretaries
and one or more assistant treasurers, or one appointee to both such positions,
which officers shall have such powers and shall perform such duties as are
provided in these By-laws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
Section 7. Action with Respect to Securities of Other Corporations
Unless otherwise directed by the Board of Directors, the President or
any officer of the Corporation authorized by the President shall have power to
vote and otherwise act on behalf of the Corporation, in person or by proxy, at
any meeting of stockholders of or with respect to any action of stockholders of
any other corporation in which this Corporation may hold securities and
otherwise to exercise any and all rights and powers which this Corporation may
possess by reason of its ownership of securities in such other Corporation.
ARTICLE V
STOCK
Section 1. Certificates of Stock.
Each stockholder shall be entitled to a certificate signed by, or in
the name of the Corporation by, the President or a Vice President, and by the
Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer,
certifying the number of shares owned by him or her. Any or all of the
signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these
By-laws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefore.
Section 3. Record Date.
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
60 nor less than ten days before the date of any meeting of stockholders, nor
more than 60 days prior to the time for such other action as hereinbefore
described; provided, however, that if no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which such notice is given or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held, and, for determining stockholders entitled to receive payment
of any dividend or other distribution or allotment of rights or to exercise any
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rights of change, conversion or exchange of stock or for any other purpose, the
record date shall be at the close of business on the day on which the Board of
Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.
Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of
stock shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI
NOTICES
Section 1. Notices.
Except as otherwise specifically provided herein or required by law,
all notices required to be given to any stockholder, director, officer, employee
or agent shall be in writing and may in every instance be effectively given by
hand delivery to the recipient thereof, or by depositing such notice in the
mail, postage paid, or by sending such notice by prepaid telegram or mailgram or
by sending such notice by facsimile machine or other electronic transmission.
Any such notice
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shall be addressed to such stockholder, director, officer, employee or agent at
his or her last known address as the same appears on the books of the
Corporation. The time when such notice is received, if hand delivered, or
dispatched, if delivered through the mail, by telegram or mailgram or by
facsimile machine or other electronic transmission, shall be the time of the
giving of the notice.
Section 2. Waivers.
A written waiver of any notice, signed by a stockholder, director,
officer, employee or agent, whether before or after the time of the event for
which notice is to be given, shall be deemed equivalent to the notice required
to be given to such stockholder, director, officer, employee or agent. Neither
the business nor the purpose of any meeting need be specified in such a waiver.
ARTICLE VII
MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these By-laws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
The Board of Directors may provide a suitable seal, containing the name
of the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
Assistant Treasurer.
Section 3. Reliance upon Books, Reports and Records.
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
In applying any provision of these By-laws which requires that an act
be done or not be done a specified number of days prior to an event or that an
act be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded
and the day of the event shall be included.
ARTICLE VIII
AMENDMENTS
The By-laws of the Corporation may be adopted, amended or repealed as
provided in Article SEVENTH of the Certificate of Incorporation of the
Corporation.
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Federal Stock Charter
FIRST FEDERAL SAVINGS BANK
SECTION 1. Corporate Title. The full corporate title of the Federal
stock association hereby chartered is "First Federal Savings Bank".
SECTION 2. Office. The home office of the association shall
be located in Bryan, in the County of Brazos, State of Texas.
SECTION 3. Duration. The duration of the association is perpetual.
SECTION 4. Purpose and Powers. The purpose of the association is to
pursue any or all of the lawful objectives of a Federal stock association
chartered under section 5 of the Home Owners' Loan Act and to exercise all of
the express, implied, and incidental powers conferred thereby and by all acts
amendatory thereof and supplemental thereto, subject to the Constitution and
laws of the United States as they are now in effect, or as they may hereafter be
amended, and subject to all lawful and applicable rules, regulations, and orders
of the Office of Thrift Supervision ("Office").
SECTION 5. Capital Stock. The total number of shares of all classes of
the capital stock which the association has the authority to issue is 4,000,000
of which 3,000,000 shall be common stock of par value of $.01 per share and of
which 1,000,000 shall be serial preferred stock. The shares may be issued from
time to time as authorized by the board of directors without further approval of
its shareholders, except as otherwise provided in this Section 5 or to the
extent that such approval is required by governing law, rule or regulation. The
consideration for the issuance of the shares shall be paid in full before their
issuance and shall not be less than the par value. Neither promissory notes nor
future services shall constitute payment or part payment for the issuance of
shares of the association. The consideration for the shares shall be cash,
tangible or intangible property (to the extent direct investment in such
property would be permitted), labor, or services actually performed for the
association, or any combination of the foregoing. In the absence of actual fraud
in the transaction, the value of such property, labor, or services, as
determined by the board of directors of the association, shall be conclusive.
Upon payment of such consideration, such shares shall be deemed to be fully paid
and nonassessable. In the case of a stock dividend, that part of the surplus of
the association which is transferred to stated capital upon the issuance of
shares as a share dividend shall be deemed to be the consideration for their
issuance.
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Except for shares issuable in connection with the conversion of the
association from the mutual to the stock form of capitalization, no shares of
capital stock (including shares issuable upon conversion, exchange, or exercise
of other securities) shall be issued, directly or indirectly, to officers,
directors, or controlling persons of the association other than as part of a
general public offering or as qualifying shares to a director, unless their
issuance or the plan under which they would be issued has been approved by a
majority of the total votes eligible to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class of a series of capital stock to
vote as a separate class or series or to more than one vote per share, except as
to the cumulation of votes for the election of directors: 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, less than a majority
thereof, in the event of default in the payment of dividends
on any class or series of preferred stock;
(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 association 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 association
if the preferred stock is exchanged for securities of such
other corporation: Provided, that no provision may require
such approval for transactions undertaken with the
assistance or pursuant to the direction of the Office, the
Federal Deposit Insurance Corporation, or the Resolution
Trust Corporation;
(iii) To any amendment which would adversely change the specific
terms of any class or series of capital stock as set forth
in this Section 5 (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 association, shall not be considered
to be such an adverse change.
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A description of the different classes and series (if any) of the
association'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 (if any) of capital stock are as follows:
A. Common Stock. Except as provided in this Section 5 (or in any
supplementary sections thereto), the holders of the common stock shall
exclusively possess all voting power. Each holder of shares of common stock
shall be entitled to one vote for each share held by such holder, except as to
the cumulation of votes for the election of directors.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock having
preference over the common stock as to the payment of dividends, the full amount
of dividends and of sinking fund, retirement fund, or other retirement payments,
if any, to which such holders are respectively entitled in preference to the
common stock, then dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends out of any
assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
association, the holders of the common stock (and the holders of any class or
series of stock entitled to participate with the common stock in the
distribution of assets) shall be entitled to receive, in cash or in kind, the
assets of the association available for distribution remaining after: (i)
Payment or provision for payment of the association's debts and liabilities;
(ii) distributions or provision for distributions in settlement of its
liquidation account; and (iii) distributions or provisions for distributions to
holders of any class or series of stock having preference over the common stock
in the liquidation, dissolution, or winding up of the association. Each share of
common stock shall have the same relative rights as and be identical in all
respects with all the other shares of common stock.
B. Preferred Stock. The association may provide in supplementary
sections to its charter 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. The terms of
each series shall be set forth in a supplementary section to the charter. All
shares of the same class shall be identical except as to the following relative
rights and preferences, as to which there may be variations between different
series:
(a) The distinctive serial designation and the number of shares
constituting such series;
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(b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative
and, if so, from which date(s), the payment date(s) for
dividends, and the participating or other special rights, if
any, with respect to dividends;
(c) The voting powers, full or limited, if any, of shares of
such series;
(d) Whether the shares of such series shall be redeemable and,
if so, the price(s) at which, and the terms and conditions
on which such shares may be redeemed;
(e) The amount(s) payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution,
or winding up of the association;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the
purchase or redemption of such shares, and if so entitled, the
amount of such fund and the manner of its application,
including the price(s) at which such shares may be redeemed or
purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into,
or exchangeable for, shares of any other class or classes of
stock of the association and, if so, the conversion price(s),
or the rate(s) of exchange, and the adjustments thereof, if
any, at which such conversion or exchange may be made, and any
other terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of
such series shall be issued; and
(i) Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued
shares of serial preferred stock and whether such shares may
be reissued as shares of the same or any other series of
serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The board of directors shall have authority to divide, by the adoption
of supplementary charter sections, any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
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Prior to the issuance of any preferred shares of a series established
by a supplementary charter section adopted by the board of directors, the
association shall file with the Secretary to the Office a dated copy of that
supplementary section of this charter established and designating the series and
fixing and determining the relative rights and preferences thereof.
SECTION 6. Preemptive Rights. Holders of the capital stock of the
association shall not be entitled to preemptive rights with respect to any
shares of the association which may be issued.
SECTION 7. Liquidation Account. Pursuant to the requirements of the
Office' regulations (12 C.F.R. Subchapter D), the association shall establish
and maintain a liquidation account for the benefit of its savings account
holders as of June 30, 1990 ("eligible savers"). In the event of a complete
liquidation of the association, it shall comply with such Rules and Regulations
with respect to the amount and the priorities on liquidation of each of the
association's eligible saver's inchoate interest in the liquidation account, to
the extent it is still in existence. Provided, however, that an eligible saver's
inchoate interest in the liquidation account shall not entitle such eligible
saver to any voting rights at meetings of the association's shareholders.
SECTION 8. Certain Provisions Applicable for Five Years.
Notwithstanding anything contained in the association's charter or bylaws to the
contrary, for a period of five years from the date of completion of the
conversion of the association from mutual to stock form, the following
provisions shall apply:
A. Beneficial Ownership Limitation. No person shall directly or
indirectly offer to acquire or acquire the beneficial ownership of more than 10%
of any class of an equity security of the association. This limitation shall not
apply to a transaction in which the association forms a holding company without
change in the respective beneficial ownership interests of its shareholders
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 under Section 574.3(c)(1)(vi) of the
Office's regulations.
In the event shares are acquired in violation of this Section 8, 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
matters submitted to the shareholders for a vote.
For purposes of this Section 8, the following definitions apply:
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(1) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, a association, a joint stock company, a
trust, an unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of the
equity securities of the association.
(2) The term "offer" includes 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.
(3) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(4) The term "acting in concert" means (a) knowing participation in a
joint activity or conscious parallel action towards a common goal whether or not
pursuant to an express agreement, or (b) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangements,
whether written or otherwise.
B. Cumulative Voting Limitation. Shareholders shall not be permitted to
cumulate their votes for election of directors.
C. Call for Special Meetings. Special meetings of shareholders relating
to changes in control of the association or amendments to its charter shall be
called only upon direction of the board of directors.
SECTION 9. Directors. The association shall be under the direction of a
board of directors. The authorized number of directors shall not be fewer than
seven nor more than fifteen, as stated in the association's bylaws, except that
the number of directors may be increased to a number greater than fifteen with
the prior approval of the Director of the Office.
SECTION 10. Amendment of Charter. Except as provided in Section 5, no
amendment, addition, alteration, change or repeal of this charter shall be made,
unless such is first proposed by the board of directors of the association, then
preliminarily approved by the Office, which preliminary approval may be granted
by the Office pursuant to regulations specifying preapproved charter amendments,
and thereafter approved by the shareholders by a majority of the total votes
eligible to be cast at a legal meeting. Any amendment, addition, alteration,
change, or repeal so acted upon shall be effective upon filing with the Office
in accordance with regulatory procedures or on such other date as the Office may
specify in its preliminary approval.
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FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF BRYAN
ATTEST: By:
---------------------------- --------------------------------
Secretary of the President
Association
DIRECTOR OF THE
OFFICE OF THRIFT SUPERVISION
ATTEST: By:
--------------------------- ---------------------------------
Secretary of the
Office of Thrift
Supervision
Declared effective this ____ day of _____________, 199_.
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BYLAWS OF
FIRST FEDERAL SAVINGS BANK
ARTICLE I
HOME OFFICE
The home office of the association shall be at 2900 Texas Avenue,
Bryan, the County of Brazos, in the State of Texas.
ARTICLE II
SHAREHOLDERS
SECTION 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at the home office of the association or at such
other place in the State in which the prin cipal place of business of the
association is located as the board of directors may determine.
SECTION 2. Annual Meeting. A meeting of the shareholders of the
association for the election of directors and for the transaction or any other
business of the association shall be held annually within 120 days after the end
of the association's fiscal year on the third Tuesday of each January, if not a
legal holiday, and if a legal holiday, then on the next day following which is
not a legal holiday, at 2:00 p.m., or at such other date and time within such
120-day period as the board of directors may determine.
SECTION 3. Special Meetings. Special meetings of the shareholders for
any purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision ("Office"), may be called at any time by the
chairman of the board, the president or a majority of the board of directors,
and shall be called by the chairman of the board, the president, or the
secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the association entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the association addressed to the
chairman of the board, the president, or the secretary.
SECTION 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by regulations of the Office or these bylaws. The
board of directors shall designate, when present, either the chairman of the
board or president to preside at such meetings.
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SECTION 5. Notice of Meetings. Written notice stating the place, day
and hour of the meeting and the purpose(s) for which the meeting is called shall
be delivered not fewer than 10 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, or the secretary, or the directors calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the mail,
addressed to the shareholder at the address as it appears on the stock transfer
books or records of the association as of the record date prescribed in Section
6 of this Article II with postage prepaid. When any shareholders' meeting,
either annual or special, is adjourned for 30 days or more, notice of the
adjourned meeting shall be given as in the case of an original meeting. It shall
not be necessary to give any notice of the time and place of any meeting
adjourned for less than 30 days or of the business to be transacted at the
meeting, other than an announcement at the meeting at which such adjournment is
taken.
SECTION 6. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more than
60 days and, in case of a meeting of shareholders, not fewer than 10 days prior
to the date on which the particular action, requiring such determination of
shareholders, is to be taken. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment.
SECTION 7. Voting Lists. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the association shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the home office of the association and
shall be subject to inspection by any shareholder at any time during usual
business hours for a period of 20 days prior to such meeting. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to inspection by any shareholder during the entire time of the meeting.
The original stock transfer book shall constitute prima facie evidence of the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders. In lieu of making the shareholder list available for
inspection by shareholders as provided in the preceding paragraph, the board of
directors may elect to follow the procedures prescribed in Section 552.6(d) of
the Office's regulations as now or hereafter in effect.
SECTION 8. Quorum. A majority of the outstanding shares of the
association entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of the
outstanding shares is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally
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notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum.
SECTION 9. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Proxies solicited on behalf of the management shall
be voted as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid more
than eleven months from the date of its execution except for a proxy coupled
with an interest.
SECTION 10. 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 association to the contrary, at any meeting of the
shareholders of the association any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such stock and present in person or by proxy at such meeting, but
no votes shall be cast for such stock if a majority cannot agree.
SECTION 11. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
Shares standing in the name of a receiver may be voted by such receiver, and
shares held by or under the control of a receiver may be voted by such receiver
without the transfer into his or her name if authority to do so is contained in
an appropriate order of the court or other public authority by which such
receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the association nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the
association, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
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SECTION 12. Cumulative Voting. Unless otherwise provided in the charter
of the association, every shareholder entitled to vote at an election for
directors shall have the right to vote, in person or by proxy, the number of
shares owned by the shareholder for as many persons as there are directors to be
elected and for whose election the shareholder has a right to vote, or to
cumulate the votes by giving one candidate as many votes as the number of such
directors to be elected multiplied by the number of shares shall equal or by
distributing such votes on the same principle among any number of candidates.
SECTION 13. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any person other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies: receiving votes,
ballots or consents; hearing and determining all challenges and questions in any
way arising in connection with the rights to vote; counting and tabulating all
votes or consents; determining the result; and such acts as may be proper to
conduct the election or vote with fairness to all shareholders.
SECTION 14. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the association. No nominations for
directors except those made by the nominating committee shall be voted upon at
the annual meeting unless other nominations by shareholders are made in writing
and delivered to the secretary of the association at least five days prior to
the date of the annual meeting. Upon delivery, such nominations shall be posted
in a conspicuous place in each office of the association. Ballots bearing the
names of all the persons nominated by the nominating committee and by
shareholders shall be provided for use at the annual meeting. However, if the
nominating committee shall fail or refuse to act at least 20 days prior to the
annual meeting, nominations for directors may be made at the annual meeting by
any shareholder entitled to vote and shall be voted upon.
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SECTION 15. New Business. At an annual meeting of shareholders only
such new business shall be conducted, and only such proposals shall be acted
upon, as shall have been properly brought before the meeting. For any new
business proposed by management to be properly brought before the annual
meeting, such new business shall be approved by the board of directors, either
directly or through its approval of proxy solicitation materials related
thereto, and shall be stated in writing and filed with the secretary of the
association at least 20 days before the date of the annual meeting, and all
business so stated, proposed and filed shall be considered at the annual
meeting. Any shareholder may make any other proposal at the annual meeting and
the same may be discussed and considered, but unless properly brought before the
meeting such proposal shall not be acted upon at the meeting. For a proposal to
be properly brought before an annual meeting by a shareholder, the shareholder
must have given timely notice thereof in writing to the secretary of the
association. To be timely, a shareholder's notice must be delivered to or
received at the principal executive offices of the association, not less than 20
days prior to the meeting; provided, however, that in the event that less than
30 days notice of the date of the meeting is given to shareholders (which notice
shall be accompanied by a proxy or information statement which describes each
matter proposed by the board of directors to be acted upon at the meeting),
notice by the shareholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of the
date of the annual meeting was mailed. A shareholder's notice to the secretary
shall set forth as to each matter the shareholder proposes to bring before the
annual meeting: (a) a brief description of the proposal desired to be brought
before the annual meeting; (b) the name and address of the shareholder proposing
such business and (c) the class and number of shares of the association which
are owned of record by the shareholder. Notwithstanding anything in the bylaws
to the contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 15.
SECTION 16. Informal Action by Shareholders. Any action required to be
taken at a meeting of shareholders, or any other action which may be taken at a
meeting of shareholders, may be taken without a meeting if consent in writing,
setting forth the action so taken, shall be given by all of the shareholders
entitled to vote with respect to the subject matter.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the association
shall be under the direction of its board of directors. The board of directors
shall annually elect a chairman of the board and a president from among its
members and shall designate, when present, either the chairman of the board or
the president to preside at its meetings.
SECTION 2. Number and Term. The board of directors shall consist of
eleven members and shall be divided into three classes as nearly equal in number
as possible. The
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members of each class shall be elected for a term of three years and until their
successors are elected and qualified. One class shall be elected by ballot
annually.
SECTION 3. Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this bylaw immediately after,
and at the same place as, the annual meeting of shareholders. The board of
directors may provide, by resolution, the time and place, within the
association's normal lending territory, for the holding of additional regular
meetings without other notice than such resolution.
SECTION 4. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the chairman of the board, the president,
or one-third of the directors. The persons authorized to call special meetings
of the board of directors, may fix any place, within the association's normal
lending territory, as the place for holding any special meeting of the board of
directors called by such persons.
Members of the board of directors may participate in special meetings
by means of conference telephone or similar communications equipment by which
all persons participating in the meeting can hear each other. Such participation
shall constitute presence in person but shall not constitute attendance for the
purpose of compensation pursuant to Section 12 of this Article.
SECTION 5. Notice. Written notice of any special meeting shall be given
to each director at least two days prior thereto when delivered personally or by
telegram or at least five days prior thereto 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
prepaid if mailed or when delivered to the telegraph company if sent by
telegram. Any director may waive notice of any meeting by a writing filed with
the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
SECTION 6. Quorum. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors; but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by Section 6 of this Article III.
SECTION 7. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by regulation of the Office
or by these bylaws.
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SECTION 8. Action Without a Meeting. Any action required or permitted
to be taken by the board of directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors.
SECTION 9. Resignation. Any director may resign at any time by sending
a written notice of such resignation to the home office of the association
addressed to the chairman of the board or the president. Unless otherwise
specified, such resignation shall take effect upon receipt by the chairman of
the board or the president. More than three consecutive absences from regular
meetings of the board of directors, unless excused by resolution of the board of
directors, shall automatically constitute a resignation, effective when such
resignation is accepted by the board of directors.
SECTION 10. Vacancies. Any vacancy occurring on the board of directors
may be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors by
the shareholders. Any directorship to be filled by reason of an increase in the
number of directors may be filled by election by the board of directors for a
term of office continuing only until the next election of directors by the
shareholders.
SECTION 11. Compensation. Directors, as such, may receive a stated
salary for their services. By resolution of the board of directors, a reasonable
fixed sum, and reasonable expenses of attendance, if any, may be allowed for
each regular or special meeting of the board of directors. Members of either
standing or special committees may be allowed such compensation for actual
attendance at committee meetings as the board of directors may determine.
SECTION 12. Presumption of Assent. A director of the association who is
present at a meeting of the board of directors at which action on any
association matter is taken shall be presumed to have assented to the action
taken unless his or her dissent or abstention shall be entered in the minutes of
the meeting or unless he or she shall file a 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
association within five days after the date a copy of the minutes of the meeting
is received. Such right to dissent shall not apply to a director who voted in
favor of such action.
SECTION 13. Removal of Directors. At a meeting of shareholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. If less than the entire board is to be removed, no one of the
directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. Whenever the holders of the
shares of any class are entitled to elect one or more directors by the
provisions of the charter or supplemental sections thereto, the provisions of
this section shall apply, in respect to the removal of a director or directors
so
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elected, to the vote of the holders of the outstanding shares of that class and
not to the vote of the outstanding shares as a whole.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
SECTION 1. Appointment. The board of directors, by resolution adopted
by a majority of the full board, may designate the chief executive officer and
two or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
SECTION 2. Authority. The executive committee, when the board of
directors is not in session, shall have and may exercise all of the authority of
the board of directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the board of
directors with reference to: the declaration of dividends; the amendment of the
charter or bylaws of the association, or recommending to the shareholders a plan
of merger, consolidation, or conversion; the sale, lease, or other disposition
of all or substantially all of the property and assets of the association
otherwise than in the usual and regular course of its business; a voluntary
dissolution of the association; a revocation of any of the foregoing; or the
approval of a transaction in which any member of the executive committee,
directly or indirectly, has any material beneficial interest.
SECTION 3. Tenure. Subject to the provisions of Section 8 of this
Article IV, each member of the executive committee shall hold office until the
next regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
SECTION 4. Meetings. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one day's notice stating the
place, date, and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
SECTION 5. Quorum. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
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SECTION 6. Action Without a Meeting. Any action required or permitted
to be taken by the executive committee at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the members of the executive committee.
SECTION 7. Vacancies. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full board of directors.
SECTION 8. Resignations and Removal. Any member of the executive
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full board of directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the president or secretary of the association. Unless otherwise
specified, such resignation shall take effect upon its receipt; the acceptance
of such resignation shall not be necessary to make it effective.
SECTION 9. Procedure. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
SECTION 10. Other Committees. The board of directors may by resolution
establish an audit, loan, or other committee composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
association and may prescribe the duties, constitution and procedures thereof.
ARTICLE V
OFFICERS
SECTION 1. Positions. The officers of the association shall be a
president, one or more vice presidents, a secretary and a treasurer, each of
whom shall be elected by the board of directors. The board of directors may also
designate the chairman of the board as an officer. The president shall be the
chief executive officer, unless the board of directors designates the chairman
of the board as the chief executive officer. The president shall be a director
of the association. The offices of the secretary and treasurer may be held by
the same person and a vice president may also be either the secretary or the
treasurer. The board of directors may designate one or more vice presidents as
executive vice president or senior vice president. The board of directors may
also elect or authorize the appointment of such other officers as the business
of the association may require. The officers shall have such authority and
perform such duties as the board of directors may from time to time authorize or
determine. In the absence of action by the board of directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
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SECTION 2. Election and Term of Office. The officers of the association
shall be elected annually at the first meeting of the board of directors held
after each annual meeting of the shareholders. If the election of officers is
not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly elected
and qualified or until the officer's death, resignation, or removal in the
manner hereinafter provided. Election or appointment of an officer, employee or
agent shall not of itself create contractual rights. The board of directors may
authorize the association to enter into an employment contract with any officer
in accordance with regulations of the Office; but no such contract shall impair
the right of the board of directors to remove any officer at any time in
accordance with Section 3 of this Article V.
SECTION 3. Removal. Any officer may be removed by the board of
directors whenever in its judgment the best interests of the association will be
served thereby, but such removal, other than for cause, shall be without
prejudice to the contractual rights, if any, of the person so removed.
SECTION 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the board
of directors for the unexpired portion of the term.
SECTION 5. Remuneration. The remuneration of the officers shall be
fixed from time to time by the board of directors.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. Contracts. To the extent permitted by regulations of the
Office, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the board of directors may authorize any officer,
employee, or agent of the association to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the association. Such
authority may be general or confined to specific instances.
SECTION 2. Loans. No loans shall be contracted on behalf of the
association and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or confined
to specific instances.
SECTION 3. Checks, Drafts, etc. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the association shall be signed by one or more officers, employees or
agents of the association in such manner as shall from time to time be
determined by the board of directors.
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SECTION 4. Deposits. All funds of the association not otherwise
employed shall be deposited from time to time to the credit of the association
in any of its duly authorized depositories as the board of directors may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares. Certificates representing shares of
capital stock of the association shall be in such form as shall be determined by
the board of directors and approved by the Office. Such certificates shall be
signed by the chief executive officer or by any other officer of the association
authorized by the board of directors, attested by the secretary or an assistant
secretary, and sealed with the corporate seal or a facsimile thereof. The
signatures of such officers upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar
other than the association itself or one of its employees. Each certificate for
shares of capital stock shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares are issued, with the
number of shares and date of issue, shall be entered on the stock transfer books
of the association. All certificates surrendered to the association for transfer
shall be cancelled and no new certificate shall be issued until the former
certificate for a like number of shares has been surrendered or cancelled,
except that in case of a lost or destroyed certificate, a new certificate may be
issued upon such terms and indemnity to the association as the board of
directors may prescribe.
SECTION 2. Transfer of Shares. Transfer of shares of capital stock of
the association shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the association. Such transfer shall be made only on surrender for cancellation
of the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the association shall be deemed by the association
to be the owner for all purposes.
ARTICLE VIII
FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the association shall end on the last day of
September of each year. The association 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 shareholders.
11
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ARTICLE IX
DIVIDENDS
Subject to the terms of the association's charter and the regulations
and orders of the Office, the board of directors may, from time to time,
declare, and the association may pay, dividends on its outstanding shares of
capital stock.
ARTICLE X
CORPORATE SEAL
The board of directors may provide an1 association seal which shall be
two concentric circles between which shall be the name of the association. The
year of incorporation or an emblem may appear in the center.
ARTICLE XI
AMENDMENTS
These bylaws may be amended in a manner consistent with the regulations
of the Office at any time by a majority vote of the full board of directors, or
by a majority vote of the votes cast by the shareholders of the association at
any legal meeting.
12
INDENTURE, dated as of __________, 1997, between The Bryan-College
Station Holding Company, a corporation duly organized and existing under the
laws of the State of Delaware (herein called the "Company"), having its
principal office at 2900 Texas Avenue, Bryan, Texas 77802, and
[_____________________________], a banking corporation duly organized and
existing under the laws of the State of [________], as Trustee (herein called
the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its ____%
_______________ Subordinated Debentures due _______ , 2002 (herein called the
"Securities") of substantially the tenor and amount hereinafter set forth, and
to provide therefor the Company has duly authorized the execution and delivery
of this Indenture.
All things necessary to make the Securities, when executed by the
Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as the
singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles, and, except as otherwise herein expressly
provided, the term "generally accepted accounting principles" with
respect to any computation required or permitted
<PAGE>
hereunder shall mean such accounting principles as are generally
accepted at the date of such computation; and
(4) the words "herein," "hereof" and "hereunder" and other
words of similar import" refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.
"Act," when used with respect to any Holder, has the meaning specified
in Section 104.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing."
"Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 614 to act on behalf of the Trustee to authenticate
Securities.
"Board of Directors" means either the board of directors of the Company
or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in Texas or New York are
authorized or obligated by law or executive order to close.
"Claim" shall have the meaning assigned thereto in Section 101(5) of
the Bankruptcy Code of 1978, as amended to the date of this Indenture.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Securities Exchange Act of 1934, or, if
at any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Common Stock" includes any stock of any class of the Company which has
no preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding-up of the Company
and which is not subject to redemption by the Company.
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"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means, respectively, a written
request or order signed in the name of the Company by its Chairman of the Board,
its Vice Chairman of the Board, its President or a Vice President, and by its
Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and
delivered to the Trustee.
"Corporate Trust Office" means the principal office of the Trustee in
Chicago, Illinois at which at any particular time its corporate trust business
shall be administered.
"Corporation" means a corporation, association, company, joint-stock
company or business trust.
"Defaulted Interest" has the meaning specified in Section 307.
"Event of Default" has the meaning specified in Section 501.
"Excess Proceeds" has the meaning specified in Section 1115.
"FDIC" means the Federal Deposit Insurance Corporation or its
successor.
"General Obligations" means all obligations of the Company to make
payment on account of claims of general creditors, other than (A) obligations on
account of Senior Indebtedness and (B) obligations on account of the Securities
and indebtedness for money borrowed ranking pari passu with or subordinate to
the Securities.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indebtedness for Money Borrowed," when used with respect to the
Company, means any obligation of, or any obligation guaranteed by, the Company
for the repayment of borrowed money, whether or not evidenced by bonds,
debentures, notes or other written instruments.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
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"Junior Securities" means (1) shares of Common Stock, (2) shares of any
other class or classes of capital stock of the Company, (3) any other non-debt
securities of the Company (whether or not such other securities are convertible
into Junior Securities of the Company), or (4) debt securities of the Company
(other than the Securities) as to which, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such debt securities are not Senior Indebtedness with respect to, or do not
rank pari passu with, the Securities.
"Major Depository Institution Subsidiary" means a Subsidiary that is an
insured depository institution and that is under the "control" of the Company
(as such term is defined in 12 C.F.R. S 574.4(a)); provided, however, that any
Subsidiary that had consolidated quarterly average total assets that were less
than 20% of the Company's consolidated quarterly average total assets for the
most recently available quarter shall not be deemed to be a Major Depository
Institution Subsidiary.
"Maturity," when used with respect to any Security, means the date on
which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, a Vice Chairman of the Board, the President or a Vice President, and
by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary, of the Company, and delivered to the Trustee. One of the officers
signing an Officers' Certificate given pursuant to Section 1004 shall be the
principal executive, financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion of counsel delivered to
the Trustee, who may be counsel for the Company, and who shall be acceptable to
the Trustee.
"OTS" means the Office of Thrift Supervision or its successor.
"Outstanding," when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities for whose payment or redemption money
in the necessary amount has been theretofore deposited with
the Trustee or any Paying Agent (other than the Company) in
trust or set aside and segregated in trust by the Company
(if the Company shall act as its own paying Agent) for the
Holders of such Securities; provided that, if such
Securities are to be redeemed, notice of such redemption has
been duly given pursuant to this
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<PAGE>
Indenture or provision therefor satisfactory to the Trustee
has been made; and
(iii) Securities which have been paid pursuant to
Section 306 or in exchange for or in lieu of which other
Securities have been authenticated and delivered pursuant to
this Indenture, other than any such Securities in respect of
which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona
fide purchaser in whose hands such Securities are valid
obligations of the Company; provided, however, that in
determining whether the Holders of the requisite principal
amount of the Outstanding Securities have given any request,
demand, authorization, direction, notice, consent or waiver
hereunder, Securities owned by the Company or any other
obligor upon the Securities or any Affiliate of the Company
or of such other obligor shall be disregarded and deemed not
to be Outstanding, except that, in determining whether the
Trustee shall be protected in relying upon any such request,
demand, authorization, direction, notice, consent or waiver,
only Securities which the Trustee knows to be so owned shall
be so disregarded. Securities so owned which have been
pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Securities
and that the pledgee is not the Company or any other obligor
upon the Securities or any affiliate of the Company or of
such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Securities on behalf of
the Company.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Proceeding" has the meaning specified in Section 1202.
"Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
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"Redemption Price," when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date means July 1, October 1, January 1 or April 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date.
"Securities" has the meaning specified in the Recitals to this
Indenture.
"Securities Payment" has the meaning specified in Section 1202.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
"Senior Indebtedness" means the principal of (and premium, if any) and
interest on the following, whether outstanding at the date of execution of this
Indenture or thereafter incurred, assumed or created: (a) indebtedness of the
Company for money borrowed or purchased, similar obligations arising from
off-balance sheet guarantees and direct credit substitutes, and obligations
associated with derivative products such as interest and foreign exchange rate
contracts, commodity contracts, and similar arrangements, and (b) any deferrals,
renewals, extensions and refundings of any such Senior Indebtedness; other than
(i) any indebtedness or obligation as to which, in the instrument creating or
evidencing the same or pursuant to which She same is outstanding, it is
expressly provided that such obligation (A) is not Senior Indebtedness with
respect to the Securities or (B) ranks pari passu with the Securities; and (ii)
indebtedness evidenced by the Securities.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.
"Stated Maturity," when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"Subsidiary" means a corporation more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Company or by one
or more other Subsidiaries, or by the Company and one or more other
Subsidiaries. For the purposes of this definition, "voting stock" means stock
which ordinarily has voting power for the election of directors, whether at all
times or only so long as no senior class of stock has such voting power by
reason of any contingency.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
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<PAGE>
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force
at the date as of which this instrument was executed; provided, however, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"Vice President," when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee such certificates and opinions stating that all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with, except that, in the case of any such application
or request as to which the furnishing of such documents is specifically required
by any provision of this Indenture relating to such particular application or
request, no additional certificate or opinion need be furnished. Each such
certificate or opinion shall be given in the form of an Officers' Certificate,
if to be given by an officer of the Company, or an Opinion of Counsel, if to be
given by counsel, and shall comply with the requirements of the Trust Indenture
Act and any other requirement set forth in this Indenture.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he
has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by
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<PAGE>
the opinion of, only one such Person, or that they be so certified or covered by
only one document, but one such Person may certify or give an opinion with
respect to some matters and one or more other such Persons as to other matters,
and any such Person may certify or give an opinion as to such matters in one or
several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders; Record Dates.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by their agent
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
received by the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and (subject to Section 601) conclusive in favor of
the Trustee and the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The Company may, in the circumstances permitted by the Trust
Indenture Act, by Board Resolution fix any day as the record date for the
purpose of determining the Holders
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entitled to give or take any request, demand, authorization, direction, notice,
consent, waiver or other action, or to vote on any action, authorized or
permitted to be given or taken by Holders. If not set by the Company prior to
the first solicitation of a Holder made by any Person in respect of any such
action, or, in the case of any such vote, prior to such vote, the record date
for any such action or vote shall be the 30th day (or, if later, the date of the
most recent list of Holders required to be provided pursuant to Section 701)
prior to such first solicitation or vote, as the case may be. With regard to any
record date, only the Holders on such date (or their duly designated proxies)
shall be entitled to give or take, or vote on, the relevant action.
(d) The ownership of Securities shall be proved by the Security
Register.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
SECTION 105. Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its
[_________________________________________]; or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to it at the address of its principal
office specified in the first paragraph of this instrument or at any
other address previously furnished in writing to the Trustee by the
Company.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Where this Indenture provides for notice
in any manner, such notice may be waived in writing by the
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Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
SECTION 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a provision
of the Trust Indenture Act that is required under such Act to be a part of and
govern this Indenture, the latter provision shall control. If any provision of
this Indenture modifies or excludes any provision of the Trust Indenture Act
that may be so modified or excluded, the latter provision shall be deemed to
apply to this Indenture as so modified or to be excluded, as the case may be.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 110. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than (a) the parties hereto and their successors
hereunder, (b) the holders of Senior Indebtedness, (c) the Holders of Securities
and (d) subject to Section 901, the creditors in respect of General Obligations,
any benefit-or any legal or equitable right, remedy or claim under this
Indenture.
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SECTION 112. Governing Law.
This Indenture and the Securities shall be governed by and construed in
accordance with the laws of the State of Delaware.
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day, then (notwithstanding any
other provision of this Indenture or of the Securities) payment of interest or
principal (and premium, if any) need not be made on such date, but may be made
on the next succeeding Business Day with the same force and effect as if made on
the Interest Payment Date or Redemption Date, or at the Stated Maturity,
provided that no interest shall accrue for the period from and after such
Interest Payment Date, Redemption Date or Stated Maturity, as the case may be.
ARTICLE TWO
Security Forms
SECTION 201. Forms Generally.
The Securities, the conversion notice and the Trustee's certificates of
authentication shall be in substantially the forms set forth in this Article,
with such appropriate insertions, omissions, substitutions and other variations
as are required or permitted by this Indenture, and may have such letters,
numbers or other marks of identification and such legends or endorsements placed
thereon as may be required to comply with the rules of any securities exchange
or as may, consistently herewith, be determined by the officers executing such
Securities, as evidenced by their execution of the Securities.
The definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these methods on steel engraved borders or may be
produced in any other manner permitted by the rules of any securities exchange
on which the Securities may be listed, all as determined by the officers
executing such Securities, as evidenced by their execution of such Securities.
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SECTION 202. Form of Face of Security.
THIS SECURITY IS NOT A DEPOSIT OR SAVINGS ACCOUNT AND IS NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
THE BRYAN-COLLEGE STATION HOLDING COMPANY
____% Subordinated Debenture due _______, 2002
No. $
The Bryan-College Station Holding Company, a corporation duly organized and
existing under the laws of Delaware (herein called the "Company," which term
includes any successor Person under the Indenture hereinafter referred to), for
value received, hereby promises to pay to ______________________________________
____________________, or registered assigns, the principal sum of $ Dollars on
__________, 2002, and to pay interest thereon from _________, 1997 or from the
most recent Interest Payment Date to which interest has been paid or duly
provided for, quarterly on July 15, October 15, January 15 and April 15 in each
year, commencing ________, 1997, at the rate of ____% per annum, until the
principal hereof is paid or made available for payment. The interest so payable,
and punctually paid or duly provided for, on any Interest Payment Date will, as
provided in such Indenture, be paid to the Person in whose name this Security
(or one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date for such interest, which shall be July 1, October 1,
January 1 and April 1 (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date. Any such interest not so punctually paid
or duly provided for will forthwith cease to be payable to the Holder on such
Regular Record Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Securities
not less than 10 days prior to such Special Record Date, or be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such notice
as may be required by such exchange, all as more fully provided in said
Indenture. Payment of the principal of (and premium, if any) and interest on
this Security will be made at the office or agency of the Company maintained for
that purpose in the [CITY OF _______, ________,] in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts; provided, however, that at the option of the
Company payment of interest may be made by check mailed to the address of the
Person entitled thereto as such address shall appear in the Security Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
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Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: THE BRYAN-COLLEGE STATION HOLDING COMPANY
By:
----------------------------------------
Attest:
SECTION 203. Form of Reverse of Security.
This Security is one of a duly authorized issue of Securities of the
Company designated as its ____% Subordinated Debentures due ________ , 2002
(herein called the "Securities"), limited in aggregate principal amount to
$__________, issued and to be issued under an Indenture, dated as of ________ _,
1997 (herein called the "Indenture"), between the Company and
[_____________________________], as Trustee (herein called the "Trustee," which
term includes any successor trustee under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for a statement of
the respective rights, limitations of rights, duties and immunities thereunder
of the Company, the Trustee, the holders of Senior Indebtedness and the Holders
of the Securities, and of the terms upon which the Securities are, and are to
be, authenticated and delivered.
The indebtedness evidenced by this Security is, to the extent provided
in the Indenture, subordinate and subject in right of payment to the prior
payment in full of all Senior Indebtedness, and this Security is issued subject
to the provisions of the Indenture with respect thereto. Each Holder of this
Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the subordination so
provided and (c) appoints the Trustee his attorney-in-fact for any and all such
purposes.
If an Event of Default shall occur and be continuing, the principal of
all the Securities may be declared due and payable in the manner and with the
effect provided in the Indenture.
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The indebtedness evidenced by this Security is issued subject to the
provisions of the Indenture regarding payments to creditors in respect of
General Obligations (as defined in the Indenture). In particular, the Indenture
provides that if upon the occurrence of certain events of bankruptcy or
insolvency relating to the Company, there remains, after giving effect to the
subordination provisions referred to in the preceding paragraph, any amount of
cash, property or securities available for payment or distribution in respect of
Securities (as defined in the Indenture, "Excess Proceeds"), and if, at such
time, any creditors in respect of General Obligations have not received payment
in full of all amounts due or to become due on or in respect of such General
Obligations, then such Excess Proceeds shall first be applied to pay or provide
for the payment in full of such General Obligations before any payment or
distribution may be made in respect of Securities.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
66-2/3% in aggregate principal amount of the Securities at the time Outstanding.
The Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Securities at the time
Outstanding, on behalf of the Holders of all the Securities, to waive compliance
by the Company with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such consent or waiver
by the Holder of this Security shall be conclusive and binding upon such Holder
and upon all future Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in the [CITY OF _______], duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Securities,
of authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Securities are
exchangeable for a like aggregate principal amount of Securities of a different
authorized denomination, as requested by the Holder surrendering the same.
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No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
No recourse shall be had for the payment of the principal of or
interest on this Security, or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Indenture or any indenture
supplement thereto, against any incorporator, stockholder, officer or director,
as such, past, present or future, of the Company or any incorporator,
stockholder, officer or director of any successor at law of the Company or by
the enforcement of any assessment or penalty or otherwise against such person,
all such liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.
Each Holder of a Security covenants and agrees by his or her acceptance
thereof to comply with and be bound by the foregoing provisions.
This Security is unsecured by any collateral, including the assets of
the Company or any of its Subsidiaries or other Affiliates.
SECTION 204. Form of Trustee's Certificate of Authentication.
This is one of the Securities referred to in the within-mentioned
Indenture.
----------------------------------------
as Trustee
By:
-------------------------------------
Authorized Officer
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ARTICLE THREE
The Securities
SECTION 301. Title and Terms.
The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is limited to $_______, except for Securities
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Securities pursuant to Section 304, 305, 306 or 906.
The Securities shall be known and designated as the "____% Subordinated
Debentures due ________ , 2002" of the Company. Their Stated Maturity shall be
________ _, 2002, and they shall bear interest at the rate of ____% per annum,
from ________ _, 1997 or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, as the case may be, payable
quarterly on July 15, October 15, January 15 and April 15, commencing
__________, 1997, until the principal thereof is paid or made available for
payment.
The principal of (and premium, if any) and interest on the Securities
shall be payable at the office or agency of the Company in the [CITY OF _______]
maintained for such purpose and at any other office or agency maintained by the
Company for such purpose; provided, however, that at the option of the Company
payment of interest may be made by check mailed to the address of the Person
entitled thereto as such address shall appear in the Security Register.
The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article Eleven.
SECTION 302. Denominations.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its Vice Chairman of the Board, its President or one of
its Vice Presidents, under its corporate seal reproduced thereon attested by its
Secretary or one of its Assistant Secretaries. The signature of any of these
officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
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At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities as in
this Indenture provided and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder.
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as evidenced by their
execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at any office
or agency of the Company designated pursuant to Section 1002, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Securities, the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of definitive Securities of
authorized denominations. Until so exchanged the temporary Securities shall in
all respects be entitled to the same benefits under this Indenture as definitive
Securities.
SECTION 305. Registration; Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfers of Securities. The Trustee is hereby
appointed "Security Registrar" for the purpose of registering Securities and
transfers of Securities as herein provided.
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Upon surrender for registration of transfer of any Security at an
office or agency of the Company designated pursuant to Section 1002 for such
purpose, the Company shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Securities of any authorized denominations and of a like aggregate principal
amount.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed; by the
Holder thereof or his attorney duly authorized in writing,
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 304 or 906 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange any Security during a period beginning at the opening of business
15 days before the day of the mailing of a notice of redemption of Securities
selected for redemption under Section 1104 and ending at the close of business
on the day of such mailing, or (ii) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by
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a bona fide purchaser, the Company shall execute and the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Holder on the
relevant Regular Record Date by virtue of having been such Holder, and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date of the proposed
payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect
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of such Defaulted Interest or shall make arrangements satisfactory to
the Trustee for such deposit prior to the date of the proposed payment,
such money when deposited to be held in trust for the benefit of the
Persons entitled to such Defaulted Interest as in this clause provided.
Thereupon the Trustee shall fix a Special Record Date for the payment
of such Defaulted Interest which shall be not more than 15 days and not
less than 10 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date and, in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor to be mailed, first-class postage
prepaid, to each Holder at his address as it appears in the Security
Register, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been so mailed, such Defaulted
Interest shall be paid to the Persons in whose names the Securities (or
their respective Predecessor Securities) are registered at the close of
business on such Special Record Date and shall no longer be payable
pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon
such notice as may be required by such exchange, if, after notice given
by the Company to the Trustee of the proposed payment pursuant to this
clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 308. Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Security is registered as the owner of such
Security for the purpose of receiving payment of principal of (and premium, if
any) and (subject to Section 307) interest on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
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SECTION 309. Cancellation.
All Securities surrendered for payment, redemption, registration of
transfer or exchange or conversion shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee and shall be promptly canceled by
it. The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and all Securities so delivered
shall be promptly canceled by the Trustee. No Securities shall be authenticated
in lieu of or in exchange for any Securities canceled as provided in this
Section, except as expressly permitted by this Indenture. All canceled
Securities held by the Trustee shall be disposed of as directed by a Company
Order.
SECTION 310. Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months.
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to any
surviving rights of conversion, registration of transfer or exchange of
Securities herein expressly provided for), and the Trustee, on demand of and at
the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and
delivered (other than (i) Securities which have been destroyed,
lost or stolen and which have been replaced or paid as provided
in Section 306 and (ii) Securities for whose payment money has
theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 1003) have
been delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to
the Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their
Stated Maturity within one year, or
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(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving
of notice of redemption by the Trustee in the name, and at the
expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has deposited
or caused to be deposited with the Trustee as trust funds in trust for
the purpose an amount sufficient to pay and discharge the entire
indebtedness on such Securities not theretofore delivered to the
Trustee for cancellation, for principal (and premium, if any) and
interest to the date of such deposit (in the case of Securities which
have become due and payable) or to the Stated Maturity or Redemption
Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee.
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ARTICLE FIVE
Remedies
SECTION 501. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be occasioned by the provisions of Article Eleven or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court os any order, rule or regulation of any
administrative or governmental body):
(1) the entry by a court having jurisdiction in the premises
of a decree or order for relief in respect of the Company in an
involuntary case or proceeding under the Federal bankruptcy laws, as
now or hereafter constituted, and the continuance of any such decree or
order unstayed and in effect for a period of 60 consecutive days; or
(2) the commencement by the Company of a voluntary case or
proceeding under the Federal bankruptcy laws, as now or hereafter
constituted, or the consent by the Company to the entry of a decree or
order for relief in an involuntary case or proceeding under any such
law; or
(3) (A) the appointment by the OTS or the FDIC (or other
competent government agency having primary regulatory authority over
any Major Depository Institution Subsidiary) under any applicable
federal or state banking, insolvency or other similar law now or
hereafter in effect of a receiver, conservator or other similar
official for any Major Depository Institution Subsidiary or for all or
substantially all of its assets or (B) the entry of a decree or order
in any case or proceeding under any applicable federal or state
banking, insolvency or other similar law now or hereafter in effect
adjudging any Major Depository Institution Subsidiary insolvent or
bankrupt, or appointing any receiver, conservator or other similar
official for any Major Depository Institution Subsidiary or for all or
substantially all of its assets, or ordering the winding up or
liquidation of its affairs; or
(4) (A) the filing by any Major Depository Institution
Subsidiary with the OTS or the FDIC (or other competent government
agency having primary regulatory authority over any Major Depository
Institution Subsidiary) of a notice of voluntary liquidation or other
similar action under any applicable federal or state banking,
insolvency or other similar law now or hereafter in effect or (B) the
commencement by any Major Depository Institution Subsidiary of any case
or proceeding under any applicable federal or state banking, insolvency
or other similar law now or hereafter in effect to be adjudicated
insolvent or bankrupt or seeking the appointment of a receiver,
conservator or other similar official for any
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Major Depository Institution Subsidiary or for all or substantially all
of its assets, or the consent by any Major Depository Institution
Subsidiary to the entry of a decree or order in any case or proceeding
under the federal or state banking, insolvency or other similar laws
adjudging any Major Depository Institution Subsidiary insolvent or
bankrupt, or appointing any receiver, conservator or other similar
official for any Major Depository Institution Subsidiary or for all or
substantially all of its assets, or ordering the winding up or
liquidation of its affairs, or the taking of any corporate action by
any Major Depository Institution Subsidiary in furtherance of such
action.
(5) default in the payment of any interest upon any Security
or any amount payable hereunder when the same shall become due and
payable, and continuance of such default for a period of 30 days.
(6) default in the payment of the principal of (or premium, if
any, on) any Security when the same shall become due and payable,
whether at the Stated Maturity thereof, by acceleration or otherwise.
(7) default in the performance, or breach, of any material
covenant, representation or warranty of the Company contained in this
Indenture (other than a covenant, representation or warranty a default
in whose performance or whose breath is elsewhere in this Section
specifically dealt with), and continuance of such default or breach for
a period of 60 days after there has been given, by registered or
certified mail, to the Company by the Trustee or to the Company and the
Trustee by the Holders of at least 25% in principal amount of the
Outstanding Securities a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is
a "Notice of Default" hereunder.
(8) a default under any bond, debenture, note or other
evidence of indebtedness for money borrowed by the Company or a
Subsidiary or under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the Company or a Subsidiary
(including this Indenture), whether such indebtedness now exists or
shall hereafter be created, which default shall have resulted (i) in a
failure to pay an aggregate principal amount exceeding $1,000,000 of
such indebtedness when due or upon the expiration of any applicable
grace period with respect thereto or (ii) in such indebtedness in an
amount exceeding $1,000,000 becoming or, with the giving of notice or
lapse of time or both, being declared due and payable prior to the date
on which it would otherwise have become due and payable, without such
indebtedness having been discharged, or such acceleration having been
rescinded or annulled, within a period of 10 days after there shall
have been given, by registered or certified mail, to the Company by the
Trustee or to the Company and the Trustee by the Holders of at least
25% in principal amount of the Outstanding Securities a written notice
specifying such
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default and requiring the Company to cause such indebtedness to be
discharged or cause such acceleration to be rescinded or annulled and
stating that such notice is a "Notice of Default" hereunder; provided,
however, that any such default shall not be deemed to have occurred if
and so long as the Company shall contest the validity thereof in good
faith by appropriate proceedings.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
(a) If an Event of Default occurs and is continuing, then and in every
such case the Trustee or the Holders of not less than 25% in principal amount of
the Outstanding Securities may declare the principal of all the Securities to be
due and payable immediately, by a notice in writing to the Company (and to the
Trustee if given by Holders), and upon any such declaration such principal shall
become immediately due and payable.
(b) At any time after such a declaration of acceleration has been made
and before a judgment or decree for payment of the money due has been obtained
by the Trustee as hereinafter in this Article provided, the Holders of a
majority in principal amount of the Outstanding Securities, by written notice to
the Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on all Securities,
(B) the principal of (and premium, if any, on) any
Securities which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate
borne by the Securities,
(c) to the extent that payment of such interest is lawful, interest
upon overdue interest at the rate borne by the Securities, and
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel;
and
(2) all Events of Default have been cured or waived as
provided in Section 513.
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
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SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if any of the Events of Default specified in
paragraphs (5) or (6) of Section 501 occurs, the Company will, upon demand of
the Trustee, pay to it, for the benefit of the Holders of such Securities, the
whole amount then due and payable on such Securities for principal (and premium,
if any) and interest, and, to the extent that payment of such interest shall be
legally enforceable, interest on any overdue principal (and premium, if any) and
on any overdue interest, at the rate borne by the Securities, and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon such Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon such Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company (or any other obligor upon the
Securities), its property or its creditors, the Trustee (irrespective of whether
the principal of the Securities shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand on the Company for the payment of overdue principal
or interest) shall be entitled and empowered, by intervention in such proceeding
or otherwise, to take any and all actions authorized under the Trust Indenture
Act in order to have claims of the Holders and the Trustee allowed in any such
proceeding. In particular, the Trustee shall be authorized to collect and
receive any moneys or other property payable or deliverable on any such claims
and to distribute the same; and any custodian, receiver, assignee, trustee,
liquidator, sequestrator or other similar official in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 607.
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No provision of this Indenture shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding; provided,
however, that the Trustee may, on behalf of the Holders, vote for the election
of a trustee in bankruptcy or similar official and may be a member of the
creditors' committee.
SECTION 505. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
Subject to Article Eleven, any money collected by the Trustee pursuant
to this Article shall be applied in the following order, at the date or dates
fixed by the Trustee and, in case of the distribution of such money on account
of principal (or premium, if any) or interest, upon presentation of the
Securities and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Sections 503 and 607; and
SECOND: To the payment of the amounts then due and unpaid
for principal of (and premium, if any) and interest on the
Securities in respect of which or for the benefit of which such
money has been collected, ratably, without preference or priority of
any kind, according to the amounts due and payable on such
Securities for principal (and premium, if any) and interest,
respectively.
SECTION 507. Limitation on Suits.
No Holder of any Security shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice
to the Trustee of a continuing Event of Default;
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(2) the Holders of not less than 25% in principal
amount of the Outstanding Securities shall have made written request
to the Trustee to institute proceedings in respect of such Event of
Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the
Trustee reasonable indemnity against the costs, expenses and
liabilities to be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of
such notice, request and offer of indemnity has failed to institute
any such proceeding; and
(5) no direction inconsistent with such written
request has been given to the Trustee during such 60-day period by
the Holders of a majority in principal amount of the Outstanding
Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 509. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen securities in the last paragraph of
Section 306, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
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SECTION 510. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 511. Control by Holders.
The Holders of a majority in principal amount of the Outstanding
Securities shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee, provided that
(1) such direction shall not be in conflict with any rule of law
or with this Indenture;
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction; and
(3) that (subject to the provisions of Section 601) the Trustee
shall have the right to decline to follow any such direction if the
Trustee, being advised by counsel, shall determine that the action or
proceeding so directed may not lawfully be taken, or if the Trustee in
good faith shall determine that the action or proceedings so directed
might involve the Trustee in personal liability or if the Trustee in
good faith shall so determine that the actions or forbearances
specified in or pursuant to such direction shall be unduly prejudicial
to the interest of Holders not joining in the giving of said
direction, it being understood that (subject to Section 601) the
Trustee shall have no duty to ascertain whether or not such actions or
forbearances are unduly prejudicial to such Holders.
SECTION 512. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past default hereunder and its consequences, except a default
(1) in the payment of the principal of (or premium, if any) or
interest on any Security, or
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(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 513. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs against
any such party litigant, in the manner and to the extent provided in the Trust
Indenture Act; provided that neither this Section nor the Trust Indenture Act
shall be deemed to authorize any court to require such an undertaking or to make
such an assessment in any suit instituted by the Company; and provided further
that provisions of this Section shall not apply to any suit instituted by such
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than ten per centum (10%) in principal amount of the
Securities, or to any suit instituted by any Holder for the enforcement of the
payment of the principal of or interest on any Security, on or after the
respective due dates expressed in such Security.
SECTION 514. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE SIX
The Trustee
SECTION 601. Certain Duties and Responsibilities.
The duties and responsibilities of the Trustee shall be as provided by
the Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Indenture shall require the Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, if
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it shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it. Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
SECTION 602. Notice of Defaults.
The Trustee shall give the Holders notice of any default hereunder
known to the Trustee as and to the extent provided by the Trust Indenture Act;
provided, however, that in the case of any Event of Default of the character
specified in Section 501(5), (6), (7) or (8), no such notice to Holders shall be
given until at least 30 consecutive days after the occurrence thereof. For the
purpose of this Section, the term "default" means any event which is, or after
notice or lapse of time or both would become, an Event of Default.
SECTION 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting
or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or
parties;
(b) any request or direction of the Company mentioned
herein shall be sufficiently evidenced by a Company Request or
Company Order and any resolution of the Board of Directors may be
sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any action
hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its
part, rely upon an Officers' Certificate;
(d) before the Trustee acts or refrains from acting, the
Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(e) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the
request or direction of any of the Holders pursuant to this
Indenture, unless such Holders shall have
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offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in
compliance with such request or direction;
(f) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if
the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records
and premises of the Company, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be
responsible for any misconduct or negligence on the part of any
agent or attorney appointed with due care by it hereunder;
(h) the Trustee shall not be liable for any action taken or
omitted by it in good faith and with due care and believed by it to
be authorized or within the discretion, rights or powers conferred
upon it by this Indenture;
(i) the Trustee shall not be required to give any bond or
surety in respect of the performance of its powers and duties here-
under;
(j) the permissive rights of the Trustee to do things
enumerated in this Indenture shall not be construed as a duty and
the Trustee shall not be answerable for other than its negligence
or willful misconduct; and
(k) except for (i) a default under Sections 501(5) or (6)
hereof, or (ii) any other event of which the Trustee has "actual
knowledge" and which event, with the giving of notice or the
passage of time or both, would constitute an Event of Default under
this Indenture, the Trustee shall not be deemed to have notice of
any default or event unless specifically notified in writing of
such event by the Company or the Holders of not less than 25% in
aggregate principal amount of the Securities Outstanding; as used
herein, the term "actual knowledge" means the actual fact or
statement of knowing, without any duty to make any investigation
with regard thereto.
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SECTION 604. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities. The Trustee shall not be accountable for the use
or application by the Company of Securities or the proceeds thereof.
SECTION 605. May Hold Securities.
The Trustee, any Paying Agent, any Security Registrar or any other
agent of the Company, in its individual or any other capacity, may become the
owner or pledgee of Securities and, subject to Sections 608 and 613, may
otherwise deal with the Company with the same rights it would have if it were
not Trustee, Paying Agent, Security Registrar or such other agent.
SECTION 606. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed to in writing with the Company.
SECTION 607. Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time, and the
Trustee shall be entitled to, reasonable compensation for all
services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or
advance as may be attributable to its negligence or willful
misconduct;
(3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence
or willful misconduct on its part, arising out of or in connection
with the acceptance or administration of this trust, including the
costs and expenses of defending itself against or investigating any
claim or liability in connection with the exercise or performance
of any of its powers or duties hereunder; and
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(4) to treat as an administrative expense priority pursuant
to 11 U.S.C. Section 503, any expenses incurred by the Trustee or
compensation for services rendered to the Company by the Trustee
after any Event of Default as defined in Section 501.
(5) the obligations of the Company under this Section to
compensate the Trustee, to pay or reimburse the Trustee for
expenses, disbursements and advances and to indemnify and hold
harmless the Trustee shall constitute General Obligations hereunder
and shall survive the satisfaction and discharge of this Indenture.
SECTION 608. Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
SECTION 609. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a Person
that is eligible pursuant to the Trust Indenture Act to act as such and has a
combined capital and surplus of at least $50,000,000. If such Person publishes
reports of condition at least annually, pursuant to law or to the requirements
of said supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such Person shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article.
SECTION 610. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall
become effective until the acceptance of appointment by the
successor Trustee under Section 611.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If an instrument of acceptance by a
successor Trustee shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction
for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the
Holders of a majority in principal amount of the Outstanding
Securities, delivered to the Trustee and to the Company.
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(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after
written request therefor by the Company or by any Holder who has
been a bona fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section
609 and shall fail to resign after written request therefor by the
Company or by any such Holder, or
(3) the Trustee shall become incapable of acting or shall
be adjudged a bankrupt or insolvent or a receiver of the Trustee or
of its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of
Trustee for any cause, the Company, by a Board Resolution, shall
promptly appoint a successor Trustee. If, within 90 days after such
resignation, removal or incapability, or the occurrence of such
vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding
Securities delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance
of such appointment, become the successor Trustee and supersede the
successor Trustee appointed by the Company. If no successor Trustee
shall have been so appointed by the Company or the Holders and
accepted appointment in the manner hereinafter provided, any Holder
who has been a bona fide Holder of a Security for at least six
months may, on behalf of himself and-all others similarly situated,
petition any court of competent jurisdiction for the appointment of
a successor Trustee.
(f) The Company shall give notice of each resignation and
each removal of the Trustee and each appointment of a successor
Trustee to all Holders in the manner provided in Section 106. Each
notice shall include the name of the successor Trustee and the
address of its Corporate Trust Office.
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SECTION 611. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee, the
Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 612. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities.
SECTION 613. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company
(or any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
SECTION 614. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents which shall
be authorized to act on behalf of the Trustee to authenticate Securities issued
upon original issue and upon exchange, registration of transfer, partial
conversion or partial redemption or pursuant to Section 306, and Securities so
authenticated shall be entitled to the benefits of this Indenture and shall be
valid and obligatory for all purposes as if authenticated by the Trustee
hereunder. Whenever reference is made in this Indenture to the authentication
and delivery of Securities by the Trustee
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or the Trustee's certificate of authentication, such references shall be deemed
to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized and
doing business under the laws of the United States of America, any State thereof
or the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall give notice of such
appointment to all Holders in the manner provided in Section 106. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an Authenticating Agent. No successor
authenticating Agent shall be appointed unless eligible under the provisions of
this Section.
The Trustee agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section, and the
Trustee shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 607.
If an appointment is made pursuant to this Section, the Securities may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternative certificate of authentication in the following
form:
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This is one of the Securities described in the within-mentioned
Indenture.
----------------------------------,
As trustee
By
----------------------------------
As Authenticating Agent
By
----------------------------------
Authorized Officer
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee
(a) quarterly, not more than 15 days after each
Regular Record Date, a list, in such form as the Trustee may
reasonably require, of the names and addresses of the Holders as of
such Regular Record Date, and
(b) at such other times as the Trustee may request
in writing, within 30 days after the receipt by the Company of any
such request, a list of similar form and content as of a date not
more than 15 days prior to the time such list is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
SECTION 702. Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a
form as is reasonably practicable, the names and addresses of
Holders contained in the most recent list furnished to the Trustee
as provided in Section 701 and the names and addresses of Holders
received by the Trustee in its capacity as Security Registrar. The
Trustee may destroy any list furnished to it as provided in Section
701 upon receipt of a new list so furnished.
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(b) The rights of Holders to communicate with
other Holders with respect to their rights under this Indenture or
under the Securities, and the corresponding rights and duties of
the Trustee, shall be as provided by the Trust Indenture Act.
(c) Every Holder of Securities, by receiving and
holding the same, agrees with the Company and the Trustee that
neither the Company nor the Trustee nor any agent of either of them
shall be held accountable by reason of any disclosure of
information as to names and addresses of Holders made pursuant to
the Trust Indenture Act.
SECTION 703. Reports by Trustee.
The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act at the times and in the manner provided pursuant thereto.
SECTION 704. Reports by Company.
The Company shall file with the Trustee and the Commission, and
transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided pursuant to such Act; provided that any such
information, documents or reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be
filed with the Trustee within 15 days after the same is so required to be filed
with the Commission.
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other Person
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person, and the Company shall not permit any Person to
consolidate with or merge into the Company or convey, transfer or lease its
properties and assets substantially as an entirety to the Company, unless:
(1) in case the Company shall consolidate with or merge
into another Person or convey, transfer or lease its properties and
assets substantially as an entirety to any Person, the Person formed
by such consolidation or into which the Company is merged or the
Person which acquires by conveyance or transfer, or which leases,
the properties and assets of the Company substantially as an
entirety shall be a corporation, partnership or trust, shall
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be organized and validly existing under the laws of the United
States of America, any State thereof or the District of Columbia and
shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the
Trustee, the due and punctual payment of the principal of (and
premium, if any) and interest on all the Securities and the
performance or observance of every covenant of this Indenture on the
part of the Company to be performed or observed and shall have
provided for conversion rights in accordance with Section 1311;
(2) immediately after giving effect to such transaction, no
Default, and no event which, after notice or lapse of time or both,
would become an Event of Default, shall have happened and be
continuing; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and, if a
supplemental indenture is required in connection with such
transaction, such supplemental indenture comply with this Article
and that all conditions precedent herein provided for relating to
such transaction have been complied with.
SECTION 802. Successor Substituted.
Upon any consolidation of the Company with, or merger of the Company
into, any other Person or any conveyance, transfer or lease of the properties
and assets of the Company substantially as an entirety in accordance with
Section 801, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, transfer or lease is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such successor
Person had been named as the Company herein, and thereafter, except in the case
of a lease, the predecessor Person shall be relieved of all obligations and
covenants under this Indenture and the Securities.
ARTICLE NINE
Supplemental Indentures
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
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(1) to evidence the succession of another Person to the Company
and the assumption by any such successor of the covenants of the
Company herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the
Company; or
(3) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities and to
add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the
trusts hereunder by more than one Trustee; or
(4) to add any additional Events of Default; or
(5) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or
to make any other provisions with respect to matters or questions
arising under this Indenture which shall not be inconsistent with the
provisions of this Indenture; provided that such action pursuant to
this clause (6) shall not adversely affect the interests of the
Holders in any material respect.
Notwithstanding any provision in this Indenture or otherwise, the
rights of creditors in respect of General Obligations under this Indenture and
otherwise in respect of the Securities may, at any time and from time to time,
be reduced or eliminated by a supplemental indenture entered into by the Company
and the Trustee, which, supplemental indenture will not require the consent of
the Holders of Securities or any creditor in respect of General Obligations.
SECTION 902. Supplemental Indentures With Consent of Holders.
With the consent of the Holders of not less than 66 2/3% in principal
amount of the Outstanding Securities, by Act of said Holders delivered to the
Company and the Trustee, the Company, when authorized by a Board Resolution, and
the Trustee may enter into an indenture or indentures supplemental hereto for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Indenture or of modifying in any manner the rights
of the Holders under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the principal
amount thereof or the rate of interest thereon or any premium
payable upon the redemption thereof, or change the place of payment
where, or the coin or currency in which, any Security or any premium
or interest thereon is payable, or impair the right to
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institute suit for the enforcement of any such payment on or after
the Stated Maturity thereof (or, in the case of redemption, on or
after the Redemption Date), or modify the provisions of this
Indenture with respect to the subordination of the Securities in a
manner adverse to the Holders, or
(2) reduce the percentage in principal amount of the
Outstanding Securities, the consent of whose Holders is required for
any such supplemental indenture, or the consent of whose Holders is
required for any waiver (of compliance with certain provisions of
this Indenture or certain defaults hereunder and their consequences)
provided for in this Indenture, or
(3) modify any of the provisions of this Section or Section
513, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or
waived without the consent of the Holder of each Outstanding
Security affected thereby.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act.
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SECTION 906. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may bear a notation in form
approved by the Trustee as to any matter provided for in such supplemental
indenture. If the Company shall so determine, new Securities so modified as to
conform, in the opinion of the Trustee and the Company, to any such supplemental
indenture may be prepared and executed by the Company and authenticated and
delivered by the Trustee in exchange for Outstanding Securities.
ARTICLE TEN
Covenants
SECTION 1001. Payment of Principal, Premium and Interest.
The Company will duly and punctually pay the principal of (and premium,
if any) and interest on the Securities in accordance with the terms of the
Securities and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in [_______, ________] an office or agency
where Securities may be presented or surrendered for payment, where Securities
may be surrendered for registration of transfer or exchange, where Securities
may be surrendered for conversion and where notices and demands to or upon the
Company in respect of the Securities and this Indenture may be served. The
Company will give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee, and the Company hereby appoints the Trustee as its agent to receive all
such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside [_______, ________]) where the Securities may
be presented or surrendered for any or all such purposes and may from time to
time rescind such designations; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to maintain
an office or agency in [_______, ________] for such purposes. The Company will
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
SECTION 1003. Money for Security to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of (and premium, if any) or interest
on any of the Securities, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal (and premium, if
any) or interest so becoming due until such sums shall be paid to such
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Persons or otherwise disposed of as herein provided and will promptly notify the
Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will,
prior to each due date of the principal of (and premium, if any) or interest on
any Securities, deposit with a paying Agent a sum sufficient to pay such amount,
such sum to be held as provided by the Trust Indenture Act, and (unless such
paying Agent is the Trustee) the Company will promptly notify the Trustee of its
action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will (i) comply with the provisions of the Trust Indenture Act
applicable to it as a Paying Agent and (ii) during the continuance of any
default by the Company (or any other obligor upon the Securities) in the making
of any payment in respect of the Securities, upon the written request of the
Trustee, forthwith pay to the Trustee all sums held in trust by such Paying
Agent as such.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any) or interest on any Security and remaining unclaimed for two years after
such principal (and premium, if any) or interest has become due and payable
shall be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Security
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, shall at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published an each Business Day and of general
circulation in the City of Bryan, Texas, notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such publication, any unclaimed balance of such money
then remaining will be repaid to the Company.
SECTION 1004. Statement by Officers as to Default.
The Company will deliver to the Trustee, within 120 days after the end
of each fiscal year of the Company ending after the date hereof, an Officers'
Certificate, stating whether or not to the best knowledge of the signers thereof
the Company is in default in the performance and
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observance of any of the terms, provisions and conditions of this Indenture
(without regard to any period of grace or requirement of notice provided
hereunder) and, if the Company shall be in default, specifying all such defaults
and the nature and status thereof of which they may have knowledge.
SECTION 1005. Existence.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence and
that of any Major Depository Institution Subsidiary, rights (charter and
statutory) and franchises of the Company and any Major Depository Institution
Subsidiary; provided, however, that the Company shall not be required to
preserve any such right or franchise if the Board of Directors shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and that the loss thereof is not disadvantageous in any
material respect to the Holders.
SECTION 1006. Limitations on Dividends, Redemptions, Etc.
The Company will not (1) declare or pay any dividend or make any other
distribution on any Junior Securities of the Company, except dividends or
distributions payable in Junior Securities of the Company, or (2) purchase,
redeem or otherwise acquire or retire for value any Junior Securities of the
Company, except Junior Securities acquired upon conversion thereof into other
Junior Securities of the Company, or (3) permit a Subsidiary to purchase, redeem
or otherwise acquire or retire for value any Junior Securities of the Company,
if, upon giving effect to such dividend, distribution, purchase, redemption or
other acquisition, a default in the payment of any interest upon any Security
when it becomes due and payable or a default in the payment of the principal of
(or premium, if any, on) any Security at its Maturity shall have occurred and be
continuing.
SECTION 1007. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary, and (2)
all lawful claims for labor, materials and supplies which, if unpaid, might by
law become a lien upon the property of the Company or any Subsidiary; provided,
however, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
SECTION 1008. Maintenance of Properties.
The Company will cause all properties used or useful in the conduct of
its business or the business of any Subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs,
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renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Company may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that nothing in this Section shall prevent the Company from
discontinuing the operation or maintenance of any of such properties if such
discontinuance is, in the judgment of the Company, desirable in the conduct of
its business or the business of any Subsidiary and not disadvantageous in any
material respect to the Holders.
SECTION 1009. Waiver of Certain Covenants.
The Company may, except as otherwise required by law, omit in any
particular instance to comply with any covenant or condition set forth in
Sections 1007 and 1008, if before or after the time for such compliance the
Holders of at least a majority in principal amount of the Debentures at the time
Outstanding shall, by Act of such Holders, either waive such compliance in such
instance or generally waive compliance with such covenant or condition, but no
such waiver shall extend to or affect such covenant or condition except to the
extent so expressly waived and, until such waiver shall become effective, the
obligations of the Company and the duties of the Trustee in respect of any such
covenant or condition shall remain in full force and effect.
ARTICLE ELEVEN
Subordination of Securities
SECTION 1101. Securities Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a Security, by his
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article (subject to the provisions of
Article Four), the indebtedness represented by the Securities and the payment of
the principal of (and premium, if any) and interest on each and all of the
Securities are hereby expressly made subordinate and subject in right of payment
to the prior payment in full of all Senior Indebtedness.
SECTION 1102. Payment Over of Proceeds Upon Dissolution, Etc.
In the event of (a) any insolvency or bankruptcy case or proceeding, or
any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its creditors,
as such, or to its assets, or (b) any liquidation, dissolution or other winding
up of the Company, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or
any other marshalling of assets and liabilities of the Company, then and in any
such event specified in (a), (b) or (c) above (each such event, if any, herein
sometimes referred to as a "Proceeding") the holders of Senior Indebtedness
shall be entitled to receive payment in full of all amounts due or to become due
on or in respect of all Senior Indebtedness, or provision shall be made for such
payment in cash or cash equivalents or otherwise in a manner satisfactory
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to the holders of Senior Indebtedness, before the Holders of the Securities are
entitled to receive any payment or distribution of any kind or character,
whether in cash, property or securities, on account of principal of (or premium,
if any) or interest on the Securities or on account of any purchase or other
acquisition of Securities by the Company or any Subsidiary of the Company (all
such payments, distributions, purchases and acquisitions herein referred to,
individually and collectively, as a "Securities Payment"), and to that end the
holders of all Senior Indebtedness shall be entitled to receive, for application
to the payment thereof, any Securities Payment which may be payable or
deliverable in respect of the Securities in any such Proceeding.
In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Security shall have received any
Securities Payment before all Senior Indebtedness is paid in full or payment
thereof provided for in cash or cash equivalents or otherwise in a manner
satisfactory to the holders of Senior Indebtedness, and if such fact shall, at
or prior to the time of such Securities payment, have been made known to the
Trustee or, as the case may be, such Holder, then and in such event such
Securities Payment shall be paid over or delivered forthwith to the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other
Person making payment or distribution of assets of the Company for application
to the payment of all Senior Indebtedness remaining unpaid, to the extent
necessary to pay all Senior Indebtedness in full, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Indebtedness.
For purposes of this Article only, the words "any payment or
distribution of any kind or character, whether in cash, property or securities"
shall not be deemed to include a payment or distribution of stock or securities
of the Company provided for by a plan of reorganization or readjustment
authorized by an order or decree of a court of competent jurisdiction in a
reorganization proceeding under any applicable bankruptcy law or of any other
corporation provided for by such plan of reorganization or readjustment, which
stock or securities are subordinated in right of payment to all then outstanding
Senior Indebtedness to substantially the same extent as, or to a greater extent
than, the Securities are so subordinated as provided in this Article. The
consolidation of the Company with, or the merger of the Company into, another
Person or the liquidation or dissolution or the Company following the conveyance
or transfer of all or substantially all of its properties and assets as an
entirety to another Person upon the terms and conditions set forth in Article
Eight shall not be deemed a Proceeding for the purposes of this Section if the
Person formed by such consolidation or into which the Company is merged or the
Person which acquires by conveyance or transfer such properties and assets as an
entirety, as the case may be, shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions set forth in Article Eight.
SECTION 1103. Prior Payment to Senior Indebtedness Upon Acceleration of
Securities.
In the event that any Securities are declared due and payable before
their Stated Maturity, then and in such event the holders of the Senior
Indebtedness outstanding at the time such Securities so become due and payable
shall be entitled to receive payment in full of all amounts due on or in respect
of all Senior Indebtedness, or provision shall be made for such
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payment in cash or cash equivalents or otherwise in a manner satisfactory to the
holders of such Senior Indebtedness, before the Holders of the Securities are
entitled to receive any Securities Payment.
In the event that, notwithstanding the foregoing, the Company shall
make any Securities Payment to the Trustee or any Holder prohibited by the
foregoing provisions of this Section, and if such fact shall, at or prior to the
time of such Securities Payment, have been made known to the Trustee by
delivering to the Trustee the notice required by Section 1110 (unless the
Trustee otherwise has actual knowledge) or, as the case may be, such Holder,
then and in such event such Securities Payment shall be paid over and delivered
forthwith to the Company.
The provisions of this Section shall not apply to any Securities
Payment with respect to which Section 1102 would be applicable.
SECTION 1104. No Payment When Senior Indebtedness in Default.
In the event and during the continuation of any default in the payment
of principal of (or premium, if any) or interest on any Senior Indebtedness
beyond any applicable grace period with respect thereto, or in the event that
any event of default with respect to any Senior Indebtedness shall have occurred
and be continuing and shall have resulted in such Senior Indebtedness becoming
or being declared due and payable prior to the date on which it would otherwise
have become due and payable, unless and until such event of default shall have
been cured or waived or shall have ceased to exist and such acceleration shall
have been rescinded or annulled, or in the event any judicial proceeding shall
be pending with respect to any such default in payment or event of default, then
no Securities Payment shall be made.
In the event that, notwithstanding the foregoing, the Company shall
make any Securities Payment to the Trustee or any Holder prohibited by the
foregoing provisions of this Section, and if such fact shall, at or prior to the
time of such Securities Payment, have been made known to the Trustee or, as the
case may be, such Holder, then and in such event such Securities Payment shall
be paid over and delivered forthwith to the Company.
The provisions of this Section shall not apply to any Securities
Payment with respect to which Section 1102 would be applicable.
SECTION 1105. Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this Indenture or in
any of the Securities shall prevent (a) the Company, at any time except during
the pendency of any Proceeding referred to in Section 1102 or under the
conditions described in Section 1103 or 1104, from making Securities Payments,
or (b) the application by the Trustee of any money deposited with it hereunder
to Securities Payments or the retention of such Securities Payment by the
Holders, if, at the time of such application by the Trustee, it did not have
knowledge that such Securities. Payment would have been prohibited by the
provisions of this Article.
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SECTION 1106. Subrogation to Rights of Holders of Senior Indebtedness.
Subject to the payment in full of all amounts due or to become due on
or in respect of Senior Indebtedness, or the provision for such payment in cash
or cash equivalents or otherwise in a manner satisfactory to the holders of
Senior Indebtedness, the Holders of the Securities shall be subrogated to the
extent of the payments or distributions made to the holders of such Senior
Indebtedness pursuant to the provisions of this Article (equally and ratably
with the holders of all indebtedness of the Company which by its express terms
is subordinated to indebtedness of the Company to substantially the same extent
as the Securities are subordinated and is entitled to like rights of
subrogation) to the rights of the holders of such Senior Indebtedness to receive
payments and distributions of cash, property and securities applicable to the
Senior Indebtedness until the principal of (and premium, if any) and interest on
the Securities shall be paid in full. For purposes of such subrogation, no
payments or distributions to the holders of the Senior Indebtedness of any cash,
property or securities to which the Holders of the Securities or the Trustee
would be entitled except for the provisions of this Article, and no payments
over pursuant to the provisions of this Article to the holders of Senior
Indebtedness by Holders of the Securities or the Trustee, shall, as among the
Company, its creditors other than holders of Senior Indebtedness and the Holders
of the Securities, be deemed to be a payment or distribution by the Company to
or on account of the Senior Indebtedness.
SECTION 1107. Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for the
purpose of defining the relative rights of the Holders on the one hand and the
holders of Senior Indebtedness (and, in the case of Section 1116, the creditors
in respect of General Obligations) on the other hand. Nothing contained in this
Article or elsewhere in this Indenture or in the Securities is intended to or
shall (a) impair, as among the Company, its creditors other than holders of
Senior Indebtedness and the Holders of the Securities, the obligation of the
Company, which is absolute and unconditional and which, subject to the rights
under this Article of the holders of Senior Indebtedness (and the rights under
Section 1116 of creditors in respect of General Obligations), is intended to
rank equally with all other general obligations of the Company, to pay to the
Holders of the Securities the principal of (and premium, if any) and interest on
the Securities as and when the same shall become due and payable in accordance
with their terms; or (b) affect the relative rights against the Company of the
Holders of the Securities and creditors of the Company other than the holders of
Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Security
from exercising all remedies otherwise permitted by applicable law upon default
under this Indenture, subject to the rights, if any, under this Article of the
holders of Senior Indebtedness (and under Section 1116 of creditors in respect
of General Obligations) to receive cash, property and securities otherwise
payable or deliverable to the Trustee or such Holder.
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SECTION 1108. Trustee to Effectuate Subordination and Payment Provisions.
Each Holder of a Security by his acceptance thereof authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination and payment provisions provided in
this Article and appoints the Trustee his attorney-in-fact for any and all such
purposes.
SECTION 1109. No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article or
the obligations hereunder of the Holders of the Securities to the holders of
Senior Indebtedness, do any one or more of the following: (i) change the manner,
place or terms of payment or extend the time of payment of, or renew or alter,
Senior Indebtedness, or otherwise amend or supplement in any manner Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise
deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any Person liable in any manner for the collection
of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights
against the Company and any other Person.
SECTION 1110. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment to or by the
Trustee in respect of the Securities. Notwithstanding the provisions of this
Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received written notice thereof from the
Company or a holder of Senior Indebtedness or from any trustee therefor (or from
any creditor in respect of General Obligations); and, prior to the receipt of
any such written notice, the Trustee, subject to the provisions of Section 601,
shall be entitled in all respects to assume that no such facts exist; provided,
however, that if the Trustee shall not have received the notice provided for in
this Section at least two Business Days prior to the date upon which by the
terms hereof any money may become payable for any purpose (including, without
limitation, the payment of the principal of (and premium, if any) or interest
on, any Security), then, anything herein contained to the
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contrary notwithstanding, the Trustee shall have full power and authority to
receive such money and to apply the same to the purpose for which such money was
received and shall not be affected by any notice to the contrary which may be
received by it within two Business Days prior to such date.
Subject to the provisions of Section 601, the Trustee shall be entitled
to rely on the delivery to it of a written notice by a Person representing
himself to be a holder of Senior Indebtedness or a trustee therefor (or a
creditor in respect of General Obligations) to establish that such notice has
been given by a holder of Senior Indebtedness or a trustee therefor (or a
creditor in respect of General Obligations). In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any Person as a holder of Senior Indebtedness (or a creditor in respect
of General Obligations) to participate in any payment or distribution pursuant
to this Article, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
(or General Obligations) held by such Person, the extent to which such person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article, and if such evidence
is not furnished, the Trustee may defer any payment to such Person pending
judicial determination as to the right of such Person to receive such payment.
SECTION 1111. Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets of the Company referred to
in this Article, the Trustee, subject to the provisions of Section 601, and the
Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such Proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other Person
making such payment or distribution, delivered to the Trustee or to the Holders
of Securities, for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company (and the creditors in respect
of General Obligations), the amount thereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent thereto or to
this Article.
SECTION 1112. Trustee Not Fiduciary for Holders of Senior Indebtedness (or
Creditors in Respect of General Obligations)
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness (or creditors in respect of General Obligations)
and it undertakes to perform or observe only such of its covenants and
obligations as are specifically set forth in this Article, and no implied
covenants or obligations with respect to the Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be liable to any
such holders (or creditors in respect of General Obligations) if it shall in
good faith mistakenly pay over or distribute to Holders of Securities or to the
Company or to any other Person cash, property or securities to which any holders
of Senior Indebtedness (or creditors in respect of General Obligations) shall be
entitled by virtue of this Article or otherwise.
-51-
<PAGE>
SECTION 1113. Rights of Trustee as Holder of Senior Indebtedness (or Creditor);
Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Indebtedness which
may at any time be held by it (and with respect to any General Obligations owed
to the Trustee as a creditor), to the same extent as any other holder of Senior
Indebtedness (or creditors in respect of General Obligations), and nothing in
this Indenture shall deprive the Trustee of any of its rights as such holder (or
creditor in respect of General Obligations).
Nothing in this Article shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 607.
SECTION 1114. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article in addition to or in place of the Trustee; provided,
however, that Section 1113 shall not apply to the Company or any Affiliate of
the Company if it or such Affiliate acts as Paying Agent.
SECTION 1115. Payment of Proceeds in Certain Cases.
(a) Upon the occurrence of any Proceeding referred to in
Section 1102, the provisions of that Section shall be given effect
to determine the amount of cash, property or securities which may be
payable or deliverable as between the holders of Senior
Indebtedness, on the one hand, and the Holders of Securities, on the
other hand.
(b) If, after giving effect to the provisions of Section
1102 and Section 1107, any amount of cash, property or securities
shall be available for payment or distribution in respect of the
Securities ("Excess Proceeds"), and any creditors - in respect of
General Obligations shall not have received payment in full of all
amounts due or to become due on or in respect of such General
Obligations, then such Excess Proceeds shall first be applied
(ratably with any amount of cash, property or securities available
for payment or distribution in respect of any other indebtedness of
the Company that by its express terms provides for the payment over
of amounts corresponding to Excess Proceeds to creditors in respect
of General Obligations) to pay or provide for the payment of the
General Obligations remaining unpaid, to the extent necessary to pay
all General Obligations in full, after giving effect to any
concurrent payment or distribution to or for creditors in respect of
General obligations. Any Excess Proceeds remaining after the payment
(or provision for payment) in full of all General Obligations shall
be available for payment or distribution in respect of the
Securities.
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<PAGE>
(c) In the event that, notwithstanding the foregoing
provisions of subsection (b) of this Section, the Trustee or Holder
of any Security shall have received any Securities Payment, before
all General Obligations are paid in full or payment thereof duly
provided for, and if such fact shall, at or prior to the time of
such payment or distribution have been made known to the Trustee or,
as the case may be, such Holder, then and in such event, subject to
any obligation that the Trustee or such Holder may have pursuant to
Section 1102, such Securities Payment shall be paid over or
delivered forthwith to the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee, agent or other Person
making payment or distribution of assets of the Company for payment
in accordance with subsection (b).
(d) Subject to the payment in full of all General
Obligations, the Holders of the Securities shall be subrogated
(equally and ratably with the holders of all indebtedness of the
Company that by its express terms provides for the payment over of
amounts corresponding to Excess Proceeds to creditors in respect of
General Obligations and is entitled to like rights of subrogation)
to the rights of the creditors in respect of General Obligations to
receive payments and distributions of cash, property and securities
applicable to the General Obligations until the principal of and
interest on the Securities shall be paid in full. For purposes of
such subrogation, no payments or distributions to creditors in
respect of General Obligations of any cash, property or securities
to which Holders of the Securities or the Trustee would be entitled
except for the provisions of this Section, and no payments over
pursuant to the provisions of this Section to creditors in respect
of General Obligations by Holders of Securities or the Trustee,
shall, as among the Company, its creditors other than creditors in
respect of General Obligations and the Holders of Securities be
deemed to be a payment or distribution by the Company to or on
account of The General Obligations.
(e) The provisions of subsections (b), (c) and (d) of this
Section are and are intended solely for the purpose of defining the
relative rights of the Holders of the Securities, on the one hand,
and the creditors in respect of General Obligations, on the other
hand, after giving effect to the rights of the holders of Senior
Indebtedness, as provided in this Article. Nothing contained in
subsections (b), (c) and (d) of this Section is intended to or shall
affect the relative rights against the Company of the Holders of the
Securities and (1) the holders of Senior Indebtedness or (2) other
creditors of the Company other than creditors in respect of General
Obligations.
-53-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
THE BRYAN-COLLEGE STATION COMPANY
By
---------------------------------
Attest:
[TRUSTEE]
By
---------------------------------
Attest:
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<PAGE>
STATE OF TEXAS ) ss.:
COUNTY OF ______________________ )
On ________________, before me, ____________, a Notary Public in and
for the State of Texas, personally appeared ____________________________, the
__________________________ of the corporations described in and which executed
the foregoing instrument, personally known to me (or proved to me on the basis
of satisfactory evidence) to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he or she executed the within
instrument in his or her authorized capacity and that, by his or her signature
on the foregoing instrument, the person or entity upon behalf of which he or she
acted executed the foregoing instrument.
WITNESS my hand and official seal.
Signature
--------------------------------
STATE OF _______________________ ) ss.:
COUNTY OF ______________________ )
On , 1997, before me, _________________________, a Notary Public in and
for the State of Illinois, personally appeared ___________________________, one
of the corporations described in and which executed the foregoing instrument,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the foregoing instrument, and
acknowledged to me that he or she executed the within instrument in his or her
authorized capacity and that, by his or her signature on the foregoing
instrument, the person or entity upon behalf of which he or she acted executed
the foregoing instrument.
WITNESS my hand and official seal.
Signature (Seal)
--------------------------------
-55-
May 29, 1997
The Bryan - College Station
Financial Holding Company
2900 Texas Avenue
Bryan, Texas 77802
RE: Registration Statement on Form S-1
Members of the Board of Directors:
we have examined (i) Registration Statement on Form S-1 (the
"Registration Statement") filed by the Company with the Securities And Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), (ii) the prospectus (the "Prospectus"), relating to the
issuance by the company of up to 200,000 shares of common stock, par value $.01
Per share (the "common stock"), in the manner set forth in the Registration
Statement and the Prospectus, (iii) the Company's Certificate of Incorporation
and Bylaws and (iv) records of the Company's corporate proceedings relative to
its issuance of the Common Stock.
We have examined originals, or copies identified to our satisfaction,
of such corporate records of the Company and have made such examinations of law
as we have deemed relevant. In our examination, we have assumed and have not
verified (i) the genuineness of all signatures, (ii) the authenticity of all
documents submitted to us as originals, (iii) the conformity with the originals
of all documents supplied to us as copies, and (iv) the accuracy and
completeness of all corporate records and documents and all certificates and
statements of fact, in each case given or made available to us by the Company.
We have relied upon certificates and other written documents from public
officials and government agencies and departments and we have assumed the
accuracy and authenticity of such certificates and documents.
Based upon the foregoing, and having a regard for such legal
considerations as we deem relevant, we are of the opinion that the Common Stock
will be, upon issuance, against payment therefor as contemplated in the merger
agreement, legally issued, fully paid and non-assessable.
Very truly yours,
/s/ SILVER, FREEDMAN & TAFF
---------------------------
SILVER, FREEDMAN & TAFF
(202) 414-6100
May 29, 1997
The Bryan - College Station
Financial Holding Company
2900 Texas Avenue
Bryan, Texas 77802
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have examined (i) the Registration Statement on Form S-1 (the
"Registration Statement") filed by you with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, and the preliminary
public offering prospectus (the "Prospectus"), relating to the issuance by you
of debentures (the "Debentures") in the principal amount of up to $3,700,000, in
the manner set forth in the Registration Statement and the Prospectus, (ii) the
Certificate of Incorporation and Bylaws of The Bryan - College Station Financial
Holding Company (the "Company") and (iii) records of the Company's corporate
proceedings relative to its organization and to the issuance of the Debentures.
We have examined originals, or copies identified to our satisfaction,
of such corporate records of the Company and have made such examinations of law
as we have deemed relevant. In our examination, we have assumed and have not
verified (i) the genuineness of all signatures, (ii) the authenticity of all
documents submitted to us as originals, (iii) the conformity with the originals
of all documents supplied to us as copies, and (iv) the accuracy and
completeness of all corporate records and documents and all certificates and
statements of fact, in each case given or made available to us by the Company.
We have relied upon certificates and other written documents from public
officials and government agencies and departments and we have assumed the
accuracy and authenticity of such certificates and documents.
<PAGE>
The Bryan - College Station Financial Holding Company
May 29, 1997
Page 2
Based upon the foregoing, and having a regard for such legal
considerations as we deem relevant, we are of the opinion that:
The Debentures will be, upon issuance, against payment therefore as
contemplated in the Registration Statement and the Prospectus, duly
authorized, legally issued and binding obligations of the Company in
accordance with their terms and subject to (i) the indenture covering
the Debentures and (ii) any applicable bankruptcy, insolvency,
reorganization or similar laws affecting the enforcement of creditors'
rights generally and the application of equitable principles where
equitable principle remedies are sought.
Very truly yours,
/s/ SILVER, FREEDMAN & TAFF, L.L.P.
-----------------------------------
SILVER, FREEDMAN & TAFF, L.L.P.
May 29, 1997
The Bryan - College Station
Financial Holding Company
2900 Texas Avenue
Bryan, Texas 77802
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as counsel to The Bryan - College Station Financial
Holding Company (the "Company"), a Delaware corporation, in the preparation of
the above-referenced Registration Statement on Form S-1 (the "Registration
Statement"), in connection with the registration under the Securities Act of
1933, as amended, of up to 33,300 warrants entitling the holder thereof to
purchase one share of Common Stock, $.01 par value, ("Common Stock") of the
Company (the "Warrants").
We have made such legal and factual examinations and such inquiries as
we have deemed appropriate for the purposes of rendering this opinion. On the
basis thereof, and in reliance thereon, we are of the opinion that the shares
issued upon exercise of the Warrants as described in the Registration Statement,
will be legally issued, fully paid and nonassessable.
/s/ SILVER, FREEDMAN & TAFF
---------------------------
SILVER, FREEDMAN & TAFF
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF BRYAN
1993 STOCK OPTION AND INCENTIVE PLAN
1. Plan Purpose. The purpose of the Plan is to promote the long-term
interests of the Institution and its stockholders by providing a means for
attracting and retaining directors, officers and employees of the Institution
and its Affiliates. It is intended that designated Options granted pursuant to
the provisions of this Plan to persons employed by the Institution will qualify
as Incentive Stock Options. Options granted to persons who are not employees
will be Non-Qualified Stock Options.
2. Definitions. The following definitions are applicable to the Plan:
"Affiliate" - means any "parent corporation" or "subsidiary
corporation" of the Institution, as such terms are defined in Section 425(e) and
(f), respectively, of the Code.
"Award" - means the grant by the Committee of an Incentive Stock
Option, a Non-Qualified Stock Option, a Stock Appreciation Right, a Limited
Stock Appreciation Right, or of Restricted Stock, or any combination thereof, as
provided in the Plan.
"Code" - means the Internal Revenue Code of 1986, as amended.
"Committee" - means the Committee referred to in Section 3 hereof.
"Continuous Service" - means the absence of any interruption or
termination of service as a director, officer or employee of the Institution or
an Affiliate, except that, when used with respect to persons granted an
Incentive Option, it means the absence of any interruption or termination of
service as an employee of the Institution or an Affiliate. Service shall not be
considered interrupted in the case of sick leave, military leave or any other
leave of absence approved by the Institution or in the case of transfers between
payroll locations of the Institution or between the Institution, its parent, its
subsidiaries or its successor.
"Disinterested Person" - means any member of the Board of Directors
of the Institution who, at the time discretion under the Plan is exercised, has
not at any time within one year prior thereto received grants or awards under
the Plan or any other plan of the Institution or any of its affiliates (as that
term is used in the Exchange Act) except as provided in Rule 16b-3(c)(2)(i)
under the Exchange Act and is not selected as a Participant in the Plan or as a
person to whom stock may be allocated or to whom stock options or stock
appreciation rights may be granted pursuant to any other plan of the Institution
or any of its affiliates (as that term is used in the Exchange Act) entitling
the participants therein to acquire stock, stock options or stock appreciation
rights of the Institution or of any such affiliates except as provided in Rule
16b-3(c)(2)(i) under the Exchange Act; provided, however, that no recipient of a
stock option granted pursuant to Section 21 hereof shall be deemed not to be a
Disinterested Person solely by reason of such grant.
"Employee" - means any person, including an officer or director,
who is employed by the Institution or any Affiliate.
"ERISA" - means the Employee Retirement Income Security Act, as
amended.
"Exchange Act" - means the Securities Exchange Act of 1934, as
amended.
"Exercise Price" - means (i) in the case of an Option, the price
per Share at which the Shares subject to such Option may be purchased upon
exercise of such Option and (ii) in the case of a Right, the price per Share
(other than the Market Value per Share on the date of exercise and the Offer
Price per Share as defined in Section 10 hereof) which, upon grant, the
Committee determines shall be utilized in calculating the aggregate value which
a Participant shall be entitled to receive pursuant to Sections 9, 10 or 13
hereof upon exercise of such Right.
<PAGE>
"Incentive Stock Option" - means an option to purchase Shares
granted by the Committee pursuant to Section 6 hereof which is subject to the
limitations and restrictions of Section 8 hereof and is intended to qualify
under Section 422A of the Code.
"Institution" - means First Federal Savings and Loan Association of
Bryan, a capital stock savings association.
"Limited Stock Appreciation Right" - means a stock appreciation
right with respect to Shares granted by the Committee pursuant to Sections 6 and
10 hereof.
"Market Value" - means the average of the high and low quoted sales
price on the date in question (or, if there is no reported sale on such date, on
the last preceding date on which any reported sale occurred) of a Share on the
Composite Tape for the New York Stock Exchange-Listed Stocks, or, if on such
date the Shares are not quoted on the Composite Tape, on the New York Stock
Exchange, or, if the Shares are not listed or admitted to trading on such
Exchange, on the principal United States securities exchange registered under
the Exchange Act on which the Shares are listed or admitted to trading, or, if
the Shares are not listed or admitted to trading on any such exchange, the mean
between the closing high bid and low asked quotations with respect to a Share on
such date on the National Association of Securities Dealers, Inc., Automated
Quotations System, or any similar system then in use, or, if no such quotations
are available, the fair market value on such date of a Share as the Committee
shall determine.
"Non-Qualified Stock Option" - means an option to purchase Shares
granted by the Committee pursuant to Section 6 hereof, which Option is not
intended to qualify under Section 422A of the Code.
"Option" - means an Incentive Stock Option or a Non-Qualified Stock
Option.
"Participant" - means any director, officer or employee of the
Institution or any Affiliate who is selected by the Committee to receive an
Award.
"Plan" - means the 1992 Stock Option and Incentive Plan of the
Institution.
"Related" - means (i) in the case of a Right, a Right which is
granted in connection with, and to the extent exercisable, in whole or in part,
in lieu of, an Option or another Right and (ii) in the case of an Option, an
Option with respect to which and to the extent a Right is exercisable, in whole
or in part, in lieu thereof has been granted.
"Restricted Period" - means the period of time selected by the
Committee for the purpose of determining when restrictions are in effect under
Section 11 hereof with respect to Restricted Stock awarded under the Plan.
"Restricted Stock" - means Shares which have been contingently
awarded to a Participant by the Committee subject to the restrictions referred
to in Section 11 hereof, so long as such restrictions are in effect.
"Right" - means a Limited Stock Appreciation Right or a Stock
Appreciation Right.
"Shares" - means the shares of common stock of the Institution.
"Senior Officer" - means the Institution's president, principal
financial officer, or principal accounting officer, any vice president of the
Institution in charge of a principal business unit, division or function (such
as sales, administration or finance), any other officer who performs a
policy-making function, or any other person who performs similar policy-making
functions for the Institution. Officers of the Institution's Affiliates shall be
deemed senior officers of the Institution if they perform such policy-making
functions for the Institution.
"Stock Appreciation Right" - means a stock appreciation right with
respect to Shares granted by the Committee pursuant to Sections 6 and 9 hereof.
2
<PAGE>
"Ten Percent Beneficial Owner" - means the beneficial owner of more
than ten percent of any class of the Institution's equity securities registered
pursuant to Section 12 of the Exchange Act.
3. Administration. The Plan shall be administered by a Committee
consisting of two or more members, each of whom shall be a Disinterested Person.
The members of the Committee shall be appointed by the Board of Directors of the
Institution. Except as limited by the express provisions of the Plan, the
Committee shall have sole and complete authority and discretion to (i) select
Participants and grant Awards; (ii) determine the number of Shares to be subject
to types of Awards generally, as well as to individual Awards granted under the
Plan; (iii) determine the terms and conditions upon which Awards shall be
granted under the Plan; (iv) prescribe the form and terms of instruments
evidencing such grants; and (v) establish from time to time regulations for the
administration of the Plan, interpret the Plan, and make all determinations
deemed necessary or advisable for the administration of the Plan. The Committee
may maintain, and update from time to time as appropriate, a list designating
selected directors, officers and employees as Disinterested Persons. The purpose
of such list shall be to evidence the status of such individuals as
Disinterested Persons, and the Board of Directors may appoint to the Committee
any individual actually qualifying as a Disinterested Person, regardless of
whether identified as such on said list.
A majority of the Committee shall constitute a quorum, and the acts of
a majority of the members present at any meeting at which a quorum is present,
or acts approved in writing by a majority of the Committee without a meeting,
shall be acts of the Committee.
4. Participation. The Committee may select from time to time
Participants in the Plan from those directors, officers and employees (other
than Disinterested Persons), of the Institution or its Affiliates who, in the
opinion of the Committee, have the capacity for contributing to the successful
performance of the Institution or its Affiliates.
5. Shares Subject to Plan. Subject to adjustment by the operation of
Section 12 hereof, the maximum number of Shares with respect to which Awards may
be made under the Plan is 10% of the total Shares issued in the Institution's
conversion to the capital stock form. The Shares with respect to which Awards
may be made under the Plan may be either authorized and unissued shares or
issued shares heretofore or hereafter reacquired and held as treasury shares.
Shares which are subject to Related Rights and Related Options shall be counted
only once in determining whether the maximum number of Shares with respect to
which Awards may be granted under the Plan has been exceeded. An Award shall not
be considered to have been made under the Plan with respect to any Option or
Right which terminates or with respect to Restricted Stock which is forfeited,
and new Awards may be granted under the Plan with respect to the number of
Shares as to which such termination or forfeiture has occurred.
6. General Terms and Conditions of Options and Rights. The Committee
shall have full and complete authority and discretion, except as expressly
limited by the Plan, to grant Options and/or Rights and to provide the terms and
conditions (which need not be identical among Participants) thereof. In
particular, the Committee shall prescribe the following terms and conditions:
(i) the Exercise Price of any Option or Right, which shall not be less than the
Market Value per Share at the date of grant of such Option or Right, (ii) the
number of Shares subject to, and the expiration date of, any Option or Right,
which expiration date shall not exceed ten years from the date of grant, (iii)
the manner, time and rate (cumulative or otherwise) of exercise of such Option
or Right, and (iv) the restrictions, if any, to be placed upon such Option or
Right or upon Shares which may be issued upon exercise of such Option or Right.
The Committee may, as a condition of granting any Option or Right, require that
a Participant agree not to thereafter exercise one or more Options or Rights
previously granted to such Participant.
7. Exercise of Options or Rights.
(a) An Option or Right granted under the Plan shall be
exercisable during the lifetime of the Participant to whom such Option or Right
was granted only by such Participant, and except as provided in paragraphs (c)
and (d) of this Section 7, no such Option or Right may be exercised unless at
the time such Participant exercises such Option or Right, such Participant has
maintained Continuous Service since the date of grant of such Option or Right.
Cash settlements of Rights may be made only in accordance with any applicable
restrictions pursuant to Rule 16b-3(c) under the Exchange Act.
3
<PAGE>
(b) To exercise an Option or Right under the Plan, the
Participant to whom such Option or Right was granted shall give written notice
to the Institution in form satisfactory to the Committee (and, if partial
exercises have been permitted by the Committee, by specifying the number of
Shares with respect to which such Participant elects to exercise such Option or
Right) together with full payment of the Exercise Price, if any and to the
extent required. The date of exercise shall be the date on which such notice is
received by the Institution. Payment, if any is required, shall be made either
(i) in cash (including check, bank draft or money order) or (ii) if permitted by
the Committee, by delivering (A) Shares already owned by the Participant and
having a fair market value equal to the applicable exercise price, such fair
market value to be determined in such appropriate manner as may be provided by
the Committee or as may be required in order to comply with or to conform to
requirements of any applicable laws or regulations, or (B) a combination of cash
and such Shares.
(c) If a Participant to whom an Option or Right was granted
shall cease to maintain Continuous Service for any reason (including total or
partial disability and normal or early retirement, but excluding death and
termination of employment by the Institution or any Affiliate for cause), such
Participant may, but only within the period of three months immediately
succeeding such cessation of Continuous Service and in no event after the
expiration date of such Option or Right, exercise such Option or Right to the
extent that such Participant was entitled to exercise such Option or Right at
the date of such cessation, provided, however, that such right of exercise after
cessation of Continuous Service shall not be available to a Participant if the
Committee otherwise determines and so provides in the applicable instrument or
instruments evidencing the grant of such Option or Right. If the Continuous
Service of a Participant to whom an Option or Right was granted by the
Institution is terminated for cause, all rights under any Option or Right of
such Participant shall expire immediately upon the giving to the Participant of
notice of such termination.
(d) In the event of the death of a Participant while in the
Continuous Service of the Institution or an Affiliate or within the three-month
period referred to in paragraph (c) of this Section 7, the person to whom any
Option or Right held by the Participant at the time of his death is transferred
by will or the laws of descent and distribution may, but only to the extent such
Participant was entitled to exercise such Option or Right immediately prior to
his death, exercise such Option or Right at any time within a period of one year
succeeding the date of death of such Participant, but in no event later than ten
years from the date of grant of such Option or Right. Following the death of any
Participant to whom an Option was granted under the Plan, irrespective of
whether any Related Right shall have theretofore been granted to the Participant
or whether the person entitled to exercise such Related Right desires to do so,
the Committee may, as an alternative means of settlement of such Option, elect
to pay to the person to whom such Option is transferred by will or by the laws
of descent and distribution or pursuant to a qualified domestic relations order
as defined in the Code or Title I of the ERISA or the rules thereunder, the
amount by which the Market Value per Share on the date of exercise of such
Option shall exceed the Exercise Price of such Option, multiplied by the number
of Shares with respect to which such Option is properly exercised. Any such
settlement of an Option shall be considered an exercise of such Option for all
purposes of the Plan.
8. Incentive Stock Options. Incentive Stock Options may be granted only
to Participants who are Employees. Any provision of the Plan to the contrary
notwithstanding, (i) no Incentive Stock Option shall be granted more than ten
years from the date the Plan is adopted by the Board of Directors of the
Institution and no Incentive Stock Option shall be exercisable more than ten
years from the date such Incentive Stock Option is granted, (ii) the Exercise
Price of any Incentive Stock Option shall not be less than the Market Value per
Share on the date such Incentive Stock Option is granted, (iii) any Incentive
Stock Option shall not be transferable by the Participant to whom such Incentive
Stock Option is granted other than by will or the laws of descent and
distribution, and shall be exercisable during such Participant's lifetime only
by such Participant, (iv) no Incentive Stock Option shall be granted to any
individual who, at the time such Incentive Stock Option is granted, owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Institution or any Affiliate unless the Exercise Price of such
Incentive Stock Option is at least 110% of the Market Value per Share at the
date of grant and such Incentive Stock Option is not exercisable after the
expiration of five years from the date such Incentive Stock Option is granted,
and (v) the aggregate Market Value (determined as of the time any Incentive
Stock Option is granted) of the Shares with respect to which Incentive Stock
Options are exercisable for the first time by a Participant in any calendar year
shall not exceed $100,000.
4
<PAGE>
9. Stock Appreciation Rights. A Stock Appreciation Right shall, upon
its exercise, entitle the Participant to whom such Stock Appreciation Right was
granted to receive a number of Shares or cash or combination thereof, as the
Committee in its discretion shall determine, the aggregate value of which (i.e.,
the sum of the amount of cash and/or Market Value of such Shares on the date of
exercise) shall equal (as nearly as possible, it being understood that the
Institution shall not issue any fractional shares) the amount by which the
Market Value per Share on the date of such exercise shall exceed the Exercise
Price of such Stock Appreciation Right, multiplied by the number of Shares with
respect of which such Stock Appreciation Right shall have been exercised. A
Stock Appreciation Right may be Related to an Option or may be granted
independently of any Option as the Committee shall from time to time in each
case determine. At the time of grant of an Option, the Committee shall determine
whether and to what extent a Related Stock Appreciation Right shall be granted
with respect thereto; provided, however, and notwithstanding any other provision
of the Plan, that if the Related Option is an Incentive Stock Option, the
Related Stock Appreciation Right shall satisfy all the restrictions and
limitations of Section 8 hereof as if such Related Stock Appreciation Right were
an Incentive Stock Option and as if other rights which are Related to Incentive
Stock Options were Incentive Stock Options. In the case of a Related Option,
such Related Option shall cease to be exercisable to the extent of the Shares
with respect to which the Related Stock Appreciation Right was exercised. Upon
the exercise or termination of a Related Option, any Related Stock Appreciation
Right shall terminate to the extent of the Shares with respect to which the
Related Option was exercised or terminated. Notwithstanding the foregoing, no
Stock Appreciation Right shall be exercised by a Ten Percent Beneficial Owner,
director or Senior Officer of the Institution within six months of the date of
its grant.
10. Limited Stock Appreciation Rights. At the time of grant of an
Option or Stock Appreciation Right to any Participant, the Committee shall have
full and complete authority and discretion to also grant to such Participant a
Limited Stock Appreciation Right which is Related to such Option or Stock
Appreciation Right; provided, however, and notwithstanding any other provision
of the Plan, that if the Related Option is an Incentive Stock Option, the
Related Limited Stock Appreciation Right shall satisfy all the restrictions and
limitations of Section 8 hereof as if such Related Limited Stock Appreciation
Right were an Incentive Stock Option and as if all other Rights which are
Related to Incentive Stock Options were Incentive Stock Options. Notwithstanding
any other provision of the Plan, a Limited Stock Appreciation Right shall be
exercisable only during the period beginning on the first day following the date
of expiration of any "offer" (as such term is hereinafter defined) and ending on
the forty-fifth day following such date, provided, however, that no Limited
Stock Appreciation Right shall be exercisable by a Ten Percent Beneficial Owner,
director or Senior Officer of the Institution within six months of the date of
its grant.
A Limited Stock Appreciation Right shall, upon its exercise, entitle
the Participant to whom such Limited Stock Appreciation Right was granted to
receive an amount of cash equal to the amount by which the "Offer Price per
Share" (as such term is hereinafter defined) or the Market Value on the date of
such exercise, as shall have been provided by the Committee in its discretion at
the time of grant, shall exceed the Exercise Price of such Limited Stock
Appreciation Right, multiplied by the number of Shares with respect to which
such Limited Stock Appreciation Right shall have been exercised. Upon the
exercise of a Limited Stock Appreciation Right, any Related Option and/or
Related Stock Appreciation Right shall cease to be exercisable to the extent of
the Shares with respect to which such Limited Stock Appreciation Right was
exercised. Upon the exercise or termination of a Related Option or Related Stock
Appreciation Right, any Related Limited Stock Appreciation Right shall terminate
to the extent of the Shares with respect to which such Related Option or Related
Stock Appreciation Right was exercised or terminated.
For the purposes of this Section 10, the term "Offer" shall mean any
tender offer or exchange offer for Shares other than one made by the
Institution, provided that the corporation, person or other entity making the
offer acquires pursuant to such offer either (i) 25% of the Shares outstanding
immediately prior to the commencement of such offer or (ii) a number of Shares
which, together with all other Shares acquired in any tender offer or exchange
offer (other than one made by the Institution) which expired within sixty days
of the expiration date of the offer in question, equals 25% of the Shares
outstanding immediately prior to the commencement of the offer in question. The
term "Offer Price per Share" as used in this Section 10 shall mean the highest
price per Share paid in any Offer which Offer is in effect any time during the
period beginning on the sixtieth day prior to the date on which a Limited Stock
Appreciation Right is exercised and ending on the date on which such Limited
Stock Appreciation Right is exercised. Any securities or property which are part
or all of the consideration paid for
5
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Shares in the Offer shall be valued in determining the Offer Price per Share at
the higher of (A) the valuation placed on such securities or property by the
corporation, person or other entity making such Offer or (B) the valuation
placed on such securities or property by the Committee.
11. Terms and Conditions of Restricted Stock. The Committee shall have
full and complete authority, subject to the limitations of the Plan, to grant
awards of Restricted Stock and, in addition to the terms and conditions
contained in paragraphs (a) through (f) of this Section 11, to provide such
other terms and conditions (which need not be identical among Participants) in
respect of such Awards, and the vesting thereof, as the Committee shall
determine and provide in the agreement referred to in paragraph (d) of this
Section 11.
(a) At the time of an award of Restricted Stock, the Committee
shall establish for each Participant a Restricted Period of not less than six
months during which or at the expiration of which, as the Committee shall
determine and provide in the agreement referred to in paragraph (d) of this
Section 11, the Shares awarded as Restricted Stock shall vest, and subject to
any such other terms and conditions as the Committee shall provide, shares of
Restricted Stock may not be sold, assigned, transferred, pledged or otherwise
encumbered by the Participant, except as hereinafter provided, during the
Restricted Period. Except for such restrictions, and subject to paragraphs (c),
(d) and (e) of this Section 11 and Section 12 hereof, the Participant as owner
of such shares shall have all the rights of a stockholder, including but not
limited to the right to receive all dividends paid on such shares and the right
to vote such shares. The Committee shall have the authority, in its discretion,
to accelerate the time at which any or all of the restrictions shall lapse with
respect to any shares of Restricted Stock prior to the expiration of the
Restricted Period with respect thereto, or to remove any or all of such
restrictions, whenever it may determine that such action is appropriate by
reason of changes in applicable tax or other laws or other changes in
circumstances occurring after the commencement of such Restricted Period.
(b) Except as provided in Section 14 hereof, if a Participant
ceases to maintain Continuous Service for any reason (other than death, total or
partial disability or normal or early retirement) unless the Committee shall
otherwise determine and provide in the agreement referred to in paragraph (d) of
this Section 11, all shares of Restricted Stock theretofore awarded to such
Participant and which at the time of such termination of Continuous Service are
subject to the restrictions imposed by paragraph (a) of this Section 11 shall
upon such termination of Continuous Service be forfeited and returned to the
Institution. Unless the Committee shall have provided in the agreement referred
to in paragraph (d) of this Section 11 for a ratable lapse of restrictions with
respect to an award of shares of Restricted Stock during the Restricted Period,
if a Participant ceases to maintain Continuous Service by reason of death, total
or partial disability or normal or early retirement, such portion of such shares
of Restricted Stock awarded to such Participant which at the time of such
termination of Continuous Service are subject to the restrictions imposed by
paragraph (a) of this Section 11 as shall be equal to the portion of the
Restricted Period with respect to such shares which shall have elapsed at the
time of such termination of Continuous Service shall be free of restrictions and
shall not be forfeited.
(c) Each certificate in respect of shares of Restricted Stock
awarded under the Plan shall be registered in the name of the Participant and
deposited by the Participant, together with a stock power endorsed in blank,
with the Institution and shall bear the following (or a similar) legend:
"The transferability of this certificate and the
shares of stock represented hereby are subject to the terms and
conditions (including forfeiture) contained in the 1992 Stock Option
and Incentive Plan of First Federal Savings and Loan Association of
Bryan and an Agreement entered into between the registered owner and
First Federal Savings and Loan Association of Bryan. Copies of such
Plan and Agreement are on file in the offices of the Secretary of First
Federal Savings and Loan Association of Bryan, 2900 Texas Avenue,
Bryan, Texas 77805."
(d) At the time of an award of shares of Restricted Stock, the
Participant shall enter into an Agreement with the Institution in a form
specified by the Committee, agreeing to the terms and conditions of the award
and such other matters as the Committee shall in its sole discretion determine.
(e) At the time of an award of shares of Restricted Stock, the
Committee may, in its discretion, determine that the payment to the Participant
of dividends declared or paid on such shares, or specified
6
<PAGE>
portion thereof, by the Institution shall be deferred until the earlier to occur
of (i) the lapsing of the restrictions imposed under paragraph (a) of this
Section 11 or (ii) the forfeiture of such shares under paragraph (b) of this
Section 11, and shall be held by the Institution for the account of the
Participant until such time. In the event of such deferral, there shall be
credited at the end of each year (or portion thereof) interest on the amount of
the account at the beginning of the year at a rate per annum as the Committee,
in its discretion, may determine. Payment of deferred dividends, together with
interest accrued thereon as aforesaid, shall be made upon the earlier to occur
of the events specified in (i) and (ii) of the immediately preceding sentence.
(f) At the expiration of the restrictions imposed by paragraph
(a) of this Section 11, the Institution shall redeliver to the Participant (or
where the relevant provision of paragraph (b) of this Section 11 applies in the
case of a deceased Participant, to his legal representative, beneficiary or
heir) the certificate(s) and stock power deposited with it pursuant to paragraph
(c) of this Section 11 and the Shares represented by such certificate(s) shall
be free of the restrictions referred to in paragraph (a) of this Section 11.
12. Adjustments Upon Changes in Capitalization. In the event of any
change in the outstanding Shares subsequent to the effective date of the Plan by
reason of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or Shares of the Institution, the maximum aggregate number
and class of shares as to which Awards may be granted under the Plan and the
number and class of shares with respect to which Awards theretofore have been
granted under the Plan shall be appropriately adjusted by the Committee, whose
determination shall be conclusive. Any shares of stock or other securities
received, as a result of any of the foregoing, by a Participant with respect to
Restricted Stock shall be subject to the same restrictions and the
certificate(s) or other instruments representing or evidencing such shares or
securities shall be legend and deposited with the Institution in the manner
provided in Section 11 hereof.
13. Effect of Merger. In the event of any merger, consolidation or
combination of the Institution (other than a merger, consolidation or
combination in which the Institution is the continuing association and which
does not result in the outstanding Shares being converted into or exchanged for
different securities, cash or other property, or any combination thereof), any
Participant to whom an Option or Right has been granted under the Plan at least
6 months prior to such event shall have the right (subject to the provisions of
the Plan and any limitation applicable to such Option or Right), thereafter and
during the term of each such Option or Right, to receive upon exercise of any
such Option or Right an amount equal to the excess of the fair market value on
the date of such exercise of the securities, cash or other property, or
combination thereof, receivable upon such merger, consolidation or combination
in respect of a Share over the Exercise Price of such Right or Option,
multiplied by the number of Shares with respect to which such Option or Right
shall have been exercised. Such amount may be payable fully in cash, fully in
one or more of the kind or kinds of property payable in such merger,
consolidation or combination, or partly in cash and partly in one or more of
such kind or kinds of property, all in the discretion of the Committee. Unless
the Committee shall have provided otherwise in the agreement referred to in
paragraph (d) of Section 11 hereof, in the event of any such merger,
consolidation or combination any Restricted Period shall lapse with respect to
Shares of Restricted Stock awarded at least six months prior to such event, all
such Shares shall be fully vested in the Participants to whom such Shares were
awarded, and the holders of such Shares shall be eligible to receive in respect
thereof the full amount receivable per Share in such merger, consolidation or
combination.
14. Effect of Change in Control. Each of the events specified in the
following clauses (i) through (iii) of this Section 14 shall be deemed a "change
of control": (i) any third person, including a "group" as defined in Section
13(d)(3) of the Exchange Act, shall become the beneficial owner of shares of the
Institution with respect to which 25% or more of the total number of votes for
the election of the Board of Directors of the Institution may be cast, (ii) as a
result of, or in connection with, any cash tender offer, merger or other
business combination, sale of assets or contested election, or combination of
the foregoing, the persons who were directors of the Institution shall cease to
constitute a majority of the Board of Directors of the Institution, or (iii) the
stockholders of the Institution shall approve an agreement providing either for
a transaction in which the Institution will cease to be an independent
publicly-owned association or for a sale or other disposition of all or
substantially all the assets of the Institution; provided, however, that the
occurrence of any such events shall not be deemed a "change in control" if,
prior to such occurrence, a resolution specifically approving such occurrence
shall have been adopted by at least
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a majority of the Board of Directors of the Institution. If the Continuous
Service of any Participant of the Institution or any Affiliate is involuntarily
terminated for whatever reason, at any time within eighteen months after a
change in control, unless the Committee shall have otherwise provided in the
agreement referred to in paragraph (d) of Section 11 hereof, any Restricted
Period with respect to Restricted Stock theretofore awarded to such Participant
shall lapse upon such termination and all Shares awarded as Restricted Stock
shall become fully vested in the Participant to whom such Shares were awarded.
If a tender offer or exchange offer for Shares (other than such an offer by the
Institution) is commenced, or if the event specified in clause (iii) above shall
occur, unless the Committee shall have otherwise provided in the instrument
evidencing the grant of an Option or Stock Appreciation Right, all Options and
Stock Appreciation Rights theretofore granted and not fully exercisable shall
become exercisable in full upon the happening of such event and shall remain so
exercisable for a period of sixty days following such date, after which they
shall revert to being exercisable in accordance with their terms; provided,
however, that no Option or Stock Appreciation Right shall be exercisable by a
Ten Percent Beneficial Owner, director or Senior Officer of the Institution
within six months of the date of grant of such Option or Stock Appreciation
Right and no Option or Stock Appreciation Right which has previously been
exercised or otherwise terminated shall become exercisable.
15. Assignments and Transfers. No Award nor any right or interest of a
Participant under the Plan in any instrument evidencing any Award under the Plan
may be assigned, encumbered or transferred except, in the event of the death of
a Participant, by will or the laws of descent and distribution or, in the case
of Non-Qualified Stock Options, pursuant to a qualified domestic relations order
as defined in the Code or Title I of the ERISA or the rules thereunder.
16. Employee Rights Under the Plan. No director, officer or employee
shall have a right to be selected as a Participant nor, having been so selected,
to be selected again as a Participant and no director, officer, employee or
other person shall have any claim or right to be granted an Award under the Plan
or under any other incentive or similar plan of the Institution or any
Affiliate. Neither the Plan nor any action taken thereunder shall be construed
as giving any employee any right to be retained in the employ of the Institution
or any Affiliate.
17. Delivery and Registration of Stock. The Institution's obligation to
deliver Shares with respect to an Award shall, if the Committee so requests, be
conditioned upon the receipt of a representation as to the investment intention
of the Participant to whom such Shares are to be delivered, in such form as the
Committee shall determine to be necessary or advisable to comply with the
provisions of the Securities Act of 1933 or any other federal, state or local
securities legislation or regulation. It may be provided that any representation
requirement shall become inoperative upon a registration of the Shares or other
action eliminating the necessity of such representation under such Securities
Act or other securities legislation. The Institution shall not be required to
deliver any Shares under the Plan prior to (i) the admission of such shares to
listing on any stock exchange on which Shares may then be listed, and (ii) the
completion of such registration or other qualification of such Shares under any
state or federal law, rule or regulation, as the Committee shall determine to be
necessary or advisable.
This Plan is intended to comply with Rule 16b-3 under the Exchange Act.
Any provision of the Plan which is inconsistent with said Rule shall, to the
extent of such inconsistency, be inoperative and shall not affect the validity
of the remaining provisions of the Plan.
18. Withholding Tax. Upon the termination of the Restricted Period with
respect to any shares of Restricted Stock (or at any such earlier time, if any,
that an election is made by the Participant under Section 83(b) of the Code, or
any successor provision thereto, to include the value of such shares in taxable
income), the Institution shall have the right to require the Participant or
other person receiving such shares to pay the Institution the amount of any
taxes which the Institution is required to withhold with respect to such shares,
or, in lieu thereof, to retain or sell without notice, a sufficient number of
shares held by it to cover the amount required to be withheld. The Institution
shall have the right to deduct from all dividends paid with respect to shares of
Restricted Stock the amount of any taxes which the Institution is required to
withhold with respect to such dividend payments.
The Institution shall have the right to deduct from all amounts paid in
cash with respect to the exercise of a Right under the Plan any taxes required
by law to be withheld with respect to such cash payments. Where a Participant or
other person is entitled to receive Shares pursuant to the exercise of an Option
or Right pursuant to
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the Plan, the Institution shall have the right to require the Participant or
such other person to pay the Institution the amount of any taxes which the
Institution is required to withhold with respect to such Shares, or, in lieu
thereof, to retain, or sell without notice, a number of such Shares sufficient
to cover the amount required to be withheld.
19. Amendment or Termination. The Board of Directors of the Institution
may amend, suspend or terminate the Plan or any portion thereof at any time, but
(except as provided in Section 12 hereof) no amendment shall be made without
approval of the stockholders of the Institution which shall (i) materially
increase the aggregate number of Shares with respect to which Awards may be made
under the Plan, (ii) materially increase the aggregate number of Shares which
may be subject to Awards to Participants who are not Employees, (iii) change the
class of persons eligible to participate in the Plan or (iv) materially increase
the benefits accruing to Participants under the Plan; provided, however, that no
such amendment, suspension or termination shall impair the rights of any
Participant, without his consent, in any Award theretofore made pursuant to the
Plan.
Notwithstanding anything else in this Plan to the contrary, to the
extent that the Plan provides for formula awards, as defined in Rule
16b-3(c)(2)(ii) under the Exchange Act, such provisions may not be amended more
than once every six months, other than to comport with changes in the Code,
ERISA or the rules thereunder.
20. Effective Date and Term of Plan. The Plan shall become effective
upon its adoption by the Board of Directors of the Institution, subject to the
Institution converting to a stock institution and approval of the Plan by vote
of the holders of a majority of the outstanding shares of the Institution
entitled to vote on the adoption of the Plan. It shall continue in effect for a
term of ten years unless sooner terminated under Section 19 hereof.
21. Initial Grant. By, and simultaneously with, the adoption of this
Plan, each member of the Board of Directors of the Institution at the time of
the Institution's conversion to stock form who is not a full-time Employee is
hereby granted a Non-Qualified Stock Option to purchase .75% each of the shares
reserved hereunder, all at an Exercise Price per share equal to the per share
price at which shares are sold in connection with the Institution's conversion
from mutual to capital stock form. Each such Option shall be evidenced by an
agreement in a form approved by the Board of Directors and shall be subject in
all respects to the terms and conditions of this Plan, which are controlling.
9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
this _____ day of ______________, 1996, by and between First Federal Savings
Bank (hereinafter referred to as the "Bank"), and Joe Stanley Stephen (the
"Employee").
WHEREAS, the Employee is currently serving as President and Chief
Executive Officer of the Bank; and
WHEREAS, the Board of Directors of the Bank ("Board of Directors")
recognized that as is the case with publicly held corporations generally, the
possibility of a change in control of the Bank may exist and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of key management
personnel to the detriment of the Bank and its stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests of
the Bank to enter into this Agreement with the Employee in order to assure
continuity of management of the Bank and to reinforce and encourage the
continued attention and dedication of the Employee to the Employee's assigned
duties without distraction in the face of potentially disruptive circumstances
arising from the possibility of a change in control of the Bank; and
WHEREAS, the Board of Directors has approved and authorized the
execution of this Agreement with the Employee to take effect as stated in
Section 2 hereof:
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means (1) an event of a
nature that (i) results in a change in control of the Bank within the meaning of
the Home Owners' Loan Act of 1933 and 12 C.F.R. Part 574 as in effect on the
date hereof; of (ii) would be required to be reported in response to Item 1 of
the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
if the Exchange Act were applicable to the Bank; (2) any person (as the term is
used in Sections 13(d) and 14(d) of the Exchange Act) becomes the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly
of securities of the Bank representing 20% or more of the Bank's outstanding
securities (except for the existing "Community Group" of the Bank which
currently owns approximately 58% of the common shares outstanding of the Bank
and who were approved for control pursuant to the Control regulation by the OTS
as a part of the Conversion of the Bank which was effective in April, 1993) (3)
individuals who are members of the board of Directors of the Bank on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the Directors comprising the Incumbent Board, or whose nomination for election
by the
<PAGE>
Bank's stockholders was approved by the nominating committee serving under an
Incumbent Board, shall be considered a member of the Incumbent Board; or (4) a
reorganization, merger, consolidation, sale of all or substantially all of the
assets of the Bank or a similar transaction in which the Bank is not the
resulting entity. The term "Change in Control" shall not include an acquisition
of securities by an employee benefit plan of the Bank on the acquisition of
securities of the Bank by a holding company in a transaction in which the
shareholders of the Bank exchange their shares of Bank stock for identical
number of shares of stock of the holding company. In the application of 12
C.F.R. Part 574 to a determination of a Change in Control, determinations to be
made by the OTS or its Director under such regulations shall be made by the
Board of Directors of the Bank to administer this Agreement.
(b) The term "Commencement Date" means the date first set
forth above.
(c) The term "Date of Termination" means the earlier of (1)
the date upon which the Bank gives notice to the Employee of the termination of
the Employee's employment with the Bank or (2) the date upon which the Employee
ceases to serve as an employee of the Bank.
(d) The term "Involuntarily Termination" means termination of
the employment of the Employee without the Employee's express written consent,
and shall include a material diminution of or interference with the Employee's
duties, responsibilities and benefits as President and Chief Executive Officer
of the Bank, including (without limitation) any of the following actions unless
consented to in writing by the Employee: (1) a change in the principal workplace
of the Employee to a location outside of the city limits of Bryan or College
Station, Texas, or (2) a material demotion of the Employee; (3) a material
reduction in the number of seniority of other Bank personnel reporting to the
Employee or a material reduction in the frequency with which, or in the nature
of the matters with respect to which, such personnel are to report to the
Employee, other than as part of a Bank-wide reduction in staff; or (4) a
material adverse change in the Employee's salary, perquisites, benefits,
contingent benefits or vacation, other than and part of an overall program
applied uniformly and with equitable effect to all members of the senior
management of the Bank; or (5) a material permanent increase in the required
hours of work or the workload of the Employee. The term "Involuntary
Termination" does not include Termination for Cause or termination of employment
due to retirement, death, disability or suspension or temporary or permanent
prohibition from participation in the conduct of the Bank's affairs under
Section 8 of the Federal Deposit Insurance Act ("FDIA").
(e) The terms "Termination for Cause" and "Terminated For
Cause" mean termination of the employment of the Employee because of the
Employee's personal dishonesty, incompetence, willful misconduct, breach of a
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease--and-desist order, or material
breach of any provision of this Agreement. The Employee shall not be deemed to
have been Terminated for Cause unless and until there shall have been delivered
to the Employee a copy of a resolution, duly adopted by the affirmative vote of
not less than a majority of the entire membership of the Board of Directors at a
meeting of the Board called and held for such purpose (after reasonable notice
to the Employee and an opportunity for the Employee, together with the
Employee's counsel, to be heard before the Board), stating that in the good
faith
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opinion of the Board the Employee has engaged in conduct described in the
preceding sentence and specifying the particulars thereof in detail.
2. Term. The term of this Agreement shall be a period of one year
commencing on the Commencement Date, unless terminated earlier as provided
herein. Beginning on the first anniversary of the Commencement Date, and on each
anniversary thereafter, the term of this Agreement shall be extended for a
period of one year in addition to the then remaining term, provided that (1) the
Bank has not given notice to the Employee in writing at least 90 days prior to
such anniversary that the term of this Agreement shall not be extended further;
and (2) prior to such anniversary, the Board of Directors of the Bank explicitly
reviews and approves the extension. Reference herein to the term of this
Agreement shall refer to both such initial term and such tended terms.
3. Employment. The Employee is employed as President and Chief
Executive Officer of the Bank. As such, the Employee shall render administrative
and management services as are customarily performed by persons situated in
similar executive capacities, and shall have such other powers and duties of an
officer of the Bank as the President/CEO and/or Board of Directors may prescribe
from time to time.
4. Compensation.
(a) Salary. The Bank agrees to pay the Employee during the
term of this Agreement the salary established by the Board of Directors, which
shall be at least the Employee's base salary in effect as of the Commencement
Date. The amount of the Employee's salary shall be reviewed by the Board of
Directors, beginning not later than the first anniversary of the Commencement
Date. Adjustments in salary or other compensation shall not limit or reduce any
other obligation of the Bank under this Agreement.
(b) Discretionary Bonuses. The Employee shall be entitled to
participate in an equitable manner with all other executive officers of the Bank
in discretionary bonuses as authorized and declared by the Board of Directors to
its executive employees, including but not limited to incentive bonuses and
stock option plans. No other compensation provided for in this Agreement shall
be deemed a substitute for the Employee's right to participate in such bonuses
and stock option plans when and as declared by the Board of Directors.
(c) Expenses. The Employee shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Employee in performing
services under this Agreement in accordance with the policies and procedures
applicable to the executive officers of the Bank, provided that the Employee
accounts for such expenses as required under such policies and procedure.
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<PAGE>
5. Benefits.
(a) Participation in Retirement and Employee Benefit Plans.
The Employee shall be entitled to participate in all plans relating to pension,
thrift, profit-sharing, group life insurance, medical and dental coverage,
education, cash bonuses, and other retirement or employee benefits or
combinations thereof, in which the Bank's executive officers participate.
(b) Fringe Benefits. The Employee shall be eligible to
participate in, and receive benefits under, any fringe benefit plans which are
or may become applicable to the Bank's executive officers.
6. Vacations; Leave. The Employee shall be entitled to annual paid
vacation in accordance with the policies established by the Bank's Board of
Directors for executive officers and to voluntary leave of absence, with or
without pay, from time to time at such times and upon such conditions as the
Board of Directors may determine in its discretion.
7. Termination of Employment.
(a) Involuntary Termination. Although the Board of Directors
or the President/CEO may terminate the Employee's employment at any time;
however, except in the case of Termination for Cause, such involuntary
termination of employment shall not prejudice the Employee's right to
compensation or other benefits under this Agreement for the remaining term
hereof. In the event of such Involuntary Termination other than in connection
with or within 12 months after a Change in Control, (1) the Bank shall pay to
the Employee an amount equal to one year's base salary in effect at Date of
Termination, and (2) the Bank shall provide to the Employee for a period of one
year after Date of Termination, health benefits as maintained by the Bank for
the benefit of its executive officers from time to time or substantially the
same health benefits as the Bank maintained for its executive officers
immediately prior to the Date of Termination.
(b) Termination for Cause. In the event of Termination for
Cause, the Bank shall pay the Employee the Employee's salary through the Date of
Termination, and the Bank shall have no further obligation to the Employee under
this Agreement.
(c) Voluntary Termination. The Employee's employment may be
voluntarily terminated by the Employee at any time upon 90 days' written notice
to the Bank or such shorter period as may be agreed upon between the Employee
and the Board of Directors of the Bank. In the event of such voluntary
termination, the Bank shall be obligated to continue to pay to the Employee the
Employee's salary and benefits only through the Date of Termination, at the time
such payments are due, and the Bank shall have no further obligation to the
Employee under this Agreement.
(d) Change in Control. In the event of Involuntary Termination
in connection with or within 12 months after a Change in Control which occurs at
any time while the Employee is employed under this Agreement, the Bank shall,
subject to Section 8 of this Agreement, (1) pay to the Employee in a lump sum,
in cash within 25 business days after the Date of Termination an amount equal to
200% of the Employee's "base amount" as defined in
4
<PAGE>
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"); and
(2) provide to the Employee during the remaining term of this Agreement such
health benefits as are maintained for executive officers of the Bank from time
to time during the remaining term of this Agreement or substantially the same
health benefits as the Bank maintained for its executive officers immediately
prior to the Date of Termination.
(e) Death: Disability. In the event of the death of the
Employee while employed under this Agreement and prior to any termination of
employment, the Employee's estate, or such person as the Employee may have
previously designated in writing, shall be entitled to receive from the Bank the
salary of the Employee through the last day of the calendar month in which the
Employee died. If the Employee becomes disabled as defined in the Bank's then
current disability plan, if any, or if the Employee is otherwise unable to serve
as President/CEO, the Employee shall be entitled to receive group and other
disability income benefits of the type, if any, then provided by the Bank for
executive officers.
(f) Temporary Suspension or Prohibition. If the Employee is
suspended and/or temporarily prohibited from participating in the conduct of the
Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA,
12 U.S.C. 1818(e)(3) and (g)(1), the Bank's obligations under this Agreement
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may in its
discretion (i) pay the Employee all or part of the compensation withheld while
its obligations under this Agreement were suspended and (ii) reinstate in whole
or in part any of its obligations which were suspended.
(g) Permanent Suspension or Prohibition. If the Employee is
removed and/or permanently prohibited from participating in the conduct of the
Bank's affairs by an order issued under Section 8(e)(4) or (g)(1) of the FDIA,
12 U.S.C. 1818(e)(4) and (g)(1), all obligations of the Bank under this
Agreement shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(h) Default of the Bank. If the Bank is in default (as defined
in Section 3(x)(10 of the FDIA), all obligations under this Agreement shall
terminate as of the date of default, but this provision shall not affect any
vested rights of the contracting parties.
(i) Termination by Regulators. All obligations under this
Agreement shall be terminated, except to the extent determined that continuation
of this Agreement is necessary for the continued operation of the Bank: (1) by
the Director of the Office of Thrift Supervision (the "Director") or his or her
designee, at the time the Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
FDIA; or (2) by the Director or his or her designee, at the time the Director or
his or her designee approves a supervisory merger to resolve problems related to
operation of the Bank or when the Bank is determined by the Director to be in an
unsafe or unsound condition. Any rights of the parties that have already vested,
however shall not be affected by any such action.
5
<PAGE>
8. Certain Reduction of Payments by the Bank.
(a) Notwithstanding any other provision of this Agreement, if
the value and amounts of benefits under this Agreement, together with any other
amounts and the value of benefits received or to be received by the Employee in
connection with a Change in Control would cause any amount to be nondeductible
by the Bank for federal income tax purposes pursuant to Section 280G of the
Code, then amounts and benefits under this Agreement shall be reduced (not less
than zero) to the extent necessary so as to maximize amounts and the value of
benefits to the Employee without causing any amount to become nondeductible by
the Bank pursuant to or by reason of such Section 280G. The Employee shall
determine the allocation of such reduction among payments and benefits to the
Employee.
(b) Any payments made to the Employee pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with 12 U.S.C. 1828(k) and any regulations promulgated thereunder.
9. No Mitigation. The Employee shall not be required to mitigate the
amount of any salary or other payment or benefit provided for in this Agreement
be reduced by any compensation earned by the Employee as the result of
employment by another employer, by retirement benefits after the date of
termination or otherwise.
10. Attorneys Fees. In the event the Bank exercises its right of
Termination for Cause, but it is determined by a court of competent jurisdiction
or by an arbitrator pursuant to Section 17 that cause did not exist for such
termination, or if in any event it is determined by any such court or arbitrator
that the Bank has failed to make timely payment of any amounts owed to the
Employee under this Agreement, the Employee shall be entitled to reimbursement
for all reasonable costs, including attorneys' fees, incurred in challenging
such termination or collecting such amounts. Such reimbursement shall be in
addition to all rights to which the Employee is otherwise entitled under this
Agreement.
11. No Assignments:
(a) This Agreement is personal to each of the parties hereto,
and neither party may assign or delegate any of its rights or obligations
hereunder without first obtaining the written consent of the other party;
provided, however, that the Bank shall require any successor or assign (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Bank, by an assumption
agreement in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Bank would be required to perform it if no such succession or
assignment had taken place. Failure of the Bank to obtain such an assumption
agreement prior to the effectiveness of any such succession or assignment shall
be a breach of this Agreement and shall entitle the Employee to compensation
from the Bank in the same amount and on the same terms as the compensation
pursuant to Section 7(d) hereof. For purposes of implementing the provision of
this Section 11(a), the date on which any such succession becomes effective
shall be deemed the Date of Termination.
6
<PAGE>
(b) This Agreement and all rights of the Employee hereunder
shall inure to the benefit of and be enforceable by the Employee's personal and
legal representatives, executors, administrators, successors, heirs,
distributee, devisees and legatees. If the Employee should die while any amounts
would still be payable to the Employee hereunder if the Employee had continued
to live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Employee's devisee, legatee
or other designee or if there is no such designee, to the Employee's estate.
12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Bank at its home office,
to the attention of the Board of Directors with a copy to the Secretary of the
Bank, or, if to the Employee, to such home or other address as the Employee has
most recently provided in writing to the Bank.
13. Amendments: No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
14. Headings. The headings used in this Agreement are included solely
for convenience and shall not affect, or be sued in connection with the
interpretation of this Agreement.
15. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. Governing Law. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Texas. Venue shall be in Brazos County, Texas.
17. Survival. Section 17 and 18 of this Agreement shall survive the
termination thereof.
18. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
7
<PAGE>
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: FIRST FEDERAL SAVINGS BANK
- ------------------------- ---------------------------
By:
Its:
Employee
----------------------------
8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
this _____ day of ______________, 1996, by and between First Federal Savings
Bank (hereinafter referred to as the "Bank"), and George Koenig (the
"Employee").
WHEREAS, the Employee is currently serving as Executive Vice
President/Marketing, Operations and Branches of the Bank; and
WHEREAS, the Board of Directors of the Bank ("Board of Directors")
recognized that as is the case with publicly held corporations generally, the
possibility of a change in control of the Bank may exist and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of key management
personnel to the detriment of the Bank and its stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests of
the Bank to enter into this Agreement with the Employee in order to assure
continuity of management of the Bank and to reinforce and encourage the
continued attention and dedication of the Employee to the Employee's assigned
duties without distraction in the face of potentially disruptive circumstances
arising from the possibility of a change in control of the Bank; and
WHEREAS, the Board of Directors has approved and authorized the
execution of this Agreement with the Employee to take effect as stated in
Section 2 hereof:
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means (1) an event of a
nature that (i) results in a change in control of the Bank within the meaning of
the Home Owners' Loan Act of 1933 and 12 C.F.R. Part 574 as in effect on the
date hereof; of (ii) would be required to be reported in response to Item 1 of
the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
if the Exchange Act were applicable to the Bank; (2) any person (as the term is
used in Sections 13(d) and 14(d) of the Exchange Act) becomes the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly
of securities of the Bank representing 20% or more of the Bank's outstanding
securities (except for the existing "Community Group" of the Bank which
currently owns approximately 58% of the common shares outstanding of the Bank
and who were approved for control pursuant to the Control regulation by the OTS
as a part of the Conversion of the Bank which was effective in April, 1993) (3)
individuals who are members of the board of Directors of the Bank on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the Directors comprising the Incumbent Board, or whose nomination for election
by the
<PAGE>
Bank's stockholders was approved by the nominating committee serving under an
Incumbent Board, shall be considered a member of the Incumbent Board; or (4) a
reorganization, merger, consolidation, sale of all or substantially all of the
assets of the Bank or a similar transaction in which the Bank is not the
resulting entity. The term "Change in Control" shall not include an acquisition
of securities by an employee benefit plan of the Bank on the acquisition of
securities of the Bank by a holding company in a transaction in which the
shareholders of the Bank exchange their shares of Bank stock for identical
number of shares of stock of the holding company. In the application of 12
C.F.R. Part 574 to a determination of a Change in Control, determinations to be
made by the OTS or its Director under such regulations shall be made by the
Board of Directors of the Bank to administer this Agreement.
(b) The term "Commencement Date" means the date first set
forth above.
(c) The term "Date of Termination" means the earlier of (1)
the date upon which the Bank gives notice to the Employee of the termination of
the Employee's employment with the Bank or (2) the date upon which the Employee
ceases to serve as an employee of the Bank.
(d) The term "Involuntarily Termination" means termination of
the employment of the Employee without the Employee's express written consent,
and shall include a material diminution of or interference with the Employee's
duties, responsibilities and benefits as Executive Vice President/Marketing,
Operations and Branches of the Bank, including (without limitation) any of the
following actions unless consented to in writing by the Employee: (1) a change
in the principal workplace of the Employee to a location outside of the city
limits of Bryan or College Station, Texas, or (2) a material demotion of the
Employee; (3) a material reduction in the number of seniority of other Bank
personnel reporting to the Employee or a material reduction in the frequency
with which, or in the nature of the matters with respect to which, such
personnel are to report to the Employee, other than as part of a Bank-wide
reduction in staff; or (4) a material adverse change in the Employee's salary,
perquisites, benefits, contingent benefits or vacation, other than and part of
an overall program applied uniformly and with equitable effect to all members of
the senior management of the Bank; or (5) a material permanent increase in the
required hours of work or the workload of the Employee. The term "Involuntary
Termination" does not include Termination for Cause or termination of employment
due to retirement, death, disability or suspension or temporary or permanent
prohibition from participation in the conduct of the Bank's affairs under
Section 8 of the Federal Deposit Insurance Act ("FDIA").
(e) The terms "Termination for Cause" and "Terminated For
Cause" mean termination of the employment of the Employee because of the
Employee's personal dishonesty, incompetence, willful misconduct, breach of a
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease--and-desist order, or material
breach of any provision of this Agreement. The Employee shall not be deemed to
have been Terminated for Cause unless and until there shall have been delivered
to the Employee a copy of a resolution, duly adopted by the affirmative vote of
not less than a majority of the entire membership of the Board of Directors at a
meeting of the Board called and held for such purpose (after reasonable notice
to the Employee and an opportunity for the Employee, together with the
Employee's counsel, to be heard before the Board), stating that in the good
faith
2
<PAGE>
opinion of the Board the Employee has engaged in conduct described in the
preceding sentence and specifying the particulars thereof in detail.
2. Term. The term of this Agreement shall be a period of one year
commencing on the Commencement Date, unless terminated earlier as provided
herein. Beginning on the first anniversary of the Commencement Date, and on each
anniversary thereafter, the term of this Agreement shall be extended for a
period of one year in addition to the then remaining term, provided that (1) the
Bank has not given notice to the Employee in writing at least 90 days prior to
such anniversary that the term of this Agreement shall not be extended further;
and (2) prior to such anniversary, the Board of Directors of the Bank explicitly
reviews and approves the extension. Reference herein to the term of this
Agreement shall refer to both such initial term and such tended terms.
3. Employment. The Employee is employed as Executive Vice
President/Marketing, Operations & Branches, of the Bank. As such, the Employee
shall render administrative and management services as are customarily performed
by persons situated in similar executive capacities, and shall have such other
powers and duties of an officer of the Bank as the President/CEO and/or Board of
Directors may prescribe from time to time.
4. Compensation.
(a) Salary. The Bank agrees to pay the Employee during the
term of this Agreement the salary established by the Board of Directors, which
shall be at least the Employee's base salary in effect as of the Commencement
Date. The amount of the Employee's salary shall be reviewed by the Board of
Directors, beginning not later than the first anniversary of the Commencement
Date. Adjustments in salary or other compensation shall not limit or reduce any
other obligation of the Bank under this Agreement.
(b) Discretionary Bonuses. The Employee shall be entitled to
participate in an equitable manner with all other executive officers of the Bank
in discretionary bonuses as authorized and declared by the Board of Directors to
its executive employees, including but not limited to incentive bonuses and
stock option plans. No other compensation provided for in this Agreement shall
be deemed a substitute for the Employee's right to participate in such bonuses
and stock option plans when and as declared by the Board of Directors.
(c) Expenses. The Employee shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Employee in performing
services under this Agreement in accordance with the policies and procedures
applicable to the executive officers of the Bank, provided that the Employee
accounts for such expenses as required under such policies and procedure.
5. Benefits.
(a) Participation in Retirement and Employee Benefit Plans.
The Employee shall be entitled to participate in all plans relating to pension,
thrift, profit-sharing, group life insurance, medical and dental coverage,
education, cash bonuses, and other retirement or employee benefits or
combinations thereof, in which the Bank's executive officers participate.
3
<PAGE>
(b) Fringe Benefits. The Employee shall be eligible to
participate in, and receive benefits under, any fringe benefit plans which are
or may become applicable to the Bank's executive officers.
6. Vacations; Leave. The Employee shall be entitled to annual paid
vacation in accordance with the policies established by the Bank's Board of
Directors for executive officers and to voluntary leave of absence, with or
without pay, from time to time at such times and upon such conditions as the
Board of Directors may determine in its discretion.
7. Termination of Employment.
(a) Involuntary Termination. Although the Board of Directors
or the President/CEO may terminate the Employee's employment at any time;
however, except in the case of Termination for Cause, such involuntary
termination of employment shall not prejudice the Employee's right to
compensation or other benefits under this Agreement for the remaining term
hereof. In the event of such Involuntary Termination other than in connection
with or within 12 months after a Change in Control, (1) the Bank shall pay to
the Employee an amount equal to one year's base salary in effect at Date of
Termination, and (2) the Bank shall provide to the Employee for a period of one
year after Date of Termination, health benefits as maintained by the Bank for
the benefit of its executive officers from time to time or substantially the
same health benefits as the Bank maintained for its executive officers
immediately prior to the Date of Termination.
(b) Termination for Cause. In the event of Termination for
Cause, the Bank shall pay the Employee the Employee's salary through the Date of
Termination, and the Bank shall have no further obligation to the Employee under
this Agreement.
(c) Voluntary Termination. The Employee's employment may be
voluntarily terminated by the Employee at any time upon 90 days' written notice
to the Bank or such shorter period as may be agreed upon between the Employee
and the Board of Directors of the Bank. In the event of such voluntary
termination, the Bank shall be obligated to continue to pay to the Employee the
Employee's salary and benefits only through the Date of Termination, at the time
such payments are due, and the Bank shall have no further obligation to the
Employee under this Agreement.
(d) Change in Control. In the event of Involuntary Termination
in connection with or within 12 months after a Change in Control which occurs at
any time while the Employee is employed under this Agreement, the Bank shall,
subject to Section 8 of this Agreement, (1) pay to the Employee in a lump sum,
in cash within 25 business days after the Date of Termination an amount equal to
200% of the Employee's "base amount" as defined in Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"); and (2) provide to the Employee
during the remaining term of this Agreement such health benefits as are
maintained for executive officers of the Bank from time to time during the
remaining term of this Agreement or substantially the same health benefits as
the Bank maintained for its executive officers immediately prior to the Date of
Termination.
4
<PAGE>
(e) Death: Disability. In the event of the death of the
Employee while employed under this Agreement and prior to any termination of
employment, the Employee's estate, or such person as the Employee may have
previously designated in writing, shall be entitled to receive from the Bank the
salary of the Employee through the last day of the calendar month in which the
Employee died. If the Employee becomes disabled as defined in the Bank's then
current disability plan, if any, or if the Employee is otherwise unable to serve
as Executive Vice President/Marketing, Operations & Branches, the Employee shall
be entitled to receive group and other disability income benefits of the type,
if any, then provided by the Bank for executive officers.
(f) Temporary Suspension or Prohibition. If the Employee is
suspended and/or temporarily prohibited from participating in the conduct of the
Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA,
12 U.S.C. 1818(e)(3) and (g)(1), the Bank's obligations under this Agreement
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may in its
discretion (i) pay the Employee all or part of the compensation withheld while
its obligations under this Agreement were suspended and (ii) reinstate in whole
or in part any of its obligations which were suspended.
(g) Permanent Suspension or Prohibition. If the Employee is
removed and/or permanently prohibited from participating in the conduct of the
Bank's affairs by an order issued under Section 8(e)(4) or (g)(1) of the FDIA,
12 U.S.C. 1818(e)(4) and (g)(1), all obligations of the Bank under this
Agreement shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(h) Default of the Bank. If the Bank is in default (as defined
in Section 3(x)(10 of the FDIA), all obligations under this Agreement shall
terminate as of the date of default, but this provision shall not affect any
vested rights of the contracting parties.
(i) Termination by Regulators. All obligations under this
Agreement shall be terminated, except to the extent determined that continuation
of this Agreement is necessary for the continued operation of the Bank: (1) by
the Director of the Office of Thrift Supervision (the "Director") or his or her
designee, at the time the Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
FDIA; or (2) by the Director or his or her designee, at the time the Director or
his or her designee approves a supervisory merger to resolve problems related to
operation of the Bank or when the Bank is determined by the Director to be in an
unsafe or unsound condition. Any rights of the parties that have already vested,
however shall not be affected by any such action.
8. Certain Reduction of Payments by the Bank.
(a) Notwithstanding any other provision of this Agreement, if
the value and amounts of benefits under this Agreement, together with any other
amounts and the value of benefits received or to be received by the Employee in
connection with a Change in Control would cause any amount to be nondeductible
by the Bank for federal income tax purposes pursuant to Section 280G of the
Code, then amounts and benefits under this Agreement shall be
5
<PAGE>
reduced (not less than zero) to the extent necessary so as to maximize amounts
and the value of benefits to the Employee without causing any amount to become
nondeductible by the Bank pursuant to or by reason of such Section 280G. The
Employee shall determine the allocation of such reduction among payments and
benefits to the Employee.
(b) Any payments made to the Employee pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with 12 U.S.C. 1828(k) and any regulations promulgated thereunder.
9. No Mitigation. The Employee shall not be required to mitigate the
amount of any salary or other payment or benefit provided for in this Agreement
be reduced by any compensation earned by the Employee as the result of
employment by another employer, by retirement benefits after the date of
termination or otherwise.
10. Attorneys Fees. In the event the Bank exercises its right of
Termination for Cause, but it is determined by a court of competent jurisdiction
or by an arbitrator pursuant to Section 17 that cause did not exist for such
termination, or if in any event it is determined by any such court or arbitrator
that the Bank has failed to make timely payment of any amounts owed to the
Employee under this Agreement, the Employee shall be entitled to reimbursement
for all reasonable costs, including attorneys' fees, incurred in challenging
such termination or collecting such amounts. Such reimbursement shall be in
addition to all rights to which the Employee is otherwise entitled under this
Agreement.
11. No Assignments:
(a) This Agreement is personal to each of the parties hereto,
and neither party may assign or delegate any of its rights or obligations
hereunder without first obtaining the written consent of the other party;
provided, however, that the Bank shall require any successor or assign (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Bank, by an assumption
agreement in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Bank would be required to perform it if no such succession or
assignment had taken place. Failure of the Bank to obtain such an assumption
agreement prior to the effectiveness of any such succession or assignment shall
be a breach of this Agreement and shall entitle the Employee to compensation
from the Bank in the same amount and on the same terms as the compensation
pursuant to Section 7(d) hereof. For purposes of implementing the provision of
this Section 11(a), the date on which any such succession becomes effective
shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder
shall inure to the benefit of and be enforceable by the Employee's personal and
legal representatives, executors, administrators, successors, heirs,
distributee, devisees and legatees. If the Employee should die while any amounts
would still be payable to the Employee hereunder if the Employee had continued
to live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Employee's devisee, legatee
or other designee or if there is no such designee, to the Employee's estate.
6
<PAGE>
12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Bank at its home office,
to the attention of the Board of Directors with a copy to the Secretary of the
Bank, or, if to the Employee, to such home or other address as the Employee has
most recently provided in writing to the Bank.
13. Amendments: No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
14. Headings. The headings used in this Agreement are included solely
for convenience and shall not affect, or be sued in connection with the
interpretation of this Agreement.
15. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. Governing Law. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Texas. Venue shall be in Brazos County, Texas.
17. Survival. Section 17 and 18 of this Agreement shall survive the
termination thereof.
18. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: FIRST FEDERAL SAVINGS BANK
- ------------------------- ---------------------------
By:
Its:
Employee
----------------------------
7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
this _____ day of ______________, 1996, by and between First Federal Savings
Bank (hereinafter referred to as the "Bank"), and Mary Lynn Hegar (the
"Employee").
WHEREAS, the Employee is currently serving as Sr. Vice President and
Chief Financial Officer of the Bank; and
WHEREAS, the Board of Directors of the Bank ("Board of Directors")
recognized that as is the case with publicly held corporations generally, the
possibility of a change in control of the Bank may exist and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of key management
personnel to the detriment of the Bank and its stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests of
the Bank to enter into this Agreement with the Employee in order to assure
continuity of management of the Bank and to reinforce and encourage the
continued attention and dedication of the Employee to the Employee's assigned
duties without distraction in the face of potentially disruptive circumstances
arising from the possibility of a change in control of the Bank; and
WHEREAS, the Board of Directors has approved and authorized the
execution of this Agreement with the Employee to take effect as stated in
Section 2 hereof:
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means (1) an event of a
nature that (i) results in a change in control of the Bank within the meaning of
the Home Owners' Loan Act of 1933 and 12 C.F.R. Part 574 as in effect on the
date hereof; of (ii) would be required to be reported in response to Item 1 of
the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
if the Exchange Act were applicable to the Bank; (2) any person (as the term is
used in Sections 13(d) and 14(d) of the Exchange Act) becomes the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly
of securities of the Bank representing 20% or more of the Bank's outstanding
securities (except for the existing "Community Group" of the Bank which
currently owns approximately 58% of the common shares outstanding of the Bank
and who were approved for control pursuant to the Control regulation by the OTS
as a part of the Conversion of the Bank which was effective in April, 1993) (3)
individuals who are members of the board of Directors of the Bank on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the Directors comprising the Incumbent Board, or whose nomination for election
by the
<PAGE>
Bank's stockholders was approved by the nominating committee serving under an
Incumbent Board, shall be considered a member of the Incumbent Board; or (4) a
reorganization, merger, consolidation, sale of all or substantially all of the
assets of the Bank or a similar transaction in which the Bank is not the
resulting entity. The term "Change in Control" shall not include an acquisition
of securities by an employee benefit plan of the Bank on the acquisition of
securities of the Bank by a holding company in a transaction in which the
shareholders of the Bank exchange their shares of Bank stock for identical
number of shares of stock of the holding company. In the application of 12
C.F.R. Part 574 to a determination of a Change in Control, determinations to be
made by the OTS or its Director under such regulations shall be made by the
Board of Directors of the Bank to administer this Agreement.
(b) The term "Commencement Date" means the date first set
forth above.
(c) The term "Date of Termination" means the earlier of (1)
the date upon which the Bank gives notice to the Employee of the termination of
the Employee's employment with the Bank or (2) the date upon which the Employee
ceases to serve as an employee of the Bank.
(d) The term "Involuntarily Termination" means termination of
the employment of the Employee without the Employee's express written consent,
and shall include a material diminution of or interference with the Employee's
duties, responsibilities and benefits as Sr. Vice President and Chief Financial
Officer of the Bank, including (without limitation) any of the following actions
unless consented to in writing by the Employee: (1) a change in the principal
workplace of the Employee to a location outside of the city limits of Bryan or
College Station, Texas, or (2) a material demotion of the Employee; (3) a
material reduction in the number of seniority of other Bank personnel reporting
to the Employee or a material reduction in the frequency with which, or in the
nature of the matters with respect to which, such personnel are to report to the
Employee, other than as part of a Bank-wide reduction in staff; or (4) a
material adverse change in the Employee's salary, perquisites, benefits,
contingent benefits or vacation, other than and part of an overall program
applied uniformly and with equitable effect to all members of the senior
management of the Bank; or (5) a material permanent increase in the required
hours of work or the workload of the Employee. The term "Involuntary
Termination" does not include Termination for Cause or termination of employment
due to retirement, death, disability or suspension or temporary or permanent
prohibition from participation in the conduct of the Bank's affairs under
Section 8 of the Federal Deposit Insurance Act ("FDIA").
(e) The terms "Termination for Cause" and "Terminated For
Cause" mean termination of the employment of the Employee because of the
Employee's personal dishonesty, incompetence, willful misconduct, breach of a
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease--and-desist order, or material
breach of any provision of this Agreement. The Employee shall not be deemed to
have been Terminated for Cause unless and until there shall have been delivered
to the Employee a copy of a resolution, duly adopted by the affirmative vote of
not less than a majority of the entire membership of the Board of Directors at a
meeting of the Board called and held for such purpose (after reasonable notice
to the Employee and an opportunity for the Employee, together with the
Employee's counsel, to be heard before the Board), stating that in the good
faith
2
<PAGE>
opinion of the Board the Employee has engaged in conduct described in the
preceding sentence and specifying the particulars thereof in detail.
2. Term. The term of this Agreement shall be a period of one year
commencing on the Commencement Date, unless terminated earlier as provided
herein. Beginning on the first anniversary of the Commencement Date, and on each
anniversary thereafter, the term of this Agreement shall be extended for a
period of one year in addition to the then remaining term, provided that (1) the
Bank has not given notice to the Employee in writing at least 90 days prior to
such anniversary that the term of this Agreement shall not be extended further;
and (2) prior to such anniversary, the Board of Directors of the Bank explicitly
reviews and approves the extension. Reference herein to the term of this
Agreement shall refer to both such initial term and such tended terms.
3. Employment. The Employee is employed as Sr. Vice President and Chief
Financial Officer of the Bank. As such, the Employee shall render administrative
and management services as are customarily performed by persons situated in
similar executive capacities, and shall have such other powers and duties of an
officer of the Bank as the President/CEO and/or Board of Directors may prescribe
from time to time.
4. Compensation.
(a) Salary. The Bank agrees to pay the Employee during the
term of this Agreement the salary established by the Board of Directors, which
shall be at least the Employee's base salary in effect as of the Commencement
Date. The amount of the Employee's salary shall be reviewed by the Board of
Directors, beginning not later than the first anniversary of the Commencement
Date. Adjustments in salary or other compensation shall not limit or reduce any
other obligation of the Bank under this Agreement.
(b) Discretionary Bonuses. The Employee shall be entitled to
participate in an equitable manner with all other executive officers of the Bank
in discretionary bonuses as authorized and declared by the Board of Directors to
its executive employees, including but not limited to incentive bonuses and
stock option plans. No other compensation provided for in this Agreement shall
be deemed a substitute for the Employee's right to participate in such bonuses
and stock option plans when and as declared by the Board of Directors.
(c) Expenses. The Employee shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Employee in performing
services under this Agreement in accordance with the policies and procedures
applicable to the executive officers of the Bank, provided that the Employee
accounts for such expenses as required under such policies and procedure.
5. Benefits.
(a) Participation in Retirement and Employee Benefit Plans.
The Employee shall be entitled to participate in all plans relating to pension,
thrift, profit-sharing, group life insurance, medical and dental coverage,
education, cash bonuses, and other retirement or employee benefits or
combinations thereof, in which the Bank's executive officers participate.
3
<PAGE>
(b) Fringe Benefits. The Employee shall be eligible to
participate in, and receive benefits under, any fringe benefit plans which are
or may become applicable to the Bank's executive officers.
6. Vacations; Leave. The Employee shall be entitled to annual paid
vacation in accordance with the policies established by the Bank's Board of
Directors for executive officers and to voluntary leave of absence, with or
without pay, from time to time at such times and upon such conditions as the
Board of Directors may determine in its discretion.
7. Termination of Employment.
(a) Involuntary Termination. Although the Board of Directors
or the President/CEO may terminate the Employee's employment at any time;
however, except in the case of Termination for Cause, such involuntary
termination of employment shall not prejudice the Employee's right to
compensation or other benefits under this Agreement for the remaining term
hereof. In the event of such Involuntary Termination other than in connection
with or within 12 months after a Change in Control, (1) the Bank shall pay to
the Employee an amount equal to one year's base salary in effect at Date of
Termination, and (2) the Bank shall provide to the Employee for a period of one
year after Date of Termination, health benefits as maintained by the Bank for
the benefit of its executive officers from time to time or substantially the
same health benefits as the Bank maintained for its executive officers
immediately prior to the Date of Termination.
(b) Termination for Cause. In the event of Termination for
Cause, the Bank shall pay the Employee the Employee's salary through the Date of
Termination, and the Bank shall have no further obligation to the Employee under
this Agreement.
(c) Voluntary Termination. The Employee's employment may be
voluntarily terminated by the Employee at any time upon 90 days' written notice
to the Bank or such shorter period as may be agreed upon between the Employee
and the Board of Directors of the Bank. In the event of such voluntary
termination, the Bank shall be obligated to continue to pay to the Employee the
Employee's salary and benefits only through the Date of Termination, at the time
such payments are due, and the Bank shall have no further obligation to the
Employee under this Agreement.
(d) Change in Control. In the event of Involuntary Termination
in connection with or within 12 months after a Change in Control which occurs at
any time while the Employee is employed under this Agreement, the Bank shall,
subject to Section 8 of this Agreement, (1) pay to the Employee in a lump sum,
in cash within 25 business days after the Date of Termination an amount equal to
200% of the Employee's "base amount" as defined in Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"); and (2) provide to the Employee
during the remaining term of this Agreement such health benefits as are
maintained for executive officers of the Bank from time to time during the
remaining term of this Agreement or substantially the same health benefits as
the Bank maintained for its executive officers immediately prior to the Date of
Termination.
4
<PAGE>
(e) Death: Disability. In the event of the death of the
Employee while employed under this Agreement and prior to any termination of
employment, the Employee's estate, or such person as the Employee may have
previously designated in writing, shall be entitled to receive from the Bank the
salary of the Employee through the last day of the calendar month in which the
Employee died. If the Employee becomes disabled as defined in the Bank's then
current disability plan, if any, or if the Employee is otherwise unable to serve
as Sr. Vice President and Chief Financial Officer, the Employee shall be
entitled to receive group and other disability income benefits of the type, if
any, then provided by the Bank for executive officers.
(f) Temporary Suspension or Prohibition. If the Employee is
suspended and/or temporarily prohibited from participating in the conduct of the
Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA,
12 U.S.C. 1818(e)(3) and (g)(1), the Bank's obligations under this Agreement
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may in its
discretion (i) pay the Employee all or part of the compensation withheld while
its obligations under this Agreement were suspended and (ii) reinstate in whole
or in part any of its obligations which were suspended.
(g) Permanent Suspension or Prohibition. If the Employee is
removed and/or permanently prohibited from participating in the conduct of the
Bank's affairs by an order issued under Section 8(e)(4) or (g)(1) of the FDIA,
12 U.S.C. 1818(e)(4) and (g)(1), all obligations of the Bank under this
Agreement shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(h) Default of the Bank. If the Bank is in default (as defined
in Section 3(x)(10 of the FDIA), all obligations under this Agreement shall
terminate as of the date of default, but this provision shall not affect any
vested rights of the contracting parties.
(i) Termination by Regulators. All obligations under this
Agreement shall be terminated, except to the extent determined that continuation
of this Agreement is necessary for the continued operation of the Bank: (1) by
the Director of the Office of Thrift Supervision (the "Director") or his or her
designee, at the time the Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
FDIA; or (2) by the Director or his or her designee, at the time the Director or
his or her designee approves a supervisory merger to resolve problems related to
operation of the Bank or when the Bank is determined by the Director to be in an
unsafe or unsound condition. Any rights of the parties that have already vested,
however shall not be affected by any such action.
8. Certain Reduction of Payments by the Bank.
(a) Notwithstanding any other provision of this Agreement, if
the value and amounts of benefits under this Agreement, together with any other
amounts and the value of benefits received or to be received by the Employee in
connection with a Change in Control would cause any amount to be nondeductible
by the Bank for federal income tax purposes pursuant to Section 280G of the
Code, then amounts and benefits under this Agreement shall be reduced (not less
than zero) to the extent necessary so as to maximize amounts and the value of
5
<PAGE>
benefits to the Employee without causing any amount to become nondeductible by
the Bank pursuant to or by reason of such Section 280G. The Employee shall
determine the allocation of such reduction among payments and benefits to the
Employee.
(b) Any payments made to the Employee pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with 12 U.S.C. 1828(k) and any regulations promulgated thereunder.
9. No Mitigation. The Employee shall not be required to mitigate the
amount of any salary or other payment or benefit provided for in this Agreement
be reduced by any compensation earned by the Employee as the result of
employment by another employer, by retirement benefits after the date of
termination or otherwise.
10. Attorneys Fees. In the event the Bank exercises its right of
Termination for Cause, but it is determined by a court of competent jurisdiction
or by an arbitrator pursuant to Section 17 that cause did not exist for such
termination, or if in any event it is determined by any such court or arbitrator
that the Bank has failed to make timely payment of any amounts owed to the
Employee under this Agreement, the Employee shall be entitled to reimbursement
for all reasonable costs, including attorneys' fees, incurred in challenging
such termination or collecting such amounts. Such reimbursement shall be in
addition to all rights to which the Employee is otherwise entitled under this
Agreement.
11. No Assignments:
(a) This Agreement is personal to each of the parties hereto,
and neither party may assign or delegate any of its rights or obligations
hereunder without first obtaining the written consent of the other party;
provided, however, that the Bank shall require any successor or assign (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Bank, by an assumption
agreement in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Bank would be required to perform it if no such succession or
assignment had taken place. Failure of the Bank to obtain such an assumption
agreement prior to the effectiveness of any such succession or assignment shall
be a breach of this Agreement and shall entitle the Employee to compensation
from the Bank in the same amount and on the same terms as the compensation
pursuant to Section 7(d) hereof. For purposes of implementing the provision of
this Section 11(a), the date on which any such succession becomes effective
shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder
shall inure to the benefit of and be enforceable by the Employee's personal and
legal representatives, executors, administrators, successors, heirs,
distributee, devisees and legatees. If the Employee should die while any amounts
would still be payable to the Employee hereunder if the Employee had continued
to live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Employee's devisee, legatee
or other designee or if there is no such designee, to the Employee's estate.
6
<PAGE>
12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Bank at its home office,
to the attention of the Board of Directors with a copy to the Secretary of the
Bank, or, if to the Employee, to such home or other address as the Employee has
most recently provided in writing to the Bank.
13. Amendments: No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
14. Headings. The headings used in this Agreement are included solely
for convenience and shall not affect, or be sued in connection with the
interpretation of this Agreement.
15. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. Governing Law. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Texas. Venue shall be in Brazos County, Texas.
17. Survival. Section 17 and 18 of this Agreement shall survive the
termination thereof.
18. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: FIRST FEDERAL SAVINGS BANK
- ------------------------- ---------------------------
By:
Its:
Employee
----------------------------
7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
this _____ day of ______________, 1996, by and between First Federal Savings
Bank (hereinafter referred to as the "Bank"), and Kay Watson (the "Employee").
WHEREAS, the Employee is currently serving as Vice President/Personnel
& Stockholders Relations of the Bank; and
WHEREAS, the Board of Directors of the Bank ("Board of Directors")
recognized that as is the case with publicly held corporations generally, the
possibility of a change in control of the Bank may exist and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of key management
personnel to the detriment of the Bank and its stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests of
the Bank to enter into this Agreement with the Employee in order to assure
continuity of management of the Bank and to reinforce and encourage the
continued attention and dedication of the Employee to the Employee's assigned
duties without distraction in the face of potentially disruptive circumstances
arising from the possibility of a change in control of the Bank; and
WHEREAS, the Board of Directors has approved and authorized the
execution of this Agreement with the Employee to take effect as stated in
Section 2 hereof:
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means (1) an event of a
nature that (i) results in a change in control of the Bank within the meaning of
the Home Owners' Loan Act of 1933 and 12 C.F.R. Part 574 as in effect on the
date hereof; of (ii) would be required to be reported in response to Item 1 of
the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
if the Exchange Act were applicable to the Bank; (2) any person (as the term is
used in Sections 13(d) and 14(d) of the Exchange Act) becomes the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly
of securities of the Bank representing 20% or more of the Bank's outstanding
securities (except for the existing "Community Group" of the Bank which
currently owns approximately 58% of the common shares outstanding of the Bank
and who were approved for control pursuant to the Control regulation by the OTS
as a part of the Conversion of the Bank which was effective in April, 1993) (3)
individuals who are members of the board of Directors of the Bank on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the Directors comprising the Incumbent Board, or whose nomination for election
by the
<PAGE>
Bank's stockholders was approved by the nominating committee serving under an
Incumbent Board, shall be considered a member of the Incumbent Board; or (4) a
reorganization, merger, consolidation, sale of all or substantially all of the
assets of the Bank or a similar transaction in which the Bank is not the
resulting entity. The term "Change in Control" shall not include an acquisition
of securities by an employee benefit plan of the Bank on the acquisition of
securities of the Bank by a holding company in a transaction in which the
shareholders of the Bank exchange their shares of Bank stock for identical
number of shares of stock of the holding company. In the application of 12
C.F.R. Part 574 to a determination of a Change in Control, determinations to be
made by the OTS or its Director under such regulations shall be made by the
Board of Directors of the Bank to administer this Agreement.
(b) The term "Commencement Date" means the date first set
forth above.
(c) The term "Date of Termination" means the earlier of (1)
the date upon which the Bank gives notice to the Employee of the termination of
the Employee's employment with the Bank or (2) the date upon which the Employee
ceases to serve as an employee of the Bank.
(d) The term "Involuntarily Termination" means termination of
the employment of the Employee without the Employee's express written consent,
and shall include a material diminution of or interference with the Employee's
duties, responsibilities and benefits as Vice President/Personnel & Stockholders
Relations of the Bank, including (without limitation) any of the following
actions unless consented to in writing by the Employee: (1) a change in the
principal workplace of the Employee to a location outside of the city limits of
Bryan or College Station, Texas, or (2) a material demotion of the Employee; (3)
a material reduction in the number of seniority of other Bank personnel
reporting to the Employee or a material reduction in the frequency with which,
or in the nature of the matters with respect to which, such personnel are to
report to the Employee, other than as part of a Bank-wide reduction in staff; or
(4) a material adverse change in the Employee's salary, perquisites, benefits,
contingent benefits or vacation, other than and part of an overall program
applied uniformly and with equitable effect to all members of the senior
management of the Bank; or (5) a material permanent increase in the required
hours of work or the workload of the Employee. The term "Involuntary
Termination" does not include Termination for Cause or termination of employment
due to retirement, death, disability or suspension or temporary or permanent
prohibition from participation in the conduct of the Bank's affairs under
Section 8 of the Federal Deposit Insurance Act ("FDIA").
(e) The terms "Termination for Cause" and "Terminated For
Cause" mean termination of the employment of the Employee because of the
Employee's personal dishonesty, incompetence, willful misconduct, breach of a
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease--and-desist order, or material
breach of any provision of this Agreement. The Employee shall not be deemed to
have been Terminated for Cause unless and until there shall have been delivered
to the Employee a copy of a resolution, duly adopted by the affirmative vote of
not less than a majority of the entire membership of the Board of Directors at a
meeting of the Board called and held for such purpose (after reasonable notice
to the Employee and an opportunity for the Employee, together with the
Employee's counsel, to be heard before the Board), stating that in the good
faith
2
<PAGE>
opinion of the Board the Employee has engaged in conduct described in the
preceding sentence and specifying the particulars thereof in detail.
2. Term. The term of this Agreement shall be a period of one year
commencing on the Commencement Date, unless terminated earlier as provided
herein. Beginning on the first anniversary of the Commencement Date, and on each
anniversary thereafter, the term of this Agreement shall be extended for a
period of one year in addition to the then remaining term, provided that (1) the
Bank has not given notice to the Employee in writing at least 90 days prior to
such anniversary that the term of this Agreement shall not be extended further;
and (2) prior to such anniversary, the Board of Directors of the Bank explicitly
reviews and approves the extension. Reference herein to the term of this
Agreement shall refer to both such initial term and such tended terms.
3. Employment. The Employee is employed as Vice President/Personnel &
Stockholder Relations of the Bank. As such, the Employee shall render
administrative and management services as are customarily performed by persons
situated in similar executive capacities, and shall have such other powers and
duties of an officer of the Bank as the President/CEO and/or Board of Directors
may prescribe from time to time.
4. Compensation.
(a) Salary. The Bank agrees to pay the Employee during the
term of this Agreement the salary established by the Board of Directors, which
shall be at least the Employee's base salary in effect as of the Commencement
Date. The amount of the Employee's salary shall be reviewed by the Board of
Directors, beginning not later than the first anniversary of the Commencement
Date. Adjustments in salary or other compensation shall not limit or reduce any
other obligation of the Bank under this Agreement.
(b) Discretionary Bonuses. The Employee shall be entitled to
participate in an equitable manner with all other executive officers of the Bank
in discretionary bonuses as authorized and declared by the Board of Directors to
its executive employees, including but not limited to incentive bonuses and
stock option plans. No other compensation provided for in this Agreement shall
be deemed a substitute for the Employee's right to participate in such bonuses
and stock option plans when and as declared by the Board of Directors.
(c) Expenses. The Employee shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Employee in performing
services under this Agreement in accordance with the policies and procedures
applicable to the executive officers of the Bank, provided that the Employee
accounts for such expenses as required under such policies and procedure.
5. Benefits.
(a) Participation in Retirement and Employee Benefit Plans.
The Employee shall be entitled to participate in all plans relating to pension,
thrift, profit-sharing, group life insurance, medical and dental coverage,
education, cash bonuses, and other retirement or employee benefits or
combinations thereof, in which the Bank's executive officers participate.
3
<PAGE>
(b) Fringe Benefits. The Employee shall be eligible to
participate in, and receive benefits under, any fringe benefit plans which are
or may become applicable to the Bank's executive officers.
6. Vacations; Leave. The Employee shall be entitled to annual paid
vacation in accordance with the policies established by the Bank's Board of
Directors for executive officers and to voluntary leave of absence, with or
without pay, from time to time at such times and upon such conditions as the
Board of Directors may determine in its discretion.
7. Termination of Employment.
(a) Involuntary Termination. Although the Board of Directors
or the President/CEO may terminate the Employee's employment at any time;
however, except in the case of Termination for Cause, such involuntary
termination of employment shall not prejudice the Employee's right to
compensation or other benefits under this Agreement for the remaining term
hereof. In the event of such Involuntary Termination other than in connection
with or within 12 months after a Change in Control, (1) the Bank shall pay to
the Employee an amount equal to one year's base salary in effect at Date of
Termination, and (2) the Bank shall provide to the Employee for a period of one
year after Date of Termination, health benefits as maintained by the Bank for
the benefit of its executive officers from time to time or substantially the
same health benefits as the Bank maintained for its executive officers
immediately prior to the Date of Termination.
(b) Termination for Cause. In the event of Termination for
Cause, the Bank shall pay the Employee the Employee's salary through the Date of
Termination, and the Bank shall have no further obligation to the Employee under
this Agreement.
(c) Voluntary Termination. The Employee's employment may be
voluntarily terminated by the Employee at any time upon 90 days' written notice
to the Bank or such shorter period as may be agreed upon between the Employee
and the Board of Directors of the Bank. In the event of such voluntary
termination, the Bank shall be obligated to continue to pay to the Employee the
Employee's salary and benefits only through the Date of Termination, at the time
such payments are due, and the Bank shall have no further obligation to the
Employee under this Agreement.
(d) Change in Control. In the event of Involuntary Termination
in connection with or within 12 months after a Change in Control which occurs at
any time while the Employee is employed under this Agreement, the Bank shall,
subject to Section 8 of this Agreement, (1) pay to the Employee in a lump sum,
in cash within 25 business days after the Date of Termination an amount equal to
200% of the Employee's "base amount" as defined in Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"); and (2) provide to the Employee
during the remaining term of this Agreement such health benefits as are
maintained for executive officers of the Bank from time to time during the
remaining term of this Agreement or substantially the same health benefits as
the Bank maintained for its executive officers immediately prior to the Date of
Termination.
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<PAGE>
(e) Death: Disability. In the event of the death of the
Employee while employed under this Agreement and prior to any termination of
employment, the Employee's estate, or such person as the Employee may have
previously designated in writing, shall be entitled to receive from the Bank the
salary of the Employee through the last day of the calendar month in which the
Employee died. If the Employee becomes disabled as defined in the Bank's then
current disability plan, if any, or if the Employee is otherwise unable to serve
as Vice President/Personnel & Stockholder Relations, the Employee shall be
entitled to receive group and other disability income benefits of the type, if
any, then provided by the Bank for executive officers.
(f) Temporary Suspension or Prohibition. If the Employee is
suspended and/or temporarily prohibited from participating in the conduct of the
Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA,
12 U.S.C. 1818(e)(3) and (g)(1), the Bank's obligations under this Agreement
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may in its
discretion (i) pay the Employee all or part of the compensation withheld while
its obligations under this Agreement were suspended and (ii) reinstate in whole
or in part any of its obligations which were suspended.
(g) Permanent Suspension or Prohibition. If the Employee is
removed and/or permanently prohibited from participating in the conduct of the
Bank's affairs by an order issued under Section 8(e)(4) or (g)(1) of the FDIA,
12 U.S.C. 1818(e)(4) and (g)(1), all obligations of the Bank under this
Agreement shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(h) Default of the Bank. If the Bank is in default (as defined
in Section 3(x)(10 of the FDIA), all obligations under this Agreement shall
terminate as of the date of default, but this provision shall not affect any
vested rights of the contracting parties.
(i) Termination by Regulators. All obligations under this
Agreement shall be terminated, except to the extent determined that continuation
of this Agreement is necessary for the continued operation of the Bank: (1) by
the Director of the Office of Thrift Supervision (the "Director") or his or her
designee, at the time the Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
FDIA; or (2) by the Director or his or her designee, at the time the Director or
his or her designee approves a supervisory merger to resolve problems related to
operation of the Bank or when the Bank is determined by the Director to be in an
unsafe or unsound condition. Any rights of the parties that have already vested,
however shall not be affected by any such action.
8. Certain Reduction of Payments by the Bank.
(a) Notwithstanding any other provision of this Agreement, if
the value and amounts of benefits under this Agreement, together with any other
amounts and the value of benefits received or to be received by the Employee in
connection with a Change in Control would cause any amount to be nondeductible
by the Bank for federal income tax purposes pursuant to Section 280G of the
Code, then amounts and benefits under this Agreement shall be
5
<PAGE>
reduced (not less than zero) to the extent necessary so as to maximize amounts
and the value of benefits to the Employee without causing any amount to become
nondeductible by the Bank pursuant to or by reason of such Section 280G. The
Employee shall determine the allocation of such reduction among payments and
benefits to the Employee.
(b) Any payments made to the Employee pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with 12 U.S.C. 1828(k) and any regulations promulgated thereunder.
9. No Mitigation. The Employee shall not be required to mitigate the
amount of any salary or other payment or benefit provided for in this Agreement
be reduced by any compensation earned by the Employee as the result of
employment by another employer, by retirement benefits after the date of
termination or otherwise.
10. Attorneys Fees. In the event the Bank exercises its right of
Termination for Cause, but it is determined by a court of competent jurisdiction
or by an arbitrator pursuant to Section 17 that cause did not exist for such
termination, or if in any event it is determined by any such court or arbitrator
that the Bank has failed to make timely payment of any amounts owed to the
Employee under this Agreement, the Employee shall be entitled to reimbursement
for all reasonable costs, including attorneys' fees, incurred in challenging
such termination or collecting such amounts. Such reimbursement shall be in
addition to all rights to which the Employee is otherwise entitled under this
Agreement.
11. No Assignments:
(a) This Agreement is personal to each of the parties hereto,
and neither party may assign or delegate any of its rights or obligations
hereunder without first obtaining the written consent of the other party;
provided, however, that the Bank shall require any successor or assign (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Bank, by an assumption
agreement in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Bank would be required to perform it if no such succession or
assignment had taken place. Failure of the Bank to obtain such an assumption
agreement prior to the effectiveness of any such succession or assignment shall
be a breach of this Agreement and shall entitle the Employee to compensation
from the Bank in the same amount and on the same terms as the compensation
pursuant to Section 7(d) hereof. For purposes of implementing the provision of
this Section 11(a), the date on which any such succession becomes effective
shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder
shall inure to the benefit of and be enforceable by the Employee's personal and
legal representatives, executors, administrators, successors, heirs,
distributee, devisees and legatees. If the Employee should die while any amounts
would still be payable to the Employee hereunder if the Employee had continued
to live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Employee's devisee, legatee
or other designee or if there is no such designee, to the Employee's estate.
6
<PAGE>
12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Bank at its home office,
to the attention of the Board of Directors with a copy to the Secretary of the
Bank, or, if to the Employee, to such home or other address as the Employee has
most recently provided in writing to the Bank.
13. Amendments: No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
14. Headings. The headings used in this Agreement are included solely
for convenience and shall not affect, or be sued in connection with the
interpretation of this Agreement.
15. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. Governing Law. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Texas. Venue shall be in Brazos County, Texas.
17. Survival. Section 17 and 18 of this Agreement shall survive the
termination thereof.
18. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: FIRST FEDERAL SAVINGS BANK
- ------------------------- ---------------------------
By:
Its:
Employee
----------------------------
7
May 29, 1997
Board of Directors
The Bryan - College Station
Financial Holding Company
2900 Texas Avenue
Bryan, Texas 77802
Gentlemen:
We hereby consent to the inclusion of our opinions as Exhibits 5.1, 5.2
and 5.3 of this Registration Statement on Form S-1. In giving this consent, we
do not admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ SILVER, FREEDMAN & TAFF, L.L.P.
-----------------------------------
SILVER, FREEDMAN & TAFF, L.L.P.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
First Federal Savings Bank
We consent to the use in this Prospectus on Form S-1 filed with the
Securities and Exchange Commission and the Office of Thrift Supervision, of our
report dated November 9, 1996, on the financial statements of First Federal
Savings Bank for the year ended September 30, 1996. We also consent to the
reference to us under the heading "Experts" in this Prospectus on Form S-1.
/s/ Crowe, Chizek and Company LLP
---------------------------------
Crowe, Chizek and Company LLP
Oak Brook, Illinois
May 27, 1997
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility of a trustee Pursuant to
Section 305(b) ____
HARRIS TRUST COMPANY OF NEW YORK
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
New York 36-3271645
(JURISDICTION OF INCORPORATION OR ORGANIZATION (I.R.S. EMPLOYER
IF NOT A U.S. NATIONAL BANK) IDENTIFICATION NO.)
77 Water Street
New York, New York 10005
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Mark F. McLaughlin
Harris Trust Company of New York
77 Water Street, New York, NY 10005
(212) 701-7602
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------------------
The Bryan-College Station Financial Holding Company
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
Delaware applied for
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
2900 Texas Avenue
Bryan, Texas 77802
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
--------------------------------------
______% DEBENTURES DUE 2002
(TITLE OF INDENTURE SECURITIES)
================================================================================
<PAGE>
-2-
ITEM 1. GENERAL INFORMATION.
--------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Federal Reserve Bank of New York
33 Liberty Street, New York N.Y. 10045
State of New York Banking Department
2 Rector Street, New York, N.Y. 10006
(b) Whether it is authorized to exercise corporate trust powers.
The Trustee is authorized to exercise corporate trust
powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
-----------------------------
If the obligor is an affiliate of the trustee, describe each
such affiliation.
The obligor is not an affiliate of the trustee.
ITEM 4. TRUSTEESHIPS UNDER OTHER INDENTURES.
------------------------------------
If the trustee is a trustee under another indenture under
which any other securities, or certificates of interest or
participation in any other securities, of the obligor are
outstanding, furnish the following information:
(a) Title of the securities outstanding under each such other
indenture.
None
(b) A brief statement of the facts relied upon as a basis for the
claim that no conflicting interest within the meaning of
Section 310 (b) (1) of the Act arises as a result of the
trusteeship under any such other indenture, including a
statement as to how the indenture securities will rank as
compared with the securities issued under such other
indenture.
None
<PAGE>
-3-
ITEM 16. LIST OF EXHIBITS.
----------------
List below all exhibits filed as part of this statement of eligibility.
1. Copy of Organization Certificate of Bank of Montreal Trust
Company to transact business and exercise corporate trust powers;
incorporated herein by reference as Exhibit "A" filed with Form
T-1 Statement, Registration No. 33-46118.
2. Copy of the existing By-Laws of Bank of Montreal Trust Company;
incorporated herein by reference as Exhibit "B" filed with Form
T-1 Statement, Registration No. 33-80928.
3. The consent of the Trustee required by Section 321(b) of the Act;
incorporated herein by reference as Exhibit "C" with Form T-1
Statement, Registration No. 33-46118.
4. A copy of the latest report of condition of Bank of Montreal
Trust Company published pursuant to law or the requirements of
its supervising or examining authority, attached hereto as
Exhibit "D".
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, Bank of Montreal Trust Company, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 23rd of
May, 1997.
BANK OF MONTREAL TRUST COMPANY
By /s/ Amy Roberts
------------------------------
Amy Roberts
Assistant Vice President
<PAGE>
EXHIBIT "D"
STATEMENT OF CONDITION
HARRIS TRUST COMPANY OF NEW YORK
NEW YORK
---------------------------------
ASSETS 1997 1996
---------- ----------
CASH 4,764,893 4,013,820
SECURITIES 524,968 544,262
RECEIVABLES 2,615,496 2,077,174
FIXED ASSETS 201,141 233,111
PREPAIDS 413,452 388,492
INTANGIBLES 343,461 383,156
DEFERRED TAXES 135,734 164,205
---------- ----------
TOTAL ASSETS 8,999,145 7,804,220
========= =========
LIABILITIES
ACCOUNTS PAYABLE 70,862 73,862
ACCRUED EXPENSES 575,029 805,897
TAXES PAYABLE 256,017 128,636
---------- ----------
TOTAL LIABILITIES 901,908 1,008,395
========= =========
SHAREHOLDER EQUITY
CAPTIAL STOCK 500,000 500,000
SUPLUS 13,100,000 13,100,000
RETAINED EARNINGS (5,502,763) (6,804,175)
---------- ----------
8,097,237 6,795,825
========= =========
TOTAL LIABILITIES & SHAREHOLDER EQUITY
8,999,145 7,804,220
========= =========
I, Mark F. McLaughlin, Vice President, of the above-named bank do
hereby declare that this Report of Condition is true and correct to the best of
my knowledge and belief.
Mark F. McLaughlin
December 31, 1996
We, the undersigned directors, attest to the correctness of this
statement of resources and liabilities. We declared that it has been examined by
us, and to the best of our knowledge and belief has been prepared in conformance
with the instructions and is true and correct.
Sanjiv Tandon
Kevin O. Healey
Steven R. Rothbloom
RETURN THIS FORM ALONG WITH STOCK/UNIT ORDER FORM
PAYMENT TO:
The Bryan-College Station Financial
Holding Company
(Offering of Common Stock and Units)
2900 A Texas Avenue
Bryan, Texas 77802
<TABLE>
<CAPTION>
NUMBER OF SHARES/UNITS
<S> <C>
Fill in the number of shares and/or Number Total
units you wish to purchase and the total of Offering Amount
amount due. The Bryan - College Station Shares/Units Price Due
Financial Holding Company (the "Holding
Company") may reject any subscription or Common Stock X $ 10.00
part thereof for shares of Holding ------ -------
Company Common Stock or Units for any Units X $1,000.00
reason including if the total shares of ------ -------
such Holding Company Common Stock owned
by any person following the Offering and Total Purchase =======
Merger (as described in the Prospectus) --
would constitute more than 9.9% of the |__| Enclosed is a check payable to
issued and outstanding Holding Company The First National Bank of
Common Stock, unless such condition has Bryan, Escrow Agent for The
been waived in the discretion of the Bryan-College Station
Holding Company's Board of Directors in Financial Holding Company for
one or more instances with the approval $___________. (Do not send
of the OTS. cash through the mail.)
PAYMENT
Check the appropriate box(es) to show
how you want to pay for the stock.
If paying by check, make it payable
to The First National Bank of Bryan,
Escrow Agent for the Bryan-College
Station Financial Holding Company. Your
money will earn interest until the
Offering is completed.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
STOCK REGISTRATION PLEASE PRINT
--
PLEASE READ THE REVERSE SIDE BEFORE |__| Individual
COMPLETING THIS SECTION. --
|__| Joint Tenants
Check the box indicating the form of --
ownership for your The Bryan-College |__| Tenants in Common
Station Financial Holding Company stock --
and units. If necessary, check "Other" |__| Uniform Gifts to Minors
and write in the ownership, such as (Texas Residents Only)
"corporation." --
|__| Uniform Transfers to Minors
--
|__| Other _______________________
--
Print the name(s) in which you want |__| Fiduciary (Legal Adoption
the stock registered and the mailing Date _________________)
address.
---------------------------------------
Name
---------------------------------------
Name
---------------------------------------
Fill in the taxpayer identification Mailing Address
number (social security number) for one
of the registered owners. ---------------------------------------
City State Zip Code
TELEPHONE NUMBERS ---------------------------------------
Taxpayer I.D. (Social Security) Number
Please provide us your day and
evening telephone numbers in case we ( ) ( )
need to contact you regarding your ----------------- -------------------
order. Daytime Evening
DEADLINE ---------------------------------------
The Offering will terminate at 5:00 I acknowledge receipt of the
p.m. Bryan, Texas time on ____ __, 1997. Prospectus dated _______ __, 1997 and
This form must be properly completed and understand that I may not change or
received with proper payment at the revoke my order once it is received by
above address by this deadline. The Bryan-College Station Financial
Holding Company.
Under penalties of perjury, I certify
that: 1) the social security number or
taxpayer identification number given
above is correct; and 2) I am not
subject to backup withholding.
Instructions: You must cross out #2
above if you have been notified by the
Internal Revenue Service that you are
subject to backup withholding because of
underreporting interest or dividends on
your tax return.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE
X ______________________________________
Sign and date the form. Add your full Authorized Signature Title Date
title to your signature if purchasing as (If Applicable)
a fiduciary, corporate officer, etc. If
paying by withdrawal from an account X_______________________________________
requiring more than one signature to Authorized Signature Title Date
withdraw funds, the same number of (If Applicable)
signers must sign here. THIS ORDER IS
NOT VALID IF NOT SIGNED.
YOUR ORDER WILL BE FILLED IN ACCORDANCE
WITH THE PROVISIONS OF THE PROSPECTUS.
NASD AFFILIATION
Please read the NASD Affiliation --
section on the reverse side of this |__| Check here if you are a member of
form. Check if applicable and initial the NASD or a person associated
where indicated with*. with a NASD member or a partner
with a securities brokerage firm or
a member of the immediate family of
any such person to whose support
such person contributes directly or
indirectly or if you have an
account in which a NASD member or
person associated with a NASD
member has a beneficial interest.
In accordance with the conditions
for an exception from the
Interpretation, I agree (i) not to
sell, transfer or hypothecate the
stock for a period of 150 days
following issuance and (ii) to
report this subscription in writing
to the applicable NASD member I am
associated with within one day of
payment for the stock.
*___________________ (Initial)
</TABLE>
IF YOU HAVE ANY QUESTIONS, PLEASE CALL
THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY
AT (409) 779-2900
<PAGE>
GUIDELINES FOR REGISTERING STOCK AND UNITS
For reasons of clarity and standardization, the stock transfer industry has
developed uniform stockholder registration which we will use in the issuance of
your The Bryan-College Station Financial Holding Company Stock Certificate(s)
and Units. If you have any questions, please consult your legal advisor. Stock
and Unit ownership must be registered in one of the following manners:
<TABLE>
<CAPTION>
<S> <C>
INDIVIDUAL: FIDUCIARIES:
Two initials cannot be used unless Stock and Units held in a fiduciary
they are your legal name. Include the capacity must contain the following:
first given name, middle initial and
last name of the stockholder. Omit words 1. The name(s) of the fiduciary-
of limitation that do not affect o If an individual, list the first given
ownership rights such as "special name, middle initial, and last name.
account," "single man," "personal o If a corporation, list the corporate
property," etc. If held as an title.
individual, upon the individual's death, o If an individual and a corporation,
ownership of the stock or unit will be list the corporation's title before the
held by the individual's estate and individual.
distributed as indicated by the 2. The fiduciary capacity-
individual's will or otherwise in o Administrator
accordance with law. o Conservator
o Committee
JOINT: o Executor
o Trustee
Joint ownership of stock or units by o Personal Representative
two or more persons shall be inscribed o Custodian
on the certificate with one of the 3. The type of document governing the
following types of joint ownership. fiduciary relationship. Generally, such
Names should be joined by "and;" do not relationships are either under a form of
connect with "or." Omit titles such as living trust agreement or pursuant to a
"Mrs.," "Dr.," etc. court order. Without a document
establishing a fiduciary relationship
JOINT TENANTS - Joint Tenancy with Right your stock or units may not be
of Survivorship and not as Tenants in registered in a fiduciary capacity.
Common may be specified to identify two 4. The date of the document governing the
or more owners where ownership is relationship. The date of the document
intended to pass automatically, upon the need not be used in the description of a
death of one joint tenant, to the trust created by a will.
surviving tenant(s). 5. Either of the following:
The name of the maker, donor or
TENANTS IN COMMON - Tenants in Common testator or the name of the beneficiary
may be specified to identify two or more
owners. When stock or units are held as
tenancy in common, upon the death of one
co-tenant, ownership of the stock or
units will be held by the surviving
co-tenant(s) and by the heirs of the
deceased co-tenant. All parties must
agree to the transfer or sale of shares
or units held in this form of ownership.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
UNIFORM TRANSFERS TO MINORS OR UNIFORM EXAMPLE OF A FIDUCIARY OWNERSHIP:
GIFT TO MINORS: John D. Smith, Trustee for Tom A. Smith
Under Agreement Dated 06/09/74.
For Texas residents and residents of
certain other states, stock and units PLEASE NOTE THAT "TOTTEN TRUST" AND
may be held in the name of a custodian "PAYABLE ON DEATH" OWNERSHIPS MAY NOT BE
for a minor under the state's Uniform USED IN REGISTERING STOCK OR UNITS.
Gifts to Minors Act. For residents of
most states, stock and units may be held For example, stock or units cannot be
in a similar type of ownership under the registered as "John Doe Trustee for Jane
Uniform Transfers to Minors Act of the Doe" or "John Doe Payable on Death to
individual states. For either ownership, Jane Doe."
the minor is the actual owner of the
stock or units with the adult custodian NASD AFFILIATION:
being responsible for the investment
until the minor reaches legal age. Please refer to the National
Association of Securities Dealers, Inc.
Instructions: If you are a Texas ("NASD") affiliation section and check
resident and wish to register stock or the box if applicable. Under the
units in this ownership, check "Uniform guidelines of the NASD, members of the
Gifts to Minors." For other states, see NASD and their associates are subject to
your legal advisor if you are unsure certain restrictions on the transfer of
about the correct registration of your securities purchased in accordance with
state. subscription rights and to certain
reporting requirements upon the purchase
On the first "NAME" line, print the of such securities, as established by
first name, middle initial, and last the NASD.
name of the custodian, with "CUST" after
the name.
Print the first name, middle initial,
and last name of the minor on the second
"NAME" line.
Only one custodian and one minor may
be designated.
</TABLE>
<PAGE>
ACKNOWLEDGEMENT
Please return this card together with the Stock/Unit Order Form in the enclosed
postage-paid return envelope. I (we) acknowledge that, before purchasing the
shares of either common stock or units I (we) received an prospectus dated
_______ __, 1997.
The Prospectus received contains disclosure concerning the nature of the
securities being offered and describes the risks involved in the investment,
including those risks described in the Prospectus under the heading "Risk
Factors." I (we) acknowledge that, I (WE) HAVE RELIED SOLELY ON THE PROSPECTUS
IN MY (OUR) DECISION TO PURCHASE THE STOCK HEREUNDER AND NO OTHER WRITTEN OR
VERBAL INFORMATION.
I (we) further acknowledge that NEITHER THE COMMON STOCK NOR UNITS ARE A DEPOSIT
OR SAVINGS ACCOUNT AND NEITHER SECURITY IS FEDERALLY INSURED.
____________________________NAME ________________________SIGNATURE
__________DATE
____________________________NAME ________________________SIGNATURE
__________DATE
NOTE: THIS ACKNOWLEDGEMENT MUST ACCOMPANY THE EXECUTED STOCK/UNIT ORDER FORM
SUBMITTED FOR THE PURCHASE OF EITHER THE BRYAN-COLLEGE STATION
FINANCIAL HOLDING COMPANY STOCK OR UNITS.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 2,603
<INT-BEARING-DEPOSITS> 1,523
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 1,365
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 1,219
<INVESTMENTS-MARKET> 1,186
<LOANS> 53,257
<ALLOWANCE> 250
<TOTAL-ASSETS> 62,681
<DEPOSITS> 55,071
<SHORT-TERM> 314
<LIABILITIES-OTHER> 529
<LONG-TERM> 2,200
0
1
<COMMON> 2
<OTHER-SE> 4,564
<TOTAL-LIABILITIES-AND-EQUITY> 62,681
<INTEREST-LOAN> 2,513
<INTEREST-INVEST> 38
<INTEREST-OTHER> 65
<INTEREST-TOTAL> 2,616
<INTEREST-DEPOSIT> 1,186
<INTEREST-EXPENSE> 1,219
<INTEREST-INCOME-NET> 1,397
<LOAN-LOSSES> 2
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,321
<INCOME-PRETAX> 447
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 295
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
<YIELD-ACTUAL> 4.91
<LOANS-NON> 0
<LOANS-PAST> 646
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 247
<CHARGE-OFFS> 4
<RECOVERIES> 5
<ALLOWANCE-CLOSE> 250
<ALLOWANCE-DOMESTIC> 250
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 250
</TABLE>
