<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 1998
REGISTRATION NO. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
PRIME BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
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TEXAS 6711 76-0088973
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
STUART D. SAUNDERS, ESQ.
12200 NORTHWEST FREEWAY GENERAL COUNSEL
HOUSTON, TEXAS 77092 12200 NORTHWEST FREEWAY
(713) 209-6000 HOUSTON, TEXAS 77092
(Address, including zip code, and (713) 209-6000
telephone number, including area code, of (Name, address, including zip code, and telephone
registrant's principal executive offices) number, including area code, of agent for service)
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Copies to:
WILLIAM T. LUEDKE IV, ESQ.
BRACEWELL & PATTERSON, L.L.P.
2900 SOUTH TOWER PENNZOIL PLACE
HOUSTON, TEXAS 77002-2781
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
---------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES AMOUNT OFFERING AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED TO BE REGISTERED(1) PRICE PER SHARE PRICE(3) REGISTRATION FEE
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Common Stock, $0.25 par value..... 921,058 (2) $6,954,000 $2,052
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(1) This amount is based upon the maximum number of shares anticipated to be
issued pursuant to an Agreement and Plan of Reorganization dated as of
December 30, 1997 between the Registrant, IBID, Inc., Prime Bank and Sunbelt
National Bank. The actual number of shares to be issued may vary depending
on the earnings of Sunbelt National Bank and the closing sales prices of
Prime Bancshares, Inc. common stock over a specified period.
(2) Not applicable.
(3) Computed in accordance with Rule 457(f) under the Securities Act of 1933, as
amended, based on the book value as of December 31, 1997 of the securities
to be received by the Registrant in exchange for the securities registered
hereby.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
PRIME BANCSHARES, INC.
---------------------
CROSS REFERENCE SHEET
(PURSUANT TO ITEM 501(B) OF REGULATION S-K
AND ITEM 1 OF PART I OF FORM S-4)
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S-4 ITEM NUMBER AND HEADING LOCATION OF PROXY STATEMENT/ PROSPECTUS HEADING
--------------------------- -----------------------------------------------
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A. Information About the Transaction
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus............................. Forepart of Registration Statement; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus.................... Table of Contents; Available Information;
Introduction
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other Information.... Introduction; Summary; Risk Factors; Nature of
Trading Market and Market Prices; The
Consolidations; Selected Financial of the
Company; Selected Financial Data of Sunbelt;
Supervision and Regulation; Index to Financial
Statements
4. Terms of the Transaction............... Forepart of Registration Statement;
Introduction, Summary; The Consolidations; The
Company; Sunbelt Description of Securities of
the Company; Comparison of Rights of
Shareholders of the Company and Sunbelt;
Exhibit A, Exhibit B, Exhibit C
5. Pro Forma Financial Information........ Summary; ProForma Consolidated Financial
Statements
6. Material Contracts with the Company
Being Acquired......................... Summary; The Consolidations
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters.............. Not Applicable
8. Interests of Named Experts and
Counsel................................ Relationships with Independent Accountants;
Legal Opinions; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................ Indemnification
B. Information About the Registrant
10. Information With Respect to S-3
Registrants........................... Not Applicable
11. Incorporation of Certain Information
by Reference.......................... Not Applicable
12. Information With Respect to S-2 or S-3
Registrants........................... Not Applicable
13. Incorporation of Certain Information
by Reference.......................... Not Applicable
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S-4 ITEM NUMBER AND HEADING LOCATION OF PROXY STATEMENT/ PROSPECTUS HEADING
--------------------------- -----------------------------------------------
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14. Information With Respect to
Registrants Other Than S-2 or S-3
Registrants........................... Available Information; Introduction; Summary;
Nature of Trading Market and Market Prices;
Selected Financial Data of the Company;
Management's Discussion and Analysis of
Financial Conditions and Results of Operations
of the Company; The Company; Management of the
Company; Beneficial Ownership of Company Common
Stock by Management of the Company and
Principal Shareholders; Description of
Securities of the Company; Index to Financial
Statements
C.Information About the Company Being
Acquired
15. Information With Respect to S-3
Companies............................. Not Applicable
16. Information With Respect to S-2 or S-3
Companies............................. Not Applicable
17. Information With Respect to Companies
Other Than S-2 or S-3 Companies....... Introduction; Summary; Nature of Trading Market
and Market Prices; Selected Financial Data of
Sunbelt; Management's Discussion and Analysis
of Financial Conditions and Results of
Operations of Sunbelt; Sunbelt; Beneficial
Ownership of Sunbelt Stock by Management of
Sunbelt and Principal Shareholders; Index to
Financial Statements of Sunbelt
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations Are to be Solicited.... Introduction; Summary; The Meeting, The
Consolidation; The Company; Management of the
Company; Beneficial Ownership of Company Common
Stock by Management of the Company and
Principal Shareholders; Beneficial Ownership of
Sunbelt Stock by Management of Sunbelt and
Principal Shareholders; Relationships with
Independent Accountants; Experts; Exhibit B,
Exhibit C
19. Information if Proxies, Consents or
Authorizations are not to be Solicited
or in an Exchange Offer............... Not Applicable
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<PAGE> 4
SUNBELT NATIONAL BANK PRIME BANCSHARES, INC.
PROXY STATEMENT AND PROSPECTUS
Prime Bancshares, Inc., a Texas corporation (the "Company"), has filed this
Proxy Statement and Prospectus ("Proxy Statement/Prospectus") with the
Securities and Exchange Commission (the "Commission") pursuant to the Securities
Act of 1933, as amended (the "Securities Act"), with respect to 921,058 shares
of the Company, $0.25 par value, common stock ("Company Common Stock") to be
issued in the proposed consolidation (the "Consolidation") of Sunbelt National
Bank, a national banking association ("Sunbelt"), with New Prime Bank, an
interim Texas banking association and a wholly-owned subsidiary of the Company
("New Bank").
This Proxy Statement/Prospectus constitutes the Proxy Statement of Sunbelt
relating to the solicitation of proxies for use at the special meeting of
shareholders of Sunbelt (the "Meeting") scheduled to be held on ,
1998, at p.m., Central Time, at the offices of Sunbelt, located at 1160 Dairy
Ashford, Suite 100, Houston, Texas, and any adjournments thereof. At the
Meeting, the shareholders of Sunbelt will consider and vote upon a proposal to
approve, ratify, confirm and adopt the Agreement and Plan of Reorganization
dated as of December 30, 1997, by and between the Company, IBID, Inc., a
wholly-owned subsidiary of the Company, Prime Bank, an indirectly owned
subsidiary of the Company, and Sunbelt (the "Consolidation Agreement") providing
for, among other things, the consolidation of Sunbelt with New Bank and, in
connection therewith, the receipt by Sunbelt shareholders of Company Common
Stock.
As more fully described herein, the Consolidation Agreement provides for
the holders of Sunbelt common stock, par value $5.00 per share ("Sunbelt
Stock"), at the effective time of the consolidation, to receive (except for
shareholders choosing to exercise their dissenters' rights) 2.0023 shares of
Company Common Stock for each share of Sunbelt Stock held. The number of shares
of Company Common Stock to be received in exchange for each share of Sunbelt
Stock is subject to possible adjustment pursuant to the Consolidation Agreement.
SEE "SUMMARY -- THE CONSOLIDATIONS"; "THE CONSOLIDATIONS -- GENERAL"; "THE
CONSOLIDATIONS -- DISSENTERS' RIGHTS OF APPRAISAL AND RELATED ISSUES"; EXHIBIT
A; EXHIBIT B AND EXHIBIT C.
Consummation of the consolidation is subject to the receipt of required
governmental approvals, the approval of the holders of two-thirds of the
outstanding Sunbelt Stock and certain other conditions, all as more fully
described in this Proxy Statement/Prospectus. SEE "SUMMARY -- THE
CONSOLIDATIONS"; "-- VOTING AND PRINCIPAL SHAREHOLDERS"; "THE
CONSOLIDATIONS -- OTHER TERMS AND CONDITIONS"; AND EXHIBIT A.
This Proxy Statement/Prospectus also constitutes the prospectus of the
Company with respect to the shares of Company Common Stock to be issued to the
holders of Sunbelt Stock in the consolidation. Company Common Stock is publicly
traded in the over-the-counter market and quoted on the NASDAQ National Market
System. On , 1998, the last reported sale price per share of Company
Common Stock was $ . No active public trading market exists for Sunbelt
Stock. SEE "NATURE OF THE TRADING MARKET AND MARKET PRICES".
THE SECURITIES OF PRIME BANCSHARES, INC. OFFERED IN CONNECTION
WITH THE CONSOLIDATION HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
All information concerning the Company and Prime Bank has been furnished by
the Company, and all information concerning Sunbelt has been furnished by
Sunbelt.
SUNBELT SHAREHOLDERS ARE URGED TO REVIEW AND CAREFULLY
CONSIDER THE RISKS DESCRIBED UNDER "RISK FACTORS".
The date of this Proxy Statement/Prospectus is , 1998, and this
Proxy Statement/Prospectus is first being mailed or delivered to Sunbelt
shareholders on or about , 1998.
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TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION.......................................
PROXY STATEMENT AND PROSPECTUS..............................
INTRODUCTION................................................
SUMMARY.....................................................
The Parties...............................................
The Meeting...............................................
The Consolidations........................................
Risk Factors..............................................
Voting and Principal Shareholders.........................
Summary Consolidated Financial Data of the Company........
Summary Financial Data of Sunbelt.........................
Summary Pro Forma Consolidated Financial Data.............
Summary of Pro Forma Per Share Selected Financial Data....
Market Values.............................................
RISK FACTORS................................................
Management of the Asset Growth............................
Loss of Control...........................................
Exposure to Local Economic Conditions.....................
Federal Income Tax Consequences...........................
Interest Rate Risk........................................
Competition...............................................
Regulation and Supervision................................
Restrictions on Ability to Pay Dividends..................
Possible Anti-Takeover Provisions.........................
Possibly Volatility of Stock Price........................
Regulation of Control.....................................
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS.................
CAPITALIZATION..............................................
RESTRICTIONS ON SALES OF COMPANY COMMON STOCK BY AFFILIATES
OF SUNBELT................................................
NATURE OF TRADING MARKET AND MARKET PRICES..................
DIVIDEND HISTORY AND POLICIES...............................
The Company...............................................
Sunbelt...................................................
THE MEETING.................................................
General...................................................
Shares Entitled to Vote, Quorum and Vote Required.........
Proxies...................................................
THE CONSOLIDATIONS..........................................
General...................................................
Consolidation Consideration...............................
Shareholder Approval......................................
Background and Reasons for the Consolidations;
Recommendation of Sunbelt Board........................
Operations After the Consolidations.......................
Other Terms and Conditions................................
No Solicitation...........................................
Additional Agreements.....................................
Business Pending Effective Time...........................
Employee Benefits.........................................
Employee Severance........................................
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i
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PAGE
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Amendment.................................................
Termination...............................................
Expenses..................................................
Termination Fee...........................................
Exchange of Shares........................................
Federal Income Tax Consequences...........................
Dissenters' Rights of Appraisal and Related Issues........
Accounting Treatment......................................
Regulatory Approvals......................................
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY.........
CONSOLIDATED QUARTERLY FINANCIAL DATA OF THE COMPANY........
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE COMPANY..................
Overview..................................................
Results of Operations.....................................
Financial Condition.......................................
THE COMPANY.................................................
General...................................................
Facilities................................................
Competition...............................................
Employees.................................................
Legal Proceedings.........................................
Interests of Certain Persons..............................
MANAGEMENT OF THE COMPANY...................................
Directors and Executive Officers of the Company...........
Compensation Committee Interlocks and Insider
Participation..........................................
Director Compensation.....................................
Executive Compensation and Other Information..............
SUMMARY COMPENSATION TABLE..................................
Stock Option Plans........................................
Option Grants During 1997.................................
Stock Option Exercises and Fiscal Year End Values.........
Benefit Plan..............................................
Interests of Management and Others in Certain
Transactions...........................................
BENEFICIAL OWNERSHIP OF COMPANY COMMON STOCK BY MANAGEMENT
OF THE COMPANY AND PRINCIPAL SHAREHOLDERS.................
SELECTED FINANCIAL DATA OF SUNBELT..........................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS OF SUNBELT......................
Overview..................................................
Results of Operations.....................................
Financial Condition.......................................
SUNBELT.....................................................
General...................................................
Facilities................................................
Competition...............................................
Employees.................................................
Legal Proceedings.........................................
BENEFICIAL OWNERSHIP OF SUNBELT STOCK BY MANAGEMENT OF
SUNBELT AND PRINCIPAL SHAREHOLDERS........................
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ii
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SUPERVISION AND REGULATION..................................
The Company...............................................
Prime Bank................................................
Sunbelt...................................................
Instability of Regulatory Structure.......................
Expanding Enforcement Authority...........................
Effect on Economic Environment............................
DESCRIPTION OF SECURITIES OF THE COMPANY....................
Authorized Capital Stock..................................
Preferred Stock...........................................
Common Stock..............................................
Texas Law and Certain Provisions of the Articles of
Incorporation and Bylaws...............................
COMPARISON OF RIGHTS OF SHAREHOLDERS OF THE COMPANY AND
SUNBELT...................................................
Charter and Bylaw Provisions Affecting Company Common
Stock..................................................
Certain Differences Between the Corporation Laws of Texas
and the National Bank Act and Corresponding Charter and
Bylaw Provisions.......................................
RELATIONSHIPS WITH INDEPENDENT ACCOUNTANTS..................
LEGAL OPINIONS..............................................
EXPERTS.....................................................
INDEMNIFICATION.............................................
OTHER MATTERS...............................................
INDEX TO FINANCIAL STATEMENTS............................... F-1
EXHIBIT A: AGREEMENT AND PLAN OF REORGANIZATION............. A-1
EXHIBIT B: PROVISIONS OF THE NATIONAL BANK ACT RELATED TO
DISSENTERS RIGHTS OF APPRAISAL............. B-1
EXHIBIT C: BANKING CIRCULAR 259............................. C-1
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iii
<PAGE> 8
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement") under the Securities Act for the registration
of the Company Common Stock proposed to be issued and exchanged in the
consolidation. This Proxy Statement/Prospectus was filed as a part of the
Registration Statement.
This Proxy Statement/Prospectus does not contain all of the information set
forth in the Registration Statement, as certain parts are permitted to be
omitted by the rules and regulations of the Commission. For further information
pertaining to the Company, the Company Common Stock, and related matters,
reference is made to the Registration Statement, including the exhibits filed as
a part thereof, which may be inspected at, and copies of which may be obtained
by mail from, the Public Reference Branch of the Commission referred to below.
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, accordingly, files
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information can be inspected and copied at
the Commission's public reference rooms located at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, and the public reference facilities in the New
York Regional Office, 13th Floor, Seven World Trade Center, New York, New York
10048, and the Chicago Regional Office, Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60621-2511. Copies of such
materials can be obtained at prescribed rates by writing to the Securities and
Exchange Commission, Public Reference Branch, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such material may be accessed electronically by means of
the Commission's home page on the Internet at http://www.sec.gov. The Company
Common Stock is included for quotation on the Nasdaq's National Market System
under the trading symbol "PBTX" and such reports, proxy statements and other
information concerning the Company should be available for inspection and
copying at the offices of the National Association of Securities Dealers, Inc.,
1735 K Street, N.W., Washington, D.C. 20006.
No person has been authorized to give any information or to make any
representations other than those contained in this Proxy Statement/Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company, Prime Bank, Sunbelt or their
respective affiliates. This Proxy Statement/Prospectus does not constitute an
offer to exchange or sell, or a solicitation of an offer to exchange or
purchase, any securities other than the Company Common Stock offered hereby, nor
does it constitute an offer to exchange or sell or a solicitation of an offer to
exchange or purchase such securities in any state or other jurisdiction to any
person to whom such an offer or solicitation would be unlawful.
Neither the delivery of this Proxy Statement/Prospectus nor any
distribution of securities made hereunder shall under any circumstances create
any implication that there has been no change in the affairs of the Company,
Prime Bank, Sunbelt or their respective affiliates since the date of this Proxy
Statement/ Prospectus.
<PAGE> 9
SUNBELT NATIONAL BANK
SPECIAL MEETING OF SHAREHOLDERS
---------------------
PROXY STATEMENT AND PROSPECTUS
INTRODUCTION
This Proxy Statement and Prospectus ("Proxy Statement/Prospectus") is
furnished in connection with the solicitation of proxies by the Board of
Directors of Sunbelt National Bank, a national banking association ("Sunbelt"),
for use at the special meeting of Sunbelt shareholders ("Shareholders") to be
held on , , 1998, at p.m. Central Time, at the
offices of Sunbelt, located at 1160 Dairy Ashford, Suite 100, Houston, Texas and
at any adjournments thereof (the "Meeting"). This Proxy Statement/ Prospectus is
also a prospectus for the shares of Prime Bancshares, Inc. (the "Company"),
$0.25 par value common stock ("Company Common Stock"), to be issued in
connection with the consolidation (the "First Consolidation") of Sunbelt with
New Prime Bank, an interim Texas banking association and a wholly-owned
subsidiary of the Company ("New Bank"). Immediately after the First
Consolidation, Sunbelt will consolidate with Prime Bank, with Prime Bank as the
survivor ("Final Consolidation"). The First Consolidation and the Final
Consolidation shall sometimes be referred to herein jointly as the
"Consolidations".
The following proposals will be considered and voted upon at the Meeting:
(1) To approve, ratify, confirm and adopt an Agreement and Plan of
Reorganization as of December 30, 1997, by and among the Company, IBID,
Inc., Prime Bank and Sunbelt (the "Consolidation Agreement"), pursuant to
which Sunbelt will consolidate with New Bank and immediately thereafter,
Sunbelt will consolidate with Prime Bank; and
(2) To consider and transact such other business as may properly come
before the Meeting.
The Board of Directors of Sunbelt has fixed , 1998 as the
record date for the determination of shareholders entitled to notice of and to
vote at the Meeting and any adjournments thereof (the "Record Date"). As of such
date, Sunbelt had 500,000 shares of common stock, $5.00 par value per share
("Sunbelt Stock"), authorized, of which 460,000 shares were issued and
outstanding. As of the Record Date, the Sunbelt Stock was held of record by
persons or entities. Each share of Sunbelt Stock entitles the holder
of record on the Record Date to one vote as to the Consolidations and one vote
as to any other proposal to be voted on at the Meeting. The presence, in person
or by proxy, of the holders of a majority of the shares of Sunbelt Stock
entitled to vote at the Meeting is necessary to constitute a quorum at the
Meeting. The affirmative vote of the holders of at least two-thirds of the
outstanding shares of Sunbelt Stock is required for approval of the
Consolidation Agreement. SUNBELT'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE FOR APPROVAL OF THE CONSOLIDATION AGREEMENT. SEE "SUMMARY -- THE MEETING";
"THE CONSOLIDATIONS -- GENERAL"; "THE CONSOLIDATIONS -- OTHER TERMS AND
CONDITIONS"; AND EXHIBIT A.
Approximately 381,147 shares of Sunbelt Stock, constituting 82.86% of the
outstanding Sunbelt Stock, are subject to the Sunbelt National Bank Voting and
Stock Restriction Agreement dated as of May 26, 1984 ("Sunbelt Voting
Agreement"). Pursuant to the Sunbelt Voting Agreement, the Voting
Representatives under the Sunbelt Voting Agreement will vote all of the Sunbelt
Stock subject to the Sunbelt Voting Agreement on all matters to be voted upon by
holders of Sunbelt Stock at the Meeting. The Voting Representatives under the
Sunbelt Voting Agreement have executed a Voting Agreement and Irrevocable Proxy
with the Company whereby they agree to vote the Sunbelt Stock subject to the
Sunbelt Voting Agreement in favor of the Consolidation Agreement at the Meeting.
Therefore, it is expected that the Consolidation Agreement will be approved at
the Meeting. SEE "SUMMARY -- THE MEETING"; "THE CONSOLIDATIONS -- GENERAL"; "THE
CONSOLIDATIONS -- ADDITIONAL AGREEMENTS"; AND "BENEFICIAL OWNERSHIP OF SUNBELT
STOCK BY MANAGEMENT OF SUNBELT AND PRINCIPAL SHAREHOLDERS".
<PAGE> 10
Proxies in the form enclosed are solicited by Sunbelt's Board of Directors
(the "Sunbelt Board"). Any such proxy, if received in time for voting and not
revoked, will be voted at the Meeting in accordance with the Shareholders'
instructions. If no instructions are given on the proxy, the proxy will be voted
in favor of the Consolidation Agreement. Failure to submit a proxy or to vote at
the Meeting will have the same effect as a vote against the Consolidation
Agreement. At present, the Sunbelt Board knows of no other matters to be
presented at the Meeting, but if other matters are properly presented, the
persons named in the proxy will vote or refrain from voting pursuant to the
discretionary authority conferred by the proxy. SEE "SUMMARY -- THE MEETING";
"THE MEETING"; "THE CONSOLIDATIONS -- DISSENTERS' RIGHTS OF APPRAISAL AND
RELATED ISSUES"; EXHIBIT B AND EXHIBIT C.
A proxy may be revoked at any time prior to its exercise by filing, at
Sunbelt's principal office, a duly executed proxy bearing a later date or a
written notice revoking such proxy. Any Shareholder entitled to vote at the
Meeting may attend the Meeting and vote in person by written ballot on any
matter presented for a vote at such Meeting, whether or not such Shareholder has
given a proxy previously, and such action will constitute a revocation of any
prior proxy.
Proxies will be solicited initially by mail, and may also be solicited
personally, by telephone, facsimile transmission or other means by the
directors, officers and employees of Sunbelt, with no special or extra
compensation therefor, although such officers, directors and employees may be
reimbursed for out-of-pocket expenses incurred in connection with the
solicitation. Arrangements will also be made with custodians, nominees and
fiduciaries for the forwarding of soliciting materials to the beneficial owners
of Sunbelt Stock held of record by such persons, and Sunbelt may reimburse such
custodians, nominees and fiduciaries for reasonable out-of-pocket expenses that
they incur in that connection. Expenses incurred in connection with the
Consolidations, including those attributable to the solicitation of proxies,
will be paid by the party to the Consolidation Agreement incurring the expense.
Brokerage firms, banks, nominees, fiduciaries and other custodians are
requested to forward these proxy materials to the beneficial owners of Sunbelt
Stock held of record by them, and Sunbelt will reimburse them, upon request, for
their reasonable expenses incurred in connection with such mailing or other
communications with such beneficial owners.
The Company's principal executive offices are located at 12200 Northwest
Freeway, Houston, Texas 77092 and its telephone number is (713) 209-6000.
Sunbelt's principal executive offices are located at 1160 Dairy Ashford, Suite
100, Houston, Texas 77079, and its telephone number is (281) 531-3000.
2
<PAGE> 11
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement/ Prospectus relating to the Meeting of Shareholders of
Sunbelt to which this Proxy Statement/Prospectus relates and the Consolidations
described herein. This summary is not intended to describe all material
information relating to the Meeting and the Consolidations and is qualified in
its entirety by reference to the more detailed information and financial
statements contained elsewhere in this Proxy Statement/Prospectus, including the
exhibits hereto and the documents referred to herein. All share and per share
information in this Proxy Statement/Prospectus for the Company has been adjusted
to reflect a 30 for 1 Company Common Stock dividend issued to Company
shareholders of record as of July 17, 1997. Shareholders are urged to read
carefully the entire Proxy Statement/Prospectus and the related documents.
THE PARTIES
Prime Bancshares, Inc.
The Company is a Texas corporation and a registered bank holding company
under the Bank Holding Company Act of 1956, as amended ("BHC Act"), that
provides commercial and retail banking services through the Company's one bank
subsidiary, Prime Bank, a Texas banking association headquartered in Houston,
Texas. Substantially all of the Company's revenues are derived from Prime Bank.
The Company was formed as a bank holding company for Prime Bank in 1984. The
principal executive offices of the Company are located at 12200 Northwest
Freeway, Houston, Texas, and the telephone number is (713) 209-6000. SEE "THE
COMPANY".
At December 31, 1997, and for the year then ended, the Company had
consolidated assets of $958.4 million, loans of $417.9 million, deposits of
$865.1 million, shareholders' equity of $71.5 million and net income of $11.4
million. SEE "SUMMARY -- SUMMARY OF CONSOLIDATED FINANCIAL DATA OF THE
COMPANY"; "-- SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA"; "PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY"; AND THE "INDEX TO
FINANCIAL STATEMENTS".
IBID, Inc.
IBID, Inc. ("Delaware Company") is a Delaware corporation and a registered
bank holding company under the BHC Act. The Delaware Company is a wholly-owned
subsidiary of the Company and directly owns all of the capital stock of Prime
Bank.
Prime Bank
Prime Bank is a Texas banking association that was organized in 1958. Prime
Bank has 18 full-service banking locations, ten of which are located in the
greater Houston metropolitan area. Prime Bank also has six offices located in
Southeast Texas, one office (and two loan production offices) located in San
Antonio and one office located in Brenham. The principal executive offices of
Prime Bank are located at 12200 Northwest Freeway, Houston, Texas, and the
telephone number is (713) 209-6000.
As of December 31, 1997, and for the year then ended, Prime Bank had assets
of $958.3 million, loans of $417.9 million, shareholders' equity of $69.8
million and net income of $11.4 million.
New Prime Bank
New Bank is in the process of being organized as a Texas banking
association and a wholly-owned subsidiary of the Company solely to facilitate
the acquisition of Sunbelt by the Company. New Bank will have no independent
existence after the First Consolidation.
3
<PAGE> 12
Sunbelt National Bank
Sunbelt is a national banking association that offers commercial and retail
banking services through its three offices in Houston, Texas. The principal
executive offices of Sunbelt are located at 1160 Dairy Ashford, Suite 100,
Houston, Texas, and the telephone number is (281) 531-3000. SEE "SUNBELT".
As of December 31, 1997, and for the year then ended, Sunbelt had assets of
$93.8 million, loans of $52.8 million, deposits of $84.4 million, shareholders'
equity of $7.0 million and net income of $483,000. SEE "SUMMARY -- SUMMARY
FINANCIAL DATA OF SUNBELT"; "-- SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA";
"PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS"; "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SUNBELT"; AND INDEX
TO FINANCIAL STATEMENTS.
THE MEETING
General
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors of Sunbelt from the
Shareholders of Sunbelt for use at the Meeting. The Meeting is a special meeting
of the Shareholders of Sunbelt at which the Shareholders will consider the First
Consolidation pursuant to the Consolidation Agreement. SEE "THE
MEETING -- GENERAL". A complete copy of the Consolidation Agreement is attached
to this Proxy Statement/Prospectus as Exhibit A and incorporated herein by
reference.
It is anticipated that proxy solicitation materials will first be mailed to
Shareholders on or about . The Meeting will be held on ,
at p.m., Central Time, at the principal executive offices of
Sunbelt, 1160 Dairy Ashford, Houston, Texas.
Shares Entitled to Vote, Quorum and Vote Required
The holders of record of the outstanding Sunbelt Stock at the close of
business on the Record Date, will be entitled to notice of and to vote at the
Meeting. At the close of business on such date, Sunbelt had issued and
outstanding and entitled to vote at the Meeting 460,000 shares of Sunbelt Stock.
Each holder of Sunbelt Stock will be entitled to one vote for each share of
Sunbelt Stock owned of record on the Record Date. The presence of the holders of
a majority of the Sunbelt Stock, either in person or by proxy, is required to
constitute a quorum at the meeting. The affirmative vote of two-thirds of the
Sunbelt Stock is required to approve the Consolidation Agreement. Approximately
82.86% of the outstanding Sunbelt Stock, 381,147 shares of Sunbelt Stock, is
subject to the Sunbelt Voting Agreement pursuant to which the Voting
Representatives under the Sunbelt Voting Agreement will vote all of the Sunbelt
Stock subject to the Sunbelt Voting Agreement on all matters to be voted upon by
holders of Sunbelt Stock at the Meeting. The Voting Representatives under the
Sunbelt Voting Agreement have executed a Voting Agreement and Irrevocable Proxy
with the Company whereby they agree to vote the Sunbelt Stock subject to the
Sunbelt Voting Agreement in favor of the Consolidation Agreement at the Meeting.
Therefore, it is expected that the Consolidation Agreement will be approved at
the Meeting. As of the date of this Proxy Statement/Prospectus, the following
persons or entities own beneficially 5% or more of the Sunbelt Stock: Hans Kayem
Estate, B. J. Williams, Thomas W. Ferguson, Jerry R. Cooper, D. C. Daniels and
George A. Wolcott. Approximately 95.5% of the Sunbelt Stock held by these
individuals and entities is subject to the Sunbelt Voting Agreement. SEE
"BENEFICIAL OWNERSHIP OF SUNBELT STOCK BY MANAGEMENT OF SUNBELT AND PRINCIPAL
SHAREHOLDERS". The directors and executive officers of Sunbelt (and certain of
their spouses and related interests) own or otherwise control the right to vote
184,884 shares of Sunbelt Stock, comprising approximately 40.19% of the total
shares of Sunbelt Stock issued and outstanding as of the Record Date. Of the
shares of Sunbelt Stock held by executive officers and directors, 173,706
shares, comprising 37.76% of the total shares of Sunbelt Stock, are subject to
the Sunbelt Voting Agreement. SEE "THE MEETING -- SHARES ENTITLED TO VOTE,
QUORUM AND REQUIRED VOTE"; "THE CONSOLIDATIONS -- SHAREHOLDER APPROVAL"; "THE
CONSOLIDATIONS -- ADDITIONAL AGREEMENTS"; AND "BENEFICIAL OWNERSHIP OF SUNBELT
STOCK BY MANAGEMENT OF SUNBELT AND PRINCIPAL SHAREHOLDERS". The Sunbelt Board
recommends that the Shareholders vote in favor of the Consolidation Agreement.
4
<PAGE> 13
SEE "THE CONSOLIDATIONS -- BACKGROUND AND REASONS FOR APPROVAL OF THE
CONSOLIDATIONS; RECOMMENDATION OF SUNBELT BOARD".
Proxies
Proxies, in the form enclosed, which are properly executed by the
Shareholders and returned to Sunbelt and not subsequently revoked, will be voted
at the Meeting in accordance with the directions specified thereon, and
otherwise in accordance with the judgment of the persons designated as proxies.
Any properly executed proxy on which voting instructions are not specified will
be voted in favor of the ratification and approval of the Consolidation
Agreement. A proxy may be revoked at any time before it is voted by giving
written notice to the Secretary of Sunbelt, by execution of a proxy of a later
date filed with the Secretary of Sunbelt at or before the Meeting or by voting
in person at the Meeting.
This proxy solicitation is made by the Sunbelt Board. The Company and
Sunbelt shall each be responsible for their respective expenses incurred in
preparing, assembling, printing, and mailing this Proxy Statement/Prospectus.
Proxies will be solicited through the mail. Additionally, directors, officers,
and regular employees of Sunbelt intend to solicit proxies personally or by
telephone without receiving special compensation therefor. Sunbelt will
reimburse banks, brokers and other custodians, nominees and fiduciaries for
their reasonable expenses in forwarding the proxy materials to beneficial
owners.
THE CONSOLIDATIONS
General
Subject to the receipt of all regulatory and shareholder approvals and
compliance with all of the terms and conditions of the Consolidation Agreement,
New Bank will consolidate with Sunbelt in the First Consolidation with Sunbelt
as the survivor and, immediately thereafter, Sunbelt will consolidate with Prime
Bank in the Final Consolidation with Prime Bank as the survivor. As a result of
the First Consolidation, each share of Sunbelt Stock will be converted into the
right to receive 2.0023 shares of Company Common Stock, subject to possible
adjustment prior to the First Consolidation pursuant to the Consolidation
Agreement. SEE "THE CONSOLIDATIONS -- GENERAL" AND "-- CONSOLIDATION
CONSIDERATION".
All of the holders of Sunbelt Stock, except for those Shareholders who
perfect and properly exercise their right to dissent from the First
Consolidation and receive the fair value of their shares in cash, will become
shareholders of the Company. SEE "THE CONSOLIDATIONS -- GENERAL" AND
"-- CONSOLIDATION CONSIDERATION". A copy of the Consolidation Agreement is
attached to this Proxy Statement/Prospectus as EXHIBIT A and incorporated herein
by reference. The statements with respect to the terms of the Consolidation
Agreement contained in this Proxy Statement/Prospectus are intended only to
indicate the general scope and intent of the Consolidation Agreement. Each
Shareholder should read the Consolidation Agreement for a complete description
of the proposed transaction.
Reasons for the Consolidations; Recommendation of Sunbelt Board
At a meeting of the Sunbelt Board held on December 16, 1997, after
considering the terms and conditions of the Consolidation Agreement and
obtaining the advice of its counsel, the Sunbelt Board unanimously approved the
Consolidation Agreement. The Sunbelt Board believes that the Consolidations are
advisable and in the best interests of Sunbelt and the Shareholders. The Sunbelt
Board recommends that Sunbelt Shareholders vote in favor of the adoption of the
Consolidation Agreement. For a discussion of the circumstances surrounding the
Consolidations and the factors considered by the Sunbelt Board in making its
recommendations, SEE "THE CONSOLIDATIONS -- BACKGROUND AND REASONS FOR
CONSOLIDATIONS; RECOMMENDATION OF SUNBELT BOARD".
Consummation of the Consolidations offers the holders of Sunbelt Stock the
opportunity to acquire an equity interest in a larger, more diversified
financial institution, which is interested in expanding its operations in Texas.
Company Common Stock is publicly traded, allowing increased liquidity for the
Shareholders, and has a history of paying dividends. The Sunbelt Board
anticipates that the Consolidations will expand the
5
<PAGE> 14
banking products and services offered to Sunbelt's customers and community and
will enable Sunbelt's facilities to compete more effectively with banks and
non-bank financial institutions. As part of a holding company, Sunbelt's
facilities will be provided with specialized staff resources in accounting,
auditing, investment, loan review, marketing, data processing and electronic
funds transfer services.
For the reasons set forth above, the Sunbelt Board believes the
Consolidations to be in the best interests of Sunbelt's Shareholders. THE
SUNBELT BOARD UNANIMOUSLY RECOMMENDS THAT SUNBELT SHAREHOLDERS VOTE FOR APPROVAL
OF THE CONSOLIDATION AGREEMENT and has authorized consummation of the
Consolidations subject to approval of Sunbelt Shareholders and the satisfaction
of certain other conditions. SEE "THE CONSOLIDATIONS -- OTHER TERMS AND
CONDITIONS" AND EXHIBIT A.
Consolidation Consideration
At the effective date of the First Consolidation ("First Effective Date")
and upon and by reason of the First Consolidation becoming effective, each share
of Sunbelt Stock issued and outstanding immediately prior to the First Effective
Date, excluding shares held by a Shareholder who has properly perfected his
statutory right to dissent from the First Consolidation ("Dissenting Shares"),
and any and all rights arising out of ownership of such Sunbelt Stock shall,
without any action on the part of the holder thereof, be converted into the
right to receive 2.0023 shares of Company Common Stock, subject to possible
adjustment pursuant to the Consolidation Agreement. The Company will not issue
any certificates for fractional shares of Company Common Stock in connection
with the Consolidations. In lieu of issuing fractional shares, the Company will
pay cash for such fractional shares in an amount based on the closing bid price
of a share of Company Common Stock as listed on the NASDAQ National Market
("NASDAQ") on the date prior to the effective date of the Final Consolidation
("Final Effective Date"). SEE "THE CONSOLIDATIONS -- CONSOLIDATION
CONSIDERATION".
The Consolidation Agreement provides that the number of shares of Company
Common Stock to be received by holders of Sunbelt Stock will be adjusted as
follows:
(a) In the event that one-half of any net earnings of Sunbelt, from
January 1, 1998 through the end of the month prior to the month in which
the Final Effective Date occurs, exceed an amount calculated by multiplying
(i) the difference between the average closing bid and asked prices of
Company Common Stock as quoted on NASDAQ for the twenty (20) trading days
immediately preceding the fifth calendar day prior to the Final Effective
Date ("Average Price") (provided that such Average Price is greater than
$19.00) and $19.00 by (ii) 920,000 ("Net Earnings Difference"), the
aggregate number of shares of Company Common Stock to be paid to
Shareholders of Sunbelt on the Effective Date shall be increased by
dividing such Net Earnings Difference by the Average Price; and
(b) If the Average Price of the Company Common Stock is $22.00 or
greater, the aggregate number of shares of Company Common Stock into which
shares of Sunbelt Stock will be converted on the Final Effective Date shall
be decreased by (i) subtracting $20,240,000 from 920,000 multiplied by the
Average Price and (ii) dividing that difference by the Average Price. The
consideration to be received by the Shareholders of Sunbelt as set forth in
the Consolidation Agreement shall sometimes be referred to herein as the
"Consolidation Consideration". SEE "THE CONSOLIDATIONS -- CONSOLIDATION
CONSIDERATION" AND EXHIBIT A.
Right to Terminate Based on Average Price
If the Average Price of the Company Common Stock is $17.50 or less, the
Sunbelt Board may terminate the Consolidation Agreement upon written notice to
the Company. If the Sunbelt Board elects to terminate the Consolidation
Agreement, the Company will have the option of increasing the Consolidation
Consideration by (i) subtracting the Average Price multiplied by 920,000 from
$16,100,000 and (ii) dividing the difference by the Average Price. SEE "THE
CONSOLIDATIONS -- TERMINATION" AND EXHIBIT A.
6
<PAGE> 15
Description of Company Stock
There are 50,000,000 shares of Company Common Stock and 15,000,000 shares
of preferred stock, $1.00 par value ("Company Preferred Stock"), of the Company
authorized, and as of the date of this Proxy Statement/Prospectus, 12,010,980
shares of Company Common Stock were issued, 9,353,020 shares of which were
outstanding, and no shares of Company Preferred Stock were issued and
outstanding. Each holder of Company Common Stock is entitled to one vote for
each share of Company Common Stock held of record. Cumulative voting in the
election of directors is not permitted. No holder of Company Common Stock has a
preemptive right to acquire his pro rata portion of any additional unissued or
treasury securities issued by Company. SEE "DESCRIPTION OF SECURITIES OF THE
COMPANY". Dividends on the Company Common Stock are paid if and when the Board
of Directors of the Company, in its sole discretion, shall declare such
dividends out of funds legally available therefor. SEE "DIVIDEND HISTORY AND
POLICIES".
Dissenters' Rights of Appraisal
Under the Bank Merger Act, a Shareholder has the right to dissent from the
First Consolidation and receive payment in cash of the fair value of his shares
of Sunbelt Stock by (i) filing a written notice of objection to the First
Consolidation with the presiding officer of the Meeting at or prior to the
Meeting and by not voting in favor of the Consolidation Agreement at the Meeting
or by voting against the Consolidation Agreement at the Meeting; and (ii) within
thirty (30) days after receiving notice that the First Consolidation was
effected, making a written demand on the Company for payment of the fair value
of such Shareholders' shares and submitting the certificates for surrender to
the Company. A SHAREHOLDER MUST FOLLOW THE EXACT PROCEDURE REQUIRED BY THE BANK
MERGER ACT IN ORDER TO PROPERLY EXERCISE DISSENTERS' RIGHTS OF APPRAISAL AND TO
AVOID WAIVER OF THOSE RIGHTS. SEE "THE CONSOLIDATIONS -- DISSENTERS' APPRAISAL
RIGHTS AND RELATED ISSUES". For a more detailed description of the statutory
dissenters' rights procedure, see the applicable provisions of the Bank Merger
Act which are reproduced in full as EXHIBIT B to this Proxy Statement/
Prospectus.
Federal Income Tax Consequences
In the opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. ("Liddell,
Sapp"), counsel to Sunbelt, based upon certain representations and assumptions
and representations made by the officers and shareholders of Sunbelt and the
officers of the Company, Prime Bank and New Bank, the Consolidations, if
consummated in accordance with the Consolidation Agreement, will qualify as a
"reorganization" under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and, as a result of such qualification, no gain or loss
will be recognized by holders of Sunbelt Stock for federal income tax purposes
upon receipt of the Company Common Stock in accordance with the Consolidation
Agreement. Any gain attributable to cash received by holders of Sunbelt Stock in
lieu of fractional shares of the Company Common Stock or upon exercise of their
dissenters' rights will be taxed as ordinary income (loss) or capital gain
(loss) depending upon each Shareholder's situation. No information is provided
herein with respect to the tax consequences, if any, of the Consolidations to
Shareholders under any state, local or foreign tax laws. SUNBELT SHAREHOLDERS
ARE URGED TO CONSULT THEIR OWN TAX ADVISERS AS TO ALL TAX CONSEQUENCES OF THE
CONSOLIDATIONS AFFECTING THEM. SEE "THE CONSOLIDATIONS -- FEDERAL INCOME TAX
CONSEQUENCES".
Conditions to Consummation of the Consolidations
The Consolidation Agreement provides that the consummations of the
Consolidations are subject to certain conditions, including the approval of the
Consolidation Agreement by the Shareholders of Sunbelt, New Bank and Prime Bank
and the receipt of all requisite regulatory approvals. The Company may elect not
to consummate the Consolidations if the holders of more than 5% of the Sunbelt
Stock have exercised their right to dissent from the First Consolidation. In
addition to these requirements, the individual obligations of the Company and
Sunbelt are each subject to compliance by the other with their respective
covenants, confirmation of their respective representations and warranties and
certain legal matters as set forth in the Consolidation Agreement. If the
Consolidations are not consummated by June 30, 1998, either Sunbelt or the
7
<PAGE> 16
Company may terminate the Consolidation Agreement without liability to the other
party. SEE "THE CONSOLIDATIONS -- OTHER TERMS AND CONDITIONS". For a more
detailed description of the conditions to the Consolidations, see the
Consolidation Agreement attached to this Proxy Statement/Prospectus as EXHIBIT
A.
Regulatory Approvals
The approvals of the Board of Governors of the Federal Reserve System
("Federal Reserve"), Federal Deposit Insurance Corporation ("FDIC"), Office of
the Comptroller of the Currency ("OCC") and the Texas Department of Banking
("TDB") are required to consummate the Consolidations. On February 4, 1998, the
Company filed with the Federal Reserve Bank of Dallas ("Reserve Bank") a request
for a waiver of any applications that may be required by the Federal Reserve
("Waiver Request"). The Waiver Request was approved on February 13, 1998. On
February 4, 1998, applications for approval of the Consolidations were filed
with the FDIC. On February 4, 1998, Prime Bank filed an application with the TDB
in connection with the Final Consolidation. Copies of all applications have been
filed with the OCC.
Accounting Treatment
Management of the Company anticipates that the Consolidations will be
accounted for as a "pooling of interests" under generally accepted accounting
principles. SEE "THE CONSOLIDATIONS -- ACCOUNTING TREATMENT."
RISK FACTORS
Ownership of Company Common Stock involves certain risks. In considering
how to vote with respect to the Consolidations and whether to dissent therefrom,
Shareholders of Sunbelt should carefully examine the "Risk Factors" section of
this Proxy Statement/Prospectus, as well as other pertinent information set
forth in this Proxy Statement/Prospectus. SEE "RISK FACTORS".
VOTING AND PRINCIPAL SHAREHOLDERS
Unless a Shareholder otherwise specifies thereon, proxies will be voted in
favor of the Consolidation Agreement. In each case where the Shareholder has
appropriately specified how his proxy is to be voted, it will be voted in
accordance with such specification. Any Shareholder has the power to revoke his
proxy at any time before it is voted by giving written notice of such revocation
to the Secretary of Sunbelt at 1160 Dairy Ashford, Houston, Texas, by executing
a new proxy filed with the Secretary of Sunbelt at or prior to the Meeting or by
voting in person at the Meeting.
The Record Date for the determination of Shareholders entitled to notice of
and to vote at the Meeting has been fixed at 5:00 p.m. on , 1998.
Sunbelt has advised the Company that, as of such Record Date, there were 460,000
shares of Sunbelt Stock issued and outstanding, and that each share is entitled
to one vote at the Meeting. As of the Record Date, there were approximately
holders of record of Sunbelt Stock. The presence of the holders of a
majority of the Sunbelt Stock, either in person or by proxy, is required to
constitute a quorum at the Meeting. The affirmative vote of the holders of not
less than two-thirds of the outstanding shares of Sunbelt Stock is required for
the approval of the Consolidation Agreement. Approximately 82.86% of the
outstanding Sunbelt Stock, 381,147 shares of Sunbelt Stock, is subject to the
Sunbelt Voting Agreement pursuant to which the Voting Representatives under the
Sunbelt Voting Agreement will vote all of the Sunbelt Stock subject to the
Sunbelt Voting Agreement on all matters to be voted upon by holders of Sunbelt
Stock. The Voting Representatives under the Sunbelt Voting Agreement have
executed a Voting Agreement and Irrevocable Proxy with the Company whereby they
agree to vote the Sunbelt Stock subject to the Sunbelt Voting Agreement in favor
of the Consolidation Agreement at the Meeting. Therefore, it is expected that
the Consolidation Agreement will be approved at the Meeting. As of the date of
this Proxy Statement/Prospectus, the following persons or entities own
beneficially 5% or more of the Sunbelt Stock:
8
<PAGE> 17
Hans Kayem Estate, B. J. Williams, Thomas W. Ferguson, Jerry R. Cooper, D. C.
Daniels and George A. Wolcott. Approximately 95.5% of the Sunbelt Stock held by
these individuals and entities is subject to the Sunbelt Voting Agreement. SEE
"BENEFICIAL OWNERSHIP OF SUNBELT STOCK BY MANAGEMENT OF SUNBELT AND PRINCIPAL
SHAREHOLDERS". The directors and executive officers of Sunbelt (and certain of
their spouses and related interests) own or otherwise control the right to vote
184,884 shares of Sunbelt Stock, comprising approximately 40.19% of the total
shares of Sunbelt Stock issued and outstanding as of the Record Date. Of the
shares of Sunbelt Stock held by executive officers and directors, 173,706
shares, comprising 37.76% of the total shares of Sunbelt Stock, are subject to
the Sunbelt Voting Agreement. SEE "SUMMARY -- THE MEETING"; "THE
CONSOLIDATIONS -- GENERAL"; "THE CONSOLIDATIONS -- ADDITIONAL AGREEMENTS". The
Sunbelt Board recommends that the Shareholders vote in favor of the
Consolidation Agreement. SEE "THE CONSOLIDATIONS-BACKGROUND AND REASONS FOR THE
CONSOLIDATIONS; RECOMMENDATION OF SUNBELT BOARD".
9
<PAGE> 18
SUMMARY CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The following summary consolidated financial data of the Company is derived
from the Selected Consolidated Financial Data of the Company appearing elsewhere
in this Proxy Statement/Prospectus, and should be read in conjunction with the
Financial Statements of the Company and the Notes thereto and the information
contained in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THE COMPANY".
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
-------- --------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income.............................. $ 36,021 $ 30,074 $ 28,169 $ 23,612 $ 19,343
Provision for loan losses........................ 825 1,246 1,510 580 (200)
-------- --------- -------- -------- --------
Net interest income after provision for loan
losses......................................... 35,196 28,828 26,659 23,032 19,543
Noninterest income............................... 8,956 8,292 10,338 7,208 7,055
Noninterest expenses............................. 26,554 23,056 23,110 18,344 17,006
-------- --------- -------- -------- --------
Earnings before taxes............................ 17,598 14,064 13,887 11,896 9,592
Preferred stock dividend......................... 650 700 681 258 320
Net earnings available to common shareholders.... 10,713 8,522 8,371 7,590 6,310
PER SHARE DATA(1):
Basic earnings(2)................................ $ 1.19 $ 0.97 $ 0.94 $ 0.83 $ 0.70
Diluted earnings(2).............................. 1.14 0.92 0.89 0.79 0.68
Book value....................................... 7.56 6.23 5.81 4.46 3.61
Tangible book value.............................. 7.02 6.23 5.81 4.41 3.61
Cash dividends................................... 0.14 0.13 0.13 0.03 0.03
Dividend payout ratio............................ 12.28% 14.15% 14.69% 4.14% 4.80%
Weighted average common and dilutive potential
common shares outstanding (in thousands)....... 9,422 9,225 9,403 9,605 9,329
BALANCE SHEET DATA:
Total assets..................................... $958,360 $ 801,455 $758,337 $863,461 $498,002
Securities....................................... 461,435 440,625 473,911 605,079 350,131
Loans............................................ 422,818 311,293 230,172 197,863 105,649
Allowance for loan losses........................ 4,938 4,436 3,660 2,641 1,788
Total deposits................................... 865,072 695,170 694,165 813,818 461,093
Total shareholders' equity....................... 71,473 61,969 58,330 46,839 34,891
AVERAGE BALANCE SHEET DATA:
Total assets..................................... $928,174 $ 762,455 $829,105 $595,829 $478,484
Securities....................................... 466,271 440,167 541,182 401,872 342,457
Loans............................................ 377,521 267,644 213,454 142,041 93,263
Allowance for loan losses........................ 5,008 3,765 2,855 1,889 2,026
Total deposits................................... 851,603 695,653 772,752 550,568 443,045
Total shareholders' equity....................... 66,460 59,823 51,106 40,942 31,884
PERFORMANCE RATIOS:
Return on average assets......................... 1.22% 1.21% 1.09% 1.32% 1.39%
Return on average common equity.................. 17.73 16.13 18.98 19.49 21.28
Net interest margin.............................. 4.14 4.20 3.62 4.25 4.36
Efficiency ratio(3).............................. 59.04 60.09 59.99 59.07 64.37
ASSET QUALITY RATIOS(4):
Nonperforming assets to total loans and other
real estate.................................... 0.32% 0.09% 0.71% 0.73% 1.06%
Net loan charge-offs (recoveries) to average
loans.......................................... 0.21 0.18 0.23 0.14 (0.37)
Allowance for loan losses to total loans......... 1.17 1.43 1.59 1.33 1.69
Allowance for loan losses to nonperforming
loans(5)....................................... 570.87 1,540.28 459.22 184.56 350.59
CAPITAL RATIOS(4):
Leverage ratio................................... 6.82% 7.96% 6.99% 5.39% 6.98%
Average shareholders' equity to average total
assets......................................... 7.16 7.85 6.16 6.87 6.66
Tier 1 risk-based capital ratio.................. 13.96 17.37 20.41 20.15 26.21
Total risk-based capital ratio................... 15.01 18.62 21.66 21.30 27.46
</TABLE>
- ---------------
(1) Adjusted for a 30 for one stock split.
(2) Basic earnings per share is based upon the weighted average number of common
shares outstanding during the period. Diluted earnings per share is based on
the weighted average number of common and dilutive potential common shares
outstanding during the period.
(3) Calculated by dividing total noninterest expenses, excluding securities
losses, by net interest income plus noninterest income.
(4) At period end, except net loan charge-offs (recoveries) to average loans and
average shareholders' equity to average total assets.
(5) Nonperforming loans consist of nonaccrual loans and restructured loans.
10
<PAGE> 19
SUMMARY FINANCIAL DATA OF SUNBELT
The following summary financial data of Sunbelt is derived from the
Selected Financial Data of Sunbelt appearing elsewhere in this Proxy
Statement/Prospectus, and should be read in conjunction with the Financial
Statements of Sunbelt and the Notes thereto and the information contained in
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF SUNBELT."
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income.................................... $ 4,923 $ 4,572 $ 4,562 $ 3,723 $ 2,914
Provision for loan losses.............................. 371 145 107 262 (32)
------- ------- ------- ------- -------
Net interest income after provision for loan losses.... 4,552 4,427 4,455 3,461 2,946
Noninterest income..................................... 806 844 883 986 618
Noninterest expenses................................... 4,609 3,796 3,584 3,448 3,283
------- ------- ------- ------- -------
Earnings before taxes.................................. 749 1,475 1,754 999 281
Provision for income tax expense....................... 266 528 623 355 56
Net earnings available to common shareholders.......... 483 947 1,131 644 225
PER SHARE DATA:
Net earnings -- basic and diluted(1)................... $ 1.05 $ 2.06 $ 2.46 $ 1.40 $ 0.49
Book value............................................. 15.12 14.06 12.24 9.84 8.65
Tangible book value.................................... 15.12 14.06 12.24 9.84 8.65
Cash dividends......................................... -- 0.25 0.25 -- --
Dividend payout ratio.................................. -- 12.14% 10.17% -- --
Weighted average common shares outstanding (in
thousands)........................................... 460 460 460 460 460
BALANCE SHEET DATA:
Total assets........................................... $93,775 $89,233 $81,117 $75,935 $70,214
Securities............................................. 18,748 15,511 13,277 15,051 17,530
Loans.................................................. 52,765 56,191 50,686 51,828 38,821
Allowance for loan losses.............................. 935 536 545 465 292
Total deposits......................................... 84,407 81,351 74,016 70,224 65,136
Total shareholders' equity............................. 6,954 6,467 5,628 4,527 3,980
AVERAGE BALANCE SHEET DATA:
Total assets........................................... $91,080 $80,959 $77,635 $71,189 $63,092
Securities............................................. 17,763 13,149 14,434 15,832 15,272
Loans.................................................. 56,460 51,605 51,984 43,993 35,330
Allowance for loan losses.............................. 598 530 548 391 334
Total deposits......................................... 82,630 73,425 70,909 67,014 58,399
Total shareholders' equity............................. 7,024 6,189 5,186 4,175 3,837
PERFORMANCE RATIOS:
Return on average assets............................... 0.53% 1.17% 1.46% 0.91% 0.36%
Return on average equity............................... 6.88% 15.30% 21.80% 15.44% 5.87%
Net interest margin.................................... 5.90% 6.21% 6.47% 5.89% 5.26%
Efficiency ratio(2).................................... 80.44% 70.10% 65.81% 73.23% 92.95%
ASSET QUALITY RATIOS(3):
Nonperforming assets to total loans and other real
estate............................................... 1.14% 1.53% 2.12% 2.00% 3.65%
Net loan charge-offs (recoveries) to average loans..... (0.05)% 0.30% 0.05% 0.20% 0.12%
Allowance for loan losses to gross loans............... 1.77% 0.95% 1.08% 0.90% 0.75%
Allowance for loan losses to nonperforming loans(4).... 154.04% 61.61% 50.28% 44.50% 20.18%
CAPITAL RATIOS(3):
Leverage ratio......................................... 7.40% 7.20% 7.25% 6.36% 6.31%
Average shareholders' equity to average total assets... 7.71% 7.64% 6.68% 5.86% 6.08%
Tier 1 risk-based capital ratio........................ 10.80% 10.80% 12.21% 9.48% 10.33%
Total risk-based capital ratio......................... 12.00% 11.70% 13.39% 10.46% 11.24%
</TABLE>
- ---------------
(1) Basic earnings per share is based upon the weighted average number of common
shares outstanding during the period. Diluted earnings per share is based on
the weighted average number of common and dilutive potential common shares
outstanding during the period.
(2) Calculated by dividing total noninterest expenses, excluding securities
losses, by net interest income plus noninterest income.
(3) At period end, except net loan charge-offs (recoveries) to average loans and
average shareholders' equity to average total assets.
(4) Nonperforming loans consist of nonaccrual loans and restructured loans.
11
<PAGE> 20
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
The following summary pro forma consolidated financial data combines the
historical consolidated financial statements of the Company and Sunbelt as if
the Consolidations had occurred on January 1 of each period presented after
giving effect to the pro forma adjustments described in the notes to the pro
forma consolidated financial statements included elsewhere in this Proxy
Statement/Prospectus. SEE "PROFORMA CONSOLIDATED FINANCIAL STATEMENTS".
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- -------- --------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income......................................... $ 40,944 $ 34,646 $ 32,731
Provision for loan losses................................... 1,196 1,391 1,617
---------- -------- --------
Net interest income after provision for loan losses....... 39,748 33,255 31,114
Noninterest income.......................................... 9,762 9,136 11,221
Noninterest expenses........................................ 31,163 26,852 26,694
---------- -------- --------
Earnings before taxes..................................... 18,347 15,539 15,641
Preferred stock dividend.................................... 650 700 681
Net earnings available to common shareholders............... 11,196 9,469 9,502
PER SHARE DATA(1):
Basic earnings(2)........................................... $ 1.13 $ 0.97 $ 0.97
Dilutive earnings........................................... 1.08 0.93 0.92
Book value.................................................. 7.56 6.30 5.84
Tangible book value......................................... 7.07 6.30 5.84
Cash dividends.............................................. 0.13 0.13 0.13
Dividend payout ratio on dilutive EPS....................... 11.72% 14.20% 14.19%
Weighted average common shares used in basic EPS (in
thousands)................................................ 9,896 9,729 9,782
Weighted average common and potential dilutive common shares
used in dilutive EPS (in thousands)....................... 10,343 10,146 10,324
BALANCE SHEET DATA:
Total assets................................................ $1,052,135 $890,688 $839,454
Securities.................................................. 480,183 456,136 487,188
Loans....................................................... 475,583 367,484 280,858
Allowance for loan losses................................... 5,873 4,972 4,205
Total deposits.............................................. 949,479 776,521 768,181
Total shareholders' equity.................................. 78,427 68,436 63,958
AVERAGE BALANCE SHEET DATA:
Total assets................................................ $1,019,254 $843,414 $906,740
Securities.................................................. 484,034 453,316 555,616
Loans....................................................... 433,981 319,249 265,438
Allowance for loan losses................................... 5,606 4,295 3,403
Total deposits.............................................. 934,233 769,078 843,661
Total shareholders' equity.................................. 73,484 66,012 56,292
PERFORMANCE RATIOS:
Return on average assets.................................... 1.16% 1.21% 1.12%
Return on average common equity............................. 16.60% 16.05% 19.28%
Net interest margin......................................... 4.29% 4.39% 3.85%
Efficiency ratio(3)......................................... 61.46% 61.33% 60.73%
ASSET QUALITY RATIOS(4):
Nonperforming assets to total loans and other real estate... 0.41% 0.31% 0.97%
Net loan charge-offs (recoveries) to average loans.......... 0.18% 0.20% 0.20%
Allowance for loan losses to total loans.................... 1.23% 1.35% 1.50%
Allowance for loan losses to nonperforming loans(5)......... 611.77% 920.74% 307.16%
CAPITAL RATIOS(4):
Leverage ratio.............................................. 6.93% 7.96% 7.02%
Average shareholders' equity to average total assets........ 7.21% 7.83% 6.21%
Tier 1 risk-based capital ratio............................. 13.57% 16.41% 19.23%
Total risk-based capital ratio.............................. 14.67% 17.64% 20.61%
</TABLE>
- ---------------
(1) Adjusted for a 30 for one stock split.
(2) Basic earnings per share is based upon the weighted average number of common
shares outstanding during the period. Diluted earnings per share is based on
the weighted average number of common and dilutive potential common shares
outstanding during the period.
(3) Calculated by dividing total noninterest expenses, excluding securities
losses, by net interest income plus noninterest income.
(4) At period end, except net loan charge-offs (recoveries) to average loans and
average shareholders' equity to average total assets.
(5) Nonperforming loans consist of nonaccrual loans and restructured loans.
12
<PAGE> 21
SUMMARY OF PRO FORMA PER SHARE SELECTED FINANCIAL DATA
The following table summarizes certain pro forma per share financial data
of the Company and Sunbelt. The historical data for the three years in the
period ended December 31, 1997 are derived from the financial statements
included elsewhere in this Proxy Statement/Prospectus and other financial
statements prepared by the Company and Sunbelt. The pro forma combined financial
data assumes the Consolidations were accounted for as a pooling-of-interests and
were in effect for all periods presented. The pro forma financial data does not
purport to be indicative of the results that would have actually been obtained
if the Consolidations had been in effect as of the dates indicated or that may
be obtained in future periods. This information should be read in conjunction
with the historical financial statements included elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Basic earnings per share
Company................................................... $ 1.19 $ 0.97 $ 0.94
Sunbelt................................................... 1.05 2.06 2.46
Pro Forma(1).............................................. 1.13 0.97 0.97
Equivalent pro forma per share of Sunbelt Stock(2)........ 2.26 1.94 1.94
Diluted earnings per share
Company................................................... $ 1.14 $ 0.92 $ 0.89
Sunbelt................................................... 1.05 2.06 2.46
Pro Forma(1).............................................. 1.08 0.93 0.92
Equivalent pro forma per share of Sunbelt Stock(2)........ 2.16 1.86 1.84
Cash dividends per common share
Company................................................... $ 0.14 $ 0.13 $ 0.13
Sunbelt................................................... -- 0.25 0.25
Pro Forma(3).............................................. 0.13 0.13 0.13
Equivalent pro forma per share of Sunbelt Stock(4)........ 0.26 0.26 0.26
Book value per common share
Company................................................... $ 7.56 $ 6.23 $ 5.81
Sunbelt................................................... 15.12 14.06 12.24
Pro Forma(5).............................................. 7.56 6.30 5.84
Equivalent pro forma per share of Sunbelt Stock(6)........ 15.14 12.61 11.69
Weighted average common and dilutive potential common shares
outstanding (in thousands)
Company................................................... 9,422 9,225 9,403
Sunbelt................................................... 460 460 460
Pro Forma................................................. 10,343 10,146 10,324
Number of shares of common outstanding at end of period (in
thousands)
Company................................................... 9,317 8,828 8,831
Sunbelt................................................... 460 460 460
Pro Forma................................................. 10,238 9,749 9,752
</TABLE>
- ---------------
(1) Pro forma combined earnings per share represents pro forma combined net
earnings amounts divided by pro forma combined weighted average shares of
Company Common Stock outstanding.
(2) Equivalent pro forma earnings per share of Company Common Stock represents
the pro forma combined earnings per share of Company Common Stock multiplied
by 2.0023, the rate under the Consolidation Agreement at which each share of
Sunbelt Stock will be converted into shares of Company Common Stock. The
number of shares of Company Common Stock to be received for each share of
Sunbelt Stock is subject to adjustment pursuant to the Consolidation
Agreement.
(3) Pro forma combined cash dividends paid per share represents pro forma
combined cash dividends paid on common stock outstanding divided by pro
forma combined weighted average shares of Company Common Stock outstanding.
13
<PAGE> 22
(4) Equivalent pro forma cash dividends paid per share of Sunbelt Stock
represents the pro forma combined cash dividends per share of Company
Common Stock multiplied by 2.0023, the rate under the Consolidation
Agreement at which each share of Sunbelt Stock will be converted into
shares of Company Common Stock. The number of shares of Company Common
Stock to be received for each share of Sunbelt Stock is subject to
adjustment pursuant to the Consolidation Agreement.
(5) Pro forma combined book value per share represents the sum of pro forma
combined common shareholder's equity amounts divided by pro forma combined
weighted average shares of Company Common Stock outstanding.
(6) Equivalent pro forma book value per share of Sunbelt Stock represents the
pro forma combined book value per share of Company Common Stock multiplied
by 2.0023, the rate under the Consolidation Agreement at which each share
of Sunbelt Stock will be converted into shares of Company Common Stock. The
number of shares of Company Common Stock to be received for each share of
Sunbelt Stock is subject to adjustment pursuant to the Consolidation
Agreement.
MARKET VALUES
The following table summarizes the market values of Sunbelt Stock and
Company Common Stock on January 2, 1998 as the business day prior to the
announcement of the Consolidations. For additional information regarding market
prices see "NATURE OF TRADING MARKET AND MARKET PRICES".
<TABLE>
<CAPTION>
HISTORICAL EQUIVALENT
---------------------------- PRO FORMA
COMPANY SUNBELT PER SHARE OF
(HISTORICAL) (HISTORICAL) SUNBELT STOCK
------------ ------------ -------------
<S> <C> <C> <C>
Market value per share.......................... 21.00(1) --(2) 42.05(3)
</TABLE>
- ---------------
(1) Represents the average of the high and low prices on January 2, 1998.
(2) Although there are occasional transactions in the Sunbelt Stock, there is
no established trading market for Sunbelt Stock.
(3) Equivalent pro forma market value per share of Sunbelt Stock represents the
historical market value per share of Company Common Stock multiplied by
2.0023, the rate under the Consolidation Agreement at which each share of
Sunbelt Stock will be converted into shares of Company Common Stock. The
number of shares of Company Common Stock to be received for each share of
Sunbelt Stock is subject to adjustment pursuant to the Consolidation
Agreement. Because the market price of Company Common Stock is subject to
fluctuation, the market value of the shares of Company Common Stock that
holders of Sunbelt Stock would receive upon consummation of the
Consolidations may increase or decrease prior to the receipt of such shares
following the effectiveness of the Consolidations. Sunbelt Shareholders are
urged to obtain current market quotations for Company Common Stock.
14
<PAGE> 23
RISK FACTORS
In connection with their consideration of the proposed Consolidations,
Shareholders of Sunbelt should carefully examine this entire Proxy
Statement/Prospectus and give particular consideration to the risks set forth
below. Information contained in this Proxy Statement/Prospectus contains
"forward-looking statements" which can be identified by the use of
forward-looking terminology such as "believes," "expects," "will," "should,"
"projected," "contemplated" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology. No assurance can be given that the
future results covered by the forward-looking statements will be achieved. The
following factors could cause actual experience to vary materially from the
future results covered in such forward-looking statements. Other factors, such
as the general state of the economy, could also cause actual experience to vary
materially from the matters covered in such forward-looking statements.
MANAGEMENT OF THE ASSET GROWTH
As a result of the Consolidations, the Company's total assets will increase
9.78% from $958.4 million as of December 31, 1997 to $1,052.1 million as of
December 31, 1997 on a pro forma basis. Although the Board of Directors of the
Company believes that it has in place adequate internal controls, policies,
procedures and staffing to manage its growth, the additional growth resulting
from the Consolidations could diminish the effectiveness of such controls,
policies and procedures and strain existing management, which could impair the
ability of the Company to operate its subsidiary bank consistent with safe and
sound banking practices. SEE "MANAGEMENT OF THE COMPANY".
LOSS OF CONTROL
Shareholders of Sunbelt currently control the Company through their ability
to elect the Sunbelt Board and vote on various matters affecting Sunbelt. The
Consolidations will transfer control of Sunbelt from Sunbelt Shareholders to the
Company. As of a result of the Consolidations, the holders of Sunbelt Stock will
become shareholders of the Company, the former holders of Sunbelt Stock will no
longer have the ability to control or influence the management policies of
Sunbelt's operations, and as shareholders of the Company, they will not control
the management policies of the Company because they will not hold a majority of
the voting stock of the Company.
EXPOSURE TO LOCAL ECONOMIC CONDITIONS
The Company's success is dependent to a significant extent upon general
economic conditions in Texas and the metropolitan Houston area. The banking
industry in Texas and Houston is affected by general economic conditions such as
inflation, recession, unemployment and other factors beyond the Company's
control. During the mid 1980's, severely depressed oil and gas and real estate
prices materially and adversely affected the Texas and Houston economies,
causing recession and unemployment in the region and resulting in excess
vacancies in the Houston real estate market and elsewhere in the state. Since
1987, the Texas economy has improved in part due to its expansion into
non-energy related industries, although energy-related industries remain the
largest single segment of the Houston economy. As the Texas and Houston
economies have diversified away from the energy industry, however, they have
become more susceptible to adverse effects resulting from recession in the
national economy. Economic recession over a prolonged period or other economic
dislocation in Texas and the Houston area could cause increases in nonperforming
assets, thereby causing operating losses, impairing liquidity and eroding
capital. There can be no assurance that future adverse changes in the Texas or
Houston economies would not have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
FEDERAL INCOME TAX CONSEQUENCES AND CONTINUITY OF INTEREST
One of the requirements for the Consolidations qualifying as a
"reorganization" that is generally tax-free under the Code is that the
"continuity of interest" requirement be met. Under this requirement (as it
existed prior to certain proposed regulations issued under Section 368 of the
Code being issued in final form and
15
<PAGE> 24
applicable to transactions entered into on or after January 28, 1998 and
therefore not applicable to the Consolidations), the holders of Sunbelt Stock
must intend, at the time of the Consolidations, to retain a portion of their
Company Common Stock, such that Sunbelt Shareholders, as a group, have a
significant equity interest in the Company after the Consolidations. If former
Sunbelt Shareholders should collectively sell in excess of 50% of the Company
Common Stock to be delivered on the Final Effective Date within a relatively
short period after the Final Effective Date, for example, one to two years, the
Internal Revenue Service ("Service") may successfully contend that this
requirement is not met. In such event, the Consolidations would be a taxable
transaction and former Sunbelt Shareholders would recognize taxable gain or loss
as of the Final Effective Date based on the difference between the tax basis in
their shares of Sunbelt Stock and the fair market value of the Company Common
Stock received by them on that date (even if such fair market value declines
after the Consolidations). The consummation of the Consolidations is conditioned
upon, among other things, there being delivered prior to the closing to each of
the Company and Sunbelt an opinion of Liddell, Sapp to the effect that the
Consolidations will constitute a reorganization under Section 368(a) of the
Code. SEE "THE CONSOLIDATIONS -- FEDERAL INCOME TAX CONSEQUENCES".
INTEREST RATE RISK
The Company's earnings depend to a great extent on "rate differentials,"
which are the differences between interest income that the Company earns on
loans and investments and the interest expense paid on deposits and other
borrowings. These rates are highly sensitive to many factors which are beyond
the Company's control, including general economic conditions and the policies of
various government and regulatory authorities. Increases in the discount rate by
the Federal Reserve usually lead to rising interest rates, which affect the
Company's interest income, interest expense and investment portfolio. Also,
governmental policies such as the creation of a tax deduction for individual
retirement accounts can increase savings and affect the cost of funds. From time
to time, maturities of assets and liabilities are not balanced, and a rapid
increase or decrease in interest rates could have an adverse effect on the net
interest margin and results of operations of the Company. The nature, timing and
effect of any future changes in federal monetary and fiscal policies on the
Company and its results of operations are not predictable. SEE "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE
COMPANY".
COMPETITION
The banking business is highly competitive, and the profitability of the
Company depends principally upon the Company's ability to compete in the market
areas in which its banking operations are located. The Company competes with
other commercial banks, savings banks, savings and loan associations, credit
unions, finance companies, mutual funds, insurance companies, brokerage and
investment banking firms, asset-based non-bank lenders and certain other
non-financial entities, including retail stores which may maintain their own
credit programs and certain governmental organizations which may offer more
favorable financing than the Company. Many of such competitors may have greater
financial and other resources than the Company. The Company has been able to
compete effectively with other financial institutions by emphasizing customer
service, technology and local office decision-making; by establishing long-term
customer relationships and building customer loyalty; and by providing products
and services designed to address the specific needs of its customers. Although
the Company has been able to compete effectively in the past, no assurances may
be given that the Company will continue to be able to compete effectively in the
future. Various legislative acts in recent years have led to increased
competition among financial institutions. There can be no assurance that the
United States Congress or the Texas Legislature will not enact legislation that
may further increase competitive pressures on the Company. Competition from both
financial and nonfinancial institutions is expected to continue. SEE "THE
COMPANY -- COMPETITION".
REGULATION AND SUPERVISION
Bank holding companies and banks operate in a highly regulated environment
and are subject to extensive supervision and examination by several federal and
state regulatory agencies. The Company is subject to the BHC Act, and to
regulation and supervision by the Federal Reserve. Prime Bank, as a Texas
16
<PAGE> 25
state banking association, is subject to regulation and supervision by the TDB
and, as a result of the insurance of its deposits, by the FDIC. These
regulations are intended primarily for the protection of depositors and
customers, rather than for the benefit of investors. The Company and Prime Bank
are subject to changes in federal and state laws, as well as changes in
regulations and governmental policies, income tax laws and accounting
principles. The effects of any potential changes cannot be predicted but could
adversely affect the business and operations of the Company and Prime Bank in
the future. SEE "SUPERVISION AND REGULATION".
The Federal Reserve has adopted a policy that requires a bank holding
company such as the Company to serve as a source of financial strength to its
banking subsidiaries. The Federal Reserve has required bank holding companies to
contribute cash to their troubled bank subsidiaries based upon this "source of
strength" policy, which could have the effect of decreasing funds available for
distributions to shareholders. In addition, a bank holding company in certain
circumstances could be required to guarantee the capital plan of an
undercapitalized banking subsidiary. SEE "SUPERVISION AND REGULATION".
RESTRICTIONS ON ABILITY TO PAY DIVIDENDS
While the Company has paid cash dividends on the Company Common Stock since
1990, there is no assurance that the Company will pay dividends on the Company
Common Stock in the future. The declaration and payment of dividends on the
Company Common Stock will depend upon the earnings and financial condition of
the Company, liquidity and capital requirements, the general economic and
regulatory climate, the Company's ability to service any equity or debt
obligations senior to the Company Common Stock and other factors deemed relevant
by the Company's Board of Directors. It is the policy of the Federal Reserve
that bank holding companies should pay cash dividends on common stock only out
of income available over the past year and only if prospective earnings
retention is consistent with the organization's expected future needs and
financial condition. The policy provides that bank holding companies should not
maintain a level of cash dividends that undermines the bank holding company's
ability to serve as a source of strength to its banking subsidiaries.
The Company's principal source of funds to pay dividends on the shares of
Company Common Stock will be cash dividends that the Company receives from Prime
Bank. The payment of dividends by Prime Bank to the Company is subject to
certain restrictions imposed by federal and state banking laws, regulations and
authorities. As of December 31, 1997, an aggregate of approximately $25.7
million was available for payment of dividends by Prime Bank to the Company
under applicable restrictions, without regulatory approval. SEE "SUPERVISION AND
REGULATION -- PRIME BANK".
The federal banking statutes prohibit federally insured banks from making
any capital distributions (including a dividend payment) if, after making the
distribution, the institution would be "undercapitalized" as defined by statute.
In addition, the relevant federal regulatory agencies also have authority to
prohibit an insured bank from engaging in an unsafe or unsound practice, as
determined by the agency, in conducting an activity. The payment of dividends
could be deemed to constitute such an unsafe or unsound practice, depending on
the financial condition of Prime Bank. Regulatory authorities could impose
administratively stricter limitations on the ability of Prime Bank to pay
dividends to the Company if such limits were deemed appropriate to preserve
certain capital adequacy requirements. SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY" AND
"SUPERVISION AND REGULATION".
POSSIBLE ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation and Bylaws contain certain
provisions which may delay, discourage or prevent an attempted acquisition or
change of control of the Company. These provisions include: (i) a Board of
Directors classified into three classes of directors with the directors of each
class having staggered, three-year terms, (ii) a provision that any special
meeting of shareholders of the Company may be called only by a majority of the
Board of Directors, the Chairman of the Board, the President, or the holders of
at least 50% of the shares entitled to vote on the matter and that any action
required or permitted to be taken by the Company's shareholders may not be
effected by consent in writing, (iii) a provision establishing certain advance
notice procedures for nomination of candidates for election as directors and for
shareholder proposals
17
<PAGE> 26
to be considered at an annual or special meeting of shareholders and (iv) a
provision that denies shareholders the right to amend the Bylaws of the Company.
The Company's Articles of Incorporation provide for noncumulative voting for
directors and authorize the Board of Directors of the Company to issue shares of
Company Preferred Stock, without shareholder approval and upon such terms as the
Board of Directors may determine. The issuance of Company Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions,
financings and other corporate purposes, could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, a controlling interest in the Company. In addition, certain
provisions of Texas law, including a recently enacted provision which restricts
certain business combinations between a Texas corporation and certain affiliated
shareholders, may delay, discourage or prevent an attempted acquisition or
change in control of the Company. SEE "SUPERVISION AND REGULATION", "DESCRIPTION
OF SECURITIES OF THE COMPANY -- PREFERRED STOCK", AND "-- TEXAS LAW AND CERTAIN
PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS".
POSSIBLY VOLATILITY OF STOCK PRICE
The stock market has from time to time experienced price and volume
volatility. These market fluctuations may be unrelated to the operating
performance of particular companies whose shares are traded and may adversely
affect the market price of the Company Common Stock. There can be no assurance
that the market price of the Company Common Stock will not experience such
volatility.
REGULATION OF CONTROL
Individuals, alone or acting in concert with others, seeking to acquire 10%
or more of any class of voting securities of the Company must comply with the
Change in Bank Control Act, which requires the prior approval of the Federal
Reserve for any such acquisition. Entities seeking to acquire 5% or more of any
class of voting securities of, or otherwise to control, the Company must
generally obtain the prior approval of the Federal Reserve under the BHC Act.
These provisions may delay, prohibit or discourage an attempted acquisition or
change of control of the Company.
18
<PAGE> 27
PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS
The accompanying Unaudited Pro Forma Combined Financial Statements reflect
the Consolidations. The Consolidations are business combinations that will be
accounted for by the Company using the "pooling of interests" method of
accounting. Accordingly: (i) assets and liabilities are recorded at their book
value as they existed on the books of Sunbelt at the time of the Consolidations
(i.e., goodwill is not recorded); (ii) stock issued out of treasury to effect
the Consolidations is recorded on the books of the Company at cost using the
last-in, first-out method; (iii) retained earnings is recorded on the books of
the Company as it existed on the books of Sunbelt at the time of the
Consolidations; (iv) any adjustments necessary to make the balance sheet entry
balance are made through the additional paid-in capital accounts; and (v)
transaction costs, net of tax effect, are to be expensed in the period the
Consolidations' closing date occurs. The Unaudited Pro Forma Combined Balance
Sheet reflects the Consolidations as of December 31, 1997 assuming that the
proposed Consolidations had occurred that date. The Unaudited Pro Forma Combined
Balance Sheet reflects the combination of the historical balance sheets of the
Company as of December 31, 1997 and Sunbelt as of December 31, 1997. The
Unaudited Pro Forma Combined Statements of Earnings reflect the Consolidations
by combining the results of operations of the Company and Sunbelt for the years
ended December 31, 1997, 1996 and 1995, on a pooling of interest basis. The
Unaudited Pro Forma Combined Financial Statements reflect adjustments described
below.
The Unaudited Pro Forma Combined Financial Statements are presented for
illustrative purposes only and do not give effect to any cost savings that may
result from the Consolidations. Differences in accounting policies do not have a
material effect on either the pro forma financial position or pro forma results
of operations and have not been reflected in the Unaudited Pro Forma Combined
Financial Statements. Certain reclassifications have been made to the Sunbelt
financial data to conform with the Company's presentation.
The Unaudited Pro Forma Combined Financial Statements are not necessarily
indicative of the results of operations or financial position that actually
would have occurred had the Consolidations been consummated on the dates
indicated or that may be obtained in the future. These Unaudited Pro Forma
Combined Financial Statements should be read in conjunction with the related
historical financial statements and notes thereto of the Company, which are
incorporated by reference, and of Sunbelt, which are included in this Proxy
Statement/Prospectus.
The pro forma adjustments to the Unaudited Pro Forma Combined Balance Sheet
reflect the issuance of 921,058 shares of Company Common Stock from treasury
stock to effect the Consolidations.
Basic and diluted earnings per common share are based on the weighted
average number of shares of common stock during the periods based on an exchange
ratio of 2.0023 shares of Company Common Stock for each share of Sunbelt Stock.
The weighted average number of shares used to compute basic earnings per common
share was:
<TABLE>
<CAPTION>
PRO FORMA
COMPANY SUNBELT COMBINED
--------- ------- ---------
<S> <C> <C> <C>
Year ended:
December 31, 1995................................ 8,861,000 460,000 9,782,000
December 31, 1996................................ 8,808,000 460,000 9,729,000
December 31, 1997................................ 8,975,000 460,000 9,896,000
</TABLE>
The weighted average number of shares used to compute diluted earnings per
common share was:
<TABLE>
<CAPTION>
PRO FORMA
COMPANY SUNBELT COMBINED
--------- ------- ----------
<S> <C> <C> <C>
Year ended:
December 31, 1995............................... 9,403,000 460,000 10,324,000
December 31, 1996............................... 9,225,000 460,000 10,146,000
December 31, 1997............................... 9,422,000 460,000 10,343,000
</TABLE>
19
<PAGE> 28
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
COMPANY SUNBELT PRO FORMA PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS CONSOLIDATED
------------ ------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents
Cash and due from banks................... $ 18,263 $ 6,905 $ -- $ 25,168
Federal funds sold and other temporary
investments............................. 29,478 13,075 -- 42,553
-------- ------- ------- ----------
Total cash and cash equivalents...... 47,741 19,980 -- 67,721
Securities
Available-for-sale........................ 188,048 899 -- 188,947
Held-to-maturity.......................... 273,387 17,849 -- 291,236
-------- ------- ------- ----------
Total securities..................... 461,435 18,748 -- 480,183
Loans, net..................................... 417,880 51,830 -- 469,710
Premises and equipment, net.................... 15,268 1,716 -- 16,984
Accrued interest receivable.................... 6,747 503 -- 7,250
Other assets................................... 9,289 998 -- 10,287
-------- ------- ------- ----------
Total assets......................... $958,360 $93,775 $ -- $1,052,135
======== ======= ======= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Deposits
Noninterest-bearing....................... $152,154 $27,600 $ -- $ 179,754
Interest-bearing.......................... 712,918 56,807 -- 769,725
-------- ------- ------- ----------
Total deposits....................... 865,072 84,407 -- 949,479
Federal funds purchased and securities sold
under repurchase agreements............... 17,132 -- -- 17,132
Other liabilities.............................. 4,683 2,414 -- 7,097
-------- ------- ------- ----------
Total liabilities.................... 886,887 86,821 -- 973,708
Shareholders' equity
Preferred stock........................... 1,000 -- -- 1,000
Common stock.............................. 3,003 2,300 (2,300) 3,003
Additional capital........................ 9,368 2,300 1,526 13,194
Retained earnings......................... 59,585 2,356 -- 61,941
Net unrealized appreciation (depreciation)
of available-for-sale securities, net of
tax..................................... 772 (2) -- 770
Less common stock held in treasury -- at
cost...................................... 2,255 -- (774) 1,481
-------- ------- ------- ----------
Total shareholders' equity........... 71,473 6,954 -- 78,427
-------- ------- ------- ----------
Total liabilities and shareholders'
equity............................. $958,360 $93,775 $ -- $1,052,135
======== ======= ======= ==========
</TABLE>
20
<PAGE> 29
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA
COMPANY SUNBELT CONSOLIDATED
------- ------- ------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Interest income:
Loans..................................................... $34,343 $5,968 $40,311
Securities................................................ 30,233 1,057 31,290
Other..................................................... 1,462 519 1,981
------- ------ -------
Total interest income....................................... 66,038 7,544 73,582
Interest expense............................................ 30,017 2,621 32,638
------- ------ -------
Net interest income......................................... 36,021 4,923 40,944
Provision for loan losses................................... 825 371 1,196
------- ------ -------
Net interest income after provision for loan losses......... 35,196 4,552 39,748
------- ------ -------
Other noninterest income:
Service charges........................................... 7,045 513 7,558
Other..................................................... 1,911 293 2,204
------- ------ -------
Total noninterest income.................................... 8,956 806 9,762
------- ------ -------
Noninterest expense:
Employee compensation and benefits........................ 16,354 2,733 19,087
Net bank premises expense................................. 1,339 625 1,964
Goodwill amortization..................................... 451 -- 451
Other operating expenses.................................. 8,410 1,251 9,661
------- ------ -------
Total noninterest expense................................... 26,554 4,609 31,163
------- ------ -------
Earnings before income taxes................................ 17,598 749 18,347
Provision for income taxes.................................. 6,235 266 6,501
------- ------ -------
Net earnings................................................ $11,363 $ 483 $11,846
======= ====== =======
Earnings per share:
Basic..................................................... $ 1.19 $ 1.05 $ 1.13
Diluted................................................... $ 1.14 $ 1.05 $ 1.08
</TABLE>
21
<PAGE> 30
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
COMPANY SUNBELT CONSOLIDATED
------- ------- ------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Interest income:
Loans..................................................... $24,673 $5,466 $30,139
Securities................................................ 28,722 769 29,491
Other..................................................... 420 485 905
------- ------ -------
Total interest income....................................... 53,815 6,720 60,535
Interest expense............................................ 23,741 2,148 25,889
------- ------ -------
Net interest income......................................... 30,074 4,572 34,646
Provision for loan losses................................... 1,246 145 1,391
------- ------ -------
Net interest income after provision for loan losses......... 28,828 4,427 33,255
------- ------ -------
Other noninterest income:
Service charges........................................... 6,319 412 6,731
Other..................................................... 1,973 432 2,405
------- ------ -------
Total noninterest income.................................... 8,292 844 9,136
------- ------ -------
Noninterest expense:
Employee compensation and benefits........................ 13,070 1,935 15,005
Net bank premises expense................................. 1,246 539 1,785
Other operating expenses.................................. 8,740 1,322 10,062
------- ------ -------
Total noninterest expense................................... 23,056 3,796 26,852
------- ------ -------
Earnings before income taxes................................ 14,064 1,475 15,539
Provision for income taxes.................................. 4,842 528 5,370
------- ------ -------
Net earnings................................................ $ 9,222 $ 947 $10,169
======= ====== =======
Earnings per share:
Basic..................................................... $ 0.97 $ 2.06 $ 0.97
Diluted................................................... $ 0.92 $ 2.06 $ 0.93
</TABLE>
22
<PAGE> 31
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRO FORMA
COMPANY SUNBELT CONSOLIDATED
------- ------- ------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Interest income:
Loans..................................................... $19,357 $5,553 $24,910
Securities................................................ 34,514 808 35,322
Other..................................................... 1,439 235 1,674
------- ------ -------
Total interest income....................................... 55,310 6,596 61,906
Interest expense............................................ 27,141 2,034 29,175
------- ------ -------
Net interest income......................................... 28,169 4,562 32,731
Provision for loan losses................................... 1,510 107 1,617
------- ------ -------
Net interest income after provision for loan losses......... 26,659 4,455 31,114
------- ------ -------
Other noninterest income:
Service charges........................................... 6,106 436 6,542
Gain on sale of branches.................................. 2,445 -- 2,445
Other..................................................... 1,787 447 2,234
------- ------ -------
Total noninterest income.................................... 10,338 883 11,221
------- ------ -------
Noninterest expense:
Employee compensation and benefits........................ 12,887 1,742 14,629
Net bank premises expense................................. 1,262 314 1,576
Goodwill amortization..................................... 356 -- 350
Other operating expenses.................................. 8,605 1,528 10,133
------- ------ -------
Total noninterest expense................................... 23,110 3,584 26,894
------- ------ -------
Earnings before income taxes................................ 13,887 1,754 15,641
Provision for income taxes.................................. 4,835 623 5,458
------- ------ -------
Net earnings................................................ $ 9,052 $1,131 $10,183
======= ====== =======
Earnings per share:
Basic..................................................... $ 0.94 $ 2.46 $ 0.97
Diluted................................................... $ 0.89 $ 2.46 $ 0.92
</TABLE>
23
<PAGE> 32
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of December 31, 1997, and as adjusted to give effect to the issuance
by the Company of 921,058 shares of Company Common Stock in connection with the
Consolidations.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Shareholders' Equity:
Preferred Stock, $1 par value; 15,000,000 shares
authorized; 1,250,000 shares designated Series B 10%
Non-Cumulative Preferred Stock, 1,000,000 of which are
issued and outstanding................................. $ 1,000 $ 1,000
------- -------
Common Stock, $.25 par value; 50,000,000 shares
authorized; 12,010,980 shares issued and 9,317,020
shares outstanding, 12,010,980 shares issued and
10,238,078 shares outstanding as adjusted(1)........... 3,003 3,003
Additional capital........................................ 9,368 13,194
Retained earnings......................................... 59,585 61,941
Net unrealized appreciation of available-for-sale
securities............................................. 772 770
------- -------
Less common stock held in treasury -- at cost............. 2,255 1,481
------- -------
Total common shareholders' equity................. $70,473 $77,427
------- -------
Total shareholders' equity........................ $71,473 $78,427
======= =======
</TABLE>
- ---------------
(1) Does not include 600,000 shares of Company Common Stock reserved for
issuance upon exercise of options granted under the Company's stock option
plans.
24
<PAGE> 33
RESTRICTIONS ON SALES OF COMPANY COMMON
STOCK BY AFFILIATES OF SUNBELT
The Company Common Stock to be issued to Sunbelt Shareholders in the
Consolidations will be freely transferable, except for shares issued to persons
who control, are controlled by, or are under common control with, Sunbelt (such
persons are referred to hereinafter as "affiliates" and generally include
executive officers, directors, and 10% shareholders) at the time of the Meeting.
Affiliates may not sell shares of Company Common Stock acquired in connection
with the Consolidations, except in compliance with the Securities Act and the
rules and regulations promulgated thereunder.
The directors, executive officers and certain principal shareholders of
Sunbelt have entered into Affiliate Agreements with the Company and Sunbelt
pursuant to which they have agreed, among other things, (i) not to transfer any
of their respective shares of Sunbelt Stock within 30 days prior to the Final
Effective Date, (ii) not to transfer any shares of Company Common Stock acquired
by them in the Consolidations until the publication of financial results
covering at least 30 days of post-Consolidation combined operations of the
Company and Sunbelt, except for shareholder pledges to secure loans, provided
the lender agrees to be bound by the terms of the Affiliate Agreement; and (iii)
not to sell, pledge, transfer or otherwise dispose of any shares of the Company
Common Stock to be acquired in the Consolidations except in a manner which is
consistent with any additional requirements for the Company accounting for the
Consolidations as a pooling of interest, including without limitation any new
requirements imposed by the applicable provisions of the Securities Act, the
Exchange Act and the respective rules and regulations thereunder.
NATURE OF TRADING MARKET AND MARKET PRICES
Company Common Stock is traded on NASDAQ under the symbol "PBTX". As of
December 31, 1997, Company Common Stock was held of record by approximately
1,270 shareholders. The following table sets forth, per share of Company Common
Stock, the high and the low closing stock prices for Company Common Stock for
the periods ended below.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1998
First Quarter (through )...................... $ $
1997
Third Quarter (since September 26, 1997).................. $19.50 $19.00
Fourth Quarter............................................ 20.88 18.25
</TABLE>
On January 2, 1998, the business day before the announcement of the
Consolidations, the closing sale price for Company Common Stock was $20.75 per
share, and on , 1998, the last trading date immediately prior to the
date of this Proxy Statement/Prospectus, the closing sale price for Company
Common Stock was $ per share. Prior to the initial public offering of the
Company Common Stock on September 26, 1997, there was no public market for the
shares of Company Common Stock.
There has been no active public trading market for shares of Sunbelt Stock,
although it is traded infrequently in private transactions about which Sunbelt's
management has little reliable information regarding price.
25
<PAGE> 34
DIVIDEND HISTORY AND POLICIES
The following table sets forth the dividends paid per share of Company
Common Stock and Sunbelt Stock for each period below.
<TABLE>
<CAPTION>
COMPANY
COMMON STOCK SUNBELT STOCK
------------ -------------
<S> <C> <C>
1997
Fourth Quarter......................................... $0.04 $ --
Third Quarter.......................................... 0.03 --
Second Quarter......................................... 0.03 --
First Quarter.......................................... 0.03 --
1996
Fourth Quarter......................................... $0.03 $0.25
Third Quarter.......................................... 0.03 --
Second Quarter......................................... 0.03 --
First Quarter.......................................... 0.03 --
</TABLE>
THE COMPANY
Holders of Company Common Stock are entitled to receive dividends when, as
and if declared by the Company's Board of Directors out of funds legally
available therefor. While the Company has declared dividends on its Common Stock
since 1990 and currently pays quarterly dividends aggregating $0.16 per share
per annum, there is no assurance that the Company will continue to pay dividends
in the future.
The principal source of cash revenues to the Company is dividends paid by
Prime Bank with respect to Prime Bank's capital stock. There are certain
restrictions on the payment of such dividends imposed by federal and state
banking laws, regulations and authorities. SEE "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY" AND
"SUPERVISION AND REGULATION -- PRIME BANK". As of December 31, 1997, an
aggregate of approximately $25.7 million was available for payment of dividends
by Prime Bank to the Company under applicable restrictions, without regulatory
approval. Regulatory authorities could impose administratively stricter
limitations on the ability of Prime Bank to pay dividends to the Company if such
limits were deemed appropriate to preserve certain capital adequacy
requirements.
In the future, the declaration and payment of dividends on the Company
Common Stock will depend upon the earnings and financial condition of the
Company, liquidity and capital requirements, the general economic and regulatory
climate, the Company's ability to service any equity or debt obligations senior
to the Company Common Stock and other factors deemed relevant by the Company's
Board of Directors. SEE "SUPERVISION AND REGULATION", "DESCRIPTION OF SECURITIES
OF THE COMPANY" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE COMPANY".
SUNBELT
Holders of Sunbelt Stock are entitled to receive dividends when, as and if
declared by the Sunbelt Board out of funds legally available therefor. Sunbelt
paid dividends of $0.25 per common share in the fourth quarter of 1995 and 1996.
No other dividends have been paid. There is no assurance that Sunbelt will
continue to pay dividends in the future.
There are certain restrictions on the payment of dividends imposed by
federal banking laws, regulations and authorities. SEE "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SUNBELT" AND
"SUPERVISION AND REGULATION -- SUNBELT".
As of December 31, 1997, an aggregate of approximately $1.3 million was
available for payment of dividends by Sunbelt under applicable restrictions,
without regulatory approval. Regulatory authorities could impose
administratively stricter limitations on the ability of Sunbelt to pay dividends
if such limits were deemed appropriate to preserve certain capital adequacy
requirements.
26
<PAGE> 35
THE MEETING
GENERAL
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors of Sunbelt from the
Shareholders of Sunbelt for use at the Meeting. The Meeting is a special meeting
of the Shareholders of Sunbelt at which the Shareholders will consider the
Consolidations pursuant to the Consolidation Agreement. A complete copy of the
Consolidation Agreement is attached to this Proxy Statement/Prospectus as
EXHIBIT A and incorporated herein by reference.
It is anticipated that proxy solicitation materials will first be mailed to
Shareholders on or about . The Meeting will be held on ,
at p.m., Central Time, at the principal executive offices of
Sunbelt, 1160 Dairy Ashford, Suite 100, Houston, Texas.
SHARES ENTITLED TO VOTE, QUORUM AND VOTE REQUIRED
The holders of record of the outstanding Sunbelt Stock at the close of
business on the Record Date, will be entitled to notice of and to vote at the
Meeting. At the close of business on such date, Sunbelt had issued and
outstanding and entitled to vote at the Meeting 460,000 shares of Sunbelt Stock.
Each holder of Sunbelt Stock will be entitled to one vote for each share of
Sunbelt Stock owned of record on the Record Date. The presence of the holders of
a majority of the Sunbelt Stock, either in person or by proxy, is required to
constitute a quorum at the meeting. The affirmative vote of two-thirds of the
Sunbelt Stock is required to approve the Consolidations. A majority of the
Sunbelt Stock present at the Meeting, either in person or by proxy is required
to approve any other matters that may be properly presented at the Meeting.
Approximately 82.86% of the outstanding Sunbelt Stock, 381,147 shares of Sunbelt
Stock, is subject to the Sunbelt Voting Agreement pursuant to which the Voting
Representatives under the Sunbelt Voting Agreement will vote all of the Sunbelt
Stock subject to the Sunbelt Voting Agreement on all matters to be voted upon by
holders of Sunbelt Stock at the Meeting. The Voting Representatives under the
Sunbelt Voting Agreement have executed a Voting Agreement and Irrevocable Proxy
with the Company whereby they agree to vote the Sunbelt Stock subject to the
Sunbelt Voting Agreement in favor of the Consolidation Agreement at the Meeting.
Therefore, it is expected that the Consolidation Agreement will be approved at
the Meeting. As of the date of this Proxy Statement/Prospectus, the following
persons or entities own beneficially 5% or more of the Sunbelt Stock: Hans Kayem
Estate, B. J. Williams, Thomas W. Ferguson, Jerry R. Cooper, D. C. Daniels and
George A. Wolcott. Approximately 95.5% of the Sunbelt Stock held by these
individuals and entities is subject to the Sunbelt Voting Agreement. SEE
"BENEFICIAL OWNERSHIP OF SUNBELT STOCK BY MANAGEMENT OF SUNBELT AND PRINCIPAL
SHAREHOLDERS". The directors and executive officers of Sunbelt (and certain of
their spouses and related interests) own or otherwise control the right to vote
184,884 shares of Sunbelt Stock, comprising approximately 40.19% of the total
shares of Sunbelt Stock issued and outstanding as of the Record Date. Of the
shares of Sunbelt Stock held by executive officers and directors, 173,706
shares, comprising 37.76% of the total shares of Sunbelt Stock, are subject to
the Sunbelt Voting Agreement. SEE "SUMMARY -- THE MEETING"; THE
CONSOLIDATIONS -- GENERAL"; "THE CONSOLIDATIONS -- ADDITIONAL AGREEMENTS"; AND
"BENEFICIAL OWNERSHIP OF SUNBELT STOCK BY MANAGEMENT OF SUNBELT AND PRINCIPAL
SHAREHOLDERS". The Sunbelt Board recommends that the Shareholders vote in favor
of the Consolidation Agreement. SEE "THE CONSOLIDATIONS -- BACKGROUND AND
REASONS FOR THE CONSOLIDATIONS; RECOMMENDATION OF SUNBELT BOARD".
PROXIES
Proxies, in the form enclosed, which are properly executed by the
Shareholders and returned to Sunbelt and not subsequently revoked, will be voted
at the Meeting in accordance with the directions specified thereon, and
otherwise in accordance with the judgment of the persons designated as proxies.
Any properly executed proxy on which voting instructions are not specified will
be voted in favor of the ratification and approval of the Consolidation
Agreement. A proxy may be revoked at any time before it is voted by giving
written notice to the Secretary of Sunbelt, by execution of a proxy of a later
date filed with the Secretary of Sunbelt at or before the Meeting or by voting
in person at the Meeting.
27
<PAGE> 36
This proxy solicitation is made by the Sunbelt Board. The Company and
Sunbelt are each responsible for their respective expenses incurred in
preparing, assembling, printing, and mailing this Proxy Statement/Prospectus.
Proxies will be solicited through the mail. Additionally, directors, officers,
and regular employees of Sunbelt intend to solicit proxies personally or by
telephone without receiving special compensation therefor. Sunbelt will
reimburse banks, brokers and other custodians, nominees and fiduciaries for
their reasonable expenses in forwarding the proxy materials to beneficial
owners.
THE CONSOLIDATIONS
The following information relating to the Consolidations is not intended to
be a complete description of all information relating to the Consolidations and
is qualified in its entirety by reference to more detailed information contained
elsewhere in this Proxy Statement/Prospectus, including the Exhibits hereto and
the documents referred to herein or incorporated herein by reference. A copy of
the Consolidation Agreement is included as Exhibit A, and is incorporated herein
by reference. All Shareholders of Sunbelt are urged to read the Consolidation
Agreement in its entirety.
GENERAL
The Consolidation Agreement provides for the First Consolidation of Sunbelt
with New Bank and immediately thereafter, the Final Consolidation of Sunbelt
with Prime Bank. Prime Bank will be the surviving entity in the Final
Consolidation and the separate existence of Sunbelt will cease. SEE
"SUMMARY -- THE CONSOLIDATIONS"; AND EXHIBIT A.
The Consolidations will be effective as soon as practicable following the
receipt of all necessary regulatory approvals and the satisfaction of all
conditions to the consummation of the Consolidations. At the First Effective
Time, by operation of law, holders of Sunbelt Stock (other than those
shareholders who perfect their dissenters' rights of appraisal) will become
owners of Company Common Stock and will no longer be owners of Sunbelt Stock.
After the First Effective Date, all certificates for Sunbelt Stock will
represent the right to receive Company Common Stock pursuant to the
Consolidation Agreement, but otherwise will be null and void after such date.
SEE "SUMMARY -- THE CONSOLIDATIONS"; "THE CONSOLIDATIONS -- DISSENTERS' RIGHTS
OF APPRAISAL AND RELATED ISSUES"; EXHIBIT B AND EXHIBIT C.
CONSOLIDATION CONSIDERATION
At the First Effective Date and upon and by reason of the First
Consolidation becoming effective, each share of Sunbelt Stock issued and
outstanding immediately prior to the First Effective Date, excluding Dissenting
Shares, and any and all rights arising out of ownership of such Sunbelt Stock
shall, without any action on the part of the holder thereof, be converted into
the right to receive 2.0023 shares of Company Common Stock subject to adjustment
pursuant to the Consolidation Agreement. The Company shall not issue any
certificates for fractional shares of Company Common Stock in connection with
the Consolidations. In lieu of issuing fractional shares, the Company shall pay
cash for such fractional shares in an amount based on the closing bid price of a
share of Company Common Stock as listed on the NASDAQ on the date prior to the
Final Effective Date.
The Consolidation Agreement provides that the number of shares of Company
Common Stock to be received by holders of Sunbelt Stock will be adjusted as
follows:
(a) In the event that one-half of any net earnings of Sunbelt, from
January 1, 1998 through the end of the month prior to the month in which
the Final Effective Date occurs, exceed an amount calculated by multiplying
(i) the difference between the average closing bid and asked prices of
Company Common Stock as quoted on NASDAQ for the twenty (20) trading days
immediately preceding the fifth calendar day prior to the Final Effective
Date (the Average Price) (provided that such Average Price is greater than
$19.00) and $19.00 by (ii) 920,000 (the Net Earnings Difference), the
aggregate number of shares of Company Common Stock to be paid to
Shareholders of Sunbelt on the Effective Date shall be increased by
dividing such Net Earnings Difference by the Average Price; and
28
<PAGE> 37
(b) If the Average Price of the Company Common Stock is $22.00 or
greater, the aggregate number of shares of Company Common Stock into which
shares of Sunbelt Stock will be converted on the First Effective Date shall
be decreased by (i) subtracting $20,240,000 from 920,000 multiplied by the
Average Price and (ii) dividing that difference by the Average Price.
SHAREHOLDER APPROVAL
The Consolidation Agreement must be approved by the affirmative vote of the
holders of two-thirds of the outstanding shares of Sunbelt Stock entitled to
vote at the Meeting. Approximately 82.86% of the outstanding Sunbelt Stock,
381,147 shares of Sunbelt Stock, is subject to the Sunbelt Voting Agreement
pursuant to which the Voting Representatives under the Sunbelt Voting Agreement
will vote all of the Sunbelt Stock subject to the Sunbelt Voting Agreement on
all matters to be voted upon by holders of Sunbelt Stock. The Voting
Representatives under the Sunbelt Voting Agreement have executed a Voting
Agreement and Irrevocable Proxy with the Company whereby they agree to vote the
Sunbelt Stock subject to the Sunbelt Voting Agreement in favor of the
Consolidation Agreement at the Meeting. Therefore, it is expected that the
Consolidation Agreement will be approved at the Meeting. As of the date of this
Proxy Statement/Prospectus, the following persons or entities own beneficially
5% or more of the Sunbelt Stock: Hans Kayem Estate, B. J. Williams, Thomas W.
Ferguson, Jerry R. Cooper, D. C. Daniels and George A. Wolcott. Approximately
95.5% of the Sunbelt Stock held by these individuals and entities is subject to
the Sunbelt Voting Agreement. SEE "BENEFICIAL OWNERSHIP OF SUNBELT STOCK BY
MANAGEMENT OF SUNBELT AND PRINCIPAL SHAREHOLDERS". The directors and executive
officers of Sunbelt (and certain of their spouses and related interests) own or
otherwise control the right to vote 184,884 shares of Sunbelt Stock, comprising
approximately 40.19% of the total shares of Sunbelt Stock issued and outstanding
as of the Record Date. Of the shares of Sunbelt Stock held by executive officers
and directors, 173,706 shares, comprising 37.76% of the total shares of Sunbelt
Stock, are subject to the Sunbelt Voting Agreement. SEE "SUMMARY -- THE
MEETING"; "THE CONSOLIDATIONS -- OTHER TERMS AND CONDITIONS"; AND EXHIBIT A.
The Company is expected to approve the Consolidation Agreement as the sole
shareholder of New Bank and the Delaware Company is expected to approve the
Consolidation Agreement as the sole shareholder of Prime Bank.
BACKGROUND AND REASONS FOR THE CONSOLIDATIONS; RECOMMENDATION OF SUNBELT BOARD
Prior to entering into the Consolidation Agreement, the Sunbelt Board
considered potential business combinations with other banking companies. In
reaching its determination to enter into the Agreement, the Sunbelt Board
consulted with its legal advisors and considered a number of factors including,
but not limited to, the following: (i) the prices received by Sunbelt
Shareholders, including how the price to be received related to prices received
by other comparable banking organizations, (ii) the increased investment
liquidity that the receipt of Company Common Stock would provide to Sunbelt
Shareholders, (iii) the financial condition and future prospects for the
Company, (iv) the prospects for Sunbelt continuing to operate as an independent
community banking organization, including the increasing competitive and
regulatory burdens and technological challenges facing community banks, (v) the
tax-free nature of the exchange of Sunbelt Stock for shares of Company Common
Stock, (vi) the potential for increased dividends, and (vii) the non-economic
terms of the Consolidations. In connection with its deliberations and
discussion, the Sunbelt Board did not assign any specific weights to these or
any other factors. For the reasons set forth above, the Sunbelt Board
unanimously approved the Consolidation Agreement and recommends approval thereof
by Sunbelt Shareholders. SEE "SUMMARY -- THE CONSOLIDATIONS".
The Company has considered expansion opportunities in West Houston.
Acquiring Sunbelt will allow the Company to expand and strengthen its presence
in West Houston and will also result in some economies of scale.
Following arm's length negotiations between representatives of the Company
and Sunbelt, the Consolidation Agreement was executed on December 30, 1997. The
aggregate price to be paid to the holders of Sunbelt Stock resulted from
negotiations which considered the historical earnings and dividends of Sunbelt
and the
29
<PAGE> 38
Company, the earnings potential and deposit base of Sunbelt, potential growth in
Sunbelt's market, Sunbelt's asset quality and the effect of the Consolidations
on the shareholders, customers and employees of Sunbelt and the Company. SEE
"SUMMARY -- THE CONSOLIDATIONS".
Subject to satisfaction of certain conditions contained in the
Consolidation Agreement, the Sunbelt Board believes the Consolidations to be
fair and in the best interest of Sunbelt's Shareholders. THE SUNBELT BOARD
UNANIMOUSLY RECOMMENDS THAT THE SUNBELT SHAREHOLDERS VOTE FOR APPROVAL OF THE
CONSOLIDATION AGREEMENT and has authorized consummation of the Consolidations,
subject to approval of Sunbelt Shareholders, federal and state bank regulators
and the satisfaction of certain other conditions. SEE "SUMMARY -- THE
CONSOLIDATIONS".
OPERATIONS AFTER THE CONSOLIDATIONS
Immediately following the First Consolidation, Sunbelt, as the survivor of
the First Consolidation will consolidate with Prime Bank in the Final
Consolidation. Following the Final Consolidation, the separate existence of
Sunbelt will cease, and Prime Bank will continue as the surviving entity.
OTHER TERMS AND CONDITIONS
The Consolidation Agreement contains a number of terms, conditions,
representations and covenants which must be satisfied as of the Closing Date,
including, but not limited to, the following:
(i) The receipt of regulatory approvals, which approvals shall not
have imposed any restrictions which are unacceptable in the judgment of the
Company, and the expiration of any applicable waiting periods with respect
thereto. SEE "THE CONSOLIDATIONS -- REGULATORY APPROVALS";
(ii) The consummation of the Consolidations will not violate any
injunction, order or decree of any court or governmental body having
competent jurisdiction;
(iii) The approval of the Consolidation Agreement by Sunbelt
Shareholders entitled to vote at the Meeting;
(iv) The Registration Statement relating to the Company Common Stock
shall be effective under the Securities Act of 1933, as amended
("Securities Act") and any applicable state securities or blue sky laws and
no stop order suspending the effectiveness of the Registration Statement
shall be in effect;
(v) All representatives and warranties of Sunbelt and the Company
shall be true and correct in all material respects as of the date of the
Consolidation Agreement and at and as of the date of the closing of the
Consolidations ("Closing Date");
(vi) Sunbelt and the Company shall have complied with all covenants
and conditions contained in the Consolidation Agreement to be performed or
complied with by them prior the Closing Date;
(vii) The directors and officers of Sunbelt shall have delivered to
the Company an instrument dated as of the Final Effective Date releasing
Sunbelt from any and all claims of such directors and officers (except as
to their deposits and accounts and any rights of indemnification pursuant
to the Articles of Association of Sunbelt) and shall have delivered to the
Company their resignations as directors of Sunbelt;
(viii) The Company and Sunbelt shall have received the opinions of
counsel to the Company and Sunbelt acceptable to them as to certain
matters;
(ix) The holders of no more than 5% of Sunbelt Stock shall have
demanded or be entitled to demand payment of the fair value of their shares
as dissenting shareholders;
(x) The Company shall have received a letter from Grant Thornton, LLP,
dated as of the Final Effective Date, to the effect that the Consolidations
will qualify for pooling-of-interests accounting treatment if closed and
consummated in accordance with the Consolidation Agreement;
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(xi) The Company shall have received a letter from Harper & Pearson
Company, to the effect that Harper & Pearson Company knows of no reason why
the Consolidations will not qualify for pooling-of-interests accounting
treatment if consummated in accordance with the Consolidation Agreement.
(xii) The Company and Sunbelt shall have received an opinion of
counsel that the Consolidations will qualify as a tax-free exchange to
Sunbelt Shareholders under Section 368(a) of the Code; SEE "SUMMARY -- THE
CONSOLIDATIONS" AND "THE CONSOLIDATIONS -- FEDERAL INCOME TAX
CONSEQUENCES";
(xiii) Sunbelt and its subsidiaries shall have delivered to the
directors of Sunbelt an instrument dated the Final Effective Date releasing
such directors from any and all claims of Sunbelt (except as to
indebtedness or other contractual liabilities); provided, however, that
such releases shall not release an action against such directors by the
Company or Prime Bank in connection with the transactions contemplated by
the Consolidation Agreement; and
(xiv) The Company and Sunbelt shall have received certificates of the
other as to certain items described above.
Any condition to the consummation of the Consolidations, except the
required shareholder and regulatory approvals, may be waived in writing by the
party to the Consolidation Agreement entitled to the benefit of such condition.
SEE EXHIBIT A.
NO SOLICITATION
Pursuant to the Consolidation Agreement, and for so long as the
Consolidation Agreement is in effect, neither Sunbelt nor any of its directors
or officers may entertain, solicit or encourage any inquiries, or provide any
information to or negotiate with any other party any proposal which could
reasonably be expected to lead to the merger, consolidation, acquisition, or
sale of all or substantially all of the assets or any shares of capital stock of
Sunbelt. Sunbelt has also agreed to notify the Company immediately of any such
unsolicited acquisition proposals and provide reasonable details as to the
identify of the proposed acquiror and the nature of the proposed transaction.
ADDITIONAL AGREEMENTS
Voting Agreements. Approximately 82.86% of the outstanding Sunbelt Stock,
381,147 shares of Sunbelt Stock, is subject to the Sunbelt Voting Agreement
pursuant to which the Voting Representatives under the Sunbelt Voting Agreement
will vote all of the Sunbelt Stock subject to the Sunbelt Voting Agreement on
all matters to be voted upon by holders of Sunbelt Stock. The Voting
Representatives under the Sunbelt Voting Agreement have executed a Voting
Agreement and Irrevocable Proxy with the Company whereby they agree to vote the
Sunbelt Stock subject to the Sunbelt Voting Agreement in favor of the
Consolidation Agreement at the Meeting. Therefore, it is expected that the
Consolidation Agreement will be approved at the Meeting.
Employment Agreement. B. J. Williams and Prime Bank have entered into an
employment agreement whereby Mr. Williams will be employed by Prime Bank for a
period of three years after the Consolidations. Mr. Williams' base salary under
the employment agreement will be $10,416.07 per month. Mr. Williams will also
receive $975 each month in the form of an automobile allowance. In addition, Mr.
Williams shall be entitled to such benefits as are made generally available to
employees of equal title and base salary on the same basis as Prime Bank makes
such benefits available to Prime Bank's other employees, including participation
in Prime Bank's retirement plan. The employment agreement with Mr. Williams also
includes provisions which prohibit Mr. Williams from soliciting the business of
Prime Bank or competing with Prime Bank within a ten-mile radius of Sunbelt's
current offices. In exchange for the noncompetition provisions, Prime Bank will
pay Mr. Williams $175,000 in three annual installments of $58,333.33.
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Affiliate Agreements. The directors, executive officers and certain
principal shareholders of Sunbelt have entered into Affiliate Agreements with
the Company and Sunbelt pursuant to which they have agreed, among other things,
(i) not to transfer any of their respective shares of Sunbelt Stock within 30
days prior to the Final Effective Date, (ii) not to transfer any shares of
Company Common Stock acquired by them in the Consolidations until the
publication of financial results covering at least 30 days of post-Consolidation
combined operations of the Company and Sunbelt, except for shareholder pledges
to secure loans, provided the lender agrees to be bound by the terms of the
Affiliate Agreement; and (iii) not to sell, pledge, transfer or otherwise
dispose of any shares of the Company Common Stock to be acquired in the
Consolidations except in a manner which is consistent with any additional
requirements for the Company accounting for the Consolidations as a pooling of
interest, including without limitation any new requirements imposed by the
applicable provisions of the Securities Act, the Exchange Act and the respective
rules and regulations thereunder.
BUSINESS PENDING EFFECTIVE TIME
The Consolidation Agreement imposes certain limitations on the conduct of
Sunbelt's business pending consummation of the Consolidations. Among other
things, Sunbelt must conduct its businesses only in the ordinary course,
consistent with prudent banking practices. SEE "THE CONSOLIDATIONS -- OTHER
TERMS AND CONDITIONS"; AND EXHIBIT A.
EMPLOYEE BENEFITS
Pursuant to the Consolidation Agreement, the employees of Sunbelt who are
bona fide participants in any of Sunbelt's health and welfare plans and who are
not terminated by Prime Bank will be entitled to participate in all employee
health and welfare plans maintained for employees of the Company and Prime Bank
in accordance with the terms of such plans. All employees of Sunbelt retained by
the Company or Prime Bank will receive credit for their prior service with
Sunbelt with respect to such plans. SEE EXHIBIT A.
EMPLOYEE SEVERANCE
The Consolidation Agreement provides for severance payments to employees of
Sunbelt as follows:
(a) To the extent that the Company, within the 180-day period
commencing on the Final Effective Date, terminates, for any reason other
than "good cause" as defined in Section 5.11(c) of the Consolidation
Agreement, Mark Aderman, Shirley Collette or Annette Laird without
providing at least four months prior notice, the Company is required to pay
such employee a lump sum severance payment, based on such employee's base
monthly 1997 salary, equal to the difference between four months and the
actual termination notice time period given.
(b) To the extent that the Company, within the 90-day period
commencing on the Final Effective Date, terminates, for any reason other
than "good cause" as defined in Section 5.11(c) of the Consolidation
Agreement, any other employee of Sunbelt without providing at least two
months prior notice, the Company is required to pay such employee a lump
sum severance payment, based on such employee's base monthly 1997 salary,
equal to the difference between two months and the actual termination
notice time period given. SEE EXHIBIT A.
AMENDMENT
The Consolidation Agreement may be amended only by a writing signed by the
Company, Delaware Company, Prime Bank and Sunbelt at any time prior to the
Closing Date; provided, however, that the Consolidation Consideration to be
received by the Shareholders of Sunbelt pursuant to this Consolidation Agreement
shall not be decreased subsequent to the approval of the transactions
contemplated by the Consolidation Agreement without the further approval by such
Shareholders. SEE EXHIBIT A.
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TERMINATION
The Consolidation Agreement may be terminated and the Consolidations
abandoned, notwithstanding approval of Sunbelt Shareholders, at any time prior
to the Final Effective Date by:
(a) The Company, Delaware Company, Prime Bank or Sunbelt if (i) any
court of competent jurisdiction in the United States or other United States
(federal or state) governmental body shall have issued an order, decree or
ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Consolidations and such order, decree, ruling or other
action shall have been final and non-appealable, (ii) any of the
transactions contemplated by the Consolidation Agreement are disapproved by
any regulatory authority or other person whose approval is required to
consummate any of such transactions, or (iii) the Consolidations shall not
have become effective on or before June 30, 1998 or such later date as
shall have been approved in writing by the Boards of Directors of the
Company, Prime Bank and Sunbelt; provided, however, that the right to
terminate under this section of the Consolidation Agreement shall not be
available to any party whose failure to fulfill any material obligation
under the Consolidation Agreement has been the cause of, or has resulted
in, the failure of the Consolidations to become effective on or before such
date.
(b) Sunbelt if (i) the Company, Delaware Company or Prime Bank fails
to comply in any material respect with any of its covenants or agreements
contained in the Consolidation Agreement, or if any of the representations
or warranties of the Company, Delaware Company or Prime Bank are defective
in any material respect or (ii) there shall have been any change after
September 30, 1997 in the assets, properties, business or financial
condition of the Company, Delaware Company or Prime Bank which individually
or in the aggregate have materially and adversely affected the ability of
the Company to pay the Consolidation Consideration. In the event Sunbelt
desires to terminate the Consolidation Agreement as provided above, Sunbelt
must notify the Company in writing of its intent to terminate stating the
reason therefor. The Company shall have fifteen days from the receipt of
such notice to cure, or cause Delaware Company or Prime Bank to cure, the
alleged breach or inaccuracy, subject to the approval of Sunbelt (which
approval shall not be unreasonably delayed or withheld).
(c) The Company, Delaware Company or Prime Bank if (i) Sunbelt fails
to comply in any material respect with any of its covenants or agreements
contained in the Consolidation Agreement, or if any of the representations
or warranties of Sunbelt are defective in any material respect, (ii) there
shall have been any change after September 30, 1997, in the assets,
properties, business or financial condition of Sunbelt which individually
or in the aggregate have materially and adversely affected the financial
condition, results of operation or business of Sunbelt, or (iii) the
Company reasonably concludes, in its sole discretion, that either the
Company, Delaware Company, Prime Bank or New Bank will be unable to obtain
any regulatory approval required in order to consummate the Consolidations
or any such approval is accompanied by terms or conditions unacceptable to
the Company or Prime Bank. In the event the Board of Directors of the
Company desires to terminate the Consolidation Agreement because of an
alleged breach, inaccuracy or change as provided in (i) or (ii) above, the
Company, Delaware Company or Prime Bank must notify Sunbelt in writing of
its intent to terminate stating the cause therefor. Sunbelt shall have
fifteen days from the receipt of such notice to cure the alleged breach,
inaccuracy or change, subject to the approval of the Company (which
approval shall not be unreasonably delayed or withheld).
(d) The mutual written consent of the Company, Delaware Company, Prime
Bank and Sunbelt and the approval of such action by their respective Boards
of Directors.
(e) Sunbelt, if the Average Price is $17.50 or less, provided that, if
Sunbelt elects to exercise its termination right pursuant to this section
of the Consolidation Agreement, it shall give prompt written notice to the
Company within two (2) business days after the calculation of the Average
Price, and within the two (2) business day period commencing with the
receipt of such notice, the Company shall have the option of increasing the
aggregate number of shares of Company Common Stock into which shares of
Sunbelt Stock will be converted into on the First Effective Date by (i)
subtracting the Average Price multiplied by 920,000 from $16,100,000 and
(ii) dividing the difference by the Average Price. SEE EXHIBIT A.
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EXPENSES
Whether or not the Consolidations are consummated, each party to the
Consolidation Agreement will pay its respective expenses incurred in connection
with the preparation and performance of its obligations under the Consolidation
Agreement. Similarly, each party agrees to indemnify the other parties against
any cost, expense or liability (including reasonable attorneys' fees) in respect
of any claim made by any party for a broker's or finder's fee in connection with
the Consolidations other than one based on communications between the party and
the claimant seeking indemnification. The Company and Sunbelt have represented
and warranted to each other that neither of them, nor any of their agents,
employees or representatives, has incurred any liability for any commissions or
brokerage fees in connection with the Consolidations. SEE EXHIBIT A.
TERMINATION FEE
Notwithstanding the provision that each party will bear its own expenses,
the Consolidation Agreement provides that Sunbelt shall pay the Company a fee
(the "Fee") upon the occurrence of a Purchase Event (as defined herein) so long
as the Purchase Event occurs prior to a Fee Termination Event (as defined
herein). The Fee shall equal the aggregate consideration paid or to be paid to
Shareholders of Sunbelt which exceeds the aggregate Consolidation Consideration
set forth in Section 1.9 of the Consolidation Agreement plus all out of pocket
expenses incurred by the Company or Prime Bank in connection with the
transactions set forth in the Consolidation Agreement. Such payment shall be
made to the Company in immediately available funds within five business days
after the occurrence of a Purchase Event. In the event that the consideration to
be paid from the transaction giving rise to the Purchase Event is other than
cash or publicly traded securities, the Fee shall be paid as determined in
Section 11.3(e) of the Consolidation Agreement. A Fee Termination Event shall be
the first to occur of the following: (i) the Final Effective Date, (ii) 18
months following the first occurrence of a Purchase Event (as defined herein),
or (iii) termination of the Consolidation Agreement in accordance with the terms
hereof prior to the occurrence of a Purchase Event (other than a termination of
the Consolidation Agreement by the Company hereof as a result of a willful
material breach of any representation, warranty, covenant or agreement of
Sunbelt).
The term "Purchase Event" shall mean any of the following events or
transactions occurring after the date hereof:
(a) Sunbelt, without having received the Company prior written
consent, shall have entered into an agreement to engage in an Acquisition
Transaction (as defined below) with any person (the term "person" for
purposes of the Consolidation Agreement having the meaning assigned thereto
in Section 3(a)(9) and 13(d)(3) of the Exchange Act and the rules and
regulations thereunder) other than the Company or any affiliate of the
Company (the term "affiliate" for purposes of the Consolidation Agreement
having the meaning assigned thereto in Rule 405 under the Securities Act)
or the Board of Directors of Sunbelt shall have recommended that the
Shareholders of Sunbelt approve or accept any Acquisition Transaction with
any person other than the Company or any affiliate of the Company. For
purposes of the Consolidation Agreement, "Acquisition Transaction" shall
mean (i) a merger or consolidation, or any similar transaction, involving
Sunbelt, (ii) a purchase, lease or other acquisition of all or
substantially all of the assets of Sunbelt, or (iii) a sale of authorized
but unissued securities representing 15% or more of the voting power of
Sunbelt.
(b) Any person other than the Company or any affiliate of the Company,
other than in connection with a transaction to which the Company has given
its prior written consent, shall have consummated any proposed transaction
or series of transactions involving or affecting Sunbelt or any securities
or assets of Sunbelt that results in an acquisition of control of Sunbelt
within the meaning of 12 USCA sec.1817(j) or the regulations promulgated
thereunder; or
(c) After a bona fide proposal is made by any person other than the
Company or any affiliate of the Company to Sunbelt or its Shareholders to
engage in an Acquisition Transaction, Sunbelt shall have breached any
covenant or obligation contained in the Consolidation Agreement and such
breach would entitle the Company to terminate the Consolidation Agreement,
a meeting of the Shareholders to vote on
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the Consolidation Agreement shall not have been held or shall have been
canceled prior to termination of the Consolidation Agreement or the Sunbelt
Board shall have withdrawn or modified in a manner adverse to the Company
the recommendation of the Sunbelt Board with respect to the Consolidation
Agreement.
Sunbelt is required to promptly give written notice to the Company of the
occurrence of a Purchase Event known to Sunbelt.
If the consideration to be offered, paid or received pursuant to a Purchase
Event described in herein is other than in cash or publicly traded securities,
the value of such consideration shall be determined in good faith by an
independent nationally recognized investment banking firm selected by the
Company and reasonably acceptable to Sunbelt, which determination shall be
conclusive for all purposes of the Consolidation Agreement.
The payment of the Fee shall be in lieu of the Company, Delaware Company or
Prime Bank seeking any other relief or damages to which it is otherwise entitled
pursuant to the Consolidation Agreement. SEE EXHIBIT A.
EXCHANGE OF SHARES
Prior to the Final Effective Date, the Company will deposit or cause to be
deposited in trust with American Securities Transfer and Trust, Inc., Denver,
Colorado (the "Exchange Agent") cash in an aggregate amount estimated to be
sufficient to make the cash payments in lieu of fractional shares of the Company
Common Stock and to make the appropriate cash payments, if any, to holders of
Dissenting Shares (such amounts being hereinafter referred to as the "Exchange
Fund"). The Exchange Agent shall promptly make the payments in lieu of
fractional shares out of the Exchange Fund upon surrender of such shares.
Payments to holders of Dissenting Shares shall be made as required by the
National Bank Act. The Exchange Fund shall not be used for any other purpose,
except as provided in the Consolidation Agreement.
Promptly after the Final Effective Date, the Exchange Agent shall mail to
each record holder of an outstanding certificate or certificates which as of the
Final Effective Date represented shares of Sunbelt Stock (the "Certificates"), a
form letter of transmittal which will specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon proper
delivery of the Certificates to the Exchange Agent and contain instructions for
use in effecting the surrender of the Certificates for payment therefor. Upon
surrender to the Exchange Agent of a Certificate, together with such letter of
transmittal duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor the amount of cash and number of shares of Company
Common Stock provided in the Consolidation Agreement, and such Certificate shall
forthwith be canceled. The Company shall provide the Exchange Agent with
certificates for Company Common Stock, as requested by the Exchange Agent, in
the amounts provided in Section 1.9 of the Consolidation Agreement.
No interest will be paid or accrued on the cash payable upon surrender of
the Certificates. If payment or delivery of Company Common Stock is to be made
to a person other than the person in whose name the Certificate surrendered is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment and delivery of Company Common Stock to
a person other than the registered holder of the Certificate surrendered or
established to the satisfaction of the Company that such tax has been paid or is
not applicable.
Upon the First Effective Date, former Sunbelt Shareholders will cease to
have any rights as Shareholders of Sunbelt. Until surrendered in accordance with
the provisions of the Consolidation Agreement, each Certificate (other than
Certificates representing Dissenting Shares) shall represent only the right to
receive the Consolidation Consideration, without any interest thereon.
Former Shareholders of Sunbelt shall be entitled to vote after the Final
Effective Date at any meeting of the Company's shareholders the number of shares
of Company Common Stock into which their shares are converted, regardless of
whether such shareholders have exchanged their Certificates. Immediately after
the
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Final Effective Date, Shareholders of Sunbelt shall be entitled to any dividends
with respect to shares of Company Common Stock received by them in the
Consolidations, provided that no dividend will be disbursed with respect to the
shares of Company Common Stock until the holder's shares are surrendered in
exchange therefor.
Any portion of the Exchange Fund (including the proceeds of any investments
thereof) that remains unclaimed by the Shareholders of Sunbelt for six months
after the Final Effective Date shall be paid to the Company, and the holders of
shares of Sunbelt Stock not theretofore presented to the Exchange Agent shall
look to the Company only, and not the Exchange Agent, for the payment of any
Consolidation Consideration in respect of such shares. SEE EXHIBIT A.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general summary of certain United States
federal income tax consequences of the Consolidations. This discussion is based
upon the Code, regulations promulgated by the United States Treasury Department,
judicial authorities, and current rulings and administrative practice of the
Service in each case as in effect as of the date hereof and all of which are
subject to change at any time, possibly with retroactive effect. For purposes of
this discussion, it is assumed that shares of Sunbelt Stock are held as "capital
assets" within the meaning of Section 1221 of the Code (i.e., property held for
investment). This discussion does not address all aspects of federal income
taxation that might be relevant to particular holders of Sunbelt Stock in light
of their status or personal investment circumstances; nor does it discuss the
consequences to such holders who are subject to special treatment under the
federal income tax laws such as foreign persons, dealers in securities,
regulated investment companies, life insurance companies, other financial
institutions, tax-exempt organizations, pass-through entities, taxpayers who
hold Sunbelt Stock as part of a "straddle," "hedge" or "conversion transaction"
or who have a "functional currency" other than the United States dollar or to
persons who have received their Sunbelt Stock as compensation. Further, this
discussion does not address the state, local or foreign tax consequences of the
Consolidations.
The Consolidations are intended to qualify as a reorganization under
Section 368(a) of the Code. It is a condition to the obligations of the Company
and Sunbelt to consummate the Consolidations that the Company and Sunbelt shall
have received an opinion from Liddell, Sapp to the effect that, for federal
income tax purposes, (i) the Consolidations will constitute a reorganization
within the meaning of Section 368(a)(1)(A) of the Code, (ii) no gain or loss
will be recognized by holders of Sunbelt Stock upon receipt of the Company
Common Stock except for cash received in lieu of fractional shares, (iii) the
aggregate tax basis of the Company Common Stock received by a Shareholder of
Sunbelt will be the same as the aggregate basis of Sunbelt Stock surrendered in
exchange therefor, and (iv) the holding period of the Company Common Stock to be
received by each Sunbelt Shareholder will include the period during which the
shareholder held the Sunbelt Stock surrendered in exchange therefor, provided
that the Sunbelt Stock is held as a capital asset on the date of the exchange.
This opinion will be rendered in reliance upon certain assumptions and
representations made by officers and shareholders of Sunbelt and officers of the
Company, Prime Bank and New Bank. An opinion of counsel represents counsel's
best legal judgment, but has no binding effect or official status of any kind,
and no assurance can be given that contrary positions will not be taken by the
Service or a court considering the issues. Neither Sunbelt nor the Company has
requested or will receive a ruling from the Service as to the tax consequences
of the Consolidations.
Assuming the Consolidations are treated as a reorganization within the
meaning of Section 368(a) of the Code, the Consolidations will result in the
following federal income tax consequences to the Sunbelt Shareholders:
(a) No gain or loss will be recognized by a Shareholder upon the
exchange of his Sunbelt Stock in the Consolidations solely for the Company
Common Stock, except that gain or loss will be recognized by a Shareholder
on the receipt of cash in lieu of fractional shares.
(b) A Shareholder's aggregate tax basis in the shares of the Company
Common Stock received pursuant to the Consolidations in exchange for
Sunbelt Stock will be equal to the aggregate tax basis of
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the shares of Sunbelt Stock surrendered in exchange therefor (decreased by
the amount of any tax basis allocable to fractional shares of the Company
Common Stock for which cash is received).
(c) Each Shareholder will include in his holding period for the
Company Common Stock received in the Consolidations the holding period of
the shares of Sunbelt Stock surrendered in exchange therefor; provided that
the Sunbelt Stock is held as a capital asset on the date of the exchange.
(d) A Shareholder who receives cash in lieu of a fractional share
interest in the Company Common Stock in the Consolidations will be treated
for federal income tax purposes as if the fractional share of the Company
Common Stock had been received and then redeemed for cash and will
recognize a capital gain or loss in an amount equal to the difference
between the cash received and the proportionate part of the aggregate
federal income tax basis of such Shareholder's Sunbelt Stock allocable to
such fractional share interest, unless such payment, under each such
Shareholder's particular facts and circumstances, is deemed to have the
effect of a dividend distribution and not a redemption treated as an
exchange under the principles of Section 302 of the Code.
(e) A Shareholder who exercises the right to dissent in connection
with the Consolidations and receives only cash in exchange for such
Shareholder's Sunbelt Stock will be treated as having received such cash as
a distribution in redemption of such Shareholder's Sunbelt Stock and will
recognize a capital gain or loss equal to the difference between the amount
of cash received and the adjusted basis of such Shareholder's Sunbelt
Stock, unless such payment, under each such Shareholder's particular facts
and circumstances, is deemed to have the effect of a dividend distribution
and not a redemption treated as an exchange under the principles of Section
302 of the Code.
THE FOREGOING IS A SUMMARY DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE CONSOLIDATIONS. THE DISCUSSION IS INCLUDED FOR GENERAL INFORMATION
PURPOSES ONLY AND MAY NOT APPLY TO A PARTICULAR SUNBELT SHAREHOLDER IN LIGHT OF
SUCH SHAREHOLDER'S PARTICULAR CIRCUMSTANCES. SUNBELT SHAREHOLDERS SHOULD CONSULT
THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE
CONSOLIDATIONS, INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS
AND POSSIBLE FUTURE CHANGES IN FEDERAL INCOME TAX LAWS AND THE INTERPRETATION
THEREOF, WHICH CAN HAVE RETROACTIVE EFFECTS. SEE EXHIBIT A.
DISSENTERS RIGHTS OF APPRAISAL AND RELATED ISSUES
Holders of shares of Sunbelt Stock have a statutory right to dissent from
the First Consolidation by following the specific procedures set forth below. If
the First Consolidation is approved and consummated, holders of shares of
Sunbelt Stock who properly perfect their dissenters' rights will be entitled to
receive an amount of cash equal to the fair value of their shares of Sunbelt
Stock rather than being required to accept the consideration therefor provided
in the Consolidation Agreement. The following summary is not a complete
statement of the statutory dissenters' rights of appraisal, and such summary is
qualified in its entirety by reference to the applicable provisions of the
National Bank Act, which are reproduced in full as EXHIBIT B to this Proxy
Statement. A SHAREHOLDER MUST FOLLOW THE EXACT PROCEDURE REQUIRED BY THE
NATIONAL BANK ACT IN ORDER TO PROPERLY EXERCISE DISSENTERS' RIGHTS OF APPRAISAL
AND TO AVOID WAIVER OF THOSE RIGHTS.
If the Consolidation Agreement is approved at the Meeting, any Shareholder
who has voted against the Consolidation Agreement at the Meeting or who has
given notice in writing at or prior to the Meeting to the presiding officer that
the Shareholder dissents from the Consolidation Agreement will be entitled to
receive the value of the shares of Sunbelt Stock held by the Shareholder when
the First Consolidation is approved by the OCC by making a written request to
the Company at any time before thirty (30) days after the date of consummation
of the First Consolidation. At the time the Shareholder makes the written
request, certificates representing the Sunbelt Stock held by such Shareholder
must also be surrendered to the Company.
The value of the Sunbelt Stock owned by any dissenting Shareholders shall
be ascertained, as of the effective date of the First Consolidation, by an
appraisal made by a committee of three persons, composed of
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(i) one selected by the vote of the holders of the majority of the Sunbelt Stock
for which the owners requested appraisal; (ii) one selected by the directors of
the Company; and (iii) one selected by the two so selected. The valuation of the
Sunbelt Stock agreed upon by any two of the three appraisers shall govern.
If the value so fixed is not satisfactory to any dissenting Shareholder who
has requested payment for his Sunbelt Stock, that Shareholder may, within five
(5) days after being notified of the appraised value of his shares, appeal to
the OCC, who shall cause a reappraisal to be made which shall be final and
binding as to the value of the shares. If, within ninety (90) days from the date
of consummation of the First Consolidation, for any reason one or more of the
appraisers is not selected, or the appraisers fail to determine the value of the
Sunbelt Stock, the OCC, upon written request of any interested party, shall
cause an appraisal to be made which shall be final and binding on all parties.
The expenses of the OCC in making the reappraisal or the appraisal, as the
case may be, shall be paid by the Company. The value of the Sunbelt Stock
ascertained shall be promptly paid to the dissenting Shareholders. The shares of
Company Common Stock that would have been delivered to dissenting Shareholders
had they not requested payment shall be sold, and if the shares are sold at a
price greater than the amount paid to the dissenting Shareholders, the excess in
the sale price shall be paid to the dissenting Shareholders.
Any Shareholder who votes against the First Consolidation at the Meeting,
or who gives notice in writing at or prior to the Meeting to the presiding
officer of the Meeting, that he dissents from the First Consolidation, will be
notified in writing of the date of consummation of the First Consolidation.
The OCC issued Banking Circular 259 which describes the methods used by the
OCC to estimate the value of a bank's shares when a shareholder dissents from a
conversion, consolidation or merger involving a national bank. The following
summary is not a complete statement of Banking Circular 259, and such summary is
qualified in its entirety by reference to the applicable provisions of Banking
Circular 259, which is reproduced in full as Exhibit C to this Proxy
Statement/Prospectus.
Through its appraisal process, the OCC attempts to arrive at a fair
estimate of the value of a bank's stock. The OCC reviews the particular facts of
each case and the information on a bank's stock that may be available to it, and
from such review selects an appropriate valuation method, or combination of
methods, to determine a reasonable estimate of the value of the shares. The
various valuation methods that the OCC considers are discussed below.
Market Value. If there is sufficient trading in the shares and the prices
are available from direct quotes from the Wall Street Journal or a market maker,
the OCC considers those quotes in determining the market value. If no market
value is readily available, or if the market value available is not well
established, the OCC may use the investment value or adjusted book value methods
of valuation.
Investment Value. The OCC determines investment value by looking at peer
banks, or institutions of comparable size in the same geographic area with
similar earnings patterns. Investment value requires an assessment of the value
to investors of a share in the future earnings of the bank and is estimated by
applying an average price/earnings ratio of banks with similar earnings
potential to the earnings capacity of the bank in question.
Adjusted Book Value. Adjusted book value is calculated by multiplying the
book value of the bank's assets, on a per share basis, by the ratio of market
price to book value for comparable banking organizations. That ratio shows
whether the stock of comparable banks sells at a premium or discount to book
value.
The investment value method and the adjusted book value method present
appraised values which are based on the bank's value as a going concern and
provide estimates of the market value of the shares of the bank in question. The
OCC may use more than one of the above-described methods in determining value of
shares of stock, and if more than one method is used, varying weights may be
applied in reaching an overall valuation. The weight given to the value by a
particular valuation method is based on the OCC's perception of how accurately
the given method is believed to represent market value. SEE EXHIBIT B AND
EXHIBIT C.
38
<PAGE> 47
ACCOUNTING TREATMENT
The Company expects to account for the Consolidations using the
"pooling-of-interests" method of accounting. Pursuant to the Consolidation
Agreement, the Company will receive a letter from Grant Thornton, LLP, stating
that the Consolidations will qualify as a pooling of interests, and the Company
will also receive a letter from Harper & Pearson Company as to the poolability
of Sunbelt. The Consolidations are business combinations which will be accounted
for by the Company using the "pooling of interests" method of accounting.
Accordingly: (i) assets and liabilities are recorded at their book value as they
existed on the books of Sunbelt at the time of the Consolidations (i.e.,
goodwill is not recorded); (ii) stock issued from treasury to effect the
Consolidations is recorded on the books of the Company at cost using the
last-in, first-out method; (iii) retained earnings is recorded on the books of
the Company as it existed on the books of Sunbelt at the time of the
Consolidations; (iv) any adjustments necessary to make the balance sheet entry
balance is made through the additional paid-in capital accounts; and (v)
transaction costs, net of tax effect, are to be expensed in the period the
Consolidation's closing date occurs. The Unaudited Pro Forma Combined Financial
Statements for the years ended December 31, 1997, 1996 and 1995 appearing
elsewhere in this Proxy Statement/Prospectus reflect the Consolidations as if
the Company and Sunbelt have operated as one company. See "PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS" and "THE CONSOLIDATION -- OTHER TERMS AND
CONDITIONS."
REGULATORY APPROVALS
The approvals of the Federal Reserve, FDIC, OCC and the TDB are required to
consummate the Consolidations. On February 4, 1998, the Company filed a Waiver
Request with the Reserve Bank. The Waiver Request was approved on February 13,
1998. On February 4, 1998, applications for approval of the Consolidations were
filed with the FDIC. On February 4, 1998, Prime Bank filed an application with
the TDB in connection with the Final Consolidation. Copies of all applications
have been filed with the OCC. It is expected that the FDIC, OCC and TDB will
approve the Consolidations.
39
<PAGE> 48
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements of the Company and the
Notes thereto, appearing elsewhere in this Proxy Statement/Prospectus, and the
information contained in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY". The selected historical
consolidated financial data as of and for the five years ended December 31, 1997
are derived from the Company's Consolidated Financial Statements which have been
audited by independent public accountants.
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income............................................. $ 66,038 $ 53,815 $ 55,310 $ 38,154 $ 30,227
Interest expense............................................ 30,017 23,741 27,141 14,542 10,884
-------- -------- -------- -------- --------
Net interest income......................................... 36,021 30,074 28,169 23,612 19,343
Provision for loan losses................................... 825 1,246 1,510 580 (200)
-------- -------- -------- -------- --------
Net interest income after provision for loan losses......... 35,196 28,828 26,659 23,032 19,543
Noninterest income.......................................... 8,956 8,292 10,338 7,208 7,055
Noninterest expenses........................................ 26,554 23,056 23,110 18,344 17,006
-------- -------- -------- -------- --------
Earnings before taxes....................................... 17,598 14,064 13,887 11,896 9,592
Provision for income tax expense............................ 6,235 4,842 4,835 4,048 3,251
Cumulative effect of change in accounting principle......... -- -- -- -- 289
-------- -------- -------- -------- --------
Net earnings................................................ 11,363 9,222 9,052 7,848 6,630
Preferred stock dividend.................................... 650 700 681 258 320
-------- -------- -------- -------- --------
Net earnings available to common shareholders............... $ 10,713 $ 8,522 $ 8,371 $ 7,590 $ 6,310
======== ======== ======== ======== ========
PER SHARE DATA(1):
Basic earnings(2)........................................... $ 1.19 $ 0.97 $ 0.94 $ 0.83 $ 0.70
Diluted earnings(2)......................................... 1.14 0.92 0.89 0.79 0.68
Book value.................................................. 7.56 6.23 5.81 4.46 3.61
Tangible book value......................................... 7.02 6.23 5.81 4.41 3.61
Cash dividends.............................................. 0.14 0.13 0.13 0.03 0.03
Dividend payout ratio....................................... 12.28% 14.15% 14.69% 4.14% 4.80%
Weighted average common and dilutive potential common shares
outstanding (in thousands)................................ 9,422 9,225 9,403 9,605 9,329
BALANCE SHEET DATA:
Total assets................................................ $958,360 $801,455 $758,337 $863,461 $498,002
Securities.................................................. 461,435 440,625 473,911 605,079 350,131
Loans....................................................... 422,818 311,293 230,172 197,863 105,649
Allowance for loan losses................................... 4,938 4,436 3,660 2,641 1,788
Total deposits.............................................. 865,072 695,170 694,165 813,818 461,093
Total shareholders' equity.................................. 71,473 61,969 58,330 46,839 34,891
AVERAGE BALANCE SHEET DATA:
Total assets................................................ $928,174 $762,455 $829,105 $595,829 $478,484
Securities.................................................. 466,271 440,167 541,182 401,872 342,457
Loans....................................................... 377,521 267,644 213,454 142,041 93,263
Allowance for loan losses................................... 5,008 3,765 2,855 1,889 2,026
Total deposits.............................................. 851,603 695,653 772,752 550,568 443,045
Total shareholders' equity.................................. 66,460 59,823 51,106 40,942 31,884
PERFORMANCE RATIOS:
Return on average assets.................................... 1.22% 1.21% 1.09% 1.32% 1.39%
Return on average common equity............................. 17.73 16.13 18.98 19.49 21.28
Net interest margin......................................... 4.14 4.20 3.62 4.25 4.36
Efficiency ratio(3)......................................... 59.04 60.09 59.99 59.07 64.37
ASSET QUALITY RATIOS(4):
Nonperforming assets to total loans and other real estate... 0.32% 0.09% 0.71% 0.73% 1.06%
Net loan charge-offs (recoveries) to average loans.......... 0.21 0.18 0.23 0.14 (0.37)
Allowance for loan losses to total loans.................... 1.17 1.43 1.59 1.33 1.69
Allowance for loan losses to nonperforming loans(5)......... 570.87 1,540.28 459.22 184.56 350.59
CAPITAL RATIOS(4):
Leverage ratio.............................................. 6.82% 7.96% 6.99% 5.39% 6.98%
Average shareholders' equity to average total assets........ 7.16 7.85 6.16 6.87 6.66
Tier 1 risk-based capital ratio............................. 13.96 17.37 20.41 20.15 26.21
Total risk-based capital ratio.............................. 15.01 18.62 21.66 21.30 27.46
</TABLE>
- ---------------
(1)Adjusted for a 30 for one stock split.
(2)Basic earnings per share is based upon the weighted average number of common
shares outstanding during the period. Diluted earnings per share is based on
the weighted average number of common and dilutive potential common shares
outstanding during the period.
(3)Calculated by dividing total noninterest expenses, excluding securities
losses, by net interest income plus noninterest income.
(4)At period end, except net loan charge-offs (recoveries) to average loans and
average shareholders' equity to average total assets.
(5)Nonperforming loans consist of nonaccrual loans and restructured loans.
40
<PAGE> 49
CONSOLIDATED QUARTERLY FINANCIAL DATA OF THE COMPANY
The following table presents certain unaudited quarterly financial
information concerning the Company's results of operations for each of the two
years ended December 31, 1997. The information should be read in conjunction
with the historical Consolidated Financial Statements of the Company and the
Notes thereto included elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED 1997
-----------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------- ------------ ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income.................................... $17,387 $16,793 $16,685 $15,173
Interest expense................................... 7,842 7,634 7,618 6,923
------- ------- ------- -------
Net interest income................................ 9,545 9,159 9,067 8,250
Provision for loan losses.......................... 150 150 150 375
------- ------- ------- -------
Net interest income after provision for loan
losses........................................... 9,395 9,009 8,917 7,875
Noninterest income................................. 2,337 2,333 2,229 2,057
Noninterest expense................................ 6,915 6,948 6,462 6,229
------- ------- ------- -------
Earnings before income taxes....................... 4,817 4,394 4,684 3,703
Provision for income taxes......................... 1,738 1,603 1,631 1,263
------- ------- ------- -------
Net earnings....................................... $ 3,079 $ 2,791 $ 3,053 $ 2,440
======= ======= ======= =======
Earnings per share:
Basic.............................................. $ 0.32 $ 0.29 $ 0.32 $ 0.26
Diluted............................................ 0.30 0.28 0.31 0.25
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED 1996
-----------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------- ------------ ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income.................................... $13,671 $13,581 $13,430 $13,133
Interest expense................................... 5,871 5,939 5,920 6,011
------- ------- ------- -------
Net interest income................................ 7,800 7,642 7,510 7,122
Provision for loan losses.......................... 325 325 596 --
------- ------- ------- -------
Net interest income after provision for loan
losses........................................... 7,475 7,317 6,914 7,122
Noninterest income................................. 2,074 2,116 2,099 2,003
Noninterest expense................................ 5,895 6,928 5,185 5,048
------- ------- ------- -------
Earnings before income taxes....................... 3,654 2,505 3,828 4,077
Provision for income taxes......................... 1,294 853 1,305 1,390
------- ------- ------- -------
Net earnings....................................... $ 2,360 $ 1,652 $ 2,523 $ 2,687
======= ======= ======= =======
Earnings per share:
Basic.............................................. $ 0.25 $ 0.17 $ 0.26 $ 0.29
Diluted............................................ 0.24 0.16 0.25 0.27
</TABLE>
41
<PAGE> 50
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company analyzes the major elements of the Company's balance
sheets and statements of earnings. This section should be read in conjunction
with the Company's financial statements and accompanying notes and other
detailed information appearing elsewhere in this Proxy Statement/Prospectus.
OVERVIEW
The Company engaged in several transactions in 1995, 1996 and 1997 which
had a significant impact on the Company's performance in each of those years. In
the last half of 1995, the Company sold five of the nine branch locations
(including $77.4 million in deposits) it acquired in 1994 from a large federal
savings bank and recorded a $2.4 million gain on the branch sales. In 1996, the
Company paid a one-time FDIC assessment of $1.8 million with respect to the
Company's deposits insured by the Savings Association Insurance Fund ("SAIF") of
the FDIC. The year ended December 31, 1997 was marked by strong balance sheet
growth due to the Company's acquisition of approximately $99.2 million in
deposits related to three branch locations acquired from a commercial bank and
the acquisition of First Northwestern Bank, N.A. with approximately $60.2
million in deposits, the transactions together referred to herein as the
"Acquisitions." The Company's earnings growth, however, was affected by the
non-recurring expenses (data processing conversion, severance benefits and other
items) related to those transactions.
Net earnings available to common shareholders were $10.7 million, $8.5
million and $8.4 million for the years ended December 31, 1997, 1996 and 1995,
respectively, and net earnings per common share on a diluted basis were $1.14,
$0.92 and $0.89 for these same periods. The increase in earnings from 1996 to
1997 resulted primarily from higher net interest income generated by the
Acquisitions and loan growth. Earnings growth from 1995 to 1996 resulted
principally from strong internal loan growth and a higher net interest margin.
The Company posted returns on average assets of 1.22%, 1.21% and 1.09% and
returns on average common equity of 17.73%, 16.13% and 18.98% for the years
ended 1997, 1996 and 1995, respectively. Without the one-time FDIC assessment in
1996, the Company's return on average assets and return on average common
equity, respectively, would have been 1.36% and 18.36%.
Total assets at December 31, 1997, 1996 and 1995 were $958.4 million,
$801.5 million and $758.3 million, respectively. Total deposits at December 31,
1997, 1996 and 1995 were $865.1 million, $695.2 million and $694.2 million,
respectively. The Company retained a major portion of the deposits acquired
during 1994 while repricing maturing deposits into a lower rate structure. The
result was an improved net interest margin and steady deposit levels from 1995
to 1996. Loans were $422.8 million at December 31, 1997, an increase of $111.5
million or 35.8% from $311.3 million at the end of 1996. Loans were $230.2
million at year end 1995. Common shareholders' equity was $70.5 million, $55.0
million and $51.3 million at December 31, 1997, 1996 and 1995, respectively.
Changes in common shareholders' equity reflect fluctuations in the net
unrealized appreciation on available-for-sale securities, net of tax in the
amounts of a $1.2 million decrease in 1997, a $3.2 million decrease in 1996 and
a $4.7 million increase in 1995.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income represents the amount by which interest income on
interest-earning assets, including securities and loans, exceeds interest
expense incurred on interest-bearing liabilities, including deposits and other
borrowed funds. Net interest income is the principal source of the Company's
earnings. Interest rate fluctuations, as well as changes in the amount and type
of earning assets and liabilities, combine to affect net interest income.
1997 versus 1996. Net interest income increased from $30.1 million in 1996
to $36.0 million in 1997, a $5.9 million increase, primarily due to growth in
interest income of $12.2 million. This increase was partially
42
<PAGE> 51
offset by an increase in interest expense of $6.3 million. This resulted in net
interest margins of 4.14% and 4.20% and net interest spreads of 3.38% and 3.44%
for 1997 and 1996, respectively.
The increase in interest income was driven by growth in average
interest-earning assets of $154.9 million or 21.6%. Growth in interest-earning
assets included average loan growth of $109.9 million or 41.1% and growth in
average securities of $26.1 million or 5.9%. Also, the yield on average
interest-earning assets increased 7 basis points from 1996 to 1997.
1996 versus 1995. Net interest income totaled $30.1 million in 1996
compared to $28.2 million in 1995, an increase of $1.9 million or 6.8%. The
increase resulted mainly from lower interest expense on deposits and higher
interest income on loans. Interest expense decreased $3.4 million and was only
partially offset by a decline of $1.5 million in total interest income. This
resulted in net interest margins of 4.20% and 3.62% and net interest spreads of
3.44% and 2.98% for 1996 and 1995, respectively.
The decline in interest expense from 1995 to 1996 was due primarily to
lower average interest-bearing deposits of $580.8 million in 1996 versus $659.0
million in 1995. The decline in average interest-bearing deposits, which
included the sale of branches in the last half of 1995, was comprised of $61.2
million or 78.3% in certificates of deposit, and the remainder was primarily in
savings accounts. Accordingly, the cost of average interest-bearing deposits
declined to 4.08% in 1996 from 4.12% in 1995. Interest income on loans increased
to $24.7 million in 1996 from $19.4 million in 1995. The increase was driven by
growth in the average loan portfolio of $54.2 million or 25.4% and an increase
in the yield on average loans to 9.22% in 1996 from 9.07% in 1995. Meanwhile,
the average securities portfolio declined $101.0 million, and its yield rose 15
basis points.
43
<PAGE> 52
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,
expressed both in dollars and rates. No tax equivalent adjustments were made and
all average balances are yearly average balances. Nonaccruing loans have been
included in the tables as loans carrying a zero yield.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------------
1997 1996 1995
-------------------------------- -------------------------------- --------------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE BALANCE PAID RATE
----------- -------- ------- ----------- -------- ------- ----------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans.................... $377,521 $34,343 9.10% $267,644 $24,673 9.22% $213,454 $19,357 9.07%
Securities............... 466,271 30,233 6.48 440,167 28,722 6.53 541,182 34,514 6.38
Federal funds sold and
other temporary
investments............ 26,796 1,462 5.46 7,901 420 5.32 24,311 1,439 5.92
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total
interest-earning
assets........... 870,588 66,038 7.59% 715,712 53,815 7.52% 778,947 55,310 7.10%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Less allowance for loan
losses................... (5,008) (3,765) (2,855)
-------- -------- --------
Total interest-earning
assets, net of
allowance................ 865,580 711,947 776,092
Nonearning assets.......... 62,594 50,508 53,013
-------- -------- --------
Total assets....... $928,174 $762,455 $829,105
======== ======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing
liabilities:
Interest-bearing demand
deposits............... $123,896 2,517 2.03% $110,992 2,509 2.26% $112,902 2,599 2.30%
Savings and money market
accounts............... 161,700 4,787 2.96 130,599 3,500 2.68 145,782 4,019 2.76
Certificates of
deposit................ 423,365 22,480 5.31 339,209 17,670 5.21 400,361 20,523 5.13
Federal funds purchased
and securities sold
under repurchase
agreements............. 4,860 233 4.79 1,099 62 5.64 5 -- 6.08
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total
interest-bearing
liabilities...... 713,821 30,017 4.21% 581,899 23,741 4.08% 659,050 27,141 4.12%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Noninterest-bearing
liabilities:
Noninterest-bearing
demand deposits........ 142,642 114,853 113,707
Other liabilities........ 5,251 5,880 5,242
-------- -------- --------
Total
liabilities...... 861,714 702,632 777,999
-------- -------- --------
Shareholders' equity....... 66,460 59,823 51,106
-------- -------- --------
Total liabilities
and shareholders'
equity........... $928,174 $762,455 $829,105
======== ======== ========
Net interest income........ $36,021 $30,074 $28,169
======= ======= =======
Net interest spread........ 3.38% 3.44% 2.98%
==== ==== ====
Net interest margin........ 4.14% 4.20% 3.62%
==== ==== ====
</TABLE>
44
<PAGE> 53
The following schedule presents the dollar amount of changes in interest
income and interest expense for the major components of interest-earning assets
and interest-bearing liabilities and distinguishes between the increase related
to higher outstanding balances and the volatility of interest rates. For
purposes of this table, changes attributable to both rate and volume which can
be segregated have been allocated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1997 VS. 1996 1996 VS 1995
------------------------------ ------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO
-------------------- -------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
-------- -------- ------ -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans.......................... $10,129 $ (459) $9,670 $ 4,915 $ 401 $ 5,316
Securities..................... 1,703 (192) 1,511 (6,445) 653 (5,792)
Federal funds sold and other
temporary investments....... 1,004 38 1,042 (971) (48) (1,019)
------- ------- ------ ------- ------ -------
Total increase
(decrease) in
interest income...... 12,836 (613) 12,223 (2,501) 1,006 (1,495)
INTEREST-BEARING LIABILITIES:
Interest-bearing demand
deposits.................... 292 (284) 8 (44) (46) (90)
Savings and money market
accounts.................... 833 454 1,287 (419) (100) (519)
Certificates of deposit........ 4,384 426 4,810 (3,134) 281 (2,853)
Federal funds purchased and
securities sold under
repurchase agreements....... 212 (41) 171 67 (5) 62
------- ------- ------ ------- ------ -------
Total increase
(decrease) in
interest expense..... 5,721 555 6,276 (3,530) 130 (3,400)
------- ------- ------ ------- ------ -------
Increase (decrease) in net
interest income............. $ 7,115 $(1,168) $5,947 $ 1,029 $ 876 $ 1,905
======= ======= ====== ======= ====== =======
</TABLE>
Provision for Loan Losses
The 1997 provision for loan losses declined to $825,000 from $1.2 million
in 1996, a decrease of $421,000 or 33.8%. The reduced provision in 1997
reflected continued strong asset quality as net charge-offs of loans remained at
relatively low levels totaling $811,000 or 0.21% of average loans, compared to
$470,000 or 0.18% of average loans in 1996. The provision for the year 1996
declined by $264,000 or 17.5% from the year ended 1995 and also reflected strong
asset quality.
Noninterest Income
Noninterest income is an important source of revenue for financial
institutions in a deregulated environment. The Company's primary source of
noninterest income is service charges on deposit accounts and other banking
service related fees.
Noninterest income for the year ended December 31, 1997 was $9.0 million,
an increase of $664,000 from $8.3 million in 1996 and down from $10.3 million in
1995. The year ended December 31, 1995 included a gain of $2.4 million on the
sale of five branches. Excluding this gain, noninterest income was $399,000
greater in
45
<PAGE> 54
1996 than in 1995. This results in annual percentage increases of 8.0% and 5.1%
for 1997 and 1996, respectively. The following table presents for the periods
indicated the major categories of noninterest income:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1996 1995
------ ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service charges on deposit accounts........................ $7,045 $6,319 $ 6,106
Retail services income..................................... 1,396 1,200 1,074
Mortgage banking........................................... 175 174 140
Investment services........................................ 242 165 143
Securities lending......................................... 77 118 82
Branch sale premiums....................................... -- -- 2,445
Other noninterest income................................... 21 316 348
------ ------ -------
Total noninterest income......................... $8,956 $8,292 $10,338
====== ====== =======
</TABLE>
The increase in noninterest income from 1996 to 1997 was due primarily to
service charge income generated by branches acquired with the Acquisitions.
After excluding the gain from the sale of branches in 1995, the increase in
noninterest income from 1995 to 1996 resulted mainly from service charges on
deposit accounts. Service charges on deposit accounts increased $213,000 from
1995 to 1996 in conjunction with new product pricing which was implemented in
the first quarter of 1996. Additionally, the Company's increased emphasis on fee
based services resulted in greater income from retail services, mortgage
banking, and investment services.
Noninterest Expense
For the years ended 1997, 1996 and 1995, noninterest expenses totaled $26.6
million, $23.1 million and $23.1 million, respectively. The 15.2% increase in
1997 was primarily the result of operating expenses in branches acquired with
the Acquisitions. The slight decline in 1996 reflects several major offsetting
factors: a $1.8 million FDIC assessment on SAIF deposits which was offset by
lower overall fees on FDIC insured deposits and the effect of the sale of five
branches in the last half of 1995. The Company's efficiency ratios, calculated
by dividing total noninterest expenses (excluding securities losses) by net
interest income plus noninterest income, were 59.04% in 1997, 60.09% in 1996 and
59.99% in 1995. The efficiency ratio was constant over this period, reflecting
the Company's continued efforts to control operating expenses. The following
table presents for the periods indicated the major categories of noninterest
expense:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1997 1996 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Employee compensation and benefits....................... $16,354 $13,070 $12,887
Non-staff expenses:
Net bank premises expense.............................. 1,339 1,246 1,262
Equipment rentals, depreciation and maintenance........ 1,232 975 1,000
Data processing........................................ 1,932 1,438 1,401
Professional fees...................................... 813 695 875
Special FDIC assessment................................ -- 1,782 --
Regulatory assessments................................. 114 522 1,345
Ad valorem and franchise taxes......................... 543 420 453
Net realized losses on available-for-sale securities... -- -- 9
Other.................................................. 4,227 2,908 3,878
------- ------- -------
Total non-staff expenses....................... 10,200 9,986 10,223
------- ------- -------
Total noninterest expense...................... $26,554 $23,056 $23,110
======= ======= =======
</TABLE>
46
<PAGE> 55
Employee compensation and benefit expense for the year ended December 31,
1997 was $16.4 million, an increase of $3.3 million or 25.1% from $13.1 million
for 1996. This increase is the result of expenses in the branches acquired with
the Acquisitions and the hiring of additional lending staff. Employee
compensation and benefit expense for the year 1996 was up $183,000 or 1.4% from
1995. The increase in 1996 resulted mainly from additions to the loan staff but
was mitigated by the branch sales which occurred in the last half of 1995. Total
full-time equivalent employees at December 31, 1997, 1996 and 1995 were 439,
386, and 372, respectively.
Non-staff expenses were $10.2 million in 1997, an increase of $214,000 from
$10.0 million in 1996. The 1996 level declined from 1995 non-staff expenses of
$10.2 million. The decline in 1996 occurred in spite of the $1.8 million special
assessment from the FDIC on SAIF deposits and was due to reduced expense levels
resulting from the branch sales, which occurred in the last half of 1995, as
well as lower FDIC fees on all deposits.
Income Taxes
Income tax expense includes the regular federal income tax at the statutory
rate, plus the income tax component of the Texas franchise tax. The amount of
federal income tax expense is influenced by the amount of taxable income, the
amount of tax-exempt income, the amount of non-deductible interest expense and
the amount of other non-deductible expenses. Taxable income for the income tax
component of the Texas franchise tax is the federal pre-tax income, plus certain
officers salaries, less interest income from federal securities. The income tax
component of the Texas franchise tax was zero in 1997, 1996 and 1995. In 1997,
income tax expense was $6.2 million, an increase of $1.4 million from 1996. In
1996, income tax expense was $4.8 million, approximately the same as 1995. The
effective tax rates in 1997, 1996 and 1995, respectively, were 35.43%, 34.03%
and 34.41%.
Impact of Inflation
The effects of inflation on the local economy and on the Company's
operating results have been relatively modest for the past several years. Since
substantially all of the Company's assets and liabilities are monetary in
nature, such as cash, securities, loans and deposits, their values are less
sensitive to the effects of inflation than to changing interest rates, which do
not necessarily change in accordance with inflation rates. The Company tries to
control the impact of interest rate fluctuations by managing the relationship
between its interest rate sensitive assets and liabilities. SEE "-- INTEREST
RATE SENSITIVITY AND LIQUIDITY" BELOW.
FINANCIAL CONDITION
Loan Portfolio
Total loans increased by $111.5 million or 35.8% to $422.8 million at
December 31, 1997, from $311.3 million at December 31, 1996. Total loans
increased by $81.1 million or 35.2%, from $230.2 million at December 31, 1995.
The growth in loans reflected the improving local economy and the Company's
investment in loan production capacity.
At December 31, 1997, total loans represented 48.9% of deposits and 44.1%
of total assets. Total loans as a percentage of deposits were 44.8% at December
31, 1996, compared to 33.2% at December 31, 1995.
47
<PAGE> 56
The following table summarizes the loan portfolio of the Company by type of
loan as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------ ------------------ ------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
industrial.............. $ 40,581 9.60% $ 27,611 8.87% $ 21,017 9.13% $ 16,696 8.44% $ 11,999 11.36%
Real estate:
Construction and land
development........... 27,579 6.52 17,470 5.61 10,423 4.53 8,776 4.44 2,954 2.80
1-4 family
residential........... 75,996 17.97 51,544 16.56 37,494 16.29 30,014 15.17 23,211 21.97
Commercial mortgages.... 114,576 27.10 77,220 24.81 50,450 21.92 46,228 23.36 33,448 31.66
Farmland................ 666 0.16 1,032 0.33 1,683 0.73 2,623 1.33 2,931 2.77
Multi-family
residential........... 6,404 1.51 4,056 1.30 2,682 1.17 2,962 1.50 1,783 1.69
Consumer:
Indirect................ 101,540 24.02 82,814 26.60 65,311 28.37 56,643 28.62 12,914 12.22
Direct.................. 55,476 13.12 49,546 15.92 41,112 17.86 33,921 17.14 16,409 15.53
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans....... $422,818 100.00% $311,293 100.00% $230,172 100.00% $197,863 100.00% $105,649 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
The primary lending focus of the Company is on small and medium-sized
business and consumer loans. The Company offers a variety of commercial lending
products including term loans, lines of credit and fixed asset loans, including
real estate and equipment financing. A broad range of short to medium-term
commercial loans, primarily collateralized, are made available to businesses for
working capital (including inventory and receivables), business expansion
(including acquisitions of real estate and improvements), and the purchase of
equipment and machinery. The purpose of a particular loan generally determines
its structure.
Although its legal lending limit is substantially higher, the Company
generally does not make loans larger than $3.0 million. Loans up to $400,000 are
evaluated and acted upon by an officers' loan committee, which meets twice per
week. Loans above that amount must be approved by the Executive Loan Committee,
which meets weekly.
Generally, the Company's commercial loans are underwritten in the Company's
primary market area on the basis of the borrower's ability to service such debt
from income. As a general practice, the Company takes as collateral a lien on
any available real estate, equipment or other assets and obtains a personal
guaranty. Working capital loans are primarily collateralized by short-term
assets whereas term loans are primarily collateralized by long-term assets.
In addition to commercial loans secured by real estate, the Company makes
commercial mortgage loans to finance the purchase of real property which
generally consists of real estate on which structures have already been
completed. Additionally, a portion of the Company's lending activity has
consisted of the origination of single-family residential mortgage loans
collateralized by owner-occupied properties located in the Company's market
areas. The Company offers a variety of mortgage loan products which generally
are amortized over five to 30 years.
Loans collateralized by single-family residential real estate generally
have been originated in amounts of no more than 80% of appraised value or have
mortgage insurance. The Company requires mortgage title insurance and hazard
insurance in the amount of the loan. Of the mortgages originated, the Company
generally retains mortgage loans with short terms or variable rates and sells
longer term fixed-rate loans and loans that do not meet the Company's credit
underwriting standards. As a result, the Company retains approximately half of
the mortgage loans that it originates.
The Company's commercial mortgage loans are secured by first liens on real
estate, typically have fixed interest rates and amortize over a 10 to 15 year
period with balloon payments due at the end of three to five years. In
underwriting commercial mortgage loans, consideration is given to the property's
operating history, future operating projections, current and projected
occupancy, location and physical condition. The underwriting analysis also
includes credit checks, appraisals and a review of the financial condition of
the borrower.
48
<PAGE> 57
The Company makes loans to finance the construction of residential and, to
a limited extent, nonresidential properties. Construction loans generally are
secured by first liens on real estate. The Company conducts periodic
inspections, either directly or through an agent, prior to approval of periodic
draws on these loans. Underwriting guidelines similar to those described above
are also used in the Company's construction lending activities. In keeping with
the community-oriented nature of its customer base, the Company provides
construction and permanent financing for churches located within its market
area.
Consumer loans made by the Company include automobile loans, recreational
vehicle loans, boat loans, home improvement loans, home equity loans, personal
loans (collateralized and uncollateralized) and deposit account collateralized
loans. The terms of these loans typically range from 12 to 84 months and vary
based upon the nature of collateral and size of loan.
Approximately 64.7% of the Company's consumer loan portfolio as of December
31, 1997, was comprised of indirect loans (representing 24.0% of the Company's
total loan portfolio). These are installment loans, with typical maturities of
three to five years, which are originated mostly by automobile dealers for the
purpose of financing consumer automobile purchases and sold by automobile
dealers to commercial banks and other sources of financing. The Company also
purchases some indirect boat and recreational vehicle loans. The average yield
on the Company's indirect loan portfolio was 8.47% for 1997.
The Company's indirect loan programs are administered by a staff specially
trained in evaluating and servicing this particular type of loan. The Company
competes for these loans with a number of other financial and non-financial
institutions, including the captive financial services subsidiaries of
automobile manufacturers, on the basis of interest rate and quality of service.
The Company generally receives credit applications on a daily basis from
one or more of the automobile dealerships and others from which it actively
purchases indirect loans. Upon receipt of a credit application, the Company
undertakes a credit analysis of the prospective purchaser, ordering credit
reports on the borrower which are analyzed by one of the officers specializing
in buying indirect loans. In making credit decisions, such officers evaluate,
among other things, the general credit quality of the applicant, the proposed
income to debt ratio, and residential and employment stability.
The collection of overdue indirect loans is administered by a staff
specially trained for such purpose. Holders of loans that are 10 days past due
generally receive written notice of such delinquency. When any loan becomes 15
days past due, the collectors establish telephone contact with the borrower. If
the loan remains past due for 30 days, the Company generally sends a demand
letter requiring payment within 10 days before asserting its legal rights. The
Company's collection staff makes all reasonable efforts to work out credit
problems before the accounts are turned over to independent repossession agents.
Repossessed automobiles are sold as soon as possible through a number of means
in order to minimize any potential losses. The Company's ongoing experience with
indirect loan underwriting and collections has contributed to a relatively low
delinquency rate of 0.94% as of December 31, 1997.
The following table summarizes with respect to the Company's indirect loans
information regarding the amounts of loans originated and outstanding, the
amounts of loans charged off and the delinquency ratios for the periods
indicated:
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEARS ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Loans originated during period....................... $ 63,906 $56,416 $36,042
Loans outstanding at end of period................... 101,540 82,814 65,311
Net loan charge-offs for the period.................. (413) (150) (103)
Net loan charge-off ratio............................ 0.44% 0.21% 0.17%
Delinquency ratio at end of period................... 0.94% 0.95% 0.98%
</TABLE>
49
<PAGE> 58
The contractual maturity ranges of the commercial and industrial and real
estate construction loan portfolio and the amount of such loans with
predetermined interest rates and floating rates in each maturity range as of
December 31, 1997 are summarized in the following table:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------------
AFTER ONE
ONE YEAR THROUGH AFTER
OR LESS FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial and industrial................. $17,683 $22,263 $ 635 $40,581
Real estate construction.................. 12,978 6,865 7,736 27,579
------- ------- ------ -------
Total........................... $30,661 $29,128 $8,371 $68,160
======= ======= ====== =======
Loans with a predetermined interest
rate.................................... $16,539 $23,071 $5,126 $44,736
Loans with a floating interest rate....... 14,122 6,057 3,245 23,424
------- ------- ------ -------
Total........................... $30,661 $29,128 $8,371 $68,160
======= ======= ====== =======
</TABLE>
A loan is considered impaired based on current information and events, if
it is probable that the Company will be unable to collect the scheduled payments
of principal or interest when due according to the contractual terms of the loan
agreement. The measurement of impaired loans is based on the present value of
expected future cash flows discounted at the loan's effective interest rate or
the loan's observable market price or based on the fair value of the collateral
if the loan is collateral-dependent. The implementation of SFAS No. 114 did not
have a material adverse affect on the Company's financial statements.
Nonperforming Assets
The Company has several procedures in place to assist it in maintaining the
overall quality of its loan portfolio. The Company has established underwriting
guidelines to be followed by its officers. The Company also monitors its
delinquency levels for any negative or adverse trends. There can be no
assurance, however, that the Company's loan portfolio will not become subject to
increasing pressures from deteriorating borrower credit due to general economic
conditions.
The Company's conservative lending approach, as well as a healthy local
economy, have resulted in strong asset quality. Nonperforming assets at December
31, 1997 were $1.3 million compared to $288,000 at December 31, 1996 and $1.6
million at December 31, 1995. The increase in nonperforming assets during 1997
was primarily related to assets acquired with the Acquisitions. This resulted in
ratios of nonperforming assets to total loans plus other real estate of 0.32%,
0.09% and 0.71% for the years ended 1997, 1996 and 1995, respectively.
The Company generally places a loan on nonaccrual status and ceases
accruing interest when loan payment performance is deemed unsatisfactory. All
loans past due 90 days, however, are placed on nonaccrual status, unless the
loan is both well-secured and in the process of collection. Cash payments
received while a loan is classified as nonaccrual are recorded as a reduction of
principal as long as doubt exists as to collection. The Company is sometimes
required to revise a loan's interest rate or repayment terms in a troubled debt
restructuring. The Company had no restructured loans at either December 31, 1997
or December 31, 1996. The Company's internal loan review department evaluates
additional loans which are potential problem loans as to risk exposure in
determining the adequacy of the allowance for loan losses.
The Company maintains on an ongoing basis updated appraisals on loans
secured by real estate, particularly those categorized as nonperforming loans
and potential problem loans. In instances where updated appraisals reflect
reduced collateral values, an evaluation of the borrower's overall financial
condition is made to determine the need, if any, for possible writedowns or
appropriate additions to the allowance for loan losses. The Company records
other real estate at fair value at the time of acquisition, less estimated costs
to sell.
50
<PAGE> 59
The following table presents information regarding nonperforming assets at
the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1997 1996 1995 1994 1993
------ ---- ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans............................ $ 865 $288 $ 797 $1,431 $ 204
Restructured loans.......................... -- -- -- -- 306
Other real estate........................... 477 -- 848 20 619
------ ---- ------ ------ ------
Total nonperforming assets........ $1,342 $288 $1,645 $1,451 $1,129
====== ==== ====== ====== ======
Nonperforming assets to total loans and
other real estate......................... 0.32% 0.09% 0.71% 0.73% 1.06%
</TABLE>
The additional interest income the Company would have recorded and the
interest income the Company did record on nonperforming loans for the five year
period ending December 31, 1997 was insignificant.
Allowance for Loan Losses
The allowance for loan losses is a reserve established through charges to
earnings in the form of a provision for loan losses. Management has established
an allowance for loan losses which it believes is adequate for estimated losses
in the Company's loan portfolio. Based on an evaluation of the loan portfolio,
management presents a quarterly review of the allowance for loan losses to Prime
Bank's Board of Directors, indicating any change in the allowance since the last
review and any recommendations as to adjustments in the allowance. In making its
evaluation, management considers the diversification by industry of the
Company's commercial loan portfolio, the effect of changes in the local real
estate market on collateral values, the results of recent regulatory
examinations, the effects on the loan portfolio of current economic indicators
and their probable impact on borrowers, the amount of charge-offs for the
period, the amount of nonperforming loans and related collateral security, the
evaluation of its loan portfolio by the loan review function and the annual
examination of the Company's financial statements by its independent auditors.
Charge-offs occur when loans are deemed to be uncollectible.
The Company follows a loan review program to evaluate the credit risk in
the loan portfolio. Through the loan review process, the Company maintains an
internally classified loan list which, along with the delinquency list of loans,
helps management assess the overall quality of the loan portfolio and the
adequacy of the allowance for loan losses. Loans classified as "substandard" are
those loans with clear and defined weaknesses such as a highly-leveraged
position, unfavorable financial ratios, uncertain repayment sources or poor
financial condition, which may jeopardize recoverability of the debt. At
December 31, 1997, the Company had $2.4 million of such loans, excluding loans
on nonaccrual, which were primarily residential and commercial real estate
loans.
Loans classified as "doubtful" are those loans which have characteristics
similar to substandard accounts but with an increased risk that a loss may
occur, or at least a portion of the loan may require a charge-off if liquidated
at present. Although loans classified as substandard do not duplicate loans
classified as doubtful, both substandard and doubtful loans include some loans
that are delinquent at least 30 days or on nonaccrual status. Loans classified
as "loss" are those loans which are in the process of being charged off.
In addition to the internally classified loan list and delinquency list of
loans, the Company maintains a separate "watch list" which further aids the
Company in monitoring loan portfolios. Watch list loans show warning elements
where the present status portrays one or more deficiencies that require
attention in the short term or where pertinent ratios of the loan account have
weakened to a point where more frequent monitoring is warranted. These loans do
not have all of the characteristics of a classified loan (substandard or
doubtful) but do show weakened elements as compared with those of a satisfactory
credit. The Company reviews these loans to assist in assessing the adequacy of
the allowance for loan losses. At December 31, 1997, the Company had $834,000 of
such loans, which were primarily secured by residential and commercial real
estate.
51
<PAGE> 60
In order to determine the adequacy of the allowance for loan losses,
management considers the risk classification or delinquency status of loans and
other factors, such as collateral value, portfolio composition, trends in
economic conditions and the financial strength of borrowers. Management
establishes specific allowances for loans which management believes require
reserves greater than those allocated according to their classification or
delinquent status. An unallocated allowance is also established based on the
Company's historical charge-off experience. The Company then charges to
operations a provision for loan losses to maintain the allowance for loan losses
at an adequate level determined by the foregoing methodology.
For the year ended 1997, net loan charge-offs totaled $811,000 or $0.21% of
average loans outstanding for the period, compared to $470,000 or 0.18% in net
loan charge-offs during 1996. During 1997, the Company recorded a provision for
loan losses of $825,000 compared to $1.2 million for 1996. At December 31, 1997,
the allowance totaled $4.9 million, or 1.17% of total loans. The Company made a
provision for loan losses of $1.2 million during 1996 as compared to a provision
of $1.5 million for 1995. At December 31, 1996, the allowance aggregated $4.4
million or 1.43% of total loans.
The following table presents, for the periods indicated, an analysis of the
allowance for loan losses and other related data:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average loans outstanding........... $377,521 $267,644 $213,454 $142,041 $ 93,263
-------- -------- -------- -------- --------
Gross loans outstanding at end of
period............................ 422,818 311,293 230,172 197,863 105,649
-------- -------- -------- -------- --------
Allowance for loan losses at
beginning of period............... $ 4,436 $ 3,660 $ 2,641 $ 1,788 $ 1,640
Provision for loan losses........... 825 1,246 1,510 580 (200)
Adjustments due to acquisitions..... 488 -- -- 467 --
Charge-offs:
Commercial and industrial...... (191) (59) (97) (44) (39)
Real estate.................... (87) (70) (59) (24) (667)
Consumer....................... (915) (656) (675) (314) (84)
Recoveries:
Commercial and industrial...... 55 27 47 26 501
Real estate.................... 44 19 32 58 629
Consumer....................... 283 269 261 104 8
-------- -------- -------- -------- --------
Net loan (charge-offs)
recoveries..................... (811) (470) (491) (194) 348
Allowance for loan losses at end
of period...................... $ 4,938 $ 4,436 $ 3,660 $ 2,641 $ 1,788
======== ======== ======== ======== ========
Ratio of allowance to end of
period loans................... 1.17% 1.43% 1.59% 1.33% 1.69%
Ratio of net loan charge-offs to
average loans.................. 0.21 0.18 0.23 0.14 (0.37)
Ratio of allowance to end of
period nonperforming loans..... 570.87 1,540.28 459.22 184.56 350.59
</TABLE>
The following tables describe the allocation of the allowance for loan
losses among various categories of loans and certain other information for the
dates indicated. The allocation is made for analytical purposes and
52
<PAGE> 61
is not necessarily indicative of the categories in which future losses may
occur. The total allowance is available to absorb losses from any segment of
loans.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
1997 1996 1995
-------------------- -------------------- --------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS TO LOANS TO LOANS TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ----------- ------ ----------- ------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance of allowance for loan losses
applicable to:
Commercial and industrial........... $ 35 9.60% $ 21 8.87% $ 305 9.13%
Real estate:
Construction and land
development.................... -- 6.52 -- 5.61 -- 4.53
1-4 family residential........... 57 17.97 62 16.56 94 16.29
Commercial mortgage.............. -- 27.10 50 24.81 209 21.92
Farmland......................... -- 0.16 -- 0.33 -- 0.73
Multi-family..................... -- 1.51 -- 1.30 -- 1.17
Consumer............................ 41 37.14 49 42.52 75 46.23
Unallocated......................... 4,805 4,254 2,977
------ ------ ------ ------ ------ ------
Total allowance for loan
losses.................... $4,938 100.00% $4,436 100.00% $3,660 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1994 1993
-------------------- --------------------
PERCENT OF PERCENT OF
LOANS TO LOANS TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ----------- ------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance of allowance for loan losses applicable to:
Commercial and industrial............................. $ 49 8.44% $ 26 11.36%
Real estate:
Construction and land development.................. -- 4.44 -- 2.80
1-4 family residential............................. 45 15.17 50 21.97
Commercial mortgage................................ 10 23.36 3 31.66
Farmland........................................... -- 1.33 -- 2.77
Multi-family....................................... -- 1.50 -- 1.69
Consumer.............................................. 77 45.76 103 27.75
Unallocated........................................... 2,460 1,606
------ ------ ------ ------
Total allowance for loan losses............... $2,641 100.00% $1,788 100.00%
====== ====== ====== ======
</TABLE>
The Company believes that the allowance for loan losses at December 31,
1997 is adequate to cover losses inherent in the portfolio as of such date.
There can be no assurance, however, that the Company will not sustain losses in
future periods, which could be substantial in relation to the size of the
allowance at December 31, 1997.
Securities
The Company uses its securities portfolio primarily as a source of income
and secondarily as a source of liquidity. At December 31, 1997, investment
securities totaled $461.4 million, an increase of $20.8 million from $440.6
million at December 31, 1996. The increase was primarily attributable to
deposits acquired with the Acquisitions. At December 31, 1997, investment
securities represented 48.1% of total assets compared to 55.0% of total assets
at December 31, 1996. The yield on the investment portfolio for the year ended
December 31, 1997 was 6.48% compared to a yield of 6.53% for the year ended
December 31, 1996.
53
<PAGE> 62
The following table summarizes the amortized cost of investment securities
held by the Company as of the dates shown:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
U.S. Government securities......................... $214,652 $275,781 $369,747
Mortgage-backed securities......................... 244,352 161,630 96,074
Other securities................................... 1,037 37 37
-------- -------- --------
Total securities......................... $460,041 $437,448 $465,858
======== ======== ========
</TABLE>
The following table summarizes the contractual maturity of investment
securities and their weighted average yields:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------------------------------------------------
AFTER FIVE
AFTER ONE YEARS BUT
WITHIN YEAR BUT WITHIN WITHIN
ONE YEAR FIVE YEARS TEN YEARS AFTER TEN YEARS
---------------- ---------------- ---------------- ---------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD TOTAL YIELD
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government securities.... $104,644 6.94 $109,943 6.67 $ 65 --% $ -- --% $214,652 6.80%
Mortgage-backed and other
securities.................. 10,467 6.37 88,303 6.05 113,442 6.56 33,176 6.35 245,389 6.34
-------- ---- -------- ---- -------- ---- ------- ---- -------- ----
Totals................ $115,111 6.89% $198,246 6.39% $113,507 6.56% $33,176 6.35% $460,041 6.55%
======== ==== ======== ==== ======== ==== ======= ==== ======== ====
</TABLE>
At the date of purchase, the Company is required to classify debt and
equity securities into one of three categories: held-to-maturity, trading or
available-for-sale. At each reporting date, the appropriateness of the
classification is reassessed. Investments in debt securities are classified as
held-to-maturity and measured at amortized cost in the financial statements only
if management has the positive intent and ability to hold those securities to
maturity. Securities that are bought and held principally for the purpose of
selling them in the near term are classified as trading and measured at fair
value in the financial statements with unrealized gains and losses included in
earnings. Investments not classified as either held-to-maturity or trading are
classified as available-for-sale and measured at fair value in the financial
statements with unrealized gains and losses reported, net of tax, in a separate
component of shareholders' equity until realized.
The following table summarizes the carrying value and classification of
securities as of the dates shown:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Available-for-sale................................ $188,048 $324,723 $377,837
Held-to-maturity.................................. 273,387 115,902 96,074
-------- -------- --------
Total securities........................ $461,435 $440,625 $473,911
======== ======== ========
</TABLE>
At December 31, 1997, securities totaled $461.4 million, an increase of
$20.8 million from $440.6 million at December 31, 1996. The increase resulted
from investing funds acquired with the Acquisitions. During 1996, securities
decreased $33.3 million from $473.9 million at December 31, 1995, reflecting the
Company's use of funds from maturities to fund loans. During 1995, the Company
transferred from held-to-maturity to available-for-sale accounts securities with
an amortized cost of $339.8 million and net unrealized gains of $6.2 million at
the date of transfer. The transfer was made in light of pending branch sales in
order to maintain the Company's interest rate risk position.
54
<PAGE> 63
The following table presents the amortized cost of securities classified as
available-for-sale and their approximate fair values as of the dates shown:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------------------------------- ----------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE COST GAIN LOSS VALUE
--------- ---------- ---------- -------- --------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
securities................. $148,956 $1,436 $-- $150,392 $275,781 $3,432 $ 77 $279,136
Mortgage-backed
securities................. 37,661 31 73 37,619 45,728 40 218 45,550
Other securities............ 37 -- -- 37 37 -- -- 37
-------- ------ --- -------- -------- ------ ---- --------
Total................ $186,654 $1,467 $73 $188,048 $321,546 $3,472 $295 $324,723
======== ====== === ======== ======== ====== ==== ========
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
--------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Government
securities................. $369,747 $8,161 $108 $377,800
Mortgage-backed
securities................. -- -- -- --
Other securities............ 37 -- -- 37
-------- ------ ---- --------
Total................ $369,784 $8,161 $108 $377,837
======== ====== ==== ========
</TABLE>
The following table presents the amortized cost of securities classified as
held-to-maturity and their approximate fair values as of the dates shown:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------------------------------- ----------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE COST GAIN LOSS VALUE
--------- ---------- ---------- -------- --------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government securities... $ 65,696 $ 819 $ -- $ 66,515 $ -- $-- $ -- $ --
Mortgage-backed securities... 206,691 699 908 206,482 115,902 68 1,661 114,309
Other securities............. 1,000 2 -- 1,002 -- -- -- --
-------- ------ ---- -------- -------- --- ------ --------
Total................. $273,387 $1,520 908 $273,999 $115,902 $68 $1,661 $114,309
======== ====== ==== ======== ======== === ====== ========
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
--------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Government securities... $ -- $ -- $ -- $ --
Mortgage-backed securities... 96,074 103 941 95,236
Other securities............. -- -- -- --
------- ---- ---- -------
Total................. $96,074 $103 $941 $95,236
======= ==== ==== =======
</TABLE>
Mortgage-backed securities are securities which have been developed by
pooling a number of real estate mortgages and are principally issued by federal
agencies such as the Federal National Mortgage Association and the Federal Home
Loan Mortgage Corporation. These securities are deemed to have high credit
ratings, and minimum regular monthly cash flows of principal and interest are
guaranteed by the issuing agencies. Included in the Company's mortgage-backed
securities at December 31, 1997 were $26.0 million in agency-issued collateral
mortgage obligations and $516,000 in privately-issued collateral mortgage
obligations.
At December 31, 1997, 13.5% of the mortgage-backed securities held by the
Company had final maturities of more than 10 years. However, unlike U.S.
Treasury and U.S. government agency securities, which have a lump sum payment at
maturity, mortgage-backed securities provide cash flows from regular principal
and interest payments and principal prepayments throughout the lives of the
securities. Mortgage-backed securities which are purchased at a premium will
generally suffer decreasing net yields as interest rates drop because home
owners tend to refinance their mortgages. Thus, the premium paid must be
amortized over a shorter period. Therefore, securities purchased at a discount
will obtain higher net yields in a decreasing interest rate environment. As
interest rates rise, the opposite will generally be true. During a period of
increasing interest rates, fixed rate mortgage-backed securities do not tend to
experience heavy prepayments of principal and consequently, the average life of
this security will not be unduly shortened. If interest rates begin to fall,
prepayments will increase. Approximately $39.5 million of the Company's
mortgage-backed securities earn interest at floating rates and reprice within
one year, and accordingly are less susceptible to declines in value should
interest rates increase.
In December of 1996, the Company purchased $30.4 million of mortgage-backed
securities classified as held-to-maturity. This transaction, which settled in
January of 1997, was the principal cause of the $29.9 million decline in other
liabilities from December 31, 1996 to December 31, 1997. See "Note N --
Supplemental Statement of Cash Flow Information" to the Financial Statements.
Deposits
The Company offers a variety of deposit accounts having a wide range of
interest rates and terms. The Company's deposits consist of demand, savings,
money market and time accounts. The Company relies primarily on competitive
pricing policies and customer service to attract and retain these deposits. The
Company does not have any brokered deposits.
55
<PAGE> 64
Average total deposits during 1997 increased to $851.6 million from $695.7
million in 1996, an increase of $156.0 million or 22.4%. The increase resulted
primarily from deposits acquired with the Acquisitions. Average total deposits
during 1996 decreased $77.1 million or 10.0% from $772.8 million in 1995.
Approximately 79.3% of the decline occurred in certificates of deposit which
lowered the cost of deposits to 3.40% in 1996 from 3.51% in 1995 and increased
the ratio of average demand deposits to average total deposits to 32.5% in 1996
from 29.3% in 1995. The decrease resulted primarily from the sales of five
branch locations with approximately $77.4 million in deposits and the continued
repricing of maturing deposits acquired in the branch acquisitions of 1994 into
a lower rate structure. The Company's ratios of average noninterest-bearing
demand deposits to average total deposits for years ended December 31, 1997,
1996 and 1995 were 16.7%, 16.5% and 14.7%, respectively.
The Company's lending and investing activities are funded principally by
deposits, approximately 50.5% of which are demand and savings deposits. Average
noninterest-bearing deposits at December 31, 1997 were $142.6 million as
compared to $114.9 million for 1996, an increase of $27.8 million or 24.2%.
Approximately 16.7% of average deposits for the year ended December 31, 1997
were noninterest-bearing. The amount of deposits grew due to a combination of
new location acquisitions and the opening of a new branch in the Galleria area
of Houston.
The daily average balances and weighted average rates paid on deposits for
each of the years ended December 31, 1997, 1996, and 1995 are presented below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- ---- -------- ---- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Money market checking.............. $123,896 2.03% $110,992 2.26% $112,902 2.30%
Regular savings.................... 90,410 2.37 91,630 2.44 109,552 2.63
Money market savings............... 71,290 3.71 38,969 3.24 36,230 3.16
Time deposits less than $100,000... 311,251 5.24 257,958 5.16 307,352 5.00
Time deposits $100,000 and over.... 112,114 5.50 81,251 5.37 93,009 5.54
-------- ---- -------- ---- -------- ----
Total interest-bearing
deposits............... 708,961 4.20 580,800 4.08 659,045 4.12
Noninterest-bearing deposits....... 142,642 -- 114,853 -- 113,707 --
-------- ---- -------- ---- -------- ----
Total deposits........... $851,603 3.50% $695,653 3.40% $772,752 3.51%
======== ==== ======== ==== ======== ====
</TABLE>
The following table sets forth the amount of the Company's certificates of
deposit that are $100,000 or greater by time remaining until maturity:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
3 months or less............................................ $ 48,207
Between 3 months and 6 months............................... 29,063
Between 6 months and 1 year ................................ 24,130
Over 1 year................................................. 21,604
--------
Total............................................. $123,004
========
</TABLE>
Interest Rate Sensitivity and Liquidity
The Company's Funds Management Policy provides management with the
necessary guidelines for effective funds management, and the Company has
established a measurement system for monitoring its net interest rate
sensitivity position. The Company manages its sensitivity position within
established guidelines.
56
<PAGE> 65
An interest rate sensitive asset or liability is one that, within a defined
time period, either matures or experiences an interest rate change in line with
general market interest rates. The management of interest rate risk is performed
by analyzing the maturity and repricing relationships between interest-earning
assets and interest-bearing liabilities at specific points in time ("GAP") and
by analyzing the effects of interest rate changes on net interest income over
specific periods of time by projecting the performance of the mix of assets and
liabilities in varied interest rate environments. Interest rate sensitivity
reflects the potential effect on net interest income of a movement in interest
rates. A company is considered to be asset sensitive, or having a positive GAP,
when the amount of its interest-earning assets maturing or repricing within a
given period exceeds the amount of its interest-bearing liabilities also
maturing or repricing within that time period. Conversely, a company is
considered to be liability sensitive, or having a negative GAP, when the amount
of its interest-bearing liabilities maturing or repricing within a given period
exceeds the amount of its interest-earning assets also maturing or repricing
within that time period. During a period of rising interest rates, a negative
GAP would tend to affect adversely net interest income, while a positive GAP
would tend to result in an increase in net interest income. During a period of
falling interest rates, a negative GAP would tend to result in an increase in
net interest income, while a positive GAP would tend to affect net interest
income adversely.
The following table sets forth an interest rate sensitivity analysis for
the Company at December 31, 1997:
<TABLE>
<CAPTION>
VOLUMES SUBJECT TO REPRICING WITHIN
-------------------------------------------------------------------------------------------
GREATER
0-30 31-180 181-365 1-3 3-5 5-10 THAN
DAYS DAYS DAYS YEARS YEARS YEARS 10 YEARS TOTAL
---------- ---------- ---------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Securities.............. $ 57,964 $ 53,245 $ 64,528 $193,213 $ 35,872 $ 54,847 $ 372 $460,041
Loans................... 52,997 51,260 44,441 129,788 86,314 46,443 11,575 422,818
Federal funds sold and
other temporary
investments........... 29,478 -- -- -- -- -- -- 29,478
---------- ---------- ---------- -------- -------- -------- -------- --------
Total interest-
earning
assets.......... 140,439 104,505 108,969 323,001 122,186 101,290 11,947 912,337
---------- ---------- ---------- -------- -------- -------- -------- --------
Interest-bearing
liabilities:
Demand, money market and
savings deposits...... 284,632 -- -- -- -- -- -- 284,632
Certificates of deposit
and other time
deposits.............. 47,801 161,796 94,695 93,256 29,811 912 15 428,286
Federal funds purchased
and securities sold
under repurchase
agreements............ 17,132 -- -- -- -- -- -- 17,132
---------- ---------- ---------- -------- -------- -------- -------- --------
Total interest-
bearing
liabilities..... 349,565 161,796 94,695 93,256 29,811 912 15 730,050
---------- ---------- ---------- -------- -------- -------- -------- --------
Period GAP................ $ (209,126) $ (57,291) $ 14,274 $229,745 $ 92,375 $100,378 $ 11,932 $182,287
Cumulative GAP............ $ (209,126) $ (266,417) $ (252,143) $(22,398) $ 69,977 $170,355 $182,287
Period GAP to total
assets.................. (21.82)% (5.98)% 1.49% 23.97% 9.64% 10.47% 1.25%
Cumulative GAP to total
assets.................. (21.82)% (27.80)% (26.31)% (2.34)% 7.30% 17.78% 19.02%
Cumulative
interest-earning assets
to cumulative
interest-bearing
liabilities............. 40.18% 47.90% 58.40% 96.80% 109.60% 123.34% 124.97%
</TABLE>
Shortcomings are inherent in GAP analysis since certain assets and
liabilities may not move proportionally as interest rates change. Consequently,
in addition to GAP analysis the Company uses a simulation model and shock
analysis to test the interest rate sensitivity of net interest income and the
balance sheet, respectively. Based on the Company's December 31, 1997 simulation
analysis, the Company estimates that a 200 basis point rise or decline in rates
over the next twelve month period would have an impact of less than 3.0% on its
net interest income for the same period. The change is relatively small, despite
the Company's liability sensitive GAP position. This results primarily from the
behavior of demand, money market and savings deposits. The Company has found
that historically, interest rates on these deposits change more slowly in a
57
<PAGE> 66
rising rate environment than in a declining rate environment. The Company
maintains an Investment Committee that reviews the Company's interest rate risk
position, generally on a monthly basis.
Liquidity involves the Company's ability to raise funds to support asset
growth or reduce assets to meet deposit withdrawals and other payment
obligations, to maintain reserve requirements and otherwise to operate the
Company on an ongoing basis. During the past three years, the Company's
liquidity needs have been met primarily by financing activities, which consisted
mainly of growth in core deposits, supplemented by earnings through operating
activities. In the Company's investing activities, highly liquid securities have
provided much flexibility as demonstrated in meeting the cash demands of the
branch sale in 1995. Although access to purchased funds from correspondent banks
is available and has been utilized on occasion to take advantage of investment
opportunities, the Company does not generally rely on these external funding
sources.
Capital Resources
Capital management consists of providing equity to support both current and
future operations. The Company is subject to capital adequacy requirements
imposed by the Federal Reserve and Prime Bank is subject to capital adequacy
requirements imposed by the FDIC and the TDB. Both the Federal Reserve and the
FDIC have adopted risk-based capital requirements for assessing bank holding
company and bank capital adequacy. These standards define capital and establish
minimum capital requirements in relation to assets and off-balance sheet
exposure, adjusted for credit risk. The risk-based capital standards currently
in effect are designed to make regulatory capital requirements more sensitive to
differences in risk profiles among bank holding companies and banks, to account
for off-balance sheet exposure and to minimize disincentives for holding liquid
assets. Assets and off-balance sheet items are assigned to broad risk
categories, each with appropriate relative risk weights. The resulting capital
ratios represent capital as a percentage of total risk-weighted assets and
off-balance sheet items.
The risk-based capital standards issued by the Federal Reserve apply to the
Company. These guidelines relate a financial institution's capital to the risk
profile of its assets. The risk-based capital standards require all financial
institutions to have "Tier 1 capital" of at least 4.0% and "total risk-based"
capital (Tier 1 and Tier 2) of at least 8.0% of total risk-adjusted assets.
"Tier 1 capital" generally includes common shareholders' equity and qualifying
perpetual preferred stock together with related surpluses and retained earnings,
less deductions for goodwill and various other intangibles. "Tier 2 capital" may
consist of a limited amount of intermediate-term preferred stock, a limited
amount of term subordinated debt, certain hybrid capital instruments and other
debt securities, perpetual preferred stock not qualifying as Tier 1 capital, and
a limited amount of the general valuation allowance for loan losses. The sum of
Tier 1 capital and Tier 2 capital is "total risk-based capital."
The Federal Reserve has also adopted guidelines which supplement the
risk-based capital guidelines with a minimum ratio of Tier 1 capital to average
total consolidated assets ("leverage ratio") of 3.0% for institutions with well
diversified risk, including no undue interest rate exposure; excellent asset
quality; high liquidity; good earnings; and that are generally considered to be
strong banking organizations, rated composite 1 under applicable federal
guidelines, and that are not experiencing or anticipating significant growth.
Other banking organizations are required to maintain a leverage ratio of at
least 4.0% to 5.0%. These rules further provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain
capital positions substantially above the minimum supervisory levels and
comparable to peer group averages, without significant reliance on intangible
assets.
Pursuant to Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), each federal banking agency revised its risk-based capital standards
to ensure that those standards take adequate account of interest rate risk,
concentration of credit risk and the risks of nontraditional activities, as well
as reflect the actual performance and expected risk of loss on multifamily
mortgages. Prime Bank is subject to capital adequacy guidelines of the FDIC that
are substantially similar to the Federal Reserve's guidelines. Also pursuant to
FDICIA, the FDIC has promulgated regulations setting the levels at which an
insured institution such as Prime Bank would be considered "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized"
and "critically undercapitalized." Prime Bank is classified "well
58
<PAGE> 67
capitalized" for purposes of the FDIC's prompt corrective action regulations.
SEE "SUPERVISION AND REGULATION -- THE COMPANY" AND "-- PRIME BANK".
Shareholders' equity increased to $71.5 million at December 31, 1997 from
$62.0 million at December 31, 1996, an increase of $9.5 million or 15.3%. This
increase was primarily the result of net income of $11.4 million, net proceeds
from an initial public offering of $7.4 million, offset by a decline in the net
unrealized appreciation on available-for-sale securities of $1.2 million,
dividends paid of $1.9 million, and the redemption of preferred stock of $6.0
million. During 1996, shareholders' equity increased by $3.6 million or 6.2%,
from $58.3 million at December 31, 1995. In addition to net income of $9.2
million, the increase reflected a decline of $3.2 million in net unrealized
appreciation on available-for-sale securities and dividends paid of $1.9
million.
The following table provides a comparison of the Company's and Prime Bank's
leverage and risk-weighted capital ratios as of December 31, 1997 to the minimum
and well-capitalized regulatory standards:
<TABLE>
<CAPTION>
ACTUAL RATIO AT
MINIMUM REQUIRED WELL-CAPITALIZED DECEMBER 31, 1997
---------------- ---------------- -----------------
<S> <C> <C> <C>
THE COMPANY
Leverage ratio........................ 3.00%(1) N/A 6.82%
Tier 1 risk-based capital ratio....... 4.00% N/A 13.96%
Risk-based capital ratio.............. 8.00% N/A 15.01%
PRIME BANK
Leverage ratio........................ 3.00%(2) 5.00% 6.64%
Tier 1 risk-based capital ratio....... 4.00% 6.00% 13.60%
Risk-based capital ratio.............. 8.00% 10.00% 14.65%
</TABLE>
- ---------------
(1) The Federal Reserve Board may require the Company to maintain a leverage
ratio of up to 200 basis points above the required minimum.
(2) The FDIC may require Prime Bank to maintain a leverage ratio of up to 200
basis points above the required minimum.
THE COMPANY
GENERAL
The Company was incorporated as a business corporation under the laws of
the State of Texas in 1984 to serve as a holding company for Prime Bank, which
was chartered in 1958. Based on total assets at December 31, 1997, the Company
ranks as the second largest independent bank holding company headquartered in
the Houston metropolitan area. The Company provides a broad line of financial
products and services to small and medium-sized businesses and consumers from
its 18 full-service locations. The Company's headquarters are located at 12200
Northwest Freeway, Houston, Texas 77092, and its telephone number is (713)
209-6000. As of December 31, 1997, the Company had total assets of $958.4
million, total loans of $417.9 million, total deposits of $865.1 million and the
shareholders' equity of $71.5 million.
FACILITIES
The Company has 18 full-service locations, ten of which are located in the
greater Houston metropolitan area. The Company also has six offices located in
Southeast Texas, one office (and two loan production officers) in San Antonio,
and one office located in Brenham.
COMPETITION
The banking business is highly competitive, and the profitability of the
Company depends principally on the Company's ability to compete in the market
areas in which its banking operations are located. The Company competes with
other commercial banks, savings banks, savings and loan associations, credit
unions,
59
<PAGE> 68
finance companies, mutual funds, insurance companies, brokerage and investment
banking firms, asset-based non-bank lenders and certain other non-financial
entities, including retail stores which may maintain their own credit programs
and certain governmental organizations which may offer more favorable financing
than the Company. The Company has been able to compete effectively with other
financial institutions by emphasizing customer service, technology and local
office decision-making; by establishing long-term customer relationships and
building customer loyalty; and by providing products and services designed to
address the specific needs of its customers. See "RISK FACTORS -- COMPETITION."
EMPLOYEES
As of December 31, 1997, the Company had 408 full-time employees, two of
whom were executive officers. The Company provides medical and hospitalization
insurance to its full-time employees. The Company considers its relations with
employees to be excellent.
LEGAL PROCEEDINGS
In the normal course of its businesses, the Company from time to time is
involved in legal proceedings. Other than such proceedings incidental to its
business, the Company's management is not aware of any pending or threatened
legal proceedings which, upon resolution, would have a material adverse effect
upon the Company's financial condition, results of operations or cash flows. The
continued absence of such proceedings is a condition to Sunbelt's obligation to
consummate the Consolidations. See "THE CONSOLIDATIONS -- OTHER TERMS AND
CONDITIONS".
INTERESTS OF CERTAIN PERSONS
No director or executive officer of the Company has any material direct or
indirect financial interest in Sunbelt or the Consolidations, except as a
director, executive officer or shareholder of the Company or its shareholders.
MANAGEMENT OF THE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following is a list of all of the directors and executive officers of
the Company, their respective positions with the Company and Prime Bank and
their ages:
<TABLE>
<CAPTION>
NAME POSITION AGE
---- -------- ---
<S> <C> <C>
L. Anderson Creel...... Secretary and Treasurer of the Company and Senior 50
Vice President and Chief Financial Officer of the
Company and Prime Bank
James G. Dickson, Senior Vice President of the Company and Prime Bank 53
Jr...................
Jerry S. Dominy........ Director of the Company and Prime Bank 63
E. J. Guzzo............ Director and President of the Company and Prime Bank 54
Steven H. Jackson...... Bank Senior Vice President of the Company and Prime 37
Bank and Chief Credit Officer of Prime Bank
Walter L. Kopycinski... Senior Vice President of the Company and Prime Bank 61
and Operations Division Manager of Prime Bank
David Pasternak........ Director of the Company and Prime Bank 75
Fredric M. Saunders.... Chairman of the Board and Chief Executive Officer of 66
the Company and Prime Bank
Stuart D. Saunders..... Director, Senior Vice President and General Counsel 33
of the Company and Prime Bank
James B. Wesley........ Director of the Company and Prime Bank 57
</TABLE>
L. Anderson Creel. Mr. Creel joined Prime Bank in 1992 as Senior Vice
President and Chief Financial Officer with 19 years of banking experience,
including serving as Senior Vice President and Controller of First City National
Bank of Houston and Founders Bank in Oklahoma City. He assumed the additional
60
<PAGE> 69
responsibilities of Secretary and Treasurer of the Company in 1996. Mr. Creel
was elected Senior Vice President of the Company in 1997. In addition, Mr. Creel
serves as an Advisory Director for Prime Bank. Mr. Creel received a BS in
Accounting from Louisiana Tech University and is a certified public accountant.
James G. Dickson, Jr. Mr. Dickson joined Prime Bank in 1990 as Senior Vice
President and a branch manager. In 1992, he was promoted to Senior Vice
President in charge of branch administration. Mr. Dickson also serves as an
Advisory Director of Prime Bank. Mr. Dickson was elected a Senior Vice President
of the Company in 1997. Mr. Dickson came to Prime Bank with 12 years of prior
banking experience, including serving as President and Director of First
Freeport National Bank and Senior Vice President of First City Bank -- Humble.
Mr. Dickson was an officer in the United States Army and served in Vietnam. He
received his BBA from the University of Texas at Austin and his MBA from Texas
Christian University.
Jerry S. Dominy. Mr. Dominy became a director of Prime Bank in 1970. He has
served as a director of the Company since it was founded in 1984. Prior to Mr.
Dominy's affiliation with the Company and Prime Bank, he served as an Advisory
Director for North Side Bank from 1961 to 1964 and as a director of Northshore
Bank from 1964 to 1970. Mr. Dominy was a principal owner and Chief Executive
Officer of Dominy, Ford & McPherson, Inc., a Houston based appraisal firm, from
1962 to 1996. He is currently semi-retired from the appraisal business. Mr.
Dominy received his BBA from the University of Houston.
E. J. Guzzo. Mr. Guzzo joined Prime Bank as Executive Vice President and
director in 1983 and became President of Prime Bank in 1984. He was elected as a
director of the Company in 1985 and became President of the Company in 1996. Mr.
Guzzo began his banking career in 1973 with Guaranty Bank & Trust in Alexandria,
Louisiana. He also served as Executive Vice President for Community Bank of
LaFourche, Louisiana from 1977 to 1979, and as Vice President and Manager for
the Bank of New Orleans from 1979 to 1983. Mr. Guzzo was an officer in the
United States Army and served in Vietnam. He received his BBA from Northwestern
State University in Louisiana. Mr. Guzzo is a past Chairman of the North Channel
Area Chamber of Commerce.
Steven H. Jackson. Mr. Jackson joined Prime Bank in 1989 as Senior Vice
President. He has since been promoted to Chief Credit Officer. In addition, Mr.
Jackson serves as an Advisory Director of Prime Bank. Mr. Jackson was elected a
Senior Vice President of the Company in 1997. Mr. Jackson began his banking
career with First City National Bank of Houston from 1981 to 1984 and then
served as Vice President and Unit Manager for Bank One from 1984 to 1989. He
received his BBA from the University of Texas at Austin and is involved in
numerous civic and community activities including the Rotary Club of Houston and
St. Martin's Episcopal Church.
Walter L. Kopycinski. Mr. Kopycinski joined Prime Bank in 1991 as
Operations Division Manager. He has since been promoted to Senior Vice President
and Operations Division Manager. He also serves as an Advisory Director of Prime
Bank. Mr. Kopycinski was elected a Senior Vice President of the Company in 1997.
Mr. Kopycinski has 39 years experience in bank operations. Prior to joining
Prime Bank, he was employed by First City Bank-Texas in both Houston and Dallas,
where he held various departmental manager positions, including Operations
Division Manager with First City in Dallas. Mr. Kopycinski attended the
University of Houston and is also a graduate of the Southwestern Graduate School
of Banking at Southern Methodist University. Mr. Kopycinski is on the board of
directors for the Clearing House of the Southwest, a non-profit organization
which performs check clearing and other services for Texas banks.
David Pasternak. Mr. Pasternak has been a director of Prime Bank since
Prime Bank was chartered in 1958. Mr. Pasternak became a director of the Company
when it was formed in 1984. In 1989, Mr. Pasternak began serving as Chairman of
Prime Bank's Investment Committee. Mr. Pasternak's principal occupation is
investing in real estate and securities.
Fredric M. Saunders. Mr. Saunders joined Prime Bank in 1962 as President
and director. In 1969, Mr. Saunders began serving as Chairman of Prime Bank. The
Company was founded in 1984, and Mr. Saunders served as Chairman and President
from its inception until 1996, when Mr. Guzzo began serving as President of the
Company and Mr. Saunders retained the position of Chairman of the Company. Mr.
Saunders began his banking career in 1957 with MacGregor Park National Bank as
an Assistant Vice
61
<PAGE> 70
President. Next, Mr. Saunders served as Cashier of Bellfort State Bank in 1959
through 1960, and as Cashier for Fairbanks State Bank in 1961. He also served as
an Executive Vice President at Heights Savings and Loan Association from 1969
through 1970. Mr. Saunders received his BBA from the University of Texas at
Austin and is involved in the Rotary Club of Northshore, the North Channel Area
Chamber of Commerce and the YMCA.
Stuart D. Saunders. Mr. Saunders began serving Prime Bank as an Advisory
Director in 1991. In 1994, he joined Prime Bank as Senior Vice President and
General Counsel and became Senior Vice President and General Counsel of the
Company in 1997. Mr. Saunders became a director of the Company and Prime Bank in
1997. Prior to joining Prime Bank, Mr. Saunders practiced law from 1990 to 1994
as an associate in the financial services section of Bracewell & Patterson,
L.L.P. He obtained his BBA from the University of Texas at Austin and his JD
from Baylor University School of Law. Mr. Saunders is a member of the Advisory
Committee for the Institution of Shipboard Education's Semester at Sea program
and is involved in various other civic and community activities. Mr. Saunders is
the son of Fredric M. Saunders.
James B. Wesley. Mr. Wesley became a director of Prime Bank in 1985. He has
served as Chairman of Prime Bank's Audit Committee since 1989 and was elected as
a director of the Company in 1996. Mr. Wesley is a shareholder in the law firm
of Wesley & Herzog, P.C. He is board certified in Estate Planning and Probate
Law, Commercial Real Estate Law, and Farm & Ranch Real Estate Law by the Texas
State Board of Legal Specialization. Mr. Wesley is also a certified public
accountant. He worked as a division manager of trust operations at Texas
Commerce Bank from 1966 to 1969. Mr. Wesley obtained his BBA from the University
of Texas at Austin and his JD from the University of Houston.
Directors are elected for three year terms, classified into Classes I, II
and III. Messrs. Fredric M. Saunders and Guzzo are Class I directors with terms
of office expiring on the date of the Company's annual meeting of shareholders
in 1998; Messrs. Dominy and Pasternak are Class II directors with terms of
office expiring on the date of the Company's annual meeting in 1999; and Messrs.
Stuart D. Saunders and Wesley are Class III directors with terms of office
expiring on the date of the Company's annual meeting of shareholders in 2000.
Each officer of the Company is elected by the Board of Directors of the Company
and holds office until his successor is duly elected and qualified or until his
or her earlier death, resignation or removal.
The Board of Directors has established Audit and Compensation Committees.
The Audit Committee reviews the general scope of the audit conducted by the
Company's independent auditors and matters relating to the Company's internal
control systems. In performing its function, the Audit Committee meets
separately with representatives of the Company's independent auditors and with
representatives of senior management. The Audit Committee is composed of Messrs.
Wesley (Chairman), Pasternak and Dominy, each of whom is an outside director.
The Compensation Committee is responsible for making recommendations to the
Board of Directors with respect to the compensation of the Company's executive
officers and is responsible for the establishment of policies dealing with
various compensation and employee benefit matters. The Compensation Committee
also administers the Company's stock option plans and makes recommendations to
the Board of Directors as to option grants to Company employees under such
plans. The Compensation Committee is comprised of Messrs. Pasternak (Chairman),
Dominy and Wesley, each of whom is an outside director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the formation of the Compensation Committee in 1997, matters
related to compensation, employee benefit matters and stock options were
considered by the Human Resources Committee of Prime Bank, which included E.J.
Guzzo, L. Anderson Creel, Stuart D. Saunders and Fredric M. Saunders. As members
of this committee, Messrs. Guzzo, Creel, Stuart D. Saunders and Fredric M.
Saunders participated in determinations as to compensation and grants of stock
options to executive officers, including themselves. Final determination
regarding compensation and stock options was made by the Board of Directors of
Prime Bank.
62
<PAGE> 71
DIRECTOR COMPENSATION
Directors of the Company do not receive any fees for attending Company
Board meetings. Directors of Prime Bank receive a fee of $250 for each meeting
of Prime Bank's Board of Directors attended and outside directors receive a $300
fee for each Board Committee meeting attended. Mr. Wesley receives a fee of
$10,000 per quarter for serving as Chairman of the Audit Committee. Prime Bank
has historically paid outside Prime Bank directors an annual bonus based on
Prime Bank's performance in lieu of a retainer. In 1997, Prime Bank paid each of
Messrs. Dominy, Pasternak, Smitherman and Wesley, who are also directors of the
Company, a bonus of $5,000.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chairman of the Board and each of the other five most highly compensated
executive officers of the Company (determined as of the end of the last fiscal
year) for each of the two fiscal years ended December 31, 1997:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION(1)
------------------ ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Fredric M. Saunders.................. 1997 $205,100 $121,000 $ 829 $2,371
Chairman of the Board 1996 220,000 121,000 -- 2,250
E. J. Guzzo.......................... 1997 220,000 110,000 2,970 2,371
President 1996 200,000 110,000 3,000 2,250
L. Anderson Creel.................... 1997 100,000 27,500 6,000 1,590
Chief Financial Officer 1996 100,000 27,500 9,000 1,538
James G. Dickson, Jr................. 1997 110,000 28,250 -- 1,650
Senior Vice President 1996 110,000 28,250 12,550 1,793
Steven H. Jackson.................... 1997 110,000 30,250 7,800 1,767
Senior Vice President 1996 110,000 30,250 10,800 1,767
Walter L. Kopycinski................. 1997 100,000 27,500 6,000 1,590
Senior Vice President.............. 1996 100,000 27,500 9,000 1,574
</TABLE>
- ---------------
(1) Consists of contributions by the Company to the 401(k) Plan.
STOCK OPTION PLANS
The Company has outstanding options to purchase 600,000 shares of Common
Stock issued pursuant to incentive stock option plans approved by shareholders
in 1984 (the "1984 Plan") and 1993 (the "1993 Plan.") Under the 1984 Plan, 10%
of the options granted vest immediately following the date of grant and an
additional 10% each year thereafter. Options granted under the 1984 Plan
generally must be exercised within 10 years following the date of grant or no
later than three months after termination of the optionee's employment, if
earlier. Under the 1993 Plan, 20% of the options granted vest at the end of the
first year following the date of grant and an additional 20% each year
thereafter. Options granted under the 1993 Plan generally must be exercised
within 10 years following the date of grant or no later than three months after
termination of the optionee's employment, if earlier.
The Company's Board of Directors and shareholders approved a new stock
option plan in 1997 (the "1997 Plan") which authorizes the issuance of up to
1,000,000 shares of Company Common Stock under both "non-qualified" and
"incentive stock" options to employees and "non-qualified" stock options to
directors who are not employees. Generally, under the 1997 Plan it is intended
that the options will vest 60% at the end of the third year following the date
of grant and an additional 20% at the end of each of the two following years;
however, an individual option may vest as much as 20% at the end of the first or
second year following the date
63
<PAGE> 72
of grant if necessary to maximize the "incentive" tax treatment to the optionee
for the particular option being granted. Options under the 1997 Plan generally
must be exercised within 10 years following the date of grant or no later than
three months after optionee's termination with the Company, if earlier. No
options have been granted under the 1997 Plan.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"). This statement established fair value based
accounting and reporting standards for all transactions in which a company
acquires goods or services by issuing its equity investments, which includes
stock-based compensation plans. Under SFAS 123, compensation cost is measured at
the grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. Fair value of stock options
is determined using an option-pricing model. This statement encourages companies
to adopt as prescribed the fair value based method of accounting to recognize
compensation expense for employee stock compensation plans. However, it does not
require the fair value based method to be adopted but a company must comply with
the disclosure requirements set forth in the statement. The Company has
continued to apply accounting in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, ("APB 25") and related
Interpretations, and, accordingly, provides the pro forma disclosures of net
income and earnings per share.
OPTION GRANTS DURING 1997
The following table sets forth certain information concerning stock options
granted during fiscal 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM
OPTIONS IN FISCAL PRICE PER EXPIRATION ----------------------
NAME GRANTED (#) YEAR SHARE DATE 5% 10%
---- ----------- ---- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
E. J. Guzzo............ 120,000 50.00% $4.17 January 15, 2007 $314,699 $797,509
L. Anderson Creel...... 30,000 12.50% 4.17 January 15, 2007 78,675 199,377
James G. Dickson,
Jr................... 30,000 12.50% 4.17 January 15, 2007 78,675 199,377
Steven H. Jackson...... 30,000 12.50% 4.17 January 15, 2007 78,675 199,377
Walter L. Kopycinski... 30,000 12.50% 4.17 January 15, 2007 78,675 199,377
</TABLE>
STOCK OPTION EXERCISES AND FISCAL YEAR END VALUES
The following table sets forth certain information concerning stock options
exercised during fiscal 1997 and the number and value of unexercised options
held by each of the named executives at December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NUMBER OF UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS IN-THE-MONEY OPTIONS AT
ACQUIRED UPON DOLLAR AT DECEMBER 31, 1997 DECEMBER 31, 1997(2)
OPTION VALUE --------------------------- ---------------------------
NAME EXERCISES REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
E. J. Guzzo............. 90,000 $228,600 12,000 120,000 $222,600 $2,005,200
L. Anderson Creel....... -- -- 48,000 42,000 884,280 719,820
James G. Dickson,
Jr. .................. 3,000 5,520 33,000 42,000 606,030 719,820
Steven H. Jackson....... -- -- 48,000 42,000 884,280 719,820
Walter L. Kopycinski.... -- -- 48,000 42,000 884,280 719,820
</TABLE>
- ---------------
(1) Market value of the underlying securities at exercise date, minus the
exercise price.
(2) Market value of the underlying securities at December 31, 1997, minus the
exercise price.
64
<PAGE> 73
BENEFIT PLAN
The Company has established a contributory profit sharing plan pursuant to
Internal Revenue Code Section 401(k) covering substantially all employees (the
"Plan"). Prime Bank is the Plan administrator and has hired Smith Barney, Inc.
to serve as the trustee and investment advisor. Each year the Company
determines, in its discretion, the amount of matching contributions. The Company
has elected to match 25% of employee contributions not to exceed 6% of the
employee's annual compensation. As an additional incentive to employees, the
Plan does not have a vesting schedule, and thus all employees are 100% vested
from the moment of contribution. Total Plan expenses charged to the Company's
operations for 1997, 1996 and 1995 were approximately $118,000, $97,000 and
$96,000, respectively.
INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Many of the directors, executive officers and principal shareholders of the
Company (i.e., those who own 10% or more of the Common Stock) and their
associates, which include corporations, partnerships and other organizations in
which they are officers or partners or in which they and their immediate
families have at least a 5% interest, are customers of the Company. During 1997,
the Company made loans in the ordinary course of business to many of the
directors, executive officers and principal shareholders of the Company and
their associates, all of which were on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with persons unaffiliated with the Company and did not involve more
than the normal risk of collectibility or present other unfavorable features.
Loans to directors, executive officers and principal shareholders of the Company
are subject to limitations contained in the Federal Reserve Act, the principal
effect of which is to require that extensions of credit by the Company to
executive officers, directors and principal shareholders satisfy the foregoing
standards. On December 31, 1997, all of such loans aggregated $863,000 which was
approximately 1.31% of the Company's Tier 1 capital at such date. The Company
expects to have such transactions or transactions on a similar basis with its
directors, executive officers and principal shareholders and their associates in
the future.
BENEFICIAL OWNERSHIP OF COMPANY COMMON STOCK BY
MANAGEMENT OF THE COMPANY AND PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company Common Stock as of December 31, 1997, and as adjusted
to reflect the issuance of the Company Common Stock in connection with the
Consolidations hereby by (i) each director and executive officer of the Company,
(ii) each person who is known by the Company to own beneficially 5% or more of
the Common Stock and (iii) all directors and executive officers as a group.
Unless otherwise indicated, each person has sole voting and dispositive power
over the shares indicated as owned by such person and the address of each
shareholder is the same as the address of the Company.
<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY OWNED
---------------------------------------
AS OF
NUMBER OF DECEMBER 31,
NAME SHARES 1997 AFTER CONSOLIDATIONS(1)
---- --------- ------------ -----------------------
<S> <C> <C> <C>
L. Anderson Creel............................... 80,970(2) 0.87% 0.79%
James G. Dickson, Jr............................ 70,470(3) 0.76% 0.69%
Jerry S. Dominy................................. 308,385(4) 3.31% 3.01%
E. J. Guzzo..................................... 532,402(5) 5.71% 5.20%
Steven H. Jackson............................... 81,390(6) 0.87% 0.79%
Walter L. Kopycinski............................ 61,170(7) 0.66% 0.60%
David Pasternak................................. 360,006(8) 3.86% 3.52%
Fredric M. Saunders............................. 3,180,720(9) 34.14% 31.07%
Stuart D. Saunders.............................. 10,260(10) 0.11% 0.10%
James B. Wesley................................. 30,000 0.32% 0.29%
Directors and Executive Officers as a Group..... 4,454,473 47.81% 43.51%
</TABLE>
65
<PAGE> 74
- ---------------
(1) Assumes the issuance of 921,058 shares of the Company Common Stock in the
Consolidations.
(2) Includes 54,000 shares which may be acquired within 60 days pursuant to
outstanding stock options.
(3) Includes 39,000 shares which may be acquired within 60 days pursuant to
outstanding stock options.
(4) Includes 94,560 shares owned of record by the Dominy, Ford & Associates
Profit Sharing Plan, over which Mr. Dominy has sole voting and investment
power.
(5) Includes 273,000 shares owned of record by Guzzo Partners, Ltd., 8,700
shares held by Prime Bank as custodian for Mr. Guzzo's individual
retirement account, 54,000 shares which may be acquired within 60 days
pursuant to outstanding stock options and 1,740 shares owned of record by
Mr. Guzzo's two children. Mr. Guzzo has sole voting and investment power
over all of such shares.
(6) Includes 54,000 shares which may be acquired within 60 days pursuant to
outstanding stock options.
(7) Includes 54,000 shares which may be acquired within 60 days pursuant to
outstanding stock options.
(8) Consists of 195,360 shares owned of record by the David and Lillian
Pasternak Family Investment Partnership, Ltd., 40,805 shares owned by the
David Pasternak Grantor Retained Annuity Trust, and 123,841 shares owned by
the Lillian Pasternak Grantor Retained Annuity Trust. Mr. Pasternak has
shared voting and investment power over all of such shares.
(9) Consists of 3,150 shares held of record by the Stuart D. Saunders Trust #1
of which Gayle Saunders, the wife of Fredric M. Saunders, is the trustee,
3,150 shares held of record by the Meredith A. Saunders Mason Trust #1 of
which Gayle Saunders, the wife of Fredric M. Saunders, is the trustee and
3,174,420 shares held of record by Mission-Heights Management Company,
Ltd., a Texas limited partnership ("Mission-Heights"). Fredric M. Saunders
is the managing general partner of Mission-Heights and has sole voting and
investment power over the shares held by Mission-Heights.
(10) Consists of 3,900 shares held by the Stuart D. Saunders Trust #2 of which
Stuart D. Saunders is the trustee, 4,080 shares held of record by the
Chandler Elizabeth Mason 1992 Trust of which Stuart D. Saunders is the
trustee and 2,280 shares held of record by the Trevor James Mason 1994
Trust of which Stuart D. Saunders is the trustee.
66
<PAGE> 75
SELECTED FINANCIAL DATA OF SUNBELT
The following selected financial data should be read in conjunction with
the Financial Statements of Sunbelt and the Notes thereto, appearing elsewhere
in this Proxy Statement/Prospectus, and the information contained in
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF SUNBELT". The selected historical financial data as of and for the
five years ended December 31, 1997 are derived from Sunbelt's Financial
Statements which have been audited by independent public accountants.
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income...................................... $ 7,544 $ 6,720 $ 6,596 $ 5,075 $ 4,269
Interest expense..................................... 2,621 2,148 2,034 1,352 1,355
------- ------- ------- ------- -------
Net interest income................................ 4,923 4,572 4,562 3,723 2,914
Provision for loan losses............................ (371) (145) (107) (262) 32
------- ------- ------- ------- -------
Net interest income after provision for loan
losses........................................... 4,552 4,427 4,455 3,461 2,946
Noninterest income................................... 806 844 883 986 618
Noninterest expenses................................. 4,609 3,796 3,584 3,448 3,283
------- ------- ------- ------- -------
Earnings before taxes.............................. 749 1,475 1,754 999 281
Provision for income tax expense..................... 266 528 623 355 56
------- ------- ------- ------- -------
Net earnings......................................... $ 483 $ 947 $ 1,131 $ 644 $ 225
======= ======= ======= ======= =======
PER SHARE DATA:
Basic and diluted earnings(1)........................ $ 1.05 $ 2.06 $ 2.46 $ 1.40 $ 0.49
Book value........................................... 15.12 14.06 12.24 9.84 8.65
Tangible book value.................................. 15.12 14.06 12.24 9.84 8.65
Cash dividends....................................... -- 0.25 0.25 -- --
Dividend payout ratio................................ -- 12.14% 10.17% -- --
Weighted average common shares outstanding (in
thousands)......................................... 460 460 460 460 460
BALANCE SHEET DATA:
Total assets......................................... $93,775 $89,233 $81,117 $75,935 $70,214
Securities........................................... 18,748 15,511 13,277 15,051 17,530
Loans................................................ 52,765 56,191 50,686 51,828 38,821
Allowance for loan losses............................ 935 536 545 465 292
Total deposits....................................... 84,407 81,351 74,016 70,224 65,136
Total shareholders' equity........................... 6,954 6,467 5,628 4,527 3,980
AVERAGE BALANCE SHEET DATA:
Total assets......................................... $91,080 $80,959 $77,635 $71,189 $63,092
Securities........................................... 17,763 13,149 14,434 15,832 15,272
Loans................................................ 56,460 51,605 51,984 43,993 35,330
Allowance for loan losses............................ 598 530 548 391 334
Total deposits....................................... 82,630 73,425 70,909 67,014 58,399
Total shareholders' equity........................... 7,024 6,189 5,186 4,175 3,837
PERFORMANCE RATIOS:
Return on average assets............................. 0.53% 1.17% 1.46% 0.91% 0.36%
Return on average common equity...................... 6.88 15.30 21.80 15.44 5.87
Net interest margin.................................. 5.90 6.21 6.47 5.89 5.26
Efficiency ratio(2).................................. 80.44 70.10 65.81 73.23 92.95
ASSET QUALITY RATIOS(3):
Nonperforming assets to total loans and other real
estate............................................. 1.14% 1.53% 2.12% 2.00% 3.65%
Net loan charge-offs (recoveries) to average loans... (0.05) 0.30 0.05 0.20 0.12
Allowance for loan losses to gross loans............. 1.77 0.95 1.08 0.90 0.75
Allowance for loan losses to nonperforming
loans(4)........................................... 154.04 61.61 50.28 44.50 20.18
CAPITAL RATIOS(3):
Leverage ratio....................................... 7.40% 7.20% 7.25% 6.36% 6.31%
Average shareholders' equity to average total
assets............................................. 7.71 7.64 6.68 5.86 6.08
Tier 1 risk-based capital ratio...................... 10.80 10.80 12.21 9.48 10.33
Total risk-based capital ratio....................... 12.00 11.70 13.39 10.46 11.24
</TABLE>
67
<PAGE> 76
- ---------------
(1) Basic earnings per share is based upon the weighted average number of common
shares outstanding during the period. Sunbelt has no dilutive potential
common shares.
(2) Calculated by dividing total noninterest expenses, excluding securities
losses, by net interest income plus noninterest income.
(3) At period end, except net loan charge-offs (recoveries) to average loans and
average shareholders' equity to average total assets.
(4) Nonperforming loans consist of nonaccrual loans and restructured loans.
68
<PAGE> 77
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS OF SUNBELT
OVERVIEW
Net earnings available to Shareholders were $483,000, $947,000 and $1.1
million for the years ended December 31, 1997, 1996 and 1995, respectively, and
net earnings per common share were $1.05, $2.06 and $2.46 for these same
periods. The decrease in earnings from 1996 to 1997 resulted from additions to
the reserve for possible loan losses and a retirement accrual for the Chief
Executive Officer. Earnings decline from 1995 to 1996 resulted principally from
reductions in the realized gain on the sale of SBA loans and an increase in
noninterest expenses. Sunbelt posted returns on average assets of 0.53%, 1.17%
and 1.46% and returns on average common equity of 6.88%, 15.30% and 21.80% for
the years ended 1997, 1996 and 1995, respectively.
Total assets at December 31, 1997, 1996 and 1995 were $93.8 million, $89.2
million and $81.1 million, respectively. Total deposits at December 31, 1997,
1996 and 1995 were $84.4, $81.4 million and $74.0 million, respectively. Loans
were $52.8 million at December 31, 1997, a decrease of $3.4 million or 6.10%
from $56.2 million at the end of 1996. Loans were $50.7 million at year end
1995. Shareholders' equity was $7.0 million, $6.5 million and $5.6 million at
December 31, 1997, 1996 and 1995, respectively. Changes in Shareholders' equity
reflects dividends of $115,000 for each of 1996 and 1995.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income represents the amount by which interest income on
interest-earning assets, including securities and loans, exceeds interest
expense incurred on interest-bearing liabilities, including deposits and other
borrowed funds. Net interest income is the principal source of Sunbelt's
earnings. Interest rate fluctuations, as well as changes in the amount and type
of earning assets and liabilities, combine to affect net interest income.
1997 versus 1996. Net interest income increased $351,000 in 1997 from $4.6
million in 1996, primarily due to growth in interest income of $824,000. This
increase was partially offset by an increase in interest expense of $473,000.
This resulted in net interest margins of 5.90% and 6.21% and net interest
spreads of 4.60% and 4.91% for 1997 and 1996, respectively.
The increase in interest income was driven by growth in average
interest-earning assets of $9.8 million or 13.4%. Growth in interest-earning
assets included average loan growth of $4.8 million or 9.4% and growth in
average securities of $4.6 million or 35.1%. At December 31, 1997, however,
total loans were $3.4 million less than at December 31, 1996. This increase in
interest income was accomplished while the yield on average interest-earning
assets declined 9 basis points.
1996 versus 1995. Net interest income totaled $4.6 million in 1996,
virtually unchanged when compared to 1995. The slight 0.25% increase from 1995
to 1996 resulted mainly from an increase in earning assets accompanied by a
small decrease in the average yield on loans. Interest expense increased
$114,000 and was offset by an increase of $124,000 in total interest income.
This resulted in net interest margins of 6.21% and 6.47% and net interest
spreads of 4.91% and 5.28% for 1996 and 1995, respectively.
The increase in interest expense from 1995 to 1996 was due primarily to
higher average interest-bearing deposits of $50.5 million in 1996 versus $49.2
million in 1995. The increase in average interest-bearing deposits was primarily
comprised of a $5.3 million, or 27.3%, increase in certificates of deposit,
which was offset by a decline in other interest bearing deposits. The cost of
average interest-bearing deposits increased to 4.22% in 1996 from 4.05% in 1995.
Interest income on loans decreased to $5.5 million in 1996 from $5.6 million in
1995. The decrease was driven by a decline in the average loan portfolio of
$379,000, or 0.7%, and a decrease in the yield on average loans to 10.59% in
1996 from 10.68% in 1995. Meanwhile, the average securities portfolio declined
$1.3 million, and its yield rose 25 basis points.
69
<PAGE> 78
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,
expressed both in dollars and rates. No tax equivalent adjustments were made and
all average balances are yearly average balances. Nonaccruing loans have been
included in the tables as loans carrying a zero yield.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1997 1996
-------------------------------- --------------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
----------- -------- ------- ----------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans...................... $56,460 $5,968 10.57% $51,605 $5,466 10.59%
Securities................. 17,763 1,057 5.95 13,149 769 5.85
Federal funds sold and
other temporary
investments.............. 9,222 519 5.63 8,846 485 5.48
------- ------ ----- ------- ------ -----
Total
interest-earning
assets............. 83,445 7,544 9.04% 73,600 6,720 9.13%
------- ------ ----- ------- ------ -----
Less allowance for loan
losses..................... 598 530
------- -------
Total interest-earning
assets, net of allowance... 82,847 73,070
Nonearning assets............ 8,233 7,889
------- -------
Total assets......... $91,080 $80,959
======= =======
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing liabilities:
Interest-bearing demand
deposits................. $ 6,574 97 1.48% $ 4,941 95 1.92%
Savings and money market
accounts................. 17,376 634 3.65 18,065 580 3.21
Certificates of deposit.... 34,581 1,867 5.40 27,518 1,451 5.27
Federal funds purchased and
securities sold under
repurchase agreements.... -- -- -- --
TTL note account........... 447 23 5.15 411 22 5.35
------- ------ ----- ------- ------ -----
Total
interest-bearing
liabilities........ 58,978 2,621 4.44% 50,935 2,148 4.22%
------- ------ ----- ------- ------ -----
Noninterest-bearing
liabilities:
Noninterest-bearing demand
deposits................. 24,099 22,901
Other liabilities............ 979 934
------- -------
Total liabilities.... 84,056 74,770
------- -------
Shareholders' equity......... 7,024 6,189
------- -------
Total liabilities and
shareholders'
equity............. $91,080 $80,959
======= =======
Net interest
income............. $4,923 $4,572
====== ======
Net interest
spread............. 4.60% 4.91%
===== =====
Net interest
margin............. 5.90% 6.21%
===== =====
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1995
--------------------------------
AVERAGE INTEREST AVERAGE
OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE
----------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans...................... $51,984 $5,553 10.68%
Securities................. 14,434 808 5.60
Federal funds sold and
other temporary
investments.............. 4,045 235 5.81
------- ------ -----
Total
interest-earning
assets............. 70,463 6,596 9.36%
------- ------ -----
Less allowance for loan
losses..................... 548
-------
Total interest-earning
assets, net of allowance... 69,915
Nonearning assets............ 7,720
-------
Total assets......... $77,635
=======
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing liabilities:
Interest-bearing demand
deposits................. $ 5,357 104 1.94%
Savings and money market
accounts................. 19,749 $ 633 3.21
Certificates of deposit.... 24,109 $1,258 5.22
Federal funds purchased and
securities sold under
repurchase agreements.... 196 $ 13 6.63
TTL note account........... 453 $ 26 5.74
------- ------ -----
Total
interest-bearing
liabilities........ 49,864 $2,034 4.08%
------- ------ -----
Noninterest-bearing
liabilities:
Noninterest-bearing demand
deposits................. 21,694
Other liabilities............ 891
-------
Total liabilities.... 72,449
-------
Shareholders' equity......... 5,186
-------
Total liabilities and
shareholders'
equity............. $77,635
=======
Net interest
income............. $4,562
======
Net interest
spread............. 5.28%
=====
Net interest
margin............. 6.47%
=====
</TABLE>
The following schedule presents the dollar amount of changes in interest
income and interest expense for the major components of interest-earning assets
and interest-bearing liabilities and distinguishes between the
70
<PAGE> 79
increase related to higher outstanding balances and the volatility of interest
rates. For purposes of this table, changes attributable to both rate and volume
which can be segregated have been allocated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1997 VS. 1996
----------------------- 1996 VS. 1995
INCREASE ----------------------------
(DECREASE) INCREASE (DECREASE)
DUE TO DUE TO
-------------- -------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ---- ----- -------- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans.................................. $479 $ 23 $502 $ 27 $(114) $(87)
Securities............................. 275 13 288 (75) 36 (39)
Federal funds sold and other temporary
investments......................... 20 14 34 283 (33) 250
---- ---- ---- ---- ----- ----
Total increase (decrease) in
interest income.............. 774 50 824 235 (111) 124
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits....... 5 (3) 2 (8) (1) (9)
Savings, money market accounts and
certificates of deposit............. 371 99 470 126 14 140
Federal funds purchased and securities
sold under repurchase agreements.... -- -- -- (13) -- (13)
Borrowed funds......................... 2 (1) 1 (3) (1) (4)
---- ---- ---- ---- ----- ----
Total increase (decrease) in
interest expense............. 378 95 473 102 12 114
---- ---- ---- ---- ----- ----
Increase (decrease) in net interest
income.............................. $396 $(45) $351 $133 $(123) $ 10
==== ==== ==== ==== ===== ====
</TABLE>
Provision for Loan Losses
The 1997 provision for loan losses increased to $371,000 from $145,000 in
1996, an increase of $226,000 or 156.1%. The increased provision in 1997
reflected a recognition of several specific problem loans during the fourth
quarter even as net charge-offs of loans continued at relatively low levels
totaling a net recovery of $27,000 or 0.1% of average loans, compared to net
charge-offs of $154,000 or 0.3% of average loans in 1996. The provision for the
year 1996 increased by $38,000 or 35.0% from the year ended 1995 reflecting
charge-offs of previously identified problem loans.
Noninterest Income
Noninterest income is an important source of revenue for financial
institutions in a deregulated environment. Sunbelt's primary source of
noninterest income is service charges on deposit accounts and the sale of the
guaranteed portion of US Small Business Administration guaranteed loans.
Noninterest income for the year ended December 31, 1997 was $806,000, down
from $844,000 in 1996 and down from $883,000 in 1995. This results in annual
percentage decreases of 4.6% and 4.4% for 1997 and
71
<PAGE> 80
1996, respectively. The following table presents for the periods indicated the
major categories of noninterest income:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996 1995
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service charges on deposit accounts........................ $513 $412 $436
Sale of SBA loans.......................................... 237 392 450
Other noninterest income................................... 56 40 (3)
---- ---- ----
Total noninterest income......................... $806 $844 $883
==== ==== ====
</TABLE>
The decrease in noninterest income from 1996 to 1997 was due mainly to a
decrease in realized gains on sales of SBA loans. The decrease in noninterest
income from 1995 to 1996 also resulted mainly from a decrease in realized gains
on sales of SBA loans. Additionally, Sunbelt's increased emphasis on fee based
services resulted in greater income from service charges on deposit accounts of
$101,000 or 24.5% from 1996 to 1997 after a decline of $23,600 or 5.4% from 1995
to 1996.
Noninterest Expense
For the years ended 1997, 1996 and 1995, noninterest expenses totaled $4.6
million, $3.8 million and $3.6 million, respectively. Sunbelt's efficiency
ratios calculated by dividing total noninterest expenses (excluding securities
losses) by net interest income plus noninterest income were 80.5% in 1997, 70.1%
in 1996 and 65.8% in 1995. The efficiency ratio worsened over this period,
reflecting Sunbelt's continued efforts to provide adequate staffing and other
resources to promote growth. Additionally, the efficiency ratio failed to
improve from 1996 to 1997 largely because of the increased 1997 provision for
possible loan losses and a retirement accrual for Sunbelt's Chief Executive
Officer. The following table presents for the periods indicated the major
categories of noninterest expense:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Employee compensation and benefits....................... $2,733 $1,935 $1,742
Non-staff expenses:
Net bank premises expense.............................. 418 350 314
Equipment rentals, depreciation and maintenance........ 207 189 168
Data processing........................................ 265 255 227
Professional fees...................................... 171 153 174
FDIC assessment........................................ 10 2 98
Commissions on sale of SBA loans....................... 30 163 --
Ad valorem and franchise taxes......................... 122 127 89
Other.................................................. 653 622 772
------ ------ ------
Total non-staff expenses....................... 1,876 1,861 1,842
------ ------ ------
Total noninterest expense...................... $4,609 $3,796 $3,584
====== ====== ======
</TABLE>
Employee compensation and benefit expense for the year ended December 31,
1997 was $2.7 million, an increase of $798,000 or 41.2% from $1.9 million for
1996. Employee compensation and benefit expense for the year 1996 was up
$193,000 or 11.1% from 1995. The increase for 1997 resulted primarily from a
retirement accrual for the Chief Executive Officer and increased year-end
officer and employee bonuses. The increase in 1996 resulted mainly from
additions to the staff. Total full-time equivalent employees at December 31,
1997, 1996 and 1995 were 46, 47, and 42, respectively.
Non-staff expenses were $1.9 million in 1997, a slight increase of $13,700
from 1996. The 1996 level increased $20,200 from 1995 non-staff expenses of $1.8
million. Much of the increase from 1995 to 1996 was offset by a decrease in FDIC
deposit insurance fees.
72
<PAGE> 81
Income Taxes
Income tax expense includes the regular federal income tax at the statutory
rate, plus the income tax component of the Texas franchise tax. The amount of
federal income tax expense is influenced by the amount of taxable income, the
amount of tax-exempt income, the amount of non-deductible interest expense and
the amount of other non-deductible expenses. Taxable income for the income tax
component of the Texas franchise tax is the federal pre-tax income, plus certain
officers salaries, less interest income from federal securities. The income tax
component of the Texas franchise tax was zero in 1997, 1996 and 1995. In 1997,
income tax expense was $266,000, a decrease of $261,000 from 1996. In 1996,
income tax expense was $528,000, $96,000 less than 1995. The effective tax rates
in 1997, 1996 and 1995, respectively, were 35.5%, 35.8% and 35.5%.
Impact of Inflation
The effects of inflation on the local economy and on Sunbelt's operating
results have been relatively modest for the past several years. Since
substantially all of Sunbelt's assets and liabilities are monetary in nature,
such as cash, securities, loans and deposits, their values are less sensitive to
the effects of inflation than to changing interest rates, which do not
necessarily change in accordance with inflation rates. Sunbelt tries to control
the impact of interest rate fluctuations by managing the relationship between
its interest rate sensitive assets and liabilities. SEE "-- INTEREST RATE
SENSITIVITY AND LIQUIDITY" BELOW.
FINANCIAL CONDITION
Loan Portfolio
Total loans decreased by $3.4 million or 6.1% to $52.8 million at December
31, 1997, from $56.2 million at December 31, 1996. During 1996, total loans
increased by $5.5 million or 10.9%, from $50.7 million at December 31, 1995. The
decline in loans from 1996 to 1997 resulted from the departure of a senior
lending officer and a resultant loss of loans to competitors and the general
decline in mortgage interest rates which encouraged borrowers to refinance
residential and commercial real estate loans at long term fixed rates lower than
Sunbelt was able to offer.
At December 31, 1997, total loans represented 62.5% of deposits and 56.3%
of total assets. Total loans as a percentage of deposits were 69.1% at December
31, 1996, compared to 68.5% at December 31, 1995.
The following table summarizes the loan portfolio of Sunbelt by type of
loan as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------- ----------------- ----------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
industrial............ $17,522 33.21% $21,584 38.41% $20,960 41.35% $20,967 40.45% $14,681 37.82%
Real estate:
Construction and land
development......... 5,301 10.05 3,837 6.83 5,254 10.37 3,616 6.98 2,978 7.67
1-4 family
residential......... 7,429 14.08 8,831 15.72 3,076 6.07 7,692 14.84 6,347 16.35
Farmland.............. 419 0.79 329 0.58 318 0.63 346 0.67 295 0.76
Multi-family
residential......... 3,449 6.54 2,464 4.39 2,064 4.07 1,239 2.39 1,124 2.90
Real estate-other..... 12,705 24.08 13,040 23.21 13,514 26.66 12,225 23.59 9,187 23.66
Consumer................ 5,940 11.25 6,106 10.86 5,500 10.85 5,743 11.08 4,209 10.84
------- ------ ------- ----- ------- ----- ------- ----- ------- -----
Total loans..... $52,765 100% $56,191 100% $50,686 100% $51,828 100% $38,821 100%
======= ====== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
The primary lending focus of Sunbelt is on loans to small and medium-sized
business and consumer loans. Sunbelt offers a variety of commercial lending
products including term loans, lines of credit and fixed asset loans, including
real estate and equipment financing. A broad range of short to medium-term
commercial loans, primarily collateralized, are made available to businesses for
working capital (including inventory and receivables), business expansion
(including acquisitions of real estate and improvements), and the purchase of
equipment and machinery. The purpose of a particular loan generally determines
its structure.
73
<PAGE> 82
Sunbelt's legal lending limit at December 31, 1997 was $1,183,500. Secured
loans up to $300,000 and unsecured loans up to $100,000 are evaluated and acted
upon by the Chief Executive Officer or the Senior Loan Officers in the absence
of the CEO. Loans above these amounts must be approved by the Directors' Loan
Committee, which meets weekly.
Generally, Sunbelt's commercial loans are underwritten in Sunbelt's primary
market area on the basis of the borrower's ability to service such debt from
income. As a general practice, Sunbelt takes as collateral a lien on any
available real estate, equipment or other assets and obtains a personal
guaranty. Working capital loans are primarily collateralized by short-term
assets and term loans are primarily collateralized by long-term assets.
In addition to commercial loans secured by real estate, Sunbelt makes
commercial mortgage loans to finance the purchase of real property which
generally consists of real estate on which structures have already been
completed. Additionally, a portion of Sunbelt's lending activity has consisted
of the origination of single-family residential mortgage loans collateralized by
owner-occupied properties located in Sunbelt's market areas.
Loans collateralized by single-family residential real estate generally
have been originated in amounts of no more than 80% of appraised value. Sunbelt
requires mortgage title insurance and hazard insurance in the amount of the
loan. Sunbelt originates mortgage loans with maturities of one to five years
based on amortization periods of up to 30 years. Sunbelt retains all of the
mortgage loans that it originates.
Sunbelt's commercial mortgage loans are secured by first liens on real
estate, typically have fixed interest rates and amortize over a 10 to 15 year
period with balloon payments due at the end of three to five years. In
underwriting commercial mortgage loans, consideration is given to the property's
operating history, future operating projections, current and projected
occupancy, location and physical condition. The underwriting analysis also
includes credit checks, appraisals and a review of the financial condition of
the borrower.
Sunbelt makes loans to finance the construction of residential and, to a
limited extent, nonresidential properties. Construction loans generally are
secured by first liens on real estate. Sunbelt conducts periodic inspections,
either directly or through an agent, prior to approval of periodic draws on
these loans. Underwriting guidelines similar to those described above are also
used in Sunbelt's construction lending activities.
Consumer loans made by Sunbelt include automobile loans, recreational
vehicle loans, boat loans, home improvement loans, personal loans
(collateralized and uncollateralized) and deposit account collateralized loans.
The terms of these loans typically range from 12 to 120 months and vary based
upon the nature of collateral and size of loan.
The contractual maturity ranges of the commercial and industrial and real
estate construction loan portfolio and the amount of such loans with
predetermined interest rates and floating rates in each maturity range as of
December 31, 1997 are summarized in the following table:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------
AFTER ONE
ONE YEAR THROUGH AFTER
OR LESS FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Commercial and industrial................... $17,074 $448 $ -- $17,522
Real estate construction.................... 5,268 33 -- 5,301
------- ---- ---- -------
Total............................. 22,342 481 -- 22,823
======= ==== ==== =======
Loans with a predetermined interest rate.... 5,168 33 -- 5,201
Loans with a floating interest rate ........ 17,174 448 -- 17,622
------- ---- ---- -------
Total............................. $22,342 $481 $ -- $22,823
======= ==== ==== =======
</TABLE>
Effective January 1, 1995, Sunbelt adopted SFAS No. 114, Accounting for
Creditors for Impairment of a Loan, as amended by SFAS No. 118, Accounting by
Creditors for Impairment of a Loan- Income Recognition
74
<PAGE> 83
and Disclosures. Under SFAS No. 114, as amended, a loan is considered impaired
based on current information and events, if it is probable that Sunbelt will be
unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. The measurement of
impaired loans is based on the present value of expected future cash flows
discounted at the loan's effective interest rate or the loan's observable market
price or based on the fair value of the collateral if the loan is
collateral-dependent. The implementation of SFAS No. 114 did not have a material
adverse affect on Sunbelt's financial statements.
Nonperforming Assets
Sunbelt has several procedures in place to assist it in maintaining the
overall quality of its loan portfolio. Sunbelt has established underwriting
guidelines to be followed by its officers. Sunbelt also monitors its delinquency
levels for any negative or adverse trends. There can be no assurance, however,
that Sunbelt's loan portfolio will not become subject to increasing pressures
from deteriorating borrower credit due to general economic conditions.
Sunbelt's conservative lending approach, as well as a healthy local
economy, have resulted in strong asset quality. Nonperforming assets at December
31, 1997 were $607,000 compared to $870,000 at December 31, 1996 and $1.1
million at December 31, 1995. This resulted in ratios of nonperforming assets to
total loans plus other real estate of 1.14%, 1.53% and 2.12% for the years ended
1997, 1996 and 1995, respectively.
Sunbelt generally places a loan on nonaccrual status and ceases accruing
interest when loan payment performance is deemed unsatisfactory. All loans past
due 90 days, however, are placed on nonaccrual status, unless the loan is both
well-secured and in the process of collection. Cash payments received while a
loan is classified as nonaccrual are recorded as a reduction of principal as
long as doubt exists as to collection. Sunbelt is sometimes required to revise a
loan's interest rate or repayment terms in a troubled debt restructuring.
Sunbelt had restructured loans of $95,000 at December 31, 1997 and none at
December 31, 1996. Sunbelt's internal loan review department evaluates
additional loans which are potential problem loans as to risk exposure in
determining the adequacy of the allowance for loan losses.
Sunbelt maintains on an ongoing basis updated appraisals on loans secured
by real estate, particularly those categorized as nonperforming loans and
potential problem loans. In instances where updated appraisals reflect reduced
collateral values, an evaluation of the borrower's overall financial condition
is made to determine the need, if any, for possible writedowns or appropriate
additions to the allowance for loan losses. Sunbelt records other real estate at
fair value at the time of acquisition, less estimated costs to sell.
The following table presents information regarding nonperforming assets at
the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1997 1996 1995 1994 1993
---- ---- ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans............................. $ -- $252 $ 410 $ 247 $ 274
Restructured loans........................... 95 -- 162 286 308
Other real estate............................ 512 618 512 512 865
---- ---- ------ ------ ------
Total nonperforming assets......... $607 $870 $1,084 $1,045 $1,447
==== ==== ====== ====== ======
Nonperforming assets to total loans and other
real estate................................ 1.14% 1.53% 2.12% 2.00% 2.87%
</TABLE>
Allowance for Loan Losses
The allowance for loan losses is a reserve established through charges to
earnings in the form of a provision for loan losses. Management has established
an allowance for loan losses which it believes is adequate for estimated losses
in Sunbelt's loan portfolio. Based on an evaluation of the loan portfolio,
management presents a quarterly review of the allowance for loan losses to
Sunbelt's Loan Review Committee and to the Board of Directors, indicating any
change in the allowance since the last review and any recommendations as to
adjustments in the allowance. In making its evaluation, management considers the
75
<PAGE> 84
diversification by industry of Sunbelt's commercial loan portfolio, the effect
of changes in the local real estate market on collateral values, the results of
recent regulatory examinations, the effects on the loan portfolio of current
economic indicators and their probable impact on borrowers, the amount of
charge-offs for the period, the amount of nonperforming loans and related
collateral security, the evaluation of its loan portfolio by the loan review
function and the annual examination of Sunbelt's financial statements by its
independent auditors. Charge-offs occur when loans are deemed to be
uncollectible.
Sunbelt follows a loan review program to evaluate the credit risk in the
loan portfolio. Through the loan review process, Sunbelt maintains an internally
classified loan list which, along with the delinquency list of loans, helps
management assess the overall quality of the loan portfolio and the adequacy of
the allowance for loan losses. Loans classified as "substandard" are those loans
with clear and defined weaknesses such as a highly-leveraged position,
unfavorable financial ratios, uncertain repayment sources or poor financial
condition, which may jeopardize recoverability of the debt. At December 31,
1997, Sunbelt had $1.8 million of such loans.
Loans classified as "doubtful" are those loans which have characteristics
similar to substandard accounts but with an increased risk that a loss may
occur, or at least a portion of the loan may require a charge-off if liquidated
at present. Although loans classified as substandard do not duplicate loans
classified as doubtful, both substandard and doubtful loans include some loans
that are delinquent at least 30 days or on nonaccrual status. Loans classified
as "loss" are those loans which are in the process of being charged off.
In addition to the internally classified loan list and delinquency list of
loans, Sunbelt maintains a separate "watch list" which further aids Sunbelt in
monitoring loan portfolios. Watch list loans show warning elements where the
present status portrays one or more deficiencies that require attention in the
short term or where pertinent ratios of the loan account have weakened to a
point where more frequent monitoring is warranted. These loans do not have all
of the characteristics of a classified loan (substandard or doubtful) but do
show weakened elements as compared with those of a satisfactory credit. Sunbelt
reviews these loans to assist in assessing the adequacy of the allowance for
loan losses. At December 31, 1997, Sunbelt had $124,000 of such loans, which
primarily consisted of commercial loans.
In order to determine the adequacy of the allowance for loan losses,
management considers the risk classification or delinquency status of loans and
other factors, such as collateral value, portfolio composition, trends in
economic conditions and the financial strength of borrowers. Management
establishes specific allowances for loans which management believes require
reserves greater than those allocated according to their classification or
delinquent status. An unallocated allowance is also established based on
Sunbelt's historical charge-off experience. Sunbelt then charges to operations a
provision for loan losses to maintain the allowance for loan losses at an
adequate level determined by the foregoing methodology.
For the year ended 1997, net loan recoveries totaled $27,000 or 0.5% of
average loans outstanding for the period, compared to $154,000 or 0.3% in net
loan charge-offs during 1996. During 1997, Sunbelt recorded a provision for loan
losses of $371,000 compared to $145,000 for 1996. At December 31, 1997, the
allowance totaled $935,000 or 1.8% of total loans. Sunbelt made a provision for
loan losses of $145,000 during 1996 as compared to a provision of $107,000 for
1995. At December 31, 1996, the allowance aggregated $536,000 or 1.0% of total
loans.
76
<PAGE> 85
The following table presents, for the periods indicated, an analysis of the
allowance for loan losses and other related data:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average loans outstanding.................... $56,460 $51,605 $51,984 $43,993 $35,330
------- ------- ------- ------- -------
Gross loans outstanding at end of period..... 52,765 56,191 50,686 51,828 38,821
------- ------- ------- ------- -------
Allowance for loan losses at beginning of
period..................................... 536 545 465 292 342
Provision for loan losses.................... 371 145 107 262 (32)
Charge-offs:
Commercial and industrial.................. (25) (128) (66) (82) (46)
Real estate................................ -- (19) (2) -- (54)
Consumer................................... (7) (39) (9) (99) --
Recoveries:
Commercial and industrial.................. 60 28 50 89 49
Real estate................................ -- -- -- -- 33
Consumer................................... -- 4 -- 3 --
------- ------- ------- ------- -------
Net loan (charge-offs) recoveries............ 28 (154) (27) (89) (18)
Allowance for loan losses at end of period... $ 935 $ 536 $ 545 $ 465 $ 292
======= ======= ======= ======= =======
Ratio of allowance to end of period loans.... 1.77% 0.95% 1.08% 0.90% 0.75%
Ratio of net loan charge-offs to average
loans...................................... 0.05 (0.30) (0.05) (0.20) (0.05)
Ratio of allowance to end of period
nonperforming loans........................ 154.04 61.61 50.28 44.50 20.18
</TABLE>
The following tables describe the allocation of the allowance for loan
losses among various categories of loans and certain other information for the
dates indicated. The allocation is made for analytical purposes and is not
necessarily indicative of the categories in which future losses may occur. The
total allowance is available to absorb losses from any segment of loans.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1997 1996 1995
-------------------- -------------------- --------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS TO LOANS TO LOANS TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ----------- ------ ----------- ------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance of allowance for
loan losses applicable to:
Commercial and
industrial............. $142 33.21% $ 37 38.41% $ 28 41.35%
Real estate:
Construction and land
development.......... -- 10.05 -- 6.83 21 10.37
1-4 family
residential.......... -- 14.08 -- 15.72 -- 6.07
Real estate-other...... 56 24.08 60 23.21 50 26.66
Farmland............... -- 0.79 -- 0.58 -- 0.63
Multi-family........... -- 6.54 -- 4.39 -- 4.07
Consumer.................. 2 11.25 3 10.86 25 10.85
Unallocated............... 735 436 421
---- ----- ---- ----- ---- -----
Total allowance
for loan
losses.......... $935 100% $536 100% $545 100%
==== ===== ==== ===== ==== =====
</TABLE>
77
<PAGE> 86
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1994 1993
--------------------- ---------------------
PERCENT OF PERCENT OF
LOANS TO LOANS TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ----------- ------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance of allowance for loan losses applicable
to:
Commercial and industrial...................... $ 63 40.45% $ 85 37.82%
Real estate:
Construction and land development........... -- 6.98 -- 7.67
1-4 family residential...................... 8 14.84 49 16.35
Real estate-other........................... -- 23.59 22 23.66
Farmland.................................... -- 0.67 -- 0.76
Multi-family................................ -- 2.39 -- 2.90
Consumer....................................... -- 11.08 29 10.84
Unallocated.................................... 394 107
---- ------ ---- ------
Total allowance for loan losses........ $465 100% $292 100%
==== ====== ==== ======
</TABLE>
Sunbelt believes that the allowance for loan losses at December 31, 1997 is
adequate to cover losses inherent in the portfolio as of such date. There can be
no assurance, however, that Sunbelt will not sustain losses in future periods,
which could be substantial in relation to the size of the allowance at December
31, 1997.
Securities
Sunbelt uses its securities portfolio primarily as a source of liquidity
and secondarily as a source of income. At December 31, 1997, investment
securities totaled $18.7 million, an increase of $3.2 million from $15.5 million
at December 31, 1996. The increase was primarily attributable to excess
liquidity resulting from deposit growth exceeding loan growth. At December 31,
1997, investment securities represented 20.0% of total assets compared to 17.4%
of total assets at December 31, 1996. The yield on the investment portfolio for
the year ended December 31, 1997 was 5.95% compared to a yield of 5.85% for the
year ended December 31, 1996.
The following table summarizes the amortized cost of investment securities
held by Sunbelt as of the dates shown:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
U.S. Government securities............................... $ 6,200 $ 4,788 $ 2,000
Mortgage-backed securities............................... 11,149 10,095 11,157
Other securities......................................... 1,402 638 138
------- ------- -------
Total securities............................... $18,751 $15,521 $13,295
======= ======= =======
</TABLE>
78
<PAGE> 87
The following table summarizes the contractual maturity of investment
securities and their weighted average yields:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------------------------------------
AFTER FIVE
AFTER ONE YEARS BUT
WITHIN YEAR BUT WITHIN WITHIN
ONE YEAR FIVE YEARS TEN YEARS AFTER TEN YEARS
-------------- ---------------- -------------- ---------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD TOTAL YIELD
------ ----- ------- ------ ------ ----- ------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
securities................ $2,890 5.87% $3,310 6.01% $ -- --% $ -- --% $ 6,200 5.95%
Mortgage-backed and other
securities................ -- -- -- -- 220 6.67 10,929 6.36 11,149 6.37%
Other securities ........... 902 5.72 500 6.46 -- -- -- -- 1,402 5.98%
------ ---- ------ ---- ---- ---- ------- ---- ------- ----
Totals.............. $3,792 5.85% $3,810 6.06% $220 6.67% $10,929 6.36% $18,751 6.21%
====== ==== ====== ==== ==== ==== ======= ==== ======= ====
</TABLE>
Effective January 1, 1994, Sunbelt adopted Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities (Statement 115). At the date of purchase, Sunbelt is required
to classify debt and equity securities into one of three categories:
held-to-maturity, trading or available-for-sale. At each reporting date, the
appropriateness of the classification is reassessed. Investments in debt
securities are classified as held-to-maturity and measured at amortized cost in
the financial statements only if management has the positive intent and ability
to hold those securities to maturity. Securities that are bought and held
principally for the purpose of selling them in the near term are classified as
trading and measured at fair value in the financial statements with unrealized
gains and losses included in earnings. Investments not classified as either
held-to-maturity or trading are classified as available-for-sale and measured at
fair value in the financial statements with unrealized gains and losses
reported, net of tax, in a separate component of shareholders' equity until
realized.
The following table summarizes the carrying value and classification of
securities as of the dates shown:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Available-for-sale....................................... $ 899 $ 628 $ 2,120
Held-to-maturity......................................... 17,849 14,883 10,913
------- ------- -------
Total securities............................... $18,748 $15,511 $13,033
======= ======= =======
</TABLE>
At December 31, 1997, securities totaled $18.7 million, an increase of $3.2
million from $15.5 million at December 31, 1996. The increase occurred primarily
in U.S. Government securities and reflected Sunbelt's greater ability to attract
deposits than loans. During 1996, securities increased $2.2 million from $13.3
million at December 31, 1995, reflecting an overall growth in earning assets.
The following table presents the amortized cost of securities classified as
available-for-sale and their approximate fair values as of the dates shown:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------------------------- -------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE COST GAIN LOSS VALUE
--------- ---------- ---------- ----- --------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other securities...... $902 $-- $(3) $899 $638 $-- $(10) $628
==== === === ==== ==== === ==== ====
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Other securities...... $2,138 $-- $(18) $2,120
====== === ==== ======
</TABLE>
79
<PAGE> 88
The following table presents the amortized cost of securities classified as
held-to-maturity and their approximate fair values as of the dates shown:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------------------------- ---------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE COST GAIN LOSS VALUE
--------- ---------- ---------- ------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
securities.......... $ 6,200 $30 $ -- $ 6,230 $ 4,788 $17 $ (3) $ 4,802
Mortgage-backed
securities/CMOs..... 11,149 18 (174) 10,993 10,095 7 (261) 9,841
Other securities..... 500 -- -- 500 -- -- -- --
------- --- ----- ------- ------- --- ----- -------
Total.......... $17,849 $48 $(174) $17,723 $14,883 $24 $(264) $14,643
======= === ===== ======= ======= === ===== =======
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
U.S. Government
securities.......... $ -- $-- $ -- $ --
Mortgage-backed
securities/CMOs..... 11,157 (244) 10,913
Other securities..... -- -- -- --
------- --- ----- -------
Total.......... $11,157 $-- $(244) $10,913
======= === ===== =======
</TABLE>
Mortgage-backed securities are securities which have been developed by
pooling a number of real estate mortgages and are principally issued by federal
agencies such as the Federal National Mortgage Association and the Federal Home
Loan Mortgage Corporation. These securities are deemed to have high credit
ratings, and minimum regular monthly cash flows of principal and interest are
guaranteed by the issuing agencies. Included in Sunbelt's mortgage-backed
securities at December 31, 1997 were $5.7 million in agency-issued collateral
mortgage obligations.
At December 31, 1997, 98.02% of the mortgage-backed securities held by
Sunbelt had final maturities of more than 10 years. However, unlike U.S.
Treasury and U.S. government agency securities, which have a lump sum payment at
maturity, mortgage-backed securities provide cash flows from regular principal
and interest payments and principal prepayments throughout the lives of the
securities. Mortgage-backed securities which are purchased at a premium will
generally suffer decreasing net yields as interest rates drop because home
owners tend to refinance their mortgages. Thus, the premium paid must be
amortized over a shorter period. Therefore, securities purchased at a discount
will obtain higher net yields in a decreasing interest rate environment. As
interest rates rise, the opposite will generally be true. During a period of
increasing interest rates, fixed rate mortgage-backed securities do not tend to
experience heavy prepayments of principal and consequently, the average life of
this security will not be unduly shortened. If interest rates begin to fall,
prepayments will increase. Approximately $9.2 million of Sunbelt's
mortgage-backed securities earn interest at floating rates and reprice within
one year, and accordingly are less susceptible to declines in value should
interest rates increase.
Deposits
Sunbelt offers a variety of deposit accounts having a wide range of
interest rates and terms. Sunbelt's deposits consist of demand, savings, money
market and time accounts. Sunbelt relies primarily on competitive pricing
policies and customer service to attract and retain these deposits. Sunbelt does
not have any brokered deposits.
Average total deposits during 1997 increased to $82.6 million from $73.4
million in 1996, an increase of $9.2 million or 12.5%. Approximately 83.6% of
the increase occurred in certificates of deposit which raised the cost of
deposits to 4.44% in 1997 from 4.22% in 1996. At the same time, the ratio of
average demand deposits to average total deposits increased from 36.6% in 1995.
Average deposits in 1996 rose to $73.4 million from $70.9 million in 1995, an
increase of $2.5 million or 3.5%. The increase resulted primarily from an
increase in noninterest bearing deposits and certificates of deposit. Sunbelt's
ratios of average noninterest-bearing demand deposits to average total deposits
for years ended December 31, 1997 and 1996 were 29.2% and 31.2%, respectively.
Sunbelt's lending and investing activities are funded principally by
deposits, approximately 34.9% of which were noninterest-bearing demand and
savings deposits as of December 31, 1997. Average noninterest-bearing deposits
at December 31, 1997 were $24.1 million as compared to $22.9 million for 1996,
an increase of $1.2 million or 5.2%. Approximately 29.2% of average deposits for
the year ended December 31, 1997 were noninterest-bearing.
80
<PAGE> 89
The daily average balances and weighted average rates paid on deposits for
each of the years ended December 31, 1997, 1996, and 1995 are presented below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995
-------------- -------------- --------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------- ---- ------- ---- ------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Money market checking............. $ 6,574 1.56% $ 4,941 2.62% $ 5,357 2.59%
Regular savings................... 2,121 2.19 2,155 2.36 1,856 2.59
Money market savings.............. 15,255 3.81 15,910 3.11 17,893 3.07
Time deposits less than
$100,000........................ 17,226 5.40 13,069 5.72 12,314 5.21
Time deposits $100,000 and over... 17,355 5.40 14,449 4.87 11,795 5.23
------- ---- ------- ---- ------- ----
Total interest-bearing deposits... 58,531 4.44 50,524 4.22 49,215 4.08
Noninterest-bearing deposits...... 24,099 -- 22,901 -- 21,694 --
------- ------- -------
Total deposits.......... $82,630 3.14% $73,425 2.90% $70,909 2.81%
======= ==== ======= ==== ======= ====
</TABLE>
The following table sets forth the amount of Sunbelt's certificates of
deposit that are $100,000 or greater by time remaining until maturity:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
3 months or less............................................ $ 8,071
Between 3 months and 6 months .............................. 4,430
Between 6 months and 1 year................................. 4,098
-------
Total............................................. $16,599
=======
</TABLE>
Interest Rate Sensitivity and Liquidity
Sunbelt's Funds Management Policy provides management with the necessary
guidelines for effective funds management, and Sunbelt has established a
measurement system for monitoring its net interest rate sensitivity position.
Sunbelt manages its sensitivity position within established guidelines.
An interest rate sensitive asset or liability is one that, within a defined
time period, either matures or experiences an interest rate change in line with
general market interest rates. The management of interest rate risk is performed
by analyzing the maturity and repricing relationships between interest-earning
assets and interest-bearing liabilities at specific points in time ("GAP") and
by analyzing the effects of interest rate changes on net interest income over
specific periods of time by projecting the performance of the mix of assets and
liabilities in varied interest rate environments. Interest rate sensitivity
reflects the potential effect on net interest income of a movement in interest
rates. A company is considered to be asset sensitive, or having a positive GAP,
when the amount of its interest-earning assets maturing or repricing within a
given period exceeds the amount of its interest-bearing liabilities also
maturing or repricing within that time period. Conversely, a company is
considered to be liability sensitive, or having a negative GAP, when the amount
of its interest-bearing liabilities maturing or repricing within a given period
exceeds the amount of its interest-earning assets also maturing or repricing
within that time period. During a period of rising interest rates, a negative
GAP would tend to affect adversely net interest income, while a positive GAP
would tend to result in an increase in net interest income. During a period of
falling interest rates, a negative GAP would tend to result in an increase in
net interest income, while a positive GAP would tend to affect net interest
income adversely.
81
<PAGE> 90
The following table sets forth an interest rate sensitivity analysis for
Sunbelt at December 31, 1997:
<TABLE>
<CAPTION>
VOLUMES SUBJECT TO REPRICING WITHIN
-----------------------------------------------------------------------------
GREATER
181- THAN
0-30 31-180 365 1-3 3-5 5-10 10
DAYS DAYS DAYS YEARS YEARS YEARS YEARS TOTAL
------- -------- ------ ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Securities............... $ 7,736 $ 1,416 $4,690 $ 4,833 $ 76 $ -- $ -- $18,751
Loans.................... 21,467 6,457 4,366 12,606 6,889 974 6 52,765
Federal funds sold....... 13,075 -- -- -- -- -- -- 13,075
------- -------- ------ ------- ------- ------- ------- -------
Total
interest-earning
assets.......... 42,278 7,873 9,056 17,439 6,965 974 6 84,591
------- -------- ------ ------- ------- ------- ------- -------
Interest-bearing
liabilities:
Demand, money market and
savings deposits....... 24,412 -- -- -- -- -- -- 24,412
Certificates of deposit
and other time
deposits............... 5,850 17,055 9,158 333 -- -- -- 32,396
Other.................... 600 -- -- -- -- -- -- 600
------- -------- ------ ------- ------- ------- ------- -------
Total
interest-bearing
liabilities..... $30,862 $ 17,055 $9,158 $ 333 $ -- $ -- $ -- $57,408
------- -------- ------ ------- ------- ------- ------- -------
Period GAP................. $11,416 $ (9,182) $ (102) $17,106 $ 6,965 $ 974 $ 6 $27,183
Cumulative GAP............. $11,416 $ 2,234 $2,132 $19,238 $26,203 $27,177 $27,183
Period GAP to total
assets................... 12.17% (9.79)% (0.11)% 18.24% 7.43% 1.04% 0.01%
Cumulative GAP to total
assets................... 12.17% 2.38% 2.27% 20.52% 27.94% 28.98% 28.99%
Cumulative interest-earning
assets to cumulative
interest-bearing
liabilities.............. 137.00% 104.66% 103.74% 133.51% 145.64% 147.34% 147.35%
</TABLE>
Shortcomings are inherent in GAP analysis since certain assets and
liabilities may not move proportionally as interest rates change. Consequently,
in addition to GAP analysis Sunbelt uses a simulation model and shock analysis
to test the interest rate sensitivity of net interest income and the balance
sheet, respectively. Based on Sunbelt's December 31, 1997 simulation analysis,
Sunbelt estimates that a 200 basis point rise or decline in rates over the next
twelve month period would have an impact of less than 8.50% on its net interest
income for the same period. The change is relatively small, despite Sunbelt's
asset sensitive GAP position. This results primarily from the behavior of
demand, money market and savings deposits. Sunbelt has found that historically
interest rates on these deposits change more slowly in a rising rate environment
than in a declining rate environment. Sunbelt maintains an Investment Committee
that reviews Sunbelt's interest rate risk position, generally on a monthly
basis.
Liquidity involves Sunbelt's ability to raise funds to support asset growth
or reduce assets to meet deposit withdrawals and other payment obligations, to
maintain reserve requirements and otherwise to operate Sunbelt on an ongoing
basis. During the past three years, Sunbelt's liquidity needs have been met
primarily by financing activities, which consisted mainly of growth in core
deposits, supplemented by earnings through operating activities. In Sunbelt's
investing activities, highly liquid securities have provided much flexibility.
Although access to purchased funds from correspondent banks is available and has
been utilized on occasion to take advantage of investment opportunities, Sunbelt
does not generally rely on these external funding sources.
Capital Resources
Capital management consists of providing equity to support both current and
future operations. Sunbelt is subject to capital adequacy requirements imposed
by the OCC. The OCC has adopted risk-based capital requirements for assessing
bank capital adequacy. These standards define capital and establish minimum
capital requirements in relation to assets and off-balance sheet exposure,
adjusted for credit risk. The risk-
82
<PAGE> 91
based capital standards currently in effect are designed to make regulatory
capital requirements more sensitive to differences in risk profiles among banks,
to account for off-balance sheet exposure and to minimize disincentives for
holding liquid assets. Assets and off-balance sheet items are assigned to broad
risk categories, each with appropriate relative risk weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance sheet items.
The risk-based capital standards issued by the OCC apply to Sunbelt. These
guidelines relate a financial institution's capital to the risk profile of its
assets. The risk-based capital standards require all financial institutions to
have "Tier 1 capital" of at least 4.0% and "total risk-based" capital (Tier 1
and Tier 2) of at least 8.0% of total risk-adjusted assets. "Tier 1 capital"
generally includes common shareholders' equity and qualifying perpetual
preferred stock together with related surpluses and retained earnings, less
deductions for goodwill and various other intangibles. "Tier 2 capital" may
consist of a limited amount of intermediate-term preferred stock, a limited
amount of term subordinated debt, certain hybrid capital instruments and other
debt securities, perpetual preferred stock not qualifying as Tier 1 capital, and
a limited amount of the general valuation allowance for loan losses. The sum of
Tier 1 capital and Tier 2 capital is "total risk-based capital."
The OCC has also adopted guidelines which supplement the risk-based capital
guidelines with a minimum ratio of Tier 1 capital to average total consolidated
assets ("leverage ratio") of 3.0% for institutions with well diversified risk,
including no undue interest rate exposure; excellent asset quality; high
liquidity; good earnings; and that are generally considered to be strong banking
organizations, rated composite 1 under applicable federal guidelines, and that
are not experiencing or anticipating significant growth. Other banking
organizations are required to maintain a leverage ratio of at least 4.0% to
5.0%. These rules further provide that banking organizations experiencing
internal growth or making acquisitions will be expected to maintain capital
positions substantially above the minimum supervisory levels and comparable to
peer group averages, without significant reliance on intangible assets.
Pursuant to FDICIA, each federal banking agency revised its risk-based
capital standards to ensure that those standards take adequate account of
interest rate risk, concentration of credit risk and the risks of nontraditional
activities, as well as reflect the actual performance and expected risk of loss
on multifamily mortgages. Also pursuant to FDICIA, the OCC has promulgated
regulations setting the levels at which an insured institution such as Sunbelt
would be considered "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized." Sunbelt is classified "well capitalized" for purposes of the
OCC's prompt corrective action regulations. SEE "SUPERVISION AND
REGULATION -- SUNBELT."
Shareholders' equity increased to $7.0 million at December 31, 1997 from
$6.5 million at December 31, 1996, an increase of $487,000 or 7.5%. This
increase was primarily the result of net income of $483,000. During 1996,
shareholders' equity increased by $839,000 or 14.9%, from $5.6 million at
December 31, 1995. In addition to net income of $947,000 in 1996, the increase
reflected dividends paid of $115,000.
The following table provides a comparison of Sunbelt's leverage and
risk-weighted capital ratios as of December 31, 1997 to the minimum and
well-capitalized regulatory standards:
<TABLE>
<CAPTION>
ACTUAL RATIO AT
MINIMUM REQUIRED WELL-CAPITALIZED DECEMBER 31, 1997
---------------- ---------------- -----------------
<S> <C> <C> <C>
SUNBELT
Leverage ratio................. 3.00%(1) 5.00% 7.40%
Tier 1 risk-based capital
ratio....................... 4.00% 6.00% 10.80%
Risk-based capital ratio....... 8.00% 10.00% 12.00%
</TABLE>
- ---------------
(1) The OCC may require Sunbelt to maintain a leverage ratio of up to 200 basis
points above the required minimum.
83
<PAGE> 92
SUNBELT
GENERAL
Sunbelt was organized as a national banking association in 1983. Sunbelt is
an independent community bank located in Houston, Texas. Sunbelt is a full
service bank offering a variety of services to satisfy the needs of the consumer
and commercial customers in its market area. The principal services offered by
Sunbelt include most types of loans, including commercial, consumer and real
estate loans. Sunbelt also offers safe deposit boxes, a night deposit facility,
motor bank, wire transfer and ATM cards. Sunbelt's headquarters are located at
1160 Dairy Ashford, Suite 100, Houston, Texas 77079, and its telephone number is
(281)531-3000. As of December 31, 1997, Sunbelt had total assets of $93.8
million, loans of $52.8 million, total deposits of $84.4 million, total
shareholders' equity of $7.0 million and net income of $483,000.
FACILITIES
Sunbelt conducts business at two full service banking locations and one
stand alone motor bank facility in Houston. Sunbelt's headquarters are located
at 1160 Dairy Ashford, Suite 100, in Houston in a six story office building
which Sunbelt leases.
COMPETITION
The banking business is highly competitive, and the profitability of
Sunbelt depends principally on Sunbelt's ability to compete in the market areas
in which its banking operations are located. Sunbelt competes with other
commercial banks, savings banks, savings and loan associations, credit unions,
finance companies, mutual funds, insurance companies, brokerage and investment
banking firms, asset-based non-bank lenders and certain other non-financial
entities, including retail stores which may maintain their own credit programs
and certain governmental organizations which may offer more favorable financing
than Sunbelt. Sunbelt has been able to compete effectively with other financial
institutions by emphasizing customer service, technology and local office
decision-making; by establishing long-term customer relationships and building
customer loyalty; and by providing products and services designed to address the
specific needs of its customers.
EMPLOYEES
As of December 31, 1997, Sunbelt had 46 full-time employees, three of whom
were executive officers of Sunbelt. Sunbelt provides medical and hospitalization
insurance to its full-time employees. Sunbelt considers its relations with
employees to be excellent.
LEGAL PROCEEDINGS
In the normal course of its businesses, Sunbelt from time to time is
involved in legal proceedings. Other than such proceedings incidental to its
business, Sunbelt's management is not aware of any pending or threatened legal
proceedings which, upon resolution, would have a material adverse effect upon
Sunbelt's financial condition, results of operations or cash flows. The
continued absence of such proceedings is a condition to the Company's obligation
to consummate the Consolidations. SEE "THE CONSOLIDATIONS -- OTHER TERMS AND
CONDITIONS".
84
<PAGE> 93
BENEFICIAL OWNERSHIP OF SUNBELT STOCK BY
MANAGEMENT OF SUNBELT AND PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the Record Date, the names and
addresses of each beneficial owner of more than 5% of Sunbelt Stock known to the
Board of Directors of Sunbelt, showing the amount and nature of such beneficial
ownership and the names of each director and executive officer of Sunbelt, the
number of shares of Sunbelt Stock owned beneficially by each director and
executive officer and the number of shares of Sunbelt Stock owned beneficially
by all directors and executive officers as a group. The table also includes the
number of shares and percentage of Company Common Stock to be owned by such
individuals upon the exchange of Sunbelt Stock for Company Common Stock.
<TABLE>
<CAPTION>
AMOUNT (PERCENT) AND AMOUNT (PERCENT) AND
NATURE OF BENEFICIAL NATURE OF BENEFICIAL
NAME AND ADDRESS OF OWNERSHIP OF OWNERSHIP OF COMPANY
BENEFICIAL OWNER POSITION WITH SUNBELT SUNBELT STOCK(1) COMMON STOCK(2)
------------------- --------------------- -------------------- --------------------
<S> <C> <C> <C>
Hans Kayem Estate Principal Shareholder 73,207(3) 146,582
10830 Old Katy Road (15.91%) (1.43%)
Houston, Texas 77043
Curtis R. Kayem Director 200 400
10830 Old Katy Road * *
Houston, Texas 77043
B. J. Williams Chairman of the
11931 Vallencia Board of Directors, 46,415(4) 92,936
Meadows, Texas 77477 Chief Executive (10.09%) *
Officer and President
Thomas W. Ferguson Director 31,965(5) 64,003
10232 Veterans Memorial (6.95%) *
Parkway
Houston, Texas 77038
Jerry R. Cooper Director 29,950(6) 59,968
3110 Fairway (6.51%) *
Sugar Land, Texas 77478
D.C. Daniels Director 23,494(7) 47,042
P O Box 190 (5.11%) *
Whitesboro, Texas 76273
George A. Wolcott Director 28,714(8) 57,494
P O Box 722 (6.24%) *
Tomball, Texas 77377-0722
Monroe M. Luther Director 12,000(9) 24,027
9337-B Katy Freeway, Suite (2.61%) *
257
Houston, Texas 77024
B. L. Hinds Director 2,248(10) 4,501
601 Saddlewood * *
Houston, Texas 77056
T. Weldon Martin Director 200 400
70 So. Castlegreen Circle * *
The Woodlands, Texas 77381
Joseph A. Mattingly Director 5,698(11) 11,409
13311 Alchester Drive (1.24%) *
Houston, Texas 77079
</TABLE>
85
<PAGE> 94
<TABLE>
<CAPTION>
AMOUNT (PERCENT) AND AMOUNT (PERCENT) AND
NATURE OF BENEFICIAL NATURE OF BENEFICIAL
NAME AND ADDRESS OF OWNERSHIP OF OWNERSHIP OF COMPANY
BENEFICIAL OWNER POSITION WITH SUNBELT SUNBELT STOCK(1) COMMON STOCK(2)
------------------- --------------------- -------------------- --------------------
<S> <C> <C> <C>
Ralph D. McBride Director 4,000(12) 8,009
811 Old Lake * *
Houston, Texas 77057-1103
C. Mark Aderman Executive Vice -- --
3714 Tangley President
Houston, Texas 77005
Frank Maresca, Jr. Executive Vice -- --
11811 Demia Court President
Meadows, Texas 77477
All Directors and Executive 184,884(13) 370,193
Officers as a group (40.19%) (3.62%)
</TABLE>
- ---------------
* Represents less that 1.00% of outstanding stock.
(1) Unless otherwise indicated, each individual is the record owner of, and
has sole voting and investment power with respect to, all shares of
Sunbelt Stock of which he or she is the beneficial owner. Unless otherwise
indicated, all percentages are based upon 460,000 shares of Sunbelt Stock
issued and outstanding.
(2) Assumes the issuance of 921,058 shares of Company Common Stock in
connection with the Consolidations.
(3) Includes 71,656 shares that are subject to the Sunbelt Voting Agreement.
(4) Includes 45,415 shares that are subject to the Sunbelt Voting Agreement.
Mr. Williams is one of five voting representatives of the Sunbelt Voting
Agreement which controls 381,147 shares, or approximately 82.86%, of the
Sunbelt Stock.
(5) Includes 31,400 shares that are subject to the Sunbelt Voting Agreement.
(6) Includes 23,000 shares that are subject to the Sunbelt Voting Agreement.
(7) Includes 23,294 shares that are subject to the Sunbelt Voting Agreement.
Mr. Daniels is one of five voting representatives of the Sunbelt Voting
Agreement which controls 381,147 shares, or approximately 82.86%, of the
Sunbelt Stock.
(8) Includes 6,000 shares held of record by George Wolcott Interests, Inc. of
which Mr. Wolcott is the owner. Includes 28,514 shares that are subject to
the Sunbelt Voting Agreement. Mr. Wolcott is one of five voting
representatives of the Sunbelt Voting Agreement which controls 381,147
shares, or approximately 82.86%, of the Sunbelt Stock.
(9) Includes 11,000 shares held of record by CNOM & Co. for the benefit of Mr.
Luther. Includes 11,800 shares that are subject to the Sunbelt Voting
Agreement.
(10) Includes 2,048 shares that are subject to the Sunbelt Voting Agreement.
(11) Includes 5,035 shares that are subject to the Sunbelt Voting Agreement.
(12) Includes 3,200 shares that are subject to the Sunbelt Voting Agreement.
(13) Includes 173,700 shares that are subject to the Sunbelt Voting Agreement.
The persons listed above will receive the same Consolidation Consideration
described in "THE CONSOLIDATIONS -- CONSOLIDATION CONSIDERATION" as the other
Sunbelt Shareholders for each share of Sunbelt Stock held at the First Effective
Date.
86
<PAGE> 95
SUPERVISION AND REGULATION
The supervision and regulation of bank holding companies and their
subsidiaries is intended primarily for the protection of depositors, the deposit
insurance funds of the FDIC and the banking system as a whole, and not for the
protection of the bank holding company shareholders or creditors. The banking
agencies have broad enforcement power over bank holding companies and banks
including the power to impose substantial fines and other penalties for
violations of laws and regulations.
The following description summarizes some of the laws to which the Company,
Prime Bank and Sunbelt are subject. References herein to applicable statutes and
regulations are brief summaries thereof, do not purport to be complete, and are
qualified in their entirety by reference to such statutes and regulations.
THE COMPANY
The Company is a bank holding company registered under the BHC Act, and it
is subject to supervision, regulation and examination by the Federal Reserve.
The BHC Act and other federal laws subject bank holding companies to particular
restrictions on the types of activities in which they may engage, and to a range
of supervisory requirements and activities, including regulatory enforcement
actions for violations of laws and regulations.
Regulatory Restrictions on Dividends; Source of Strength. It is the policy
of the Federal Reserve that bank holding companies should pay cash dividends on
common stock only out of income available over the past year and only if
prospective earnings retention is consistent with the organization's expected
future needs and financial condition. The policy provides that bank holding
companies should not maintain a level of cash dividends that undermines the bank
holding company's ability to serve as a source of strength to its banking
subsidiaries.
Under Federal Reserve policy, a bank holding company is expected to act as
a source of financial strength to each of its banking subsidiaries and commit
resources to their support. Such support may be required at times when, absent
this Federal Reserve policy, a holding company may not be inclined to provide
it. As discussed below, a bank holding company in certain circumstances could be
required to guarantee the capital plan of an undercapitalized banking
subsidiary.
In the event of a bank holding company's bankruptcy under Chapter 11 of the
U.S. Bankruptcy Code, the trustee will be deemed to have assumed and is required
to cure immediately any deficit under any commitment by the debtor holding
company to any of the federal banking agencies to maintain the capital of an
insured depository institution, and any claim for breach of such obligation will
generally have priority over most other unsecured claims.
Activities "Closely Related" to Banking. The BHC Act prohibits a bank
holding company, with certain limited exceptions, from acquiring direct or
indirect ownership or control of any voting shares of any company which is not a
bank or from engaging in any activities other than those of banking, managing or
controlling banks and certain other subsidiaries, or furnishing services to or
performing services for its subsidiaries. One principal exception to these
prohibitions allows the acquisition of interests in companies whose activities
are found by the Federal Reserve, by order or regulation, to be so closely
related to banking or managing or controlling banks, as to be a proper incident
thereto. Some of the activities that have been determined by regulation to be
closely related to banking are making or servicing loans, performing certain
data processing services, acting as an investment or financial advisor to
certain investment trusts and investment companies, and providing securities
brokerage services. Other activities approved by the Federal Reserve include
consumer financial counseling, tax planning and tax preparation, futures and
options advisory services, check guaranty services, collection agency and credit
bureau services, and personal property appraisals. In approving acquisitions by
bank holding companies of companies engaged in banking-related activities, the
Federal Reserve considers a number of factors, and weighs the expected benefits
to the public (such as greater convenience and increased competition or gains in
efficiency) against the risks of possible adverse effects (such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest, or unsound
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banking practices). The Federal Reserve is also empowered to differentiate
between activities commenced de novo and activities commenced through
acquisition of a going concern.
Securities Activities. The Federal Reserve has approved applications by
bank holding companies to engage, through nonbank subsidiaries, in certain
securities-related activities (underwriting of municipal revenue bonds,
commercial paper, consumer receivable-related securities and one-to-four family
mortgage-backed securities), provided that the affiliates would not be
"principally engaged" in such activities for purposes of Section 20 of the
Glass-Steagall Act. In limited situations, holding companies may be able to use
such subsidiaries to underwrite and deal in corporate debt and equity
securities.
Safe and Sound Banking Practices. Bank holding companies are not permitted
to engage in unsafe and unsound banking practices. The Federal Reserve's
Regulation Y, for example, generally requires a holding company to give the
Federal Reserve prior notice of any redemption or repurchase of its own equity
securities, if the consideration to be paid, together with the consideration
paid for any repurchases or redemptions in the preceding year, is equal to 10%
or more of the company's consolidated net worth. The Federal Reserve may oppose
the transaction if it believes that the transaction would constitute an unsafe
or unsound practice or would violate any law or regulation. Depending upon the
circumstances, the Federal Reserve could take the position that paying a
dividend would constitute an unsafe or unsound banking practice.
The Federal Reserve has broad authority to prohibit activities of bank
holding companies and their nonbanking subsidiaries which represent unsafe and
unsound banking practices or which constitute violations of laws or regulations,
and can assess civil money penalties for certain activities conducted on a
knowing and reckless basis, if those activities caused a substantial loss to a
depository institution. The penalties can be as high as $1,000,000 for each day
the activity continues.
Anti-Tying Restrictions. Bank holding companies and their affiliates are
prohibited from tying the provision of certain services, such as extensions of
credit, to other services offered by a holding company or its affiliates.
Capital Adequacy Requirements. The Federal Reserve has adopted a system
using risk-based capital guidelines to evaluate the capital adequacy of bank
holding companies. Under the guidelines, specific categories of assets are
assigned different risk weights, based generally on the perceived credit risk of
the asset. These risk weights are multiplied by corresponding asset balances to
determine a "risk-weighted" asset base. The guidelines require a minimum total
risk-based capital ratio of 8.0% (of which at least 4.0% is required to consist
of Tier 1 capital elements). Total capital is the sum of Tier 1 and Tier 2
capital. As of December 31, 1997, the Company's ratio of Tier 1 capital to total
risk-weighted assets was 13.96% and its ratio of total capital to total
risk-weighted assets was 15.01%. SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY".
In addition to the risk-based capital guidelines, the Federal Reserve uses
a leverage ratio as an additional tool to evaluate the capital adequacy of bank
holding companies. The leverage ratio is a company's Tier 1 capital divided by
its average total consolidated assets. Certain highly-rated bank holding
companies may maintain a minimum leverage ratio of 3.0%, but other bank holding
companies may be required to maintain a leverage ratio of up to 200 basis points
above the regulatory minimum. As of December 31, 1997, the Company's leverage
ratio was 6.82%.
The federal banking agencies' risk-based and leverage ratios are minimum
supervisory ratios generally applicable to banking organizations that meet
certain specified criteria, assuming that they have the highest regulatory
rating. Banking organizations not meeting these criteria are expected to operate
with capital positions well above the minimum ratios. The federal bank
regulatory agencies may set capital requirements for a particular banking
organization that are higher than the minimum ratios when circumstances warrant.
Federal Reserve guidelines also provide that banking organizations experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels, without
significant reliance on intangible assets.
Imposition of Liability for Undercapitalized Subsidiaries. Bank regulators
are required to take "prompt corrective action" to resolve problems associated
with insured depository institutions whose capital declines
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below certain levels. In the event an institution becomes "undercapitalized," it
must submit a capital restoration plan. The capital restoration plan will not be
accepted by the regulators unless each company having control of the
undercapitalized institution guarantees the subsidiary's compliance with the
capital restoration plan up to a certain specified amount. Any such guarantee
from a depository institution's holding company is entitled to a priority of
payment in bankruptcy.
The aggregate liability of the holding company of an undercapitalized bank
is limited to the lesser of 5% of the institution's assets at the time it became
undercapitalized or the amount necessary to cause the institution to be
"adequately capitalized." The bank regulators have greater power in situations
where an institution becomes "significantly" or "critically" undercapitalized or
fails to submit a capital restoration plan. For example, a bank holding company
controlling such an institution can be required to obtain prior Federal Reserve
approval of proposed dividends, or might be required to consent to a
consolidation or to divest the troubled institution or other affiliates.
Acquisitions by Bank Holding Companies. The BHC Act requires every bank
holding company to obtain the prior approval of the Federal Reserve before it
may acquire all or substantially all of the assets of any bank, or ownership or
control of any voting shares of any bank, if after such acquisition it would own
or control, directly or indirectly, more than 5% of the voting shares of such
bank. In approving bank acquisitions by bank holding companies, the Federal
Reserve is required to consider the financial and managerial resources and
future prospects of the bank holding company and the banks concerned, the
convenience and needs of the communities to be served, and various competitive
factors.
Control Acquisitions. The Change in Bank Control Act prohibits a person or
group of persons from acquiring "control" of a bank holding company unless the
Federal Reserve has been notified and has not objected to the transaction. Under
a rebuttable presumption established by the Federal Reserve, the acquisition of
10% or more of a class of voting stock of a bank holding company with a class of
securities registered under Section 12 of the Exchange Act, such as the Company,
would, under the circumstances set forth in the presumption, constitute
acquisition of control of the Company.
In addition, any company is required to obtain the approval of the Federal
Reserve under the BHC Act before acquiring 25% (5% in the case of an acquiror
that is a bank holding company) or more of the outstanding Common Stock of the
Company, or otherwise obtaining control or a "controlling influence" over the
Company.
PRIME BANK
Prime Bank is a Texas-chartered banking association, the deposits of which
are insured by the Bank Insurance Fund ("BIF") and the SAIF of the FDIC. Prime
Bank is not a member of the Federal Reserve System; therefore, Prime Bank is
subject to supervision and regulation by the FDIC and the TDB. Such supervision
and regulation subjects Prime Bank to special restrictions, requirements,
potential enforcement actions and periodic examination by the FDIC and the TDB.
Because the Federal Reserve regulates the bank holding company parent of Prime
Bank, the Federal Reserve also has supervisory authority which directly affects
Prime Bank.
Equivalence to National Bank Powers. The Texas Constitution, as amended in
1986, provides that a Texas-chartered bank has the same rights and privileges
that are or may be granted to national banks domiciled in Texas. To the extent
that the Texas laws and regulations may have allowed state-chartered banks to
engage in a broader range of activities than national banks, FDICIA has operated
to limit this authority. FDICIA provides that no state bank or subsidiary
thereof may engage as principal in any activity not permitted for national
banks, unless the institution complies with applicable capital requirements and
the FDIC determines that the activity poses no significant risk to the insurance
fund. In general, statutory restrictions on the activities of banks are aimed at
protecting the safety and soundness of depository institutions.
Branching. Texas law provides that a Texas-chartered bank can establish a
branch anywhere in Texas provided that the branch is approved in advance by the
TDB. The branch must also be approved by the FDIC,
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which considers a number of factors, including financial history, capital
adequacy, earnings prospects, character of management, needs of the community
and consistency with corporate powers.
Restrictions on Transactions With Affiliates and Insiders. Transactions
between Prime Bank and its nonbanking subsidiaries, including the Company, are
subject to Section 23A of the Federal Reserve Act. In general, Section 23A
imposes limits on the amount of such transactions, and also requires certain
levels of collateral for loans to affiliated parties. It also limits the amount
of advances to third parties which are collateralized by the securities or
obligations of the Company or its subsidiaries.
Affiliate transactions are also subject to Section 23B of the Federal
Reserve Act which generally requires that certain transactions between Prime
Bank and its affiliates be on terms substantially the same, or at least as
favorable to Prime Bank, as those prevailing at the time for comparable
transactions with or involving other nonaffiliated persons.
The restrictions on loans to directors, executive officers, principal
shareholders and their related interests (collectively referred to herein as
"insiders") contained in the Federal Reserve Act and Regulation O apply to all
insured institutions and their subsidiaries and holding companies. These
restrictions include limits on loans to one borrower and conditions that must be
met before such a loan can be made. There is also an aggregate limitation on all
loans to insiders and their related interests. These loans cannot exceed the
institution's total unimpaired capital and surplus, and the FDIC may determine
that a lesser amount is appropriate. Insiders are subject to enforcement actions
for knowingly accepting loans in violation of applicable restrictions.
Restrictions on Distribution of Subsidiary Bank Dividends and
Assets. Dividends paid by Prime Bank have provided a substantial part of the
Company's operating funds and it is anticipated that dividends paid by Prime
Bank to the Company will continue to be the Company's principal source of
operating funds. Capital adequacy requirements serve to limit the amount of
dividends that may be paid by Prime Bank. Under federal law, Prime Bank cannot
pay a dividend if, after paying the dividend, Prime Bank will be
"undercapitalized." The FDIC may declare a dividend payment to be unsafe and
unsound even though Prime Bank would continue to meet its capital requirements
after the dividend.
Because the Company is a legal entity separate and distinct from its
subsidiaries, its right to participate in the distribution of assets of any
subsidiary upon the subsidiary's liquidation or reorganization will be subject
to the prior claims of the subsidiary's creditors. In the event of a liquidation
or other resolution of an insured depository institution, the claims of
depositors and other general or subordinated creditors are entitled to a
priority of payment over the claims of holders of any obligation of the
institution to its shareholders, including any depository institution holding
company (such as the Company) or any shareholder or creditor thereof.
Examinations. The FDIC periodically examines and evaluates insured banks.
Based upon such an evaluation, the FDIC may revalue the assets of the
institution and require that it establish specific reserves to compensate for
the difference between the FDIC-determined value and the book value of such
assets. The TDB also conducts examinations of state banks but may accept the
results of a federal examination in lieu of conducting an independent
examination.
Audit Reports. Insured institutions with total assets of $500 million or
more must submit annual audit reports prepared by independent auditors to
federal and state regulators. In some instances, the audit report of the
institution's holding company can be used to satisfy this requirement. Auditors
must receive examination reports, supervisory agreements and reports of
enforcement actions. In addition, financial statements prepared in accordance
with generally accepted accounting principles, management's certifications
concerning responsibility for the financial statements, internal controls and
compliance with legal requirements designated by the FDIC, and an attestation by
the auditor regarding the statements of management relating to the internal
controls must be submitted. For institutions with total assets of more than $3
billion, independent auditors may be required to review quarterly financial
statements. FDICIA requires that independent audit committees be formed,
consisting of outside directors only. The committees of such institutions must
include members with experience in banking or financial management, must have
access to outside counsel, and must not include representatives of large
customers.
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Capital Adequacy Requirements. The FDIC has adopted regulations
establishing minimum requirements for the capital adequacy of insured
institutions. The FDIC may establish higher minimum requirements if, for
example, a bank has previously received special attention or has a high
susceptibility to interest rate risk.
The FDIC's risk-based capital guidelines generally require state banks to
have a minimum ratio of Tier 1 capital to total risk-weighted assets of 4% and a
ratio of total capital to total risk-weighted assets of 8%. The capital
categories have the same definitions for Prime Bank as for the Company. As of
December 31, 1997, Prime Bank's ratio of Tier 1 capital to total risk-weighted
assets was 13.60% and its ratio of total capital to total risk-weighted assets
was 14.65%. SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION OF THE COMPANY".
The FDIC's leverage guidelines require state banks to maintain Tier 1
capital of no less than 5% of average total assets, except in the case of
certain highly rated banks for which the requirement is 3% of average total
assets. The TDB has issued a policy which generally requires state chartered
banks to maintain a leverage ratio (defined in accordance with federal capital
guidelines) of 6%. As of December 31, 1997, Prime Bank's ratio of Tier 1 capital
to average total assets (leverage ratio) was 6.64%. SEE "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION OF THE COMPANY".
Corrective Measures for Capital Deficiencies. The federal banking
regulators are required to take "prompt corrective action" with respect to
capital-deficient institutions. Agency regulations define, for each capital
category, the levels at which institutions are "well capitalized," "adequately
capitalized," "under capitalized," "significantly under capitalized" and
"critically under capitalized." A "well capitalized" bank has a total risk based
capital ratio of 10% or higher; a Tier 1 risk based capital ratio of 6% or
higher; a leverage ratio of 5% or higher; and is not subject to any written
agreement, order or directive requiring it to maintain a specific capital level
for any capital measure. An "adequately capitalized" bank has a total risk based
capital ratio of 8% or higher; a Tier 1 risk based capital ratio of 4% or
higher; a leverage ratio of 4% or higher (3% or higher if the bank was rated a
CAMEL 1 in its most recent examination report and is not experiencing
significant growth); and does not meet the criteria for a well capitalized bank.
A bank is "under capitalized" if it fails to meet any one of the ratios required
to be adequately capitalized.
In addition to requiring undercapitalized institutions to submit a capital
restoration plan, agency regulations contain broad restrictions on certain
activities of undercapitalized institutions including asset growth,
acquisitions, branch establishment, and expansion into new lines of business.
With certain exceptions, an insured depository institution is prohibited from
making capital distributions, including dividends, and is prohibited from paying
management fees to control persons if the institution would be undercapitalized
after any such distribution or payment.
As an institution's capital decreases, the FDIC's enforcement powers become
more severe. A significantly undercapitalized institution is subject to mandated
capital raising activities, restrictions on interest rates paid and transactions
with affiliates, removal of management, and other restrictions. The FDIC has
only very limited discretion in dealing with a critically undercapitalized
institution and is virtually required to appoint a receiver or conservator.
Banks with risk-based capital and leverage ratios below the required
minimums may also be subject to certain administrative actions, including the
termination of deposit insurance upon notice and hearing, or a temporary
suspension of insurance without a hearing in the event the institution has no
tangible capital.
Deposit Insurance Assessments. Prime Bank must pay assessments to the FDIC
for federal deposit insurance protection. The FDIC has adopted a risk based
assessment system as required by FDICIA. Under this system, FDIC-insured
depository institutions pay insurance premiums at rates based on their risk
classification. Institutions assigned to higher-risk classifications (that is,
institutions that pose a greater risk of loss to their respective deposit
insurance funds) pay assessments at higher rates than institutions that pose a
lower risk. An institution's risk classification is assigned based on its
capital levels and the level of supervisory concern the institution poses to the
regulators. In addition, the FDIC can impose special assessments in certain
instances.
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After the one-time SAIF assessment in 1996, the assessment rate disparity
between BIF and SAIF members was eliminated. The current range of BIF and SAIF
assessments is between 0% and .27% of deposits. Institutions which qualify for
the 0% assessment category such as Prime Bank, however, still must pay the
$1,000 minimum semi-annual assessment required by federal statute.
The FDIC established a process for raising or lowering all rates for
insured institutions semi-annually if conditions warrant a change. Under this
new system, the FDIC has the flexibility to adjust the assessment rate schedule
twice a year without seeking prior public comment, but only within a range of
five cents per $100 above or below the premium schedule adopted. Changes in the
rate schedule outside the five cent range above or below the current schedule
can be made by the FDIC only after a full rulemaking with opportunity for public
comment.
On September 30, 1996, President Clinton signed into law an act that
contained a comprehensive approach to recapitalize the SAIF and assure the
payment of the Financing Corporation's ("FICO") bond obligations. Under this new
act, banks insured under the BIF are required to pay a portion of the interest
due on bonds that were issued by FICO to help shore up the ailing Federal
Savings and Loan Insurance Corporation in 1987. The BIF rate must equal
one-fifth of the SAIF rate through year-end 1999, or until the insurance funds
are merged, whichever occurs first. Thereafter BIF and SAIF payers will be
assessed pro rata for the FICO bond obligations. With regard to the assessment
for the FICO obligation, the current BIF rate is .0126% of deposits and the SAIF
rate is .0630% of deposits.
Enforcement Powers. The FDIC and the other federal banking agencies have
broad enforcement powers, including the power to terminate deposit insurance,
impose substantial fines and other civil and criminal penalties and appoint a
conservator or receiver. Failure to comply with applicable laws, regulations and
supervisory agreements could subject the Company or its banking subsidiaries, as
well as officers, directors and other institution-affiliated parties of these
organizations, to administrative sanctions and potentially substantial civil
money penalties. The appropriate federal banking agency may appoint the FDIC as
conservator or receiver for a banking institution (or the FDIC may appoint
itself, under certain circumstances) if any one or more of a number of
circumstances exist, including, without limitation, the fact that the banking
institution is undercapitalized and has no reasonable prospect of becoming
adequately capitalized; fails to become adequately capitalized when required to
do so; fails to submit a timely and acceptable capital restoration plan; or
materially fails to implement an accepted capital restoration plan. The TDB also
has broad enforcement powers over Prime Bank, including the power to impose
orders, remove officers and directors, impose fines and appoint supervisors and
conservators.
Brokered Deposit Restrictions. Adequately capitalized institutions cannot
accept, renew or roll over brokered deposits except with a waiver from the FDIC,
and are subject to restrictions on the interest rates that can be paid on such
deposits. Undercapitalized institutions may not accept, renew, or roll over
brokered deposits.
Cross-Guarantee Provisions. The Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") contains a "cross-guarantee" provision which
generally makes commonly controlled insured depository institutions liable to
the FDIC for any losses incurred in connection with the failure of a commonly
controlled depository institution.
Community Reinvestment Act. The Community Reinvestment Act of 1977 ("CRA")
and the regulations issued thereunder are intended to encourage banks to help
meet the credit needs of their service area, including low and moderate income
neighborhoods, consistent with the safe and sound operations of the banks. These
regulations also provide for regulatory assessment of a bank's record in meeting
the needs of its service area when considering applications to establish
branches, merger applications and applications to acquire the assets and assume
the liabilities of another bank. FIRREA requires federal banking agencies to
make public a rating of a bank's performance under the CRA. In the case of a
bank holding company, the CRA performance record of the banks involved in the
transaction are reviewed in connection with the filing of an application to
acquire ownership or control of shares or assets of a bank or to merge with any
other bank holding company. An unsatisfactory record can substantially delay or
block the transaction.
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Consumer Laws and Regulations. In addition to the laws and regulations
discussed herein, Prime Bank is also subject to certain consumer laws and
regulations that are designed to protect consumers in transactions with banks.
While the list set forth herein is not exhaustive, these laws and regulations
include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds
Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity
Act, and the Fair Housing Act, among others. These laws and regulations mandate
certain disclosure requirements and regulate the manner in which financial
institutions must deal with customers when taking deposits or making loans to
such customers. Prime Bank must comply with the applicable provisions of these
consumer protection laws and regulations as part of their ongoing customer
relations.
SUNBELT
As a national banking association, Sunbelt is principally supervised,
examined and regulated by the OCC. The OCC regularly examines such areas as
capital adequacy, reserves, loan portfolio, investments and management
practices. Sunbelt must also furnish quarterly and annual reports to the OCC,
and the OCC may exercise cease and desist and other enforcement powers over
Sunbelt if its actions represent unsafe or unsound practices or violations of
law. Since the deposits of Sunbelt are insured by the BIF of the FDIC, Sunbelt
is also subject to regulation and supervision by the FDIC.
Restrictions on Transactions With Affiliates and Insiders. Transactions
between Sunbelt and its nonbanking subsidiaries, are subject to Section 23A of
the Federal Reserve Act. In general, Section 23A imposes limits on the amount of
such transactions, and also requires certain levels of collateral for loans to
affiliated parties. It also limits the amount of advances to third parties which
are collateralized by the securities or obligations of Sunbelt or its
subsidiaries.
Affiliate transactions are also subject to Section 23B of the Federal
Reserve Act which generally requires that certain transactions between Sunbelt
and its affiliates be on terms substantially the same, or at least as favorable
to Sunbelt, as those prevailing at the time for comparable transactions with or
involving other nonaffiliated persons.
The restrictions on loans to directors, executive officers, principal
shareholders and their related interests (collectively referred to herein as
"insiders") contained in the Federal Reserve Act and Regulation O apply to all
insured institutions and their subsidiaries and holding companies. These
restrictions include limits on loans to one borrower and conditions that must be
met before such a loan can be made. There is also an aggregate limitation on all
loans to insiders and their related interests. These loans cannot exceed the
institution's total unimpaired capital and surplus, and the OCC may determine
that a lesser amount is appropriate. Insiders are subject to enforcement actions
for knowingly accepting loans in violation of applicable restrictions.
Dividends. There are certain statutory limitations on the payment of
dividends by national banks. Until capital surplus equals capital stock, a
national bank cannot declare a dividend unless (i), in the case of an annual
dividend, Sunbelt transfers ten percent of its net income for the preceding four
quarters to capital surplus and (ii), in the case of semiannual or special
dividends, Sunbelt transfers ten percent of its net income for the preceding two
quarters to capital surplus. Without approval of the OCC, dividends may not be
paid in excess of a bank's total net profits for that year, plus its retained
profits for the preceding two years, less any required transfers to capital
surplus. Additionally, a national bank may not pay dividends in excess of total
retained profits, including current year's earnings. In some cases, the OCC may
find a dividend payment that meets these statutory requirements to be an unsafe
or unsound practice. Under FDICIA, Sunbelt cannot pay a dividend if it will
cause Sunbelt to be "undercapitalized."
Examinations. The OCC periodically examines and evaluates insured banks.
Based upon such an evaluation, the OCC may revalue the assets of the institution
and require that it establish specific reserves to compensate for the difference
between the OCC-determined value and the book value of such assets.
Capital Adequacy Requirements. The OCC has adopted regulations establishing
minimum requirements for the capital adequacy of national banks. The OCC may
establish higher minimum requirements if, for example, a bank has previously
received special attention or has a high susceptibility to interest rate risk.
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The OCC's risk-based capital guidelines generally require national banks to
have a minimum ratio of Tier 1 capital to total risk-weighted assets of 4% and a
ratio of total capital to total risk-weighted assets of 8%. As of December 31,
1997, Sunbelt's ratio of Tier 1 capital to total risk-weighted assets was 10.80%
and its ratio of total capital to total risk-weighted assets was 12.00%. SEE
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION OF SUNBELT".
The OCC's leverage guidelines require national banks to maintain Tier 1
capital of no less than 5% of average total assets, except in the case of
certain highly rated banks for which the requirement is 3% of average total
assets. As of December 31, 1997, Sunbelt's ratio of Tier 1 capital to average
total assets (leverage ratio) was 7.40%. SEE "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION OF SUNBELT".
Corrective Measures for Capital Deficiencies. The federal banking
regulators are required to take "prompt corrective action" with respect to
capital-deficient institutions. Agency regulations define, for each capital
category, the levels at which institutions are "well capitalized," "adequately
capitalized," "under capitalized," "significantly under capitalized" and
"critically under capitalized." A "well capitalized" bank has a total risk based
capital ratio of 10% or higher; a Tier 1 risk based capital ratio of 6% or
higher; a leverage ratio of 5% or higher; and is not subject to any written
agreement, order or directive requiring it to maintain a specific capital level
for any capital measure. An "adequately capitalized" bank has a total risk based
capital ratio of 8% or higher; a Tier 1 risk based capital ratio of 4% or
higher; a leverage ratio of 4% or higher (3% or higher if the bank was rated a
CAMEL 1 in its most recent examination report and is not experiencing
significant growth); and does not meet the criteria for a well capitalized bank.
A bank is "under capitalized" if it fails to meet any one of the ratios required
to be adequately capitalized.
In addition to requiring undercapitalized institutions to submit a capital
restoration plan, agency regulations contain broad restrictions on certain
activities of undercapitalized institutions including asset growth,
acquisitions, branch establishment, and expansion into new lines of business.
With certain exceptions, an insured depository institution is prohibited from
making capital distributions, including dividends, and is prohibited from paying
management fees to control persons if the institution would be undercapitalized
after any such distribution or payment.
As an institution's capital decreases, the OCC's enforcement powers become
more severe. A significantly undercapitalized institution is subject to mandated
capital raising activities, restrictions on interest rates paid and transactions
with affiliates, removal of management, and other restrictions. The OCC has only
very limited discretion in dealing with a critically undercapitalized
institution and is virtually required to appoint a receiver or conservator.
Banks with risk-based capital and leverage ratios below the required
minimums may also be subject to certain administrative actions, including the
termination of deposit insurance upon notice and hearing, or a temporary
suspension of insurance without a hearing in the event the institution has no
tangible capital.
Deposit Insurance Assessments. Sunbelt must pay assessments to the FDIC for
federal deposit insurance protection. The FDIC has adopted a risk based
assessment system as required by FDICIA. Under this system, FDIC-insured
depository institutions pay insurance premiums at rates based on their risk
classification. Institutions assigned to higher-risk classifications (that is,
institutions that pose a greater risk of loss to their respective deposit
insurance funds) pay assessments at higher rates than institutions that pose a
lower risk. An institution's risk classification is assigned based on its
capital levels and the level of supervisory concern the institution poses to the
regulators. In addition, the FDIC can impose special assessments in certain
instances.
After the one-time SAIF assessment in 1996, the assessment rate disparity
between BIF and SAIF members was eliminated. The current range of BIF and SAIF
assessments is between 0% and .27% of deposits. Institutions which qualify for
the 0% assessment category such as Sunbelt, however, still must pay the $1,000
minimum semi-annual assessment required by federal statute.
The FDIC established a process for raising or lowering all rates for
insured institutions semi-annually if conditions warrant a change. Under this
new system, the FDIC has the flexibility to adjust the assessment rate schedule
twice a year without seeking prior public comment, but only within a range of
five cents per $100
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above or below the premium schedule adopted. Changes in the rate schedule
outside the five cent range above or below the current schedule can be made by
the FDIC only after a full rulemaking with opportunity for public comment.
On September 30, 1996, President Clinton signed into law an act that
contained a comprehensive approach to recapitalizing the SAIF and to assure the
payment of the FICO bond obligations. Under this new act, banks insured under
the BIF are required to pay a portion of the interest due on bonds that were
issued by FICO to help shore up the ailing Federal Savings and Loan Insurance
Corporation in 1987. The BIF rate must equal one-fifth of the SAIF rate through
yearend 1999, or until the insurance funds are merged, whichever occurs first.
Thereafter BIF and SAIF payers will be assessed pro rata for the FICO bond
obligations. With regard to the assessment for the FICO obligation, the current
BIF rate is .0126% of deposits and the SAIF rate is .0630% of deposits.
Enforcement Powers. The FDIC, OCC and the other federal banking agencies
have broad enforcement powers, including the power to terminate deposit
insurance, impose substantial fines and other civil and criminal penalties and
appoint a conservator or receiver. Failure to comply with applicable laws,
regulations and supervisory agreements could subject Sunbelt, as well as
officers, directors and other institution-affiliated parties of these
organizations, to administrative sanctions and potentially substantial civil
money penalties. The appropriate federal banking agency may appoint the FDIC as
conservator or receiver for a banking institution (or the FDIC may appoint
itself, under certain circumstances) if any one or more of a number of
circumstances exist, including, without limitation, the fact that the banking
institution is undercapitalized and has no reasonable prospect of becoming
adequately capitalized; fails to become adequately capitalized when required to
do so; fails to submit a timely and acceptable capital restoration plan; or
materially fails to implement an accepted capital restoration plan.
Brokered Deposit Restrictions. Adequately capitalized institutions cannot
accept, renew or roll over brokered deposits except with a waiver from the FDIC,
and are subject to restrictions on the interest rates that can be paid on such
deposits. Undercapitalized institutions may not accept, renew, or roll over
brokered deposits.
Cross-Guarantee Provisions. FIRREA contains a "cross-guarantee" provision
which generally makes commonly controlled insured depository institutions liable
to the FDIC for any losses incurred in connection with the failure of a commonly
controlled depository institution.
Community Reinvestment Act. The CRA and the regulations issued thereunder
are intended to encourage banks to help meet the credit needs of their service
area, including low and moderate income neighborhoods, consistent with the safe
and sound operations of the banks. These regulations also provide for regulatory
assessment of a bank's record in meeting the needs of its service area when
considering applications to establish branches, merger applications and
applications to acquire the assets and assume the liabilities of another bank.
FIRREA requires federal banking agencies to make public a rating of a bank's
performance under the CRA. In the case of a bank holding company, the CRA
performance record of the banks involved in the transaction are reviewed in
connection with the filing of an application to acquire ownership or control of
shares or assets of a bank or to merge with any other bank holding company. An
unsatisfactory record can substantially delay or block the transaction.
Consumer Laws and Regulations. In addition to the laws and regulations
discussed herein, Sunbelt is also subject to certain consumer laws and
regulations that are designed to protect consumers in transactions with banks.
While the list set forth herein is not exhaustive, these laws and regulations
include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds
Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity
Act, and the Fair Housing Act, among others. These laws and regulations mandate
certain disclosure requirements and regulate the manner in which financial
institutions must deal with customers when taking deposits or making loans to
such customers. Sunbelt must comply with the applicable provisions of these
consumer protection laws and regulations as part of their ongoing customer
relations.
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INSTABILITY OF REGULATORY STRUCTURE
Various legislation, including proposals to overhaul the bank regulatory
system, expand the powers of banking institutions and bank holding companies and
limit the investments that a depository institution may make with insured funds,
is from time to time introduced in Congress. Such legislation may change banking
statutes and the operating environment of the Company, the Bank and Sunbelt in
substantial and unpredictable ways. Neither the Company, Prime Bank nor Sunbelt
can determine the ultimate effect that potential legislation, if enacted, or
implementing regulations with respect thereto, would have upon the financial
condition or results of operations of the Company, Prime Bank or Sunbelt.
EXPANDING ENFORCEMENT AUTHORITY
One of the major additional burdens imposed on the banking industry by
FDICIA is the increased ability of banking regulators to monitor the activities
of banks and their holding companies. In addition, the Federal Reserve and FDIC
are possessed of extensive authority to police unsafe or unsound practices and
violations of applicable laws and regulations by depository institutions and
their holding companies. For example, the FDIC may terminate the deposit
insurance of any institution which it determines has engaged in an unsafe or
unsound practice. The agencies can also assess civil money penalties, issue
cease and desist or removal orders, seek injunctions, and publicly disclose such
actions. FDICIA, FIRREA and other laws have expanded the agencies' authority in
recent years, and the agencies have not yet fully tested the limits of their
powers.
EFFECT ON ECONOMIC ENVIRONMENT
The policies of regulatory authorities, including the monetary policy of
the Federal Reserve, have a significant effect on the operating results of bank
holding companies and their subsidiaries. Among the means available to the
Federal Reserve to affect the money supply are open market operations in U.S.
Government securities, changes in the discount rate on member bank borrowings,
and changes in reserve requirements against member bank deposits. These means
are used in varying combinations to influence overall growth and distribution of
bank loans, investments and deposits, and their use may affect interest rates
charged on loans or paid for deposits.
Federal Reserve monetary policies have materially affected the operating
results of commercial banks in the past and are expected to continue to do so in
the future. The nature of future monetary policies and the effect of such
policies on the business and earnings of the Company, Prime Bank and Sunbelt
cannot be predicted.
DESCRIPTION OF SECURITIES OF THE COMPANY
AUTHORIZED CAPITAL STOCK
The authorized capital stock of the Company consists of (i) 15,000,000
shares of Company Preferred Stock, issuable in series, none of which are
outstanding and (ii) 50,000,000 shares of Company Common Stock, $.25 per share
par value, of which 12,010,980 shares were issued and 9,353,020 shares were
outstanding as of the Record Date. The terms of any new series of Company
Preferred Stock may be fixed by the Board of Directors of the Company within
certain limits set by the Company's Articles of Incorporation. As of December
31, 1997, an additional 600,000 shares of Company Common Stock were issuable
upon exercise of the Company's outstanding employee and director incentive stock
options.
The following discussion of the terms and provisions of the Company's
capital stock is qualified in its entirety by reference to the Company's
Articles of Incorporation and Bylaws, which include the express terms of the
Company Common Stock and the Company Preferred Stock.
PREFERRED STOCK
The Company is authorized to issue 15,000,000 shares of Company Preferred
Stock. The Company Preferred Stock (or other securities convertible in whole or
in part into Company Preferred Stock) is available
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for issuance from time to time for various purposes as determined by the
Company's Board of Directors, including, without limitation, making future
acquisitions, raising additional equity capital and financing. Subject to
certain limits set by the Company's Articles of Incorporation, the Company
Preferred Stock (or such convertible securities) may be issued on such terms and
conditions, and at such times and in such situations, as the Board of Directors
in its sole discretion determines to be appropriate, without any further
approval or action by the shareholders (unless otherwise required by laws,
rules, regulations or agreements applicable to the Company).
Moreover, except as otherwise limited by the Articles of Incorporation or
applicable laws, rules or regulations, the Board of Directors has the sole
authority to determine the relative rights and preferences of the Company
Preferred Stock and any series thereof without shareholder approval. The
Company's Articles of Incorporation require all shares of Company Preferred
Stock to be identical, except as to the following characteristics, which may
vary between different series of Company Preferred Stock:
(i) dividend rate, preference of dividend with respect to any other
class or series of stock, and cumulativity, non-cumulativity or partial
cumulativity of dividends;
(ii) redemption price and terms, including, to the extent permitted by
law, the manner in which shares are to be chosen for redemption if less
than all the shares of a series are to be redeemed;
(iii) sinking fund provisions for the redemption or purchase of shares;
(iv) the amount payable upon shares in the event of voluntary or
involuntary liquidation;
(v) the terms and conditions on which shares may be converted, if the
shares of any series are issued with the privilege of conversion;
(vi) voting rights; and
(vii) such other powers, preferences and rights as the Board of
Directors shall determine.
The Company has issued and outstanding 1,000,000 shares of Series B
Preferred Stock. Dividends on Series B Preferred Stock aggregate 10% of par
value per annum, payable quarterly. Dividends with respect to the Series B
Preferred Stock are not cumulative. Accordingly, the Board of Directors of the
Company has no obligation to declare and pay dividends with respect to the
Series B Preferred Stock except as expressly provided in the Articles of
Incorporation or as provided by law. Pursuant to the terms of the Series B
Preferred Stock, however, the Company may not declare or pay a dividend with
respect to the Company Common Stock unless the Company also declares and pays a
dividend with respect to the Series B Preferred Stock for the quarter during
which such dividend is to be declared or paid with respect to the Company Common
Stock. The Series B Preferred Stock has no voting rights. The Series B Preferred
Stock is redeemable at any time after January 1, 1998 at the option of the
Company at the $1.00 liquidation value of the shares plus all declared but
unpaid dividends thereon, except that the per share redemption price (exclusive
of declared and unpaid dividends) for shares redeemed after January 1, 1998 but
on or before January 1, 1999 is $1.02, and the per share redemption price for
shares redeemed after January 1, 1999 but on or before January 1, 2000 is $1.01.
In the event of the liquidation, dissolution or winding up of the affairs of the
Company, prior to any distribution or payment to the holders of Company Common
Stock or any other class of stock of the Company ranking junior to the Series B
Preferred Stock, holders of the Series B Preferred Stock shall be entitled to be
paid in full the $1.00 liquidation value of the shares plus all declared but
unpaid dividends thereon to the date of payment.
The Board of Directors does not intend to seek shareholder approval prior
to any issuance of Company Preferred Stock or any series thereof, unless
otherwise required by law. Under the Texas Business Corporation Act ("TBCA"),
shareholder approval prior to the issuance of shares of Company Common Stock or
Company Preferred Stock is required in connection with certain mergers.
Frequently, opportunities arise that require prompt action, such as the possible
acquisition of a property or business or the private sale of securities, and it
is the belief of the Board of Directors that the delay necessary for shareholder
approval of a specific issuance could be to the detriment of the Company and its
shareholders. The Board of Directors does not
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intend to issue any shares of Company Common Stock or Company Preferred Stock
except on terms which the Board of Directors deems to be in the best interests
of the Company and its then existing shareholders.
Although the Company Preferred Stock could be deemed to have an
anti-takeover effect, the Board of Directors is not aware of any takeover
efforts. If a hostile takeover situation should arise, shares of Company
Preferred Stock could be issued to purchasers sympathetic with the Company's
management or others in such a way as to render more difficult or to discourage
a merger, tender offer, proxy contest, the assumption of control by a holder of
a large block of the Company's securities or the removal of incumbent
management.
The effects of the issuance of the Company Preferred Stock on the holders
of Company Common Stock could include, among other things, (i) reduction of the
amount otherwise available for payments of dividends on Company Common Stock if
dividends are payable on the series of Company Preferred Stock; (ii)
restrictions on dividends on Company Common Stock if dividends on the series of
Company Preferred Stock are in arrears; (iii) dilution of the voting power of
Company Common Stock if the series of Company Preferred Stock has voting rights,
including a possible "veto" power if the series of Company Preferred Stock has
class voting rights; (iv) dilution of the equity interest of holders of Company
Common Stock if the series of Company Preferred Stock is convertible, and is
converted, into Company Common Stock; and (v) restrictions on the rights of
holders of Company Common Stock to share in the Company's assets upon
liquidation until satisfaction of any liquidation preference granted to the
holders of the series of Company Preferred Stock. Holders of Company Common
Stock have no preemptive rights to purchase or otherwise acquire any Company
Preferred Stock that may be issued.
COMMON STOCK
The holders of the Company Common Stock are entitled to one vote for each
share of Company Common Stock owned. Except as expressly provided by law and
except for any voting rights which may be conferred by the Board of Directors on
any shares of Company Preferred Stock issued, all voting power is in the Company
Common Stock. Holders of Company Common Stock may not cumulate their votes for
the election of directors. Holders of Company Common Stock do not have
preemptive rights to acquire any additional, unissued or treasury shares of the
Company, or securities of the Company convertible into or carrying a right to
subscribe for or acquire shares of the Company.
Holders of Company Common Stock will be entitled to receive dividends out
of funds legally available therefor, if and when properly declared by the Board
of Directors. However, the Board of Directors may not declare or pay cash
dividends on Company Common Stock, and no Company Common Stock may be purchased
by the Company, unless full dividends have been declared and paid on outstanding
Company Preferred Stock for the current dividend period and, with respect to any
outstanding cumulative preferred stock, all past dividend periods. SEE "RISK
FACTORS -- RESTRICTIONS ON ABILITY TO PAY DIVIDENDS" AND "SUPERVISION AND
REGULATION".
On the liquidation of the Company, the holders of Company Common Stock are
entitled to share pro rata in any distribution of the assets of the Company,
after the holders of shares of Company Preferred Stock have received the
liquidation preference of their shares plus any cumulated but unpaid dividends
(whether or not earned or declared), if any, and after all other indebtedness of
the Company has been retired.
TEXAS LAW AND CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS
Certain provisions of Texas law, the Company's Articles of Incorporation
and the Company's Bylaws could make more difficult the acquisition of the
Company by means of a tender offer, a proxy contest or otherwise and the removal
of incumbent officers and directors. These provisions are intended to discourage
certain types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of the Company to negotiate first
with the Company.
The Company is subject to the provisions of the Texas Business Combination
Law (Articles 13.01 through 13.08 of the TBCA), which provides that a Texas
corporation such as the Company may not engage in certain business combinations,
including mergers, consolidations and asset sales, with a person, or an
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affiliate or associate of such person, who is an "Affiliated Shareholder"
(generally defined as the holder of 20% or more of the corporation's voting
shares) for a period of three years from the date such person became an
Affiliated Shareholder unless: (i) the business combination or purchase or
acquisition of shares made by the Affiliated Shareholder was approved by the
board of directors of the corporation before the Affiliated Shareholder became
an Affiliated Shareholder or (ii) the business combination was approved by the
affirmative vote of the holders of at least two-thirds of the outstanding voting
shares of the corporation not beneficially owned by the Affiliated Shareholder,
at a meeting of shareholders called for that purpose (and not by written
consent), not less than six months after the Affiliated Shareholder became an
Affiliated Shareholder. The Texas Business Combination Law is not applicable to:
(i) the business combination of a corporation: (a) where the corporation's
original charter or bylaws contain a provision expressly electing not to be
governed by the Texas Business Combination Law, (b) that adopts an amendment to
its charter or bylaws before December 31, 1997, expressly electing not to be
governed by the Texas Business Combination Law, or (c) that adopts an amendment
to its charter or bylaws after December 31, 1997, by the affirmative vote of the
holders, other than Affiliated Shareholders, of at least two-thirds of the
outstanding voting shares of the corporation, expressly electing not to be
governed by the Texas Business Combination Law; (ii) a business combination of a
corporation with an Affiliated Shareholder that became an Affiliated Shareholder
inadvertently, if the Affiliated Shareholder: (a) as soon as practicable divests
itself of enough shares to no longer be an Affiliated Shareholder and (b) would
not at any time within the three year period preceding the announcement of the
business combination have been an Affiliated Shareholder but for the inadvertent
acquisition; (iii) a business combination with an Affiliated Shareholder that
was the beneficial owner of 20% or more of the outstanding voting shares of the
corporation on December 31, 1996, and continuously until the announcement date
of the business combination; (iv) a business combination with an Affiliated
Shareholder who became an Affiliated Shareholder through a transfer of shares of
the corporation by will or intestate succession and continuously was such an
Affiliated Shareholder until the announcement date of the business combination;
and (v) a business combination of a corporation with a wholly owned subsidiary
if the subsidiary is not an affiliate or associate of the Affiliated Shareholder
other than by reason of the Affiliated Shareholder's beneficial ownership of the
voting shares of the corporation. Neither the Articles of Incorporation nor the
Bylaws of the Company contain any provision expressly providing that the Company
will not be subject to the Texas Business Combination Law. The Texas Business
Combination Law may have the effect of inhibiting a non-negotiated merger or
other business combination involving the Company, even if such event would be
beneficial to the Company's shareholders.
The following discussion is a summary of certain material provisions of the
Company's Articles of Incorporation and the Company's Bylaws, and is qualified
in its entirety by reference to the Company's Articles of Incorporation and
Bylaws, which are available upon written request from the Company and are on
file with the SEC. SEE "AVAILABLE INFORMATION"; "RISK FACTORS"; AND "DESCRIPTION
OF SECURITIES OF THE COMPANY".
Classified Board of Directors. Under the Company's Bylaws, the Board of
Directors is classified into three classes, with the directors being elected for
staggered, three-year terms. The classification of the Company's Board of
Directors will have the effect of making it more difficult to change the
composition of the Board of Directors, because at least two annual meetings of
the shareholders would be required to change the control of the Board of
Directors rather than one. In addition, the Bylaws provide that directors may be
removed by the shareholders only for cause and that vacancies on the Board of
Directors may be filled by the remaining directors.
Advance Notice of Shareholder Proposals and Nominations. The Company's
Bylaws establish an advance notice procedure for shareholders to make
nominations of candidates for election as directors or bring other business
before an annual meeting of shareholders of the Company (the "Shareholder Notice
Procedure"). The Shareholder Notice Procedure provides that only persons who are
nominated by, or at the direction of, the Board, or by a shareholder who has
given timely written notice to the Secretary of the Company prior to the meeting
at which directors are to be elected, will be eligible for election as directors
of the Company and that, at an annual meeting, only such business may be
conducted as has been brought before the meeting by, or at
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the direction of, the Board of Directors or by a shareholder who has given
timely written notice to the Secretary of the Company of such shareholder's
intention to bring such business before such meeting.
Under the Shareholder Notice Procedure, for notice of shareholder
nominations or other business to be made at an annual meeting to be timely, such
notice must be received by the Company not less than 70 days prior to the first
anniversary of the previous year's annual meeting (or if the date of the annual
meeting is advanced by more than 20 days not later than the tenth day after
public announcement of the date of such meeting is first made). Notwithstanding
the foregoing, in the event that the number of directors to be elected is
increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased Board made by the Company at
least 80 days prior to the first anniversary of the preceding year's annual
meeting, a shareholder's notice will be timely, but only with respect to
nominees for any new positions created by such increase, if it is received by
the Company not later than the 10th day after such public announcement is first
made by the Company. The Bylaws further provide that, for notice of a
shareholder nomination to be made at a special meeting at which directors are to
be elected to be timely, such notice must be received by the Company not later
than the tenth day after public announcement of the date of such meeting is
first made.
Under the Shareholder Notice Procedure, a shareholder's notice to the
Company proposing to nominate a person for election as a director or proposing
other business must contain certain information specified in the Bylaws,
including the identity and address of the nominating shareholder, the class and
number of shares of stock of the Company owned by such shareholder, information
regarding the proposed nominee that would be required under the federal
securities laws to be included in a proxy statement soliciting proxies for the
proposed nominee and, with respect to business other than a nomination, a brief
description of the business the shareholder proposes to bring before the
meeting, the reasons for conducting such business at such meeting and any
material interest of such shareholder in the business so proposed.
The Shareholder Notice Procedure may have the effect of precluding a
contest for the election of directors or the consideration of shareholder
proposals if the proper procedures are not followed, and of discouraging or
deterring a third party from conducting a solicitation of proxies to elect its
own slate of directors or to approve its own proposal, without regard to whether
consideration of such nominees or proposals might be harmful or beneficial to
the Company and its shareholders.
Special Meetings of Shareholders. The Articles of Incorporation provide
that special meetings of shareholders can be called by shareholders only at the
request of the holders of not less than one-half of the outstanding shares of
stock entitled to vote at the meeting.
Reduced Shareholder Vote Required for Certain Actions. The Company's
Articles of Incorporation provide that, notwithstanding any provision of the
TBCA that would require approval of more than a majority of the shares entitled
to vote on such matter and present or represented by proxy at the meeting, the
vote or approval of a majority of the shares of the Company's stock entitled to
vote on such matter will be sufficient to approve such matter. This provision
reduces the required shareholder approval level for certain actions such as a
merger, a consolidation, a share exchange, certain sales of substantially all of
the Company's assets, a dissolution or an amendment to the Company's Articles of
Incorporation, each of which would otherwise require two-thirds shareholder
approval under Texas law.
No Action by Written Consent. Under the TBCA, no action required or
permitted to be taken at an annual or special meeting of shareholders may be
taken by written consent in lieu of a meeting of shareholders.
Amendment of Bylaws. The Company's Articles of Incorporation and Bylaws
provide that the Bylaws may be amended only by the Board of Directors.
Shareholders do not have the power to amend the Company Bylaws.
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COMPARISON OF RIGHTS OF SHAREHOLDERS
OF THE COMPANY AND SUNBELT
CHARTER AND BYLAW PROVISIONS AFFECTING COMPANY COMMON STOCK
As noted above, the Company's Articles of Incorporation and Bylaws contain
several provisions which may make the Company a less attractive target for an
acquisition of control by anyone who does not have the support of the Company's
Board of Directors.
In addition, as a result of the Consolidations, Sunbelt Shareholders, whose
rights are governed by the National Bank Act and, to the extent the TBCA is not
inconsistent with the National Bank Act, by the TBCA, will become shareholders
of the Company, and their rights as shareholders will then be governed primarily
by the TBCA without preemption by the National Bank Act.
CERTAIN DIFFERENCES BETWEEN THE CORPORATION LAWS OF TEXAS AND THE NATIONAL BANK
ACT AND CORRESPONDING CHARTER AND BYLAW PROVISIONS
Certain differences between the National Bank Act and TBCA, as well as a
description of the corresponding provisions contained in the Company's and
Sunbelt's respective charter and Bylaws, as such differences may affect the
rights of shareholders, are set forth below. The following summary does not
purport to be complete and is qualified in its entirety by reference to the
provisions of the TBCA and the National Bank Act and applicable charter and
bylaw provisions.
Mergers
The TBCA generally permits a merger to become effective without the
approval of the surviving corporation's shareholders if the articles of
incorporation of the surviving corporation do not change following the merger,
the amount of the surviving corporation's common stock to be issued or delivered
under the plan of merger does not exceed 20% of the total shares of outstanding
voting stock immediately prior to the acquisition, and the board of directors of
the surviving corporation adopts a resolution approving the plan of merger. The
National Bank Act requires shareholder approval of all mergers.
Where shareholder approval is required under Texas law, a merger must be
approved by the holders of two-thirds of the outstanding shares of the Texas
corporation entitled to vote thereon, unless the Articles of Incorporation of
the corporation require a lesser percentage. The Company's Articles of
Incorporation only require the vote of a majority of the outstanding shares to
approve a merger. The National Bank Act requires the approval of the holders of
two-thirds of the outstanding shares of the national bank entitled to vote
thereon.
Appraisal Rights
Shareholders of Texas corporations are entitled to exercised certain
dissenters' rights in the event of a sale, lease, exchange or other disposition
of all, or substantially all, of the property and assets of the corporation,
and, with the exceptions discussed below, a merger or consolidation. Any
shareholder who desires to dissent must file a written objection with the
corporation, prior to the meeting at which the transaction is considered. The
written notice must state that the shareholder will exercise his right to
dissent if the transaction is consummated and give the shareholder's address to
which notice of effectiveness of the transaction should be sent. A vote against
the transaction is not sufficient to perfect a shareholder's statutory right to
dissent. If the transaction is consummated, each shareholder who sent notice to
the corporation as described above and who did not vote in favor of the
transaction will be deemed to have dissented. Failure to vote against the
transaction will not constitute a waiver of the dissenters' rights of appraisal;
on the other hand, a vote in favor of the transaction will constitute such a
waiver.
The surviving corporation will be liable for any payments to dissenting
shareholders and shall, within ten days of the effective date, notify the
dissenting shareholders in writing that the transaction has been effected. Each
dissenting shareholder so notified must, within ten days of the delivery or
mailing of such notice, make a
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written demand on the corporation for payment of the fair value of the
dissenting shareholder's shares as estimated by the dissenting shareholder. The
fair value of the shares shall be the value thereof as of the date immediately
preceding the meeting, excluding any appreciation or depreciation in
anticipation of the transaction.
If the dissenting shareholder and the surviving corporation cannot agree on
the fair value of the shares within sixty days after the effective date, the
dissenting shareholder may, within sixty days of the expiration of the initial
sixty day period, file a petition in any court of competent jurisdiction in the
county of the surviving corporation requesting a finding and determination of
the fair value of the dissenting shareholder's shares. Each dissenting
shareholder is not required to file a separate petition. If one dissenting
shareholder files a petition, the corporation must file, with the clerk of the
court in which the petition was filed, a list containing the names and addresses
of the dissenting shareholders with whom agreements as to the value of their
shares have not been reached. The court will give notice of the time and place
of the hearing on the petition to the dissenting shareholders named on the list.
Dissenting shareholders so notified by the court will be bound by the final
judgment of the court regarding fair value of the shares. If no petition is
filed within the appropriate time period, then all dissenting shareholders who
have not reached an agreement with the corporation on the value of their shares
shall be bound by the transaction and lose their rights to dissent.
After a hearing concerning the petition, the court shall determine which
dissenting shareholders have complied with the provisions of the TBCA and have
become entitled to the valuation of, and payment for, their shares, and shall
appoint one or more qualified appraisers to determine the value of the shares of
stock in question. The appraiser shall determine such value and file a report
with the court. The court shall then in its judgment determine the fair value of
the shares of stock, which judgment shall be binding on the corporation and on
all dissenting shareholders receiving notice of the hearing. The court shall
direct the corporation to pay such amount, together with interest thereon
beginning 91 days after the effective date to the date of judgment, to the
dissenting shareholders entitled thereto. The judgment shall be payable upon the
surrender to the corporation of the certificates fully endorsed by the
dissenting shareholder. All court costs shall be allotted between the dissenting
shareholders and the corporation in the manner the court determines to be fair
and equitable.
In the absence of fraud in the transaction, a dissenting shareholder's
statutory right to appraisal is the exclusive remedy for the recovery of the
value of his shares or money damages to the shareholder with respect to the
transaction.
No appraisal rights are available under Texas law for the holders of any
shares of a class or series of stock of a Texas corporation to a merger if that
corporation survives the merger and the merger did not require the vote of the
holders of that class or series of such corporation's stock.
Texas law has a provision which states that shareholders do not have
appraisal rights in connection with a merger where, on the record date fixed to
determine the shareholders entitled to vote on the merger or consolidation, the
stock of the corporation is listed on a national securities exchange, is listed
on the NASDAQ stock market or is held of record by more than 2,000 shareholders
unless any of the following exceptions concerning consideration paid to the
shareholder for his shares are met. A shareholder will be entitled to dissent
and be paid for his shares if, notwithstanding the above, the shareholder is
required to accept for his shares any consideration other than (i) shares of
stock of a corporation which, immediately after the effective date of the
merger, are listed on a national securities exchange or are held of record by
not less than 2,000 shareholders, and (ii) cash in lieu of fractional shares
otherwise entitled to be received.
The rights of a shareholder of a national bank are described under "THE
CONSOLIDATIONS -- DISSENTERS' RIGHTS OF APPRAISAL AND RELATED ISSUES" AND ARE
REPRODUCED AS EXHIBIT B AND EXHIBIT C.
Special Meetings
A special meeting of shareholders of a Texas corporation may be called by
the holders of shares entitled to cast not less than 10% of all shares entitled
to vote at the meeting, unless a different percentage, not to exceed 50%, is
provided in the Articles of Incorporation. The Company's Articles of
Incorporation provide
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that special meetings of shareholders can only be called by shareholders at the
request of the holders of not less than one-half of the outstanding shares of
stock entitled to vote at the meeting. Any three shareholders of Sunbelt owning
collectively 25% or more of Sunbelt Stock may call a special meeting of Sunbelt
Shareholders for any purpose.
Actions Without a Meeting
The Company's Articles of Incorporation do not permit shareholders to act
without a meeting. The National Bank Act also prohibits Sunbelt's Shareholders
from taking action without a meeting.
Election of Directors
Pursuant to Texas law, unless otherwise provided in the Articles of
Incorporation, shareholders shall be entitled to cumulative voting in the
election of directors if they provide the secretary of the corporation with
written notice prior to the day of the election of their intent to cumulate
their votes. Absent such notice, the directors of a corporation shall be elected
by a plurality of the votes cast by the holders of shares entitled to vote in
the election of directors at a meeting of shareholders at which a quorum is
present. The Company's Articles of Incorporation prohibit cumulative voting in
the election of directors. The National Bank Act prohibits a national bank from
denying cumulative voting. SEE "DESCRIPTION OF THE SECURITIES OF THE COMPANY".
Voting on Other Matters
Under Texas law, an amendment to the Articles of Incorporation requires the
approval of the holders of at least two-thirds of the outstanding shares of the
corporation entitled to vote thereon, and the holders of two-thirds of the
outstanding shares of each class or series entitled to vote thereon as a class,
unless a different number, not less than a majority, is specified in the
Articles of Incorporation. The Company's Articles of Incorporation permit the
Articles of Incorporation to be amended by the holders of a majority of the
outstanding shares of the Company entitled to vote thereon.
The sale, lease, exchange or other disposition (not including any pledge,
mortgage, deed of trust or trust indenture unless otherwise provided in the
Articles of Incorporation) of all, or substantially all, the property and
assets, with or without the goodwill, of a Texas corporation, if not made in the
usual and regular course of its business, requires the approval of the holders
of at least two-thirds of the outstanding shares of the corporation entitled to
vote thereon, and the holders of two-thirds of the outstanding shares of each
class or series entitled to vote thereon as a class, unless the Articles of
Incorporation require the vote of a different number, not less than a majority,
of the shares outstanding. The Company's Articles of Incorporation provide that
such actions can be approved by a majority of the outstanding shares of the
Company entitled to vote thereon.
Under Texas law, the voluntary dissolution of a corporation requires the
approval of the holders of at least two-thirds of the total outstanding shares
of the corporation, and the holders of two-thirds of the outstanding shares of
each class or series entitled to vote thereon as a class, unless a different
amount, not less than a majority, is specified in the Articles of Incorporation.
Each outstanding share of a Texas corporation is entitled to vote on a
dissolution. The Articles of Incorporation of the Company provide that a
dissolution may be approved by a majority of the outstanding shares of the
Company entitled to vote thereon.
The National Bank Act requires the approval of two-thirds of the
outstanding stock to approve each of the above mentioned transactions.
Preemptive Rights
Under Texas law, shareholders possess preemptive rights as to the issuance
of additional or treasury securities by the corporation, unless the
corporation's Articles of Incorporation provide otherwise. The Company's
Articles of Incorporation deny preemptive rights and, therefore, the Company's
shareholders do not have preemptive rights as to newly issued and treasury
shares. The National Bank Act provides that a
103
<PAGE> 112
national bank may authorize preemptive rights. The Articles of Association of
Sunbelt denies preemptive rights.
Dividends
A Texas corporation may make distributions only out of surplus. The holders
of Company Common Stock are entitled to receive dividends ratably when, as and
if declared by the Company's Board of Directors from assets legally available
therefor, after payment of all dividends on senior securities, if any is
outstanding. The terms of the Series B Preferred Stock provide that the Company
may not declare or pay dividends on the Company Common Stock unless the Company
also declares and pays a dividend with respect to the Series B Preferred Stock
for the quarter during which such dividend is to be declared or paid with
respect to the Company Common Stock. Dividends declared by the Company are also
subject to restrictions imposed by federal and state banking laws and
regulations.
The holders of Sunbelt Stock are entitled to receive dividends ratably
when, as and if declared by the Sunbelt Board from funds legally available
therefor. Sunbelt has no shares of preferred stock authorized. Dividends
declared by Sunbelt are also subject to restrictions imposed by federal banking
laws and regulations. SEE "SUPERVISION AND REGULATION" AND "DESCRIPTION OF
SECURITIES OF THE COMPANY".
Limitation of Liability and Indemnification
Texas law permits a corporation to indemnify its officers, directors,
employees and agents if such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation. Indemnification is not allowed under Texas law, absent a court
order to the contrary, if an officer, director, employee or agent of the
corporation is finally adjudged liable to the corporation. The Company's
Articles of Incorporation require the indemnification of officers, directors and
others to the fullest extent permitted by Texas law. SEE "INDEMNIFICATION".
Under the Company's Articles of Incorporation, a director will not be
liable to the Company or its shareholders for monetary damages for any breach of
fiduciary duty as a director, except (i) for breach of a director's duty of
loyalty, (ii) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) unlawful payment of dividend or
unlawful stock purchase or redemption, or (iv) any transaction from which the
director derived an improper personal benefit.
The Articles of Association of Sunbelt provide for the voluntary limited
indemnification of its officers, directors and certain other persons for losses
incurred by such persons as a result of their service to Sunbelt. Sunbelt's
Articles of Association also provide Sunbelt with a right to maintain insurance
to support the voluntary indemnification, and Sunbelt does maintain such
insurance.
Although certain of the specific differences between the voting and other
rights of Sunbelt shareholders and the Company shareholders are discussed above,
the foregoing summary is not intended to be a complete statement of the
comparative rights of such shareholders under Texas law and the National Bank
Act, or the rights of such persons under the respective charters and Bylaws of
the Company and Sunbelt. Nor is the identification of certain specific
differences meant to indicate that other differences do not exist. The foregoing
summary is qualified in its entirety by reference to the particular requirements
of the TBCA and the National Bank Act, and the specific provisions of the
Company's Articles of Incorporation and Bylaws, and Sunbelt's Articles of
Association and Bylaws.
104
<PAGE> 113
RELATIONSHIPS WITH INDEPENDENT ACCOUNTANTS
The Company's Board of Directors appointed Grant Thornton LLP as
independent auditors for the Company for the year ending December 31, 1997.
Grant Thornton LLP has served as the Company's independent auditors continuously
for over ten years.
Sunbelt's Board of Directors appointed Harper & Pearson Company as
independent auditors for Sunbelt for the year ending December 31, 1997. Harper &
Pearson Company has served as independent auditors continuously since 1994.
The Company has been advised by Grant Thornton LLP that Grant Thornton LLP
does not have any direct financial interest or any material indirect financial
interest in the Company or its affiliates other than arising from that firm's
employment as auditors for the Company.
Sunbelt has been advised by Harper & Pearson Company that Harper & Pearson
Company does not have any direct financial interest or any material indirect
financial interest in Sunbelt other than arising from that firm's employment as
auditors for Sunbelt.
LEGAL OPINIONS
The validity of the shares of Common Stock to be issued by the Company has
been passed upon by Bracewell & Patterson, L.L.P., Houston, Texas. Liddell,
Sapp, Zivley, Hill & LaBoon, L.L.P. has passed upon certain federal income tax
consequences of the Consolidations.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1997 and
1996 and the related consolidated Statements of Earnings, Shareholders' Equity,
and Cash Flows for each of the three years in the period ended December 31,
1997, have been included in this Proxy Statement/Prospectus in reliance upon the
reports of Grant Thornton LLP, independent certified public accountants, given
on the authority of said firm as experts in accounting and auditing.
The balance sheets of Sunbelt as of December 31, 1997 and 1996 and the
related Statements of Earnings, Shareholders' Equity, and Cash Flows for each of
the three years in the period ended December 31, 1997, have been included in
this Proxy Statement/Prospectus in reliance upon the reports of Harper & Pearson
Company, independent certified public accountants, given on the authority of
said firm as experts in accounting and auditing.
INDEMNIFICATION
The Company's Articles of Incorporation contain provisions which require
the Company to indemnify its officers, directors, employees and agents to the
full extent permitted by law. SEE "COMPARISON OF RIGHTS OF SHAREHOLDERS OF THE
COMPANY AND SUNBELT -- CERTAIN DIFFERENCES BETWEEN THE CORPORATION LAWS OF TEXAS
AND THE NATIONAL BANK ACT AND CORRESPONDING CHARTER AND BY LAW PROVISIONS".
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company, the
Company has been informed that in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
OTHER MATTERS
The Sunbelt Board does not know of any matters to be presented at the
meeting other than those set forth above. If any other matters are properly
brought before the Meeting or any adjournment thereof, the enclosed proxy will
be voted in accordance with the recommendations of the Sunbelt Board unless
"Authority Withheld" is indicated in the appropriate box on the proxy.
105
<PAGE> 114
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PRIME BANCSHARES, INC.
Report of Independent Certified Public Accountants.......... F-2
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-3
Consolidated Statements of Earnings for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-4
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 1997, 1996 and 1995...... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
SUNBELT NATIONAL BANK
Report of Independent Certified Public Accountants.......... F-31
Balance Sheets as of December 31, 1997 and 1996............. F-32
Statements of Earnings for the Years Ended December 31,
1997, 1996 and 1995....................................... F-33
Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 1997, 1996 and 1995.................... F-34
Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995....................................... F-35
Notes to Financial Statements............................... F-36
</TABLE>
F-1
<PAGE> 115
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Prime Bancshares, Inc.
We have audited the accompanying consolidated balance sheets of Prime
Bancshares, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of earnings, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Prime Bancshares,
Inc. and Subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Houston, Texas
January 20, 1998
F-2
<PAGE> 116
PRIME BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS 1997 1996
------------ ------------
<S> <C> <C>
Cash and cash equivalents
Cash and due from banks $ 18,263 $ 34,006
Federal funds sold and other temporary investments 29,478 --
------------ ------------
Total cash and cash equivalents 47,741 34,006
Securities
Available-for-sale 188,048 324,723
Held-to-maturity 273,387 115,902
------------ ------------
Total securities 461,435 440,625
Loans, net 417,880 306,857
Premises and equipment, net 15,268 9,761
Accrued interest receivable 6,747 6,453
Other assets 9,289 3,753
------------ ------------
$ 958,360 $ 801,455
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 152,154 $ 117,441
Interest-bearing deposits 712,918 577,729
------------ ------------
Total deposits 865,072 695,170
Federal funds purchased and securities sold
under repurchase agreements 17,132 9,700
Other liabilities 4,683 34,616
------------ ------------
Total liabilities 886,887 739,486
Commitments and contingencies -- --
Shareholders' equity
Preferred stock 1,000 7,000
Common stock 3,003 2,980
Additional capital 9,368 3,824
Retained earnings 59,585 50,113
Net unrealized gain on available-for-sale
securities, net of tax of $398 and $996 772 1,934
------------ ------------
73,728 65,851
Less common stock held in treasury -- at cost 2,255 3,882
------------ ------------
71,473 61,969
------------ ------------
$ 958,360 $ 801,455
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 117
PRIME BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended December 31,
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Interest income
Loans $ 34,343 $ 24,673 $ 19,357
Securities 30,233 28,722 34,514
Federal funds sold and other temporary investments 1,462 420 1,439
-------- -------- --------
Total interest income 66,038 53,815 55,310
Interest expense 30,017 23,741 27,141
-------- -------- --------
Net interest income 36,021 30,074 28,169
Provision for loan losses 825 1,246 1,510
-------- -------- --------
Net interest income after provision for loan losses 35,196 28,828 26,659
Noninterest income
Service charges 7,045 6,319 6,106
Gain on sale of branches -- -- 2,445
Other operating income 1,911 1,973 1,787
-------- -------- --------
Total noninterest income 8,956 8,292 10,338
Noninterest expense
Employee compensation and benefits 16,354 13,070 12,887
Net bank premises expense 1,339 1,246 1,262
Equipment rentals, depreciation and maintenance 1,232 975 1,000
Net realized losses on available-for-sale securities -- -- 9
Other operating expenses 7,629 7,765 7,952
-------- -------- --------
Total noninterest expenses 26,554 23,056 23,110
-------- -------- --------
Earnings before income taxes 17,598 14,064 13,887
Provision for income taxes
Current 6,680 5,174 5,360
Deferred benefit (445) (332) (525)
-------- -------- --------
6,235 4,842 4,835
-------- -------- --------
NET EARNINGS $ 11,363 $ 9,222 $ 9,052
======== ======== ========
Basic earnings per common share $ 1.19 $ .97 $ .94
======== ======== ========
Diluted earnings per common share $ 1.14 $ .92 $ .89
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 118
PRIME BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Years ended December 31, 1995, 1996 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Net unrealized
gain (loss)
on securities Common Total
Preferred Common Additional Retained available- stock in shareholders'
Stock stock capital earnings for-sale treasury equity
-------- -------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995 $ 6,000 $ 2,943 $ 3,721 $ 35,587 $ 494 $ (1,906) $ 46,839
Purchase of treasury stock -- -- -- -- -- (100) (100)
Exchange common stock for
series B preferred stock 1,250 -- -- -- -- (1,250) --
Redemption of preferred stock (250) -- -- -- -- -- (250)
Dividends -- -- -- (1,871) -- -- (1,871)
Net change in unrealized
gain (loss) on available-
for-sale securities, net of
taxes of $2,401 -- -- -- -- 4,660 -- 4,660
Net earnings for the year -- -- -- 9,052 -- -- 9,052
-------- -------- -------- -------- -------- -------- --------
Balance at December 31,
1995 7,000 2,943 3,721 42,768 5,154 (3,256) 58,330
Purchase of treasury stock -- -- -- -- -- (626) (626)
Sale of common stock -- 37 103 -- -- -- 140
Dividends -- -- -- (1,877) -- -- (1,877)
Net change in unrealized
gain (loss) on available-
for-sale securities, net of
taxes of $1,659 -- -- -- -- (3,220) -- (3,220)
Net earnings for the year -- -- -- 9,222 -- -- 9,222
-------- -------- -------- -------- -------- -------- --------
Balance at December 31,
1996 7,000 2,980 3,824 50,113 1,934 (3,882) 61,969
Purchase of treasury stock -- -- -- -- -- (408) (408)
Sale of common stock -- 23 131 -- -- -- 154
Sale of treasury stock in initial
public offering -- -- 5,745 -- -- 2,035 7,780
Stock issuance costs -- -- (332) -- -- -- (332)
Redemption of preferred stock (6,000) -- -- (6,000)
Dividends -- -- -- (1,891) -- -- (1,891)
Net change in unrealized
gain (loss) on available-
for-sale securities, net of
of taxes of $598 -- -- -- -- (1,162) -- (1,162)
Net earnings for the year -- -- -- 11,363 -- -- 11,363
-------- -------- -------- -------- -------- -------- --------
Balance at December 31,
1997 $ 1,000 $ 3,003 $ 9,368 $ 59,585 $ 772 $ (2,255) $ 71,473
======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 119
PRIME BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 11,363 $ 9,222 $ 9,052
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 2,218 1,218 1,380
Amortization of premiums, net of (accretion) of discounts on
securities (610) (780) (81)
Net realized loss on available-for-sale securities -- -- 9
Provision for loan losses 825 1,246 1,510
Write-down of other assets -- 50 155
(Gain) loss on sale of premises, equipment and
other real estate (59) (210) 8
Gain on sale of certain branch assets and liabilities -- -- (2,445)
Change in assets and liabilities, net of effects resulting from
the acquisition of a bank, and the purchase and sale of
certain branch assets and liabilities:
Decrease in accrued interest receivable 25 2,469 1,572
Decrease (increase) in prepaid and other assets 6,453 23 (1,106)
(Decrease) increase in other liabilities (29,629) (68) 1,198
--------- --------- ---------
Net cash (used) provided by operating activities (9,414) 13,170 11,252
Cash flows from investing activities:
Purchases of held-to-maturity securities (174,222) -- (18,589)
Proceeds from sales and maturities of available-for-sale 143,540 122,607 97,387
securities
Purchases of available-for-sale securities -- (73,224) (20,226)
Proceeds from maturities of held-to-maturity securities 18,079 10,176 80,017
Increase in loans, net of the effects resulting from the
acquisition of a bank, and the purchase and sale of certain
branch assets and liabilities (71,408) (81,591) (36,257)
Purchases of premises and equipment (2,029) (1,449) (1,703)
Proceeds from sale of premises, equipment and other real estate 567 1,071 43
Net decrease in cash resulting from the acquisition of a bank (4,781) -- --
Net increase in cash resulting from acquisition of certain branch
assets and the assumption of certain liabilities 96,502 -- --
Net decrease in cash resulting from the sale of certain branch
assets and liabilities -- -- (72,759)
--------- --------- ---------
Net cash provided (used) by investing activities 6,248 (22,410) 27,913
</TABLE>
F-6
<PAGE> 120
PRIME BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year ended December 31,
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from financing activities:
Change in deposits, net of the effects resulting from the
acquisition of a bank, and the purchase and sale of certain
branch assets and liabilities $ 10,166 $ 1,005 $(42,208)
Change in federal funds purchased and securities sold under
Repurchase agreements 7,432 9,700 --
Purchase of treasury stock (408) (613) (100)
Redemption of preferred stock (6,000) -- (250)
Sale of treasury stock in initial public offering, net 7,448 -- --
Sale of common stock 154 127 --
Payment of dividends (1,891) (1,877) (1,871)
-------- -------- --------
Net cash provided (used) by financing activities 16,901 8,342 (44,429)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 13,735 (898) (5,264)
Cash and cash equivalents at beginning of year 34,006 34,904 40,168
-------- -------- --------
Cash and cash equivalents at end of year $ 47,741 $ 34,006 $ 34,904
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 121
PRIME BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
(Dollars in thousands)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation
of the accompanying financial statements follow.
1. GENERAL
The Company operates nineteen branches in Southeast and Central Texas. The
Company's primary sources of revenue are derived from investing in various
United States Treasury and Agency securities and granting loans primarily to
customers in Southeast and Central Texas. Although the Company has a
diversified loan portfolio, a substantial portion of its debtors' ability to
honor their contracts is dependent on the economies in those areas.
2. PRINCIPLES OF CONSOLIDATION AND INVESTMENT IN SUBSIDIARIES
The consolidated financial statements include the accounts of the Parent and
its wholly owned subsidiaries, IBID, Inc. (IBID) and Prime Bank (the Bank)
(collectively referred to as the Company). All significant intercompany
transactions and balances have been eliminated in the consolidated report of
the Company.
3. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
4. SECURITIES
The Company accounts for securities according to Statement of Financial
Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in
Debt and Equity Securities . At the date of purchase, the Company is
required to classify debt and equity securities into one of three
categories: held-to-maturity, trading, or available-for-sale. At each
reporting date, the appropriateness of the classification is reassessed.
Investments in debt securities are classified as held-to-maturity and
measured at amortized cost in the financial statements only if management
has the positive intent and ability to hold those securities to maturity.
Securities that are bought and held principally for the purpose of selling
them in the near term are classified as trading and measured at fair value
in the financial statements with unrealized gains and losses included in
earnings. Investments not classified as either held-to-maturity or trading
are classified as available-for-sale and measured at fair value in the
financial statements with unrealized gains and losses reported, net of tax,
in a separate component of shareholders' equity until realized.
Gains and losses on the sale of securities are determined using the
specific-identification method.
F-8
<PAGE> 122
PRIME BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997, 1996 and 1995
(Dollars in thousands)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Declines in the fair value of individual held-to-maturity and
available-for-sale securities below their carrying value that are other than
temporary result in write-downs of the individual securities to their fair
value. The related write-downs are included in earnings as realized losses.
Premiums and discounts are recognized in interest income using the interest
method over the period to maturity.
5. LOANS
Loans are reported at the principal amount outstanding, net of charge-offs,
unearned discounts, purchase discounts and an allowance for loan losses.
Unearned discounts on installment loans are recognized using a method which
approximates a level yield over the term of the loans. Interest on other
loans is calculated using the simple interest method on the daily balance of
the principal amount outstanding.
The Company applies SFAS No. 114, Accounting for Creditors for Impairment of
a Loan, as amended by SFAS No. 118. Under SFAS 114, as amended, a loan is
identified as impaired when it is probable that interest and principal will
not be collected according to the contractual terms of the loan agreement.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due. When interest accrual is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized only to the
extent cash payments are received. Loans are not again placed on accrual
status until payments are brought current and, in management's judgment, the
loan will continue to pay as agreed.
6. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for credit
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that collectibility of the principal is
unlikely.
The allowance is an amount that management believes will be adequate to
absorb losses inherent in existing loans and commitments to extend credit,
based on evaluations of the collectibility and prior loss experience of
loans and commitments to extend credit. The evaluations take into
consideration such factors as changes in the nature and volume of the
portfolio, overall portfolio quality, loan concentrations, specific problem
loans and current and anticipated economic conditions that may affect the
borrower's ability to pay.
F-9
<PAGE> 123
PRIME BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997, 1996 and 1995
(Dollars in thousands)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
7. PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided on the straight-line basis over the estimated
useful life of each type of asset.
8. OTHER REAL ESTATE
Real estate acquired by foreclosure is recorded at fair value at the date of
foreclosure or acquisition, establishing a new cost basis. After
foreclosure, management periodically performs valuations and the real estate
is carried at the lower of carrying amount or fair value less cost to sell.
Operating expenses of such properties, net of related income, and gains and
losses on their disposition are included in other expenses.
9. GOODWILL
Goodwill represents the aggregate excess of the cost of companies acquired
over the fair value of their net assets at the dates of acquisition. This
excess is being amortized by various methods over periods up to 15 years.
10. INCOME TAXES
The Company files a consolidated Federal income tax return. By agreement
with Parent, the Bank records a provision or benefit for Federal income
taxes on the same basis as if it filed a separate Federal income tax return.
The asset and liability method of accounting is used for income taxes where
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. When management determines that it is more likely than not that a
deferred tax asset will not be realized, a valuation allowance must be
established. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
F-10
<PAGE> 124
PRIME BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997, 1996 and 1995
(Dollars in thousands)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
11. EARNINGS PER SHARE
Basic earnings per common share is calculated by dividing net income
available for common shareholders by the weighted average number of common
shares outstanding during the year. Diluted earnings per share is
calculated by dividing net earnings available for common shareholders by
the weighted average number of common and dilutive potential common shares.
Stock options may be potential dilutive common shares and are therefore
considered in the earnings per share calculation, if dilutive. Options
granted within one year of the initial public offering (IPO) have been
treated as outstanding for all periods as a component of weighted average
dilutive potential common shares. The number of dilutive potential common
shares is determined using the treasury stock method.
12. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
In the ordinary course of business, the Company enters into
off-balance-sheet financial instruments consisting of commitments to extend
credit, commercial letters of credit and standby letters of credit. Such
financial instruments are recorded in the financial statements when they
are funded or related fees are incurred or received.
13. USE OF ESTIMATES
In preparing the financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates.
14. RECLASSIFICATIONS
Certain reclassifications have been made to conform to the 1997
presentation.
NOTE B - SECURITIES PURCHASED UNDER REPURCHASE AGREEMENTS
At December 31, 1997, the Company purchased $17,132 of government
securities under agreements to sell substantially the identical securities
for an amount equal to the original purchase price plus accrued interest on
January 5, 1998. The average interest rate was 5.3%.
F-11
<PAGE> 125
PRIME BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997, 1996 and 1995
(Dollars in thousands)
NOTE C - SECURITIES
The securities have been classified in the consolidated balance sheets
according to management's intent. The carrying amount of securities and
their approximate fair values are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES:
December 31, 1997:
U.S. Treasury securities $148,956 $ 1,436 $ -- $150,392
Mortgage-backed securities 37,661 31 73 37,619
Other 37 -- -- 37
-------- -------- -------- --------
$186,654 $ 1,467 $ 73 $188,048
======== ======== ======== ========
December 31, 1996:
U.S. Treasury securities $275,781 $ 3,432 $ 77 $279,136
Mortgage-backed securities 45,728 40 218 45,550
Other 37 -- -- 37
-------- -------- -------- --------
$321,546 $ 3,472 $ 295 $324,723
======== ======== ======== ========
HELD-TO-MATURITY SECURITIES:
December 31, 1997:
U.S. Treasury securities $ 65,696 $ 819 $ -- $ 66,515
Municipal securities 1,000 2 -- 1,002
Mortgage-backed securities 206,691 699 908 206,482
-------- -------- -------- --------
$273,387 $ 1,520 $ 908 $273,999
======== ======== ======== ========
December 31, 1996:
Mortgage-backed securities $115,902 $ 68 $ 1,661 $114,309
======== ======== ======== ========
</TABLE>
F-12
<PAGE> 126
PRIME BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997, 1996 and 1995
(Dollars in thousands)
NOTE C - SECURITIES - CONTINUED
There were no gross realized gains on sales of available-for-sale securities
for the years ended December 31, 1997, 1996, and 1995. Gross realized losses
on sales of available-for-sale securities were $0, $0, and $9 for the years
ended December 31, 1997, 1996, and 1995.
The following table shows the maturity distribution of the investment
portfolio at December 31, 1997:
<TABLE>
<CAPTION>
Held-to-maturity securities Available-for-sale securities
---------------------------- -----------------------------
Amortized cost Fair value Amortized cost Fair value
-------------- ---------- --------------- -----------
<S> <C> <C> <C> <C>
Due in one year or less $ 170 $ 170 $104,474 $105,147
Due from one to five years 66,461 67,282 44,482 45,245
Due from five to ten years 65 65 -- --
Mortgage-backed and equity securities 206,691 206,482 37,698 37,656
-------- -------- -------- --------
$273,387 $273,999 $186,654 $188,048
======== ======== ======== ========
</TABLE>
Securities with an aggregate book value of approximately $140,617 and
$145,811 at December 31, 1997 and 1996, were pledged as collateral to
secure public deposits.
The Company entered into a securities lending agreement whereby certain
securities owned by the Company are exchanged for a few days for
substantially identical securities. The Company had exchanged securities
with market values totaling $80,359 and $97,978 at December 31, 1997 and
1996.
F-13
<PAGE> 127
PRIME BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997, 1996 and 1995
(Dollars in thousands)
NOTE D - LOANS
Major classifications of loans are as follows at December 31:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Commercial $ 40,581 $ 27,611
Real estate:
Construction 27,579 17,470
1-4 family residential 75,996 51,544
Commercial mortgage 114,576 77,220
Other 7,070 5,088
Consumer 160,089 135,979
Overdrafts 210 125
-------- --------
426,101 315,037
Less:
Unearned discounts 2,760 3,221
Allowance for loan losses 4,938 4,436
Purchase discounts 523 523
-------- --------
$417,880 $306,857
======== ========
</TABLE>
Impaired loans were $865 and $288 at December 31, 1997 and 1996. The
reduction in interest income associated with these impaired loans was
insignificant and no valuation allowance for loan losses related to impaired
loans has been established. There were no commitments to lend additional
funds to borrowers whose loans were classified as impaired.
Outstanding loans to directors, significant stockholders and executive
officers of the Company and to their related business interests aggregated
$863 and $2,230 at December 31, 1997 and 1996.
NOTE E - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows at December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Balance at January 1 $ 4,436 $ 3,660 $ 2,641
Provision 825 1,246 1,510
Charge-offs (1,193) (785) (831)
Recoveries 382 315 340
Increase resulting from bank acquisition 488 -- --
------- ------- -------
Balance at December 31 $ 4,938 $ 4,436 $ 3,660
======= ======= =======
</TABLE>
F-14
<PAGE> 128
PRIME BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997, 1996 and 1995
(Dollars in thousands)
NOTE F - PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows at December 31:
<TABLE>
<CAPTION>
Estimated
useful lives 1997 1996
------------ -------- --------
<S> <C> <C> <C>
Land - $ 3,959 $ 2,483
Building and improvements 15-33 years 11,150 6,954
Furniture, fixtures and equipment 5-10 years 9,598 8,216
Automobiles 3 years 68 68
-------- --------
24,775 17,721
Less accumulated depreciation 9,507 7,960
-------- --------
$ 15,268 $ 9,761
======== ========
</TABLE>
Included in other assets are other real estate and repossessed assets of
$748 and $197 at December 31, 1997 and 1996.
NOTE G - INTEREST BEARING DEPOSITS
The types of accounts and their respective balances included in
interest-bearing deposits are as follows at December 31:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
NOW accounts and interest-
bearing checking accounts $120,624 $114,552
Savings and money market accounts 164,008 127,223
Certificates of deposit 428,286 335,954
-------- --------
$712,918 $577,729
======== ========
</TABLE>
The aggregate amount of certificates of deposit, each with a minimum
denomination of $100, was approximately $123,004 and $86,032 at December 31,
1997 and 1996. At December 31, 1997, the scheduled maturities of
certificates of deposit are as follows:
<TABLE>
<S> <C>
1998 $304,290
1999 62,421
2000 30,837
2001 16,280
2002 and thereafter 14,458
--------
$428,286
========
</TABLE>
F-15
<PAGE> 129
PRIME BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997, 1996 and 1995
(Dollars in thousands, except per share amounts)
NOTE G - INTEREST BEARING DEPOSITS - CONTINUED
Deposits of executive officers, significant stockholders and directors were
$2,406 and $2,041 (including time deposits of $1,239 and $1,114) at December
31, 1997 and 1996.
NOTE H - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
At December 31, 1997, the Company entered into the sale of $17,132 of
government securities under agreements to repurchase substantially the
identical securities on January 5, 1998. The average interest rate was 4.8%.
The following summarizes the sales to related parties at December 31, 1997:
<TABLE>
<S> <C>
Mission Heights Management Co. $ 7,911
Other related parties 9,019
-------
$16,930
=======
</TABLE>
At December 31, 1996, the Company entered into the sale of a $9,000
government note under an agreement to repurchase substantially the identical
security on January 2, 1997. The interest rate was 7.0%.
NOTE I - PREFERRED AND COMMON STOCK
The following summary of issued and outstanding shares of stock reflects the
effects of a thirty-for-one common shares stock split effective August 4,
1997:
<TABLE>
<CAPTION>
Issued and outstanding
preferred stock
--------------------------
Common stock Common stock Treasury
Series A Series B issued outstanding stock
---------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 6,000,000 -- 11,770,980 9,160,770 (2,610,210)
Exchange of common stock for
preferred stock net of redemptions -- 1,000,000 -- (300,000) (300,000)
Purchase of treasury stock -- -- -- (30,000) (30,000)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1995 6,000,000 1,000,000 11,770,980 8,830,770 (2,940,210)
Purchase of treasury stock -- -- -- (150,150) (150,150)
Sale of common stock -- -- 147,000 147,000 --
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 6,000,000 1,000,000 11,917,980 8,827,620 (3,090,360)
Redeem preferred stock (6,000,000) -- -- -- --
Sale of common stock -- -- 93,000 93,000 --
Purchase of treasury stock -- -- -- (81,600) (81,600)
Sale of treasury stock -- -- -- 478,000 478,000
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 -- 1,000,000 12,010,980 9,317,020 (2,693,960)
========== ========== ========== ========== ==========
</TABLE>
F-16
<PAGE> 130
PRIME BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997, 1996 and 1995
(Dollars in thousands)
NOTE I - PREFERRED AND COMMON STOCK - CONTINUED
At December 31, 1995 and 1996, the Company had 6,000,000 authorized shares
of Series A-10% preferred stock of $1 par value, 1,250,000 authorized shares
of Series B-10% preferred stock of $1 par value, and 50,000,000 authorized
shares of common stock of $.25 par value ($10 par value before split). The
Series A-10% preferred stock was redeemed in 1997.
The Series B preferred stock pays dividends quarterly. The preferred stock
is not cumulative or participating, has no voting rights and is not
convertible. Preferred stock has liquidation preferences over common stock
of the Company. Dividends on common stock of the Company may not be declared
or paid unless dividends for the same period on preferred stock have been
paid or declared. The stock was redeemed in January 1998.
NOTE J - INCOME TAXES
Deferred tax asset, Federal income tax currently payable, deferred tax
asset, and deferred tax liability, included in other assets and other
liabilities, respectively, are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Current payable $ (204) $ (22) $ 318
Deferred tax asset 1,483 1,340 1,008
Deferred tax liability (398) (996) (2,657)
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 1,429 $ 1,077 $ 810
Depreciation and amortization differences 302 172 92
Difference in basis of other real estate 52 17 132
Other (300) 74 (26)
------- ------- -------
$ 1,483 $ 1,340 $ 1,008
======= ======= =======
Deferred tax liabilities:
Unrealized gain on available-for-sale
securities $ (398) $ (996) $(2,655)
Other -- -- (2)
------- ------- -------
$ (398) $ (996) $(2,657)
======= ======= =======
</TABLE>
F-17
<PAGE> 131
PRIME BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997, 1996 and 1995
(Dollars in thousands)
NOTE J - INCOME TAXES - CONTINUED
The reconciliation between the Company's effective income tax rate and the
statutory federal income tax rate is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Statutory federal income tax rate 35.00% 35.00% 35.00%
Effect of utilization of graduated tax rates 0.00% (0.69)% (0.60)%
Other 0.43% (0.28)% .01%
------- ------- -------
Effective income tax rate 35.43% 34.03% 34.41%
======= ======= =======
</TABLE>
NOTE K - COMMITMENTS AND CONTINGENCIES
In the normal course of business, Company is party to financial instruments
with off-balance sheet risk to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements
of credit risk in excess of the amount recognized in the balance sheet.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount
of those instruments. Commitments under outstanding standby letters of
credit totaled $1,190 and $735 at December 31, 1997 and 1996. Commitments to
extend credit totaled $49,508 and $36,159 at December 31, 1997 and 1996. The
Company does not anticipate any material losses as a result of these
commitments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation to any condition established in the contract and have
fixed expiration dates or other termination clauses. Some of the commitments
are expected to expire without being drawn upon, so that the total
commitment amounts do not necessarily represent future cash requirements.
The Company evaluates each customer's credit worthiness on a case-by-case
basis. The extension of credit, is based on management's credit evaluation
of the counter-party. Collateral held varies but may include accounts
receivable, inventory, property, plant, and equipment, and income-producing
commercial properties.
F-18
<PAGE> 132
PRIME BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997, 1996 and 1995
(Dollars in thousands except per share amounts)
NOTE K - COMMITMENTS AND CONTINGENCIES - CONTINUED
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Company to guarantee the performance of a customer
to a third party. The credit risk involved and collateral required in
issuing letters of credit are essentially the same as those involved in
extending loan facilities to customers.
The Company is involved in certain claims and lawsuits occurring in the
normal course of business. Management, after consultation with outside legal
counsel, does not believe that the outcome of these actions would have a
material impact on the financial statements of the Company.
The Company leases certain premises and equipment under cancelable and
noncancelable lease arrangements. Total rentals charged to operating
expenses were $262, $187 and $192 in the years ended December 31, 1997, 1996
and 1995. Future lease commitments under noncancelable leases are not
material.
The Company has incentive stock option plans, and at December 31, 1997,
600,000 shares of common stock were reserved for these plans. The exercise
price of each option is equal to the market price of the Company's stock on
the date of grant. The maximum term is 10 years and the shares vest 10% to
20% per year.
The Company's Board of Directors and shareholders approved a new stock
option plan in 1997 (the "1997 Incentive Plan") which authorizes the
issuance of up to 1,000,000 shares of common stock under both
"non-qualified" and "incentive stock" options to employees and
"non-qualified" options to directors who are not employees. Generally, the
options vest 60% at the end of the third year following the date of grant
and an additional 20% at the end of the next two years; however, an
individual option may vest as much as 20% a year during the first two years
following the date of the grant if necessary to maximize the "incentive" tax
treatment to the optionee for the particular option being granted. Options
under the 1997 Incentive Plan must be exercised within 10 years following
the date of grant. No options have been granted under the 1997 Incentive
Plan.
The Company applies Accounting Principles Board Opinion 25 and related
Interpretations in accounting for its plans. Had compensation cost been
determined based on the fair value at the grant dates for awards consistent
with the method of SFAS No. 123, Accounting for Stock-Based Compensation,
the Company's net earnings and earnings per share would have been reduced as
follows:
F-19
<PAGE> 133
PRIME BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997, 1996 and 1995
(Dollars in thousands, except per share amounts)
NOTE K - COMMITMENTS AND CONTINGENCIES - CONTINUED
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net earnings:
As reported $ 11,363 $ 9,222 $ 9,052
Pro forma 11,287 9,222 9,052
Basic earnings per share:
As reported $ 1.19 $ 0.97 $ 0.94
Pro forma 1.19 0.97 0.94
Diluted earnings per share:
As reported $ 1.14 $ 0.92 $ 0.89
Pro forma 1.13 0.92 0.89
</TABLE>
The fair value of stock options granted in 1997 was estimated on the date of
grant using the Black-Scholes option-pricing model. The weighted average
fair values and related assumptions were:
<TABLE>
<S> <C>
Weighted average fair value $1.07
Expected volatility 31%
Risk free interest rate 5.9%
Expected lives 2.5 years
Expected dividend yield 0.8%
</TABLE>
Following is a summary of the status of the incentive option plans:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
--------- ----------
<S> <C> <C>
Options outstanding at January 1, 1995 ($.83-$2.67 a share) 600,000 $1.65
Options outstanding at December 31, 1995 ($.83-$2.67 a share) 600,000 1.65
Options exercised ($.83-$2.33 a share) (147,000) .96
--------
Options outstanding at December 31, 1996 ($.83-$2.67 a share) 453,000 1.87
Options granted ($4.17 a share) 240,000 4.17
Options exercised ($.83-$2.33 a share) (93,000) 1.66
-------
Options outstanding at December 31, 1997 ($.83-$4.17 a share) 600,000 $2.83
=======
Options exercisable at
December 31, 1995 342,000 $1.44
December 31, 1996 285,000 $1.84
December 31, 1997 282,000 $1.92
</TABLE>
F-20
<PAGE> 134
PRIME BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997, 1996 and 1995
(Dollars in thousands)
NOTE K - COMMITMENTS AND CONTINGENCIES - CONTINUED
Following is a summary of the options outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Outstanding
----------------------------
Weighted
Average
Remaining
Exercise Contractual Exercisable
Price Number Life Number
----------- ------ --------------- -----------
<S> <C> <C> <C>
$0.83 123,000 0.1 years 93,000
$2.33 117,000 5.0 years 117,000
$2.67 120,000 6.4 years 72,000
$4.17 240,000 9.1 years --
------- --------
600,000 282,000
======= ========
</TABLE>
NOTE L - REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital
requirements administered by state and 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 Company's and the Bank's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the Bank must meet
specific capital guidelines that involve quantitative measures of the
Company's and the Bank's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Company's and
the Bank's capital amounts and classifications 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 Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December
31, 1997, that the Company and the Bank meet all capital adequacy
requirements to which they are subject.
The most recent notification from the Federal Deposit Insurance Corporation
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank
must maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table. There are no conditions or events
since that notification that management believes have changed the
institution's category. The Company's and the Bank's actual capital amounts
and ratios are also presented in the table.
F-21
<PAGE> 135
PRIME BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997, 1996 and 1995
(Dollars in thousands)
NOTE L - REGULATORY MATTERS - CONTINUED
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual: Adequacy Purposes: Action Provisions:
---------------- ---------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (to Risk Weighted Assets):
Prime Bancshares, Inc. $70,545 15.01% > or = $37,819 > or = 8.0% N/A
Prime Bank $68,914 14.65% > or = $37,637 > or = 8.0% > or = $47,046 10.0%
Tier 1 Capital (to Risk Weighted Assets):
Prime Bancshares, Inc. $65,657 13.96% > or = $18,818 > or = 4.0% N/A
Prime Bank $63,976 13.60% > or = $18,818 > or = 4.0% > or = $28,227 6.0%
Tier 1 Capital (to Average Assets):
Prime Bancshares, Inc. $65,657 6.82% > or = $38,519 > 4.0% N/A
Prime Bank $63,976 6.64% > or = $38,515 > 4.0% > or = $48,144 5.0%
As of December 31, 1996:
Total Capital (to Risk Weighted Assets):
Prime Bancshares, Inc. $64,311 18.62% > or = $27,620 > or = 8.00% N/A
Prime Bank $63,951 18.51% > or = $27,620 > or = 8.00% > or = $34,525 > or = 10.00%
Tier 1 Capital (to Risk Weighted Assets):
Prime Bancshares, Inc. $59,995 17.37% > or = $13,810 > or = 4.00% N/A
Prime Bank $59,635 17.26% > or = $13,810 > or = 4.00% > or = $20,715 > or = 6.00%
Tier 1 Capital (to Average Assets):
Prime Bancshares, Inc. $59,995 7.96% > or = $30,255 > or = 4.00% N/A
Prime Bank $59,635 7.91% > or = $30,254 > or = 4.00% > or = $37,818 > or = 5.00%
</TABLE>
NOTE M - ACQUISITIONS / DISPOSITIONS
During 1995, the Company sold the assets and liabilities of five branches
originally acquired from First Heights Bank in 1994, resulting in a gain of
$2,445.
During 1997, the Company purchased deposits and certain assets of three
branches of Bank of America Texas, N.A. The purchase price was allocated
based on the fair value of the assets acquired and liabilities assumed, and
the excess of cost over the fair value of the net assets acquired of
$1,835, is being amortized over ten years using an accelerated method.
Amortization expense charged to other operating expense during 1997 was
$231.
F-22
<PAGE> 136
PRIME BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997, 1996 and 1995
(Dollars in thousands, except per share amounts)
NOTE M - ACQUISITIONS / DISPOSITIONS - CONTINUED
During 1997, the Company purchased all of the assets and liabilities of
First Northwestern Bank, N. A. and purchase accounting was applied. The
acquisition was for approximately $60,200 in deposits and $40,200 in loans.
The purchase price was allocated based on the fair value of the assets
acquired and liabilities assumed, and the excess of cost over the fair
value of the net assets acquired of $3,621, is being amortized over fifteen
years using a straight line method. Amortization expense charged to other
operating expense during 1997 was $220.
The following summarized proforma information assumes the First
Northwestern acquisition had occurred on January 1, 1996:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
---- ----
<S> <C> <C>
Interest income $66,849 $58,633
Net earnings 11,530 9,711
Basic earnings per share 1.21 1.02
Diluted earnings per share 1.15 0.98
</TABLE>
The pro forma financial information should be read in conjunction with the
related historical information and is not necessarily indicative of the
results that would have been attained had the transactions actually taken
place.
NOTE N - SUPPLEMENTAL STATEMENT OF CASH FLOW INFORMATION
Cash paid during the period for December 31:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Interest $ 29,557 $ 23,688 $ 26,873
Income taxes $ 6,130 $ 4,838 $ 5,006
</TABLE>
During 1996, the Company purchased $30,501 of U.S. Agency Securities. The
settlement of the transaction did not occur until January 1997.
During 1995, the Company issued 1,250,000 shares of Series B preferred
stock in exchange for 10,000 common shares.
F-23
<PAGE> 137
PRIME BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997, 1996 and 1995
(Dollars in thousands)
NOTE O - FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values of financial instruments are based on management's estimates
and do not purport to represent the aggregate net fair value of the Company.
Further, the fair value estimates are based on various assumptions,
methodologies and subjective considerations, which vary widely among
different financial institutions and which are subject to change.
The following methods and assumptions were used by the Company in
estimating financial instrument fair values:
. CASH AND CASH EQUIVALENTS, FEDERAL FUNDS PURCHASED/SOLD AND REPURCHASE
AGREEMENTS
The balance sheet carrying amount approximates fair value.
. SECURITIES TO BE HELD-TO-MATURITY AND SECURITIES AVAILABLE-FOR-SALE
Fair values for investment securities are based on quoted market prices
or quotations received from securities dealers. If quoted market prices
are not available, fair value estimates may be based on quoted market
prices of similar instruments, adjusted for differences between the
quoted instruments and the instruments being valued.
. LOANS
Fair values of loans are estimated for segregated groupings of loans
with similar financial characteristics. Loans are segregated by type
such as commercial, commercial real estate, residential mortgage and
consumer loans. Each of these categories is further subdivided into
fixed and adjustable rate loans and performing and nonperforming loans.
The fair value of performing loans is calculated by discounting
scheduled cash flows through the estimated maturity using estimated
market discount rates that reflect the credit and interest rate risk
inherent in the various types of loans. The fair value of nonperforming
loans is estimated at the value of the underlying collateral.
. DEPOSITS
The fair value of demand deposits, such as non-interest bearing demand
deposits and interest-bearing transaction accounts such as savings, NOW
and money market accounts are equal to the amount payable on demand as
of December 31, 1997 and 1996 (i.e. their carrying amounts).
The fair value of demand deposits is defined as the amount payable, and
prohibits adjustment for any value derived from the expected retention
of such deposits for a period of time. That value, commonly referred to
as the core deposit base intangible, is neither included in the
following fair value amounts nor recorded as an intangible asset in the
balance sheet.
F-24
<PAGE> 138
PRIME BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997, 1996 and 1995
(Dollars in thousands)
NOTE O - FAIR VALUES OF FINANCIAL INSTRUMENTS - CONTINUED
The fair value of certificates of deposit is based on the discounted
value of contractual cash flows. The discount rate used represents
rates currently offered for deposits of similar remaining maturities.
The carrying amount of accrued interest payable approximates its fair
value.
. OFF-BALANCE-SHEET INSTRUMENTS
Estimated fair values for the Company's off-balance-sheet instruments
are based on fees, net of related expenses, currently charged to enter
into similar agreements, considering the remaining terms of the
agreements and the counterparties' credit standing.
The following table presents the carrying amounts and fair values of the
Company's financial instruments at December 31, 1997 and 1996. The fair
value of financial instruments is defined as the amount at which the
instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale.
<TABLE>
<CAPTION>
1997 1996
----------------------- ----------------------
Carrying Fair Carrying Fair
amount value amount value
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 18,263 $ 18,263 $ 34,006 $ 34,006
Federal funds sold and other temporary
investments 29,478 29,478 -- --
Securities
Available-for-sale 188,048 188,048 324,723 324,723
Held-to-maturity 273,387 274,000 115,902 114,000
Loans, net 417,880 417,000 306,857 308,000
Financial liabilities:
Deposits
Noninterest-bearing $152,154 $152,154 $117,441 $117,441
Interest-bearing transaction and money
market accounts 284,632 284,632 241,775 241,775
Certificates of deposit 428,286 430,000 335,954 338,000
Federal funds purchased and
securities sold under repur-
chase agreements 17,132 17,132 9,700 9,700
</TABLE>
F-25
<PAGE> 139
PRIME BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997, 1996 and 1995
(In thousands, except per share amounts)
NOTE P - EARNINGS PER SHARE
The following data show the amounts used in computing earnings per share
(EPS) and the weighted average number of shares of dilutive potential common
stock.
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net earnings $11,363 $ 9,222 $ 9,052
Less: dividends on preferred stock 650 700 681
------- ------- -------
Net earnings available to common stockholders used in basic
and diluted EPS $10,713 $ 8,855 $ 8,371
------- ------- -------
Weighted average common shares used in basic EPS 8,975 8,808 8,861
Effect of dilutive securities:
Stock options 447 417 542
------- ------- -------
Weighted average common and potential dilutive common shares
used in dilutive EPS 9,422 9,225 9,403
======= ======= =======
</TABLE>
NOTE Q - NEW PRONOUNCEMENTS
The FASB has issued Financial Accounting Standards No. 130, Reporting
Comprehensive Income, which is effective for financial statements issued for
periods beginning after December 15, 1997. The new standard requires an
entity to report and display comprehensive income and its components.
Currently for the Company, comprehensive income will include net income plus
net unrealized gain or loss on securities.
NOTE R - SUBSEQUENT EVENTS
On January 2, 1998, the Board of Directors of the Company declared a cash
dividend of $0.04 per share to all common shareholders of record as of
January 5, 1998. The dividend was paid on January 15, 1998.
On December 30, 1997, the Company and Sunbelt National Bank ("Sunbelt"),
agreed in principle that all of Sunbelt's outstanding common stock would be
acquired by the Company. It is anticipated that the transaction will close
during the second quarter of 1998. At closing, each shareholder of Sunbelt
will receive 2.0023 shares of the Company's common stock, in exchange for
each share of Sunbelt stock. At December 31, 1997, Sunbelt had total assets
of approximately $94,000 and total deposits of $84,000. The transaction is
expected to be accounted for as a pooling of interests.
F-26
<PAGE> 140
PRIME BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997, 1996 and 1995
(Dollars in thousands)
NOTE S - PARENT-ONLY FINANCIAL STATEMENTS
PRIME BANCSHARES, INC.
(Parent Only)
BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
ASSETS 1997 1996
------- -------
<S> <C> <C>
Cash and cash equivalents $ 1,678 $ 358
Other assets 5 --
Investment in subsidiaries 69,799 61,620
------- -------
$71,482 $61,978
======= =======
LIABILITIES
Other liabilities $ 9 $ 9
------- -------
Total liabilities 9 9
Commitments and contingencies -- --
Shareholders' equity:
Preferred stock 1,000 7,000
Common stock 3,003 2,980
Additional capital 9,368 3,824
Net unrealized appreciation on available-for-sale
securities, net of tax of $398 in 1997 and $996 in 1996 772 1,934
Retained earnings 59,585 50,113
------- -------
73,728 65,851
Less common stock in treasury - at cost 2,255 3,882
------- -------
71,473 61,969
------- -------
$71,482 $61,978
======= =======
</TABLE>
F-27
<PAGE> 141
PRIME BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997, 1996 and 1995
(Dollars in thousands)
NOTE S - PARENT-ONLY FINANCIAL STATEMENTS - CONTINUED
PRIME BANCSHARES, INC.
(Parent Only)
STATEMENTS OF EARNINGS
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Costs and expenses
General and administrative $ 13 $ 1 $ --
-------- -------- --------
Operating loss (13) (1) --
Current income tax benefit 5 -- --
-------- -------- --------
Loss before equity in net
earnings of subsidiaries (8) (1) --
Equity in net earnings of subsidiaries 11,371 9,223 9,052
-------- -------- --------
NET EARNINGS $ 11,363 $ 9,222 $ 9,052
======== ======== ========
</TABLE>
F-28
<PAGE> 142
PRIME BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997, 1996 and 1995
(Dollars in thousands)
NOTE S - PARENT-ONLY FINANCIAL STATEMENTS - CONTINUED
PRIME BANCSHARES, INC.
(Parent Only)
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings
Net earnings for the year $ 11,363 $ 9,222 $ 9,052
Adjustments to reconcile net
earnings to net cash
used in operating activities:
Earnings of subsidiaries (11,371) (9,223) (9,052)
Change in assets and liabilities:
(Increase) decrease in other assets (5) -- 1
Decrease in other liabilities -- -- (4)
-------- -------- --------
Net cash used in operating activities (13) (1) (3)
Cash flows from investing activities:
Dividend from subsidiary 12,612 2,315 2,515
Capital contribution to subsidiary (10,582) -- --
-------- -------- --------
Net cash provided by investing activities 2,030 2,315 2,515
Cash flows from financing activities:
Purchase of treasury stock (408) (626) (100)
Dividend payments (1,891) (1,877) (1,871)
Redemption of preferred stock (6,000) -- (250)
Sale of treasury stock in initial public offering 7,448 -- --
Sale of common stock 154 140 --
-------- -------- --------
Net cash used in financing activities (697) (2,363) (2,221)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 1,320 (49) 291
Cash and cash equivalents at beginning of year 358 407 116
-------- -------- --------
Cash and cash equivalents at end of year $ 1,678 $ 358 $ 407
======== ======== ========
</TABLE>
F-29
<PAGE> 143
[HARPER & PEARSON COMPANY LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Sunbelt National Bank
Houston, Texas
We have audited the accompanying balance sheets of Sunbelt National Bank as of
December 31, 1997 and 1996, and the related statements of earnings, changes in
stockholders' equity and cash flows for the years ended December 31, 1997, 1996
and 1995. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sunbelt National Bank at
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years ended December 31, 1997, 1996 and 1995, in conformity with
generally accepted accounting principles.
/s/ HARPER & PEARSON COMPANY
Houston, Texas
January 15, 1998
F-30
<PAGE> 144
SUNBELT NATIONAL BANK
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1997 1996
-------- --------
<S> <C> <C>
Cash and due from banks $ 6,905 $ 6,587
Federal funds sold 13,075 7,375
Interest-bearing deposits in other bank -- 1,000
-------- --------
Total cash and cash equivalents 19,980 14,962
Securities available for sale 899 628
Securities to be held to maturity 17,849 14,883
-------- --------
Total securities 18,748 15,511
Loans, net 51,830 55,655
Bank premises and equipment, net 1,716 1,813
Real estate acquired by foreclosure 512 618
Accrued interest receivable 503 483
Other assets 486 191
-------- --------
$ 93,775 $ 89,233
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest-bearing $ 27,600 $ 28,069
Interest-bearing 56,807 53,282
-------- --------
Total Deposits 84,407 81,351
Other liabilities 2,414 1,415
-------- --------
Total Liabilities 86,821 82,766
-------- --------
Commitments and Contingencies
Stockholders' Equity
Common stock, $5 par value, 500,000 shares authorized,
460,000 shares issued and outstanding 2,300 2,300
Capital surplus 2,300 2,300
Retained earnings 2,356 1,873
Net unrealized losses on securities available for sale, net (2) (6)
-------- --------
Total Stockholders' Equity 6,954 6,467
-------- --------
$ 93,775 $ 89,233
======== ========
</TABLE>
See accompanying notes.
F-31
<PAGE> 145
SUNBELT NATIONAL BANK
STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 5,968 $ 5,466 $ 5,553
Securities 1,057 769 808
Federal funds sold and other 519 485 235
-------- -------- --------
Total Interest Income 7,544 6,720 6,596
INTEREST EXPENSE
Deposits and other borrowed funds 2,621 2,148 2,034
-------- -------- --------
NET INTEREST INCOME 4,923 4,572 4,562
PROVISION FOR POSSIBLE CREDIT LOSSES (371) (145) (107)
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE CREDIT LOSSES 4,552 4,427 4,455
-------- -------- --------
OTHER INCOME
Service charges 513 412 436
Realized gains on sales of SBA loans 237 392 450
Other 56 40 (3)
-------- -------- --------
Total Other Income 806 844 883
-------- -------- --------
OTHER EXPENSE
Employee compensation and benefits 2,733 1,935 1,742
Net bank premises expense 418 350 314
Equipment rentals, depreciation and maintenance 207 189 168
Other operating expenses 1,251 1,322 1,360
-------- -------- --------
Total Other Expense 4,609 3,796 3,584
-------- -------- --------
EARNINGS BEFORE INCOME TAXES 749 1,475 1,754
INCOME TAXES 266 528 623
-------- -------- --------
NET EARNINGS $ 483 $ 947 $ 1,131
======== ======== ========
EARNINGS PER COMMON SHARE (In whole dollars) $ 1.05 $ 2.06 $ 2.46
======== ======== ========
</TABLE>
See accompanying notes.
F-32
<PAGE> 146
SUNBELT NATIONAL BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET
UNREALIZED
LOSSES ON
SECURITIES
COMMON CAPITAL RETAINED AVAILABLE
STOCK SURPLUS EARNINGS FOR SALE TOTAL
-------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1994 $ 2,300 $ 2,300 $ 25 $ (98) $ 4,527
Net Earnings -- -- 1,131 -- 1,131
Dividends Paid -- -- (115) -- (115)
Net Change in Unrealized
Losses On Securities
Available for Sale -- -- -- 86 86
-------- -------- -------- -------- --------
Balance - December 31, 1995 2,300 2,300 1,041 (12) 5,629
Net Earnings -- -- 947 -- 947
Dividends Paid -- -- (115) -- (115)
Net Change in Unrealized
Losses On Securities
Available for Sale -- -- -- 6 6
-------- -------- -------- -------- --------
Balance - December 31, 1996 2,300 2,300 1,873 (6) 6,467
Net Earnings -- -- 483 -- 483
Net Change in Unrealized
Losses On Securities
Available for Sale -- -- -- 4 4
-------- -------- -------- -------- --------
Balance - December 31, 1997 $ 2,300 $ 2,300 $ 2,356 $ (2) $ 6,954
======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-33
<PAGE> 147
SUNBELT NATIONAL BANK
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 483 $ 947 $ 1,131
-------- -------- --------
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Provision for possible credit losses 371 145 107
Provision for depreciation and amortization 156 121 102
Amortization/accretion 21 33 31
Deferred federal income taxes (316) 2 44
Change in operating assets and liabilities:
Real estate acquired by foreclosure 106 (107) --
Accrued interest receivable (20) (21) 12
Other assets (42) (2) (15)
Other liabilities 1,061 (58) 289
-------- -------- --------
Total adjustments 1,337 113 570
-------- -------- --------
Net cash provided by operating activities 1,820 1,060 1,701
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of held to maturity securities (5,024) (4,788) --
Proceeds from maturities/paydowns of
held to maturity securities 2,035 2,026 1,829
Purchases of available for sale securities (264) -- --
Proceeds from sales and maturities of
available for sale securities -- 500 --
Loans originated/proceeds received, net 3,454 (5,660) 1,116
Purchases of bank premises and equipment (59) (649) (45)
-------- -------- --------
Net cash provided (used) by investing activities 142 (8,571) 2,900
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 3,056 7,335 3,792
Dividends paid -- (115) (115)
-------- -------- --------
Net cash provided by financing activities 3,056 7,220 3,677
-------- -------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 5,018 (291) 8,278
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 14,962 15,253 6,975
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 19,980 $ 14,962 $ 15,253
======== ======== ========
</TABLE>
See accompanying notes.
F-34
<PAGE> 148
SUNBELT NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
The accounting and reporting policies of Sunbelt National Bank
(the Bank) are in accordance with generally accepted accounting
principles and the prevailing practices within the banking
industry. A summary of significant accounting policies is as
follows:
Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Material estimates that are particularly susceptible to
significant change relate to the determination of the allowance
for possible credit losses on loans, the valuation of real
estate acquired in connection with foreclosures or in
satisfaction of loans and in the determination of investment
security estimated market values. In connection with the
determination of the allowances for possible losses on loans and
foreclosed real estate, management obtains independent
appraisals for significant properties. The estimated market
value of investment securities is determined by a third party
investment company.
While management uses available information to recognize losses
on loans and foreclosed real estate, further reductions in the
carrying amounts of loans and foreclosed assets may be necessary
based on changes in local economic conditions. In addition,
regulatory agencies, as an integral part of their examination
process, periodically review the estimated losses on loans and
foreclosed real estate. Such agencies may require the Bank to
recognize additional losses based on their judgments about
information available to them at the time of their examination.
Because of these factors, it is reasonably possible that the
estimated losses on loans and foreclosed real estate may change
materially in the near term. However, the amount of the change
that is reasonably possible cannot be estimated.
Cash and Due From Banks - The Bank, as a member of the Federal
Reserve System, is required to maintain reserves for the purpose
of facilitating the implementation of monetary policy. These
reserves may be maintained in the form of balances at the
Federal Reserve Bank or by vault cash. The Bank's reserve
requirements were $200 on December 31, 1997 and 1996.
Accordingly, "cash and due from banks" balances were restricted
to that extent.
Trading Securities - Securities that are held for short-term
resale are classified as trading account securities and recorded
at their fair values. Realized and unrealized gains and losses
on trading account securities are included in other income. At
December 31, 1997, 1996 and 1995, the Bank did not classify any
of its securities as trading securities.
Securities Held to Maturity - Government, Federal agency, and
corporate debt securities that management has the positive
intent and ability to hold to maturity are reported at cost,
adjusted for amortization of premiums and the accretion of
discounts that are recognized in interest income using methods
approximating the interest method over the period to maturity.
Mortgage backed securities represent participating interests in
pools of long-term first mortgage loans originated and serviced
by issuers of the securities. Mortgage backed securities are
carried at unpaid principal balances, adjusted for unamortized
premiums and unearned discounts. Premiums and discounts are
amortized using methods approximating the interest method over
the remaining period to contractual maturity, adjusted for
anticipated prepayments.
F-35
<PAGE> 149
SUNBELT NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(CONTINUED)
Securities Available for Sale - Available for sale securities
consist of investment securities not classified as trading
securities nor as held to maturity securities. Unrealized
holding gains and losses, net of tax, on available for sale
securities are reported as a net amount in a separate component
of stockholders' equity until realized. Gains and losses on the
sale of available for sale securities are determined using the
specific identification method. The amortization of premiums and
the accretion of discounts are recognized in interest income
using methods approximating the interest method over the period
of maturity.
Declines in the fair value of individual held to maturity and
available for sale securities below their cost that are other
than temporary result in write-downs of the individual
securities to their fair value. The related write-downs are
included in earnings as realized losses.
Concentrations of Credit - Substantially all of the Bank's
loans, commitments and letters of credit have been granted to
customers in the Bank's market area. Generally, such customers
are depositors of the Bank. The concentrations of credit by type
of loan are set forth in Note C. It is the Bank's policy to not
extend credit to any single borrower or group of related
borrowers in excess of the Bank's legal lending limit.
Interest Rate Risk - The Bank is principally engaged in
providing short-term commercial loans with interest rates that
fluctuate with various market indices and intermediate-term,
fixed rate real estate loans. These loans are primarily funded
through short-term demand deposits and longer-term certificates
of deposit with fixed rates.
Loans - Loans are stated at the principal amount outstanding,
net of unearned discount. Unearned discount relates principally
to consumer installment loans. Interest income is generally
recorded using the simple interest method.
Non-Performing Loans and Past Due Loans - Included in the
non-performing loan category are loans which have been
categorized by management as nonaccrual because collection of
interest is doubtful and loans which have been restructured to
provide a reduction in the interest rate or a deferral of
interest or principal payments.
When the payment of principal or interest on a loan is
delinquent for 90 days, or earlier in some cases, the loan is
placed on nonaccrual status, unless the loan is in the process
of collection and the underlying collateral fully supports the
carrying value of the loan. If the decision is made to continue
the accrual of interest on the loan, periodic reviews are made
to confirm the accruing status of the loan.
When a loan is placed on nonaccrual status or identified as
impaired, interest accrued and uncollected during the current
year, prior to the judgment of uncollectibility, is charged to
operations. Interest accrued during prior periods is charged to
allowance for possible credit losses. Generally, any payments
received on nonaccrual loans are applied first to outstanding
loan amounts and next to the recovery of charged-off loan
amounts. Any excess is treated as recovery of lost interest.
Restructured loans are those loans on which concessions in terms
have been granted because of a borrower's financial difficulty.
Interest is generally accrued on such loans in accordance with
the new terms.
F-36
<PAGE> 150
SUNBELT NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(CONTINUED)
Allowance for Possible Credit Losses - The allowance for
possible credit losses is a valuation allowance available for
losses incurred on loans and other commitments to extend credit.
All losses are charged to the allowance for possible credit
losses when the loss actually occurs or when a determination is
made that a loss is likely to occur. Recoveries are credited to
the allowance at the time of recovery.
Throughout the year, management estimates the likely level of
losses to determine whether the allowance for possible credit
losses is adequate to absorb anticipated losses in the existing
portfolio. Based on these estimates, an amount is charged to the
provision for possible credit losses and credited to the
allowance for possible credit losses in order to adjust the
allowance to a level determined to be adequate to absorb losses.
Management's judgment as to the level of losses on existing
loans involves the consideration of current and anticipated
economic conditions and their potential effects on specific
borrowers; an evaluation of the existing relationships among
loans, potential loan losses, and the present level of the
allowance; results of examinations of the loan portfolio by
regulatory agencies; and management's internal review of the
loan portfolio.
In determining the collectibility of certain loans, management
also considers the fair value of any underlying collateral. The
amounts ultimately realized may differ from the carrying value
of these assets because of economic, operating or other
conditions beyond the Bank's control.
It should be understood that estimates of credit losses involve
judgment. While it is possible that in particular periods the
Bank may sustain losses which are substantial relative to the
allowance for credit losses, it is the judgment of management
that the allowances for credit losses reflected in the
statements of condition are adequate to absorb losses which may
exist in the current loan portfolio.
Bank Premises and Equipment - Bank premises and equipment are
carried at cost less accumulated depreciation and amortization.
Depreciation and amortization expense is computed principally on
the straight-line method over the estimated useful lives of the
assets.
Real Estate Acquired by Foreclosure - Real estate acquired by
foreclosure is recorded at the fair value of the property less
any selling costs, as applicable, at the time of foreclosure.
Subsequent to foreclosure, real estate is carried at the lower
of its new cost basis or fair value, less estimated costs to
sell. Any adjustments to reflect declines in value below the
recorded amounts are recognized and are charged to income in the
period such determination is assessed. Required developmental
costs associated with foreclosed property under construction are
capitalized and considered in determining the fair value of the
property.
Operating expenses of such properties, net of related income,
and gains and losses on their disposition are included in other
non-interest expense.
Income Taxes - Under SFAS No. 109, the Bank uses the balance
sheet approach for recording deferred taxes. The balance sheet
approach accounts for deferred income taxes by applying
statutory tax rates in effect at the balance sheet date to
differences between the book basis and the tax basis of assets
and liabilities. The resulting deferred tax assets and
liabilities are adjusted to reflect changes in tax law or rates.
Deferred income taxes result primarily from deferred
compensation accruals.
F-37
<PAGE> 151
SUNBELT NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(CONTINUED)
Earnings Per Common Share - Income per common share was computed
by dividing net income by the weighted average number of shares
of common stock outstanding (460,000 shares) during each year.
Statements of Cash Flows - For purposes of reporting cash flows,
cash and cash equivalents include cash and due from banks and
federal funds sold. Generally, federal funds are sold for
one-day periods.
NOTE B INVESTMENT SECURITIES
Investment securities have been classified according to
management's intent. The amortized cost and estimated market
values of investments in debt securities at December 31, 1997
and 1996 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------------------------------------------------
<S> <C> <C> <C> <C>
1997
----
Securities Available For Sale:
U.S. Treasury & Agency Securities $ 500 $ -- $ (3) $ 497
Other securities 402 -- -- 402
---------- ---------- ---------- ----------
$ 902 $ -- $ (3) $ 899
========== ========== ========== ==========
Securities to be Held to Maturity:
Collateralized Mortgage Obligations $ 5,718 $ 4 $ (107) $ 5,615
Mortgage-backed Securities 5,431 14 (67) 5,378
U.S. Treasury Securities 6,200 30 -- 6,230
U.S. Agencies 500 -- -- 500
---------- ---------- ---------- ----------
$ 17,849 $ 48 $ (174) $ 17,723
========== ========== ========== ==========
1996
----
Securities Available For Sale:
U.S. Treasury & Agency Securities $ 500 $ -- $ (10) $ 490
Other securities 138 -- -- 138
---------- ---------- ---------- ----------
$ 638 $ -- $ (10) $ 628
========== ========== ========== ==========
Securities to be Held to Maturity:
Collateralized Mortgage Obligations $ 6,329 $ 6 $ (93) $ 6,242
Mortgage-backed Securities 3,766 1 (168) 3,599
U.S. Treasury Securities 4,788 17 (3) 4,802
---------- ---------- ---------- ----------
$ 14,883 $ 24 $ (264) $ 14,643
========== ========== ========== ==========
</TABLE>
F-38
<PAGE> 152
SUNBELT NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE B INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated market value of debt securities
at December 31, 1997, by contractual maturities, are shown
below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Securities Held to Maturity Securities Available for Sale
-------------------------------- -------------------------------
Amortized Market Amortized Market
Cost Value Cost Value
-------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Due in 1 year or less $ 2,890 $ 2,895 $ 902 $ 899
Due from 1 year to 5 years 3,810 3,835 -- --
Due from 5 years to 10 years 220 220 -- --
Due after 10 years:
Collateralized Mortgage
Obligations 5,498 5,395 -- --
Mortgage-Backed
Securities 5,431 5,378 -- --
---------- ---------- ---------- ----------
$ 17,849 $ 17,723 $ 902 $ 899
========== ========== ========== ==========
</TABLE>
Investment securities with a carrying amount of $5,360 and
$6,221 at December 31, 1997 and 1996, respectively, were pledged
to secure public deposits and other borrowings. There were no
sales of securities in 1997 or 1996.
For purposes of financial statement reporting, the Bank's
investment in Federal Reserve Bank Stock ($138) and Federal Home
Loan Bank Stock ($264) has been classified as other securities
available for sale. Because the Bank is a member of the Federal
Reserve Bank and the Federal Home Loan Bank, these securities
cannot be sold while the Bank is a member of these
organizations.
NOTE C LOANS
The loan portfolio consists of various types of loans made
principally to borrowers located in Harris County, Texas, and
are classified by major type as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Commercial $ 17,522 $ 21,584
Real Estate 29,303 28,501
Consumer 6,010 6,199
---------- ----------
52,835 56,284
Less unearned discount (70) (93)
---------- ----------
$ 52,765 $ 56,191
========== ==========
</TABLE>
F-39
<PAGE> 153
SUNBELT NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE C LOANS (CONTINUED)
Loan maturities of the loan portfolio at December 31, 1997 are
as follows:
<TABLE>
<CAPTION>
Within 1 Year 1 - 5 Years After 5 Years Total
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans at fixed interest rates $ 12,722 $ 19,773 $ 1,132 $ 33,627
Loans at variable interest rates 14,310 3,787 1,041 19,138
-------------- -------------- -------------- --------------
$ 27,032 $ 23,560 $ 2,173 $ 52,765
============== ============== ============== ==============
</TABLE>
In the ordinary course of business, the Bank has and expects to
continue to have transactions, including borrowings, with its
officers, directors, principal stockholders, and their
affiliates. In the opinion of management, such transactions were
on substantially the same terms, including interest rates and
collateral, as those prevailing at the time of comparable
transactions with other persons and did not involve more than a
normal risk of collectibility or present any other unfavorable
features to the Bank. Loans to such borrowers are summarized as
follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Balance, January 1 $ 2,207 $ 2,506
New loans during the year 981 332
Repayments during the year (527) (631)
---------- ----------
Balance, December 31 $ 2,661 $ 2,207
========== ==========
</TABLE>
NOTE D NONPERFORMING LOANS AND PAST DUE LOANS
The following table presents information relating to
non-performing loans and past due loans:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Impaired loans $ 450 $ --
======== ========
Nonaccrual loans $ -- $ 252
======== ========
</TABLE>
With respect to the above nonperforming loans, the following
table presents interest income actually earned and additional
interest income that would have been earned under the original
terms of the loans.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Income earned and collected $ -- $ 21 $ 40
======== ======== ========
Foregone income $ -- $ 11 $ 9
======== ======== ========
</TABLE>
F-40
<PAGE> 154
SUNBELT NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE E ALLOWANCE FOR POSSIBLE CREDIT LOSSES
The following is a summary of the activity in the allowance for
credit losses for the years ended December 31, 1997, 1996 and
1995:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning or year $ 536 $ 545 $ 465
Provision for loan losses 371 145 107
Loans charged off (32) (186) (77)
Loan recoveries 60 32 50
-------- -------- --------
Balance at end of year $ 935 $ 536 $ 545
======== ======== ========
</TABLE>
Impairment of loans having carrying values of $450 in 1997 has
been recognized in conformity with FASB Statement No. 114,
"Accounting by Creditors for Impairment of a Loan". The total
allowance for credit losses related to those loans was $27 in
1997. Approximately $340 of the $450 impaired balance is subject
to a SBA loan guarantee, which may result in a reduced loss to
the bank. For impairment recognized in conformity with FASB No.
114, the entire change in present value of expected cash flows
is reported as bad debt expense in the same manner in which
impairment initially was recognized or as a reduction in the
amount of bad debt expense that otherwise would be reported. At
December 31, 1996 and 1995, the total recorded investment in
impaired loans was not significant. The Bank has no commitments
to loan additional funds to the borrowers whose loans are
classified as nonaccrual or impaired.
NOTE F BANK PREMISES AND EQUIPMENT
Bank premises and equipment are summarized below:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Land $ 476 $ 476
Buildings 487 487
Leasehold improvements 724 732
Furniture, fixtures and equipment 1,249 1,285
-------- --------
2,936 2,980
Less accumulated depreciation and amortization (1,220) (1,167)
-------- --------
Bank premises and equipment, net $ 1,716 $ 1,813
======== ========
</TABLE>
F-41
<PAGE> 155
SUNBELT NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE G REAL ESTATE ACQUIRED BY FORECLOSURE
An analysis of activity in real estate acquired by foreclosure
for the years ended December 31, 1997, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year $ 618 $ 511 $ 511
Provision charged to operations -- -- (2)
Reductions (106) (391) (114)
Additions (net of valuation allowance) -- 498 116
-------- -------- --------
Balance, end of year $ 512 $ 618 $ 511
======== ======== ========
</TABLE>
NOTE H DEPOSITS
Certificates of deposit included in interest-bearing deposits at
December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
One Year Two Years Three Years Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
1997
----
CD's Under $100 $ 15,465 $ 309 $ 22 $ 15,796
CD's Over $100 16,599 -- -- 16,599
------------ ------------ ------------ ------------
$ 32,064 $ 309 $ 22 $ 32,395
============ ============ ============ ============
1996
----
CD's Under $100 $ 15,152 $ 764 $ 10 $ 15,926
CD's Over $100 14,362 -- -- 14,362
------------ ------------ ------------ ------------
$ 29,514 $ 764 $ 10 $ 30,288
============ ============ ============ ============
1995
----
CD's Under $100 $ 11,229 $ 124 $ 283 $ 11,636
CD's Over $100 12,045 221 -- 12,266
------------ ------------ ------------ ------------
$ 23,274 $ 345 $ 283 $ 23,902
============ ============ ============ ============
</TABLE>
Interest expense for certificates of deposit in excess of $100
amounted to approximately $867, $684 and $549 for the years
ended December 31, 1997, 1996 and 1995, respectively.
The bank has no brokered deposits.
F-42
<PAGE> 156
SUNBELT NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE I FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is party to various financial instruments with
off-balance sheet risk in the normal course of business to meet
the financing needs of its customers. These financial
instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of
the amounts recognized in the statements of condition. The
contract or notional amounts of those instruments reflect the
extent of the involvement the Bank has in particular classes of
financial instruments. The Bank's exposure to credit loss in the
event of nonperformance by the other party to the financial
instrument for commitments to extend credit and standby letters
of credit is represented by the contractual notional amount of
those instruments. The Bank uses the same credit policies in
making these commitments and conditional obligations as it does
for on-balance-sheet instruments.
The following is a summary of the various financial instruments
whose contract amounts represent credit risk:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Commitments to extend credit $ 15,402 $ 15,645
Standby letters of credit $ 874 $ 938
</TABLE>
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. Since many of the commitments are expected to
expire without being fully drawn upon, the total commitment
amounts disclosed above do not necessarily represent future cash
requirements.
The Bank evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, if
considered necessary by the Bank upon extension of credit, is
based on management's credit evaluation of the customer.
Standby letters of credit are conditional commitments issued by
the Bank to guarantee the performance of a customer to a third
party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan
facilities to its customers.
Management believes that the fair value of commitments to extend
credit and standby letters of credit is substantially equal to
the commitments to extend credit and issue standby letters of
credit due to the terms and conditions of these commitments.
F-43
<PAGE> 157
SUNBELT NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE J UNFUNDED COMMITMENTS
In 1991, the Bank entered into an agreement to purchase from an
officer/director a previously issued and unexercised 23,000
share stock grant for $250 to be paid during a vesting period
ending in August 1997 and granted this officer/director a stock
appreciation right to be paid upon sale of the Bank or
retirement. Pursuant to this agreement, the Bank has accrued
approximately $595 representing compensation benefits based on
the increase in the value of the Bank's stock.
NOTE K COMMITMENTS
Rent expense under all non-cancelable operating lease
obligations amounted to approximately $336, $321 and $306 for
1997, 1996 and 1995, respectively. The leases provide for annual
rentals of approximately $294 through the year 2011. The
aggregate future minimum lease payments under these
noncancelable operating leases amount to approximately $2,425 at
December 31, 1997.
It is expected that in the normal course of business, leases
that expire will be renewed or replaced by leases on other
property or equipment.
NOTE L INCOME TAXES
The components of the provision for federal income tax expense
are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current $ 582 $ 526 $ 579
Deferred (316) 2 44
-------- -------- --------
$ 266 $ 528 $ 623
======== ======== ========
</TABLE>
The provision for federal income taxes differs from the amount
computed by applying the federal income tax statutory rate of
34% on earnings as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Taxes calculated at statutory rate 34.0 34.0 34.0
Increase resulting from:
Nontaxable interest income -- -- (0.1)
Nondeductible travel, entertainment,
dues and other 1.5 1.8 1.6
-------- -------- --------
35.5 35.8 35.5
======== ======== ========
</TABLE>
F-44
<PAGE> 158
SUNBELT NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE L INCOME TAXES (CONTINUED)
Significant deferred tax assets and liabilities at December 31,
1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Deferred Tax Assets
Deferred costs $ 24 $ 24 $ 24
Deferred compensation 210 7 7
Unrealized loss on securities 1 3 6
Loan loss reserve 150 24 74
-------- -------- --------
385 58 111
Deferred Tax Liability
Depreciable assets (128) (122) (129)
-------- -------- --------
Net Deferred Tax Asset (Liability) $ 257 $ (64) $ (18)
======== ======== ========
</TABLE>
NOTE M STATEMENTS OF CASH FLOWS
Interest payments of $2,576, $2,298 and $1,749 were made during
1997, 1996 and 1995, respectively. Federal income tax payments
of $614, $531 and $820 were made during 1997, 1996 and 1995,
respectively.
NOTE N REGULATORY CAPITAL MATTERS
The Bank is subject to various regulatory capital requirements
administered by its primary federal regulator, the Office of
Comptroller of the Currency (OCC). Failure to meet the minimum
regulatory capital requirements can initiate certain mandatory,
and possible additional discretionary actions by regulators,
that if undertaken, could have a direct material affect on the
Bank's financial statements. Under the regulatory capital
adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital
guidelines involving 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 under the prompt corrective action
guidelines 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 risk-based capital and Tier I capital to
risk-weighted assets (as defined in the regulations), and Tier I
capital to adjusted total assets (as defined). Management
believes, as of December 31, 1997 and 1996, that the Bank meets
all the capital adequacy requirements to which it is subject.
F-45
<PAGE> 159
SUNBELT NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE N REGULATORY CAPITAL MATTERS (CONTINUED)
As of December 31, 1997, the most recent notification from the
OCC, the Bank was categorized as well capitalized under the
regulatory framework for prompt corrective action. To remain
categorized as well capitalized, the Bank will have to maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as disclosed in the table below. There are no conditions
or events since the most recent notification that management
believes have changed the Bank's prompt corrective action
category.
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997
----
Total Risk Based Capital $ 7,764 12.0% $ 5,174 8.0% $ 6,468 10.0%
(to Risk Weighted Assets)
Tier I Capital $ 6,956 10.8% $ 2,587 4.0% $ 3,881 6.0%
(to Risk Weighted Assets)
Tier I Capital $ 6,956 7.4% $ 3,785 4.0% $ 4,731 5.0%
(to Adjusted Total Assets)
1996
----
Total Risk Based Capital $ 7,002 11.7% $ 4,805 8.0% $ 6,006 10.0%
(to Risk Weighted Assets)
Tier I Capital $ 6,466 10.8% $ 2,403 4.0% $ 3,604 6.0%
(to Risk Weighted Assets)
Tier I Capital $ 6,466 7.2% $ 3,591 4.0% $ 4,488 5.0%
(to Adjusted Total Assets)
</TABLE>
NOTE O FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Bank's financial instruments
were as follows at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Values Amount Values
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial Assets
----------------
Cash and due from banks $ 6,905 $ 6,905 $ 7,587 $ 7,587
Federal funds sold 13,075 13,075 7,375 7,375
Securities 18,748 18,618 15,511 15,271
Commercial loans 17,530 17,422 21,678 21,660
Real estate loans 29,303 29,175 28,501 28,565
Consumer loans 6,002 5,985 6,105 6,116
Allowance for credit losses (935) (935) (536) (536)
------- -------- ------- --------
$90,628 $ 90,245 $86,221 $ 86,038
======= ======== ======= ========
Financial Liabilities
---------------------
Deposits 84,407 84,425 81,351 81,379
Other liabilities 2,414 2,314 1,415 1,353
------- -------- ------- --------
$86,821 $ 86,739 $82,766 $ 82,732
======= ======== ======= ========
</TABLE>
F-46
<PAGE> 160
SUNBELT NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE O FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS
No. 107, Disclosures About Fair Value of Financial Instruments.
The estimated fair value amounts have been determined by the
Bank using available market information and appropriate
valuation methodologies. However, considerable judgment is
necessarily required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the
Bank could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts. The
following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value.
Cash and Cash Equivalents - The carrying amounts of cash
and short-term instruments approximate their fair value.
Federal Funds Sold - The carrying amounts of Federal Funds
Sold approximate their fair value.
Securities to Be Held to Maturity and Securities Available
for Sale - Fair values for investment securities are based
on quoted market prices.
Loans Receivable - For variable rate loans that reprice
frequently and have no significant change in credit risk,
fair values are based on carrying values. Fair values for
commercial real estate and commercial loans are estimated
using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to
borrowers of similar credit quality. Fair values for
impaired loans are estimated using discounted cash flow
analyses or underlying collateral values, where
applicable.
Deposits - The fair values disclosed for demand deposits
are, by definition, equal to the amount payable on demand
at the reporting date (that is, their carrying amounts).
The carrying amounts of variable-rate, fixed-term money
market accounts and certificates of deposit approximate
their fair values at the reporting date. Fair values for
fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest
rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time
deposits.
Other Liabilities - The carrying amounts of other
liabilities generally approximate their fair values.
The fair value estimates are based on pertinent information
available to management as of December 31, 1997 and 1996.
Although management is not aware of any factors that would
significantly affect the estimated fair value amounts, such
amounts have not been comprehensively revalued for purposes of
these financial statements since that date and, therefore,
current estimates of fair value may differ significantly from
the amounts presented herein.
F-47
<PAGE> 161
EXHIBIT A
________________________________________________
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
PRIME BANCSHARES, INC.,
IBID, INC.
PRIME BANK
AND
SUNBELT NATIONAL BANK
DATED AS OF DECEMBER 30, 1997
________________________________________________
<PAGE> 162
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
I. THE CONSOLIDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1. Initial Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2. Articles of Association, Bylaws and Facilities of
First Surviving Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.3. Effect of Initial Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.4. Liabilities of the First Surviving Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.5. Final Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.6. Articles of Association, Bylaws and Facilities of
Continuing Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.7. Effect of Final Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.8. Liabilities of Continuing Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.9. Consolidation Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.10. Adjustments to Consolidation Consideration . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.11. Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 1.12. Exchange of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 1.13. Ratification by Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 1.14. Registration of the Bancshares Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . 8
II. REPRESENTATIONS AND WARRANTIES OF SUNBELT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.1. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.2. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.3. Approvals; Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.4. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.5. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.6. Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.7. Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.8. Litigation and Other Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.9. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.10. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.11. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.12. No Conflict With Other Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.13. Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.14. Conduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.15. Allowance for Credit Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
-i-
<PAGE> 163
<TABLE>
<S> <C> <C>
Section 2.16. Employment Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.17. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.18. Deferred Compensation Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.19. List of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.20. Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.21. Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.22. Absence of Property Taxes and Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.23. Community Reinvestment Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.24. Fair Housing Act, Home Mortgage Disclosure Act and Equal Credit Opportunity Act . . . . . . 17
Section 2.25. Usury Laws and Other Consumer Compliance Laws . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.26. Bank Secrecy Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.27. Zoning and Related Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.28. Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.29. Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.30. Shareholders' List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
III. REPRESENTATIONS AND WARRANTIES OF BANCSHARES,DELAWARE-COMPANY AND PRIME . . . . . . . . . . . . . . . . . . . . 18
Section 3.1. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.2. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.3. Approvals; Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.4. No Conflict With Other Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.5. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.6. SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.7. Litigation and Other Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.8. Ability to Pay Consolidation Consideration . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.9. Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.10. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
IV. COVENANTS OF SUNBELT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.1. Shareholder Approval and Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.2. Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.3. Access to Properties and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.4. Information for Regulatory Applications and SEC filings . . . . . . . . . . . . . . . . . . 23
Section 4.5. Attendance at Certain Sunbelt Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.6. Standstill Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.7. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.8. Accounting and Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.9. Pre-Closing Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
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V. COVENANTS OF BANCSHARES, DELAWARE-COMPANY AND PRIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.1. Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.2. Information for Applications and Proxy Solicitation . . . . . . . . . . . . . . . . . . . . 25
Section 5.3. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.4. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.5. Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.6. NASDAQ Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.7. Issuance of Bancshares Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.8. Delivery of Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.9. Rule 144 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.10. Publication of Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.11. Employee Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
VI. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.1. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.2. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
VII. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 7.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 7.2. Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
VIII. CONDITIONS TO OBLIGATIONS OF BANCSHARES,DELAWARE-COMPANY AND PRIME . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.1. Compliance with Representations and Covenants . . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.2. Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.3. Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.4. Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.5. Accounting Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.6. Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.7. Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
IX. CONDITIONS TO OBLIGATIONS OF SUNBELT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.1. Compliance with Representations and Covenants . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.2. Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.3. Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.4. Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.5. Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
X. CONDITIONS TO RESPECTIVE OBLIGATIONS OF BANCSHARES,DELAWARE-COMPANY, PRIME AND SUNBELT . . . . . . . . . . . . . 34
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Section 10.1. Government Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.2. Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.3. Registration of Bancshares Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 34
XI. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.1. Non-Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.2. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.3. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.4. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 11.5. Controlling Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.6. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.7. Modifications or Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.8. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 11.9. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 11.10. Consolidation of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 11.11. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 11.12. Binding on Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 11.13. Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 11.14. Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 11.15. Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 11.16. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SCHEDULE 1.10 TO THE AGREEMENT: 1998 Budget - Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SCHEDULE 2.1 TO THE AGREEMENT: Organization - Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SCHEDULE 2.2 TO THE AGREEMENT: Capitalization - Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SCHEDULE 2.4 TO THE AGREEMENT: Investments - Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SCHEDULE 2.5 TO THE AGREEMENT: Undisclosed Liabilities - Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SCHEDULE 2.7 TO THE AGREEMENT: Environmental Laws - Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
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SCHEDULE 2.8 TO THE AGREEMENT: Litigation and Other Proceedings - Sunbelt . . . . . . . . . . . . . . . . . . . . . . 49
SCHEDULE 2.9 TO THE AGREEMENT: Taxes - Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SCHEDULE 2.10 TO THE AGREEMENT: Contracts - Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SCHEDULE 2.11 TO THE AGREEMENT: Insurance Policies - Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SCHEDULE 2.13 TO THE AGREEMENT: Compliance with Laws - Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SCHEDULE 2.14 TO THE AGREEMENT: Conduct - Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SCHEDULE 2.16 TO THE AGREEMENT: Employment Relations - Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SCHEDULE 2.18 TO THE AGREEMENT: Deferred Compensation Arrangements - Sunbelt . . . . . . . . . . . . . . . . . . . . 56
SCHEDULE 2.20 TO THE AGREEMENT: Absence of Changes - Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SCHEDULE 2.22 TO THE AGREEMENT: Absence of Property Taxes and Liens - Sunbelt . . . . . . . . . . . . . . . . . . . . 58
SCHEDULE 4.7 TO THE AGREEMENT: Voting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SCHEDULE 5.11 TO THE AGREEMENT: Employee Protection--Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SCHEDULE 8.3 TO THE AGREEMENT: Legal Opinion to be Delivered by Sunbelt . . . . . . . . . . . . . . . . . . . . . . . 61
SCHEDULE 9.3 TO THE AGREEMENT: Legal Opinion to be Delivered by Bancshares . . . . . . . . . . . . . . . . . . . . . 63
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AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization ("Agreement") dated as of
December 30, 1997, is by and among Prime Bancshares, Inc., a Texas corporation
("Bancshares"), IBID, Inc., a Delaware corporation ("Delaware-Company"), Prime
Bank, a Texas banking corporation ("Prime"), and Sunbelt National Bank, a
national banking association ("Sunbelt").
WHEREAS, Sunbelt desires to affiliate with Bancshares and Prime and
Bancshares and Prime desire to affiliate with Sunbelt in the manner provided in
this Agreement; and
WHEREAS, Bancshares, Delaware-Company, Prime and Sunbelt believe that
the acquisition of Sunbelt by Bancshares in the manner provided by, and subject
to the terms and conditions set forth in, this Agreement and all exhibits,
schedules and supplements hereto is desirable and in the best interests of
their respective shareholders; and
WHEREAS, the respective Boards of Directors of Bancshares,
Delaware-Company, Prime and Sunbelt have approved this Agreement and the
transactions proposed herein substantially on the terms and conditions set
forth in this Agreement;
NOW, THEREFORE, in consideration of such premises and the mutual
representations, warranties, covenants and agreements contained herein, the
parties agree as set forth below.
INTRODUCTION
Following the execution of this Agreement by Bancshares,
Delaware-Company, Prime and Sunbelt, Bancshares or Delaware-Company will
charter and organize as a wholly-owned subsidiary an interim Texas banking
corporation ("New Bank") solely for the purpose of consummating the
consolidation transaction described herein. This Agreement provides for (i)
the consolidation of New Bank with and into Sunbelt with Sunbelt as the
survivor (the "Initial Consolidation"), all pursuant to this Agreement and a
Plan of Consolidation by and between New Bank and Sunbelt, a copy of which is
attached hereto as Exhibit "A" and all of the terms of which are incorporated
by reference for all purposes and, immediately thereafter, (ii) the
consolidation of Sunbelt with and into Prime with Prime as the survivor (the
"Final Consolidation"), all pursuant to this Agreement and a Plan of
Consolidation by and between Sunbelt and Prime, a copy of which is attached
hereto as Exhibit "B" and all of the terms of which are incorporated by
reference for all purposes. The Initial Consolidation and the Final
Consolidation shall sometimes be referred to collectively as the
"Consolidations." In connection with the Consolidations, Bancshares will
purchase all of
<PAGE> 168
the issued and outstanding shares of common stock, $10.00 par value, of Sunbelt
("Sunbelt Common Stock") for an aggregate consideration as set forth in this
Agreement.
I. THE CONSOLIDATIONS
Section 1.1. Initial Consolidation. New Bank shall be merged with
and into Sunbelt (the resulting bank being herein referred to as the "First
Surviving Bank") as of the effective time of the Initial Consolidation under
the charter and Articles of Association of Sunbelt, as determined by the Office
of the Comptroller of the Currency ("OCC"), and each of the outstanding shares
of common stock of New Bank shall and without any action on the part of
Bancshares or Delaware-Company be canceled and be converted into shares of
common stock of the First Surviving Bank. The shares of common stock of the
First Surviving Bank into which such New Bank common stock is converted shall
represent ownership of 100% of the issued and outstanding capital stock of the
First Surviving Bank, all of which shall be owned by Bancshares or
Delaware-Company.
Section 1.2. Articles of Association, Bylaws and Facilities of
First Surviving Bank. On the effective date of the Initial Consolidation and
until thereafter amended in accordance with applicable law, the Articles of
Association of the First Surviving Bank shall be the Articles of Association of
Sunbelt as in effect on the effective date of the Initial Consolidation. Until
altered, amended or repealed as provided therein and in the Articles of
Association of the First Surviving Bank, the Bylaws of the First Surviving Bank
shall be the Bylaws of Sunbelt as in effect on the effective date of the
Initial Consolidation. The main office of the First Surviving Bank shall be
the main office of Sunbelt as of the effective date of the Initial
Consolidation, and all corporate acts, plans, policies, contracts, approvals
and authorizations of Sunbelt and New Bank and their respective shareholders,
boards of directors, committees elected or appointed thereby, officers and
agents, which were valid and effective immediately prior to the effective date
of the Initial Consolidation, shall be taken for all purposes as the acts,
plans, policies, contracts, approvals and authorization of the First Surviving
Bank and shall be as effective and binding thereon as the same were with
respect to Sunbelt and New Bank respectively, as of the effective date of the
Initial Consolidation.
Section 1.3. Effect of Initial Consolidation. On the effective
date of the Initial Consolidation, the corporate existence of Sunbelt and New
Bank shall be merged into and continued in the First Surviving Bank, and the
First Surviving Bank shall be deemed to be a continuation in entity and
identity of Sunbelt and New Bank. All rights, franchises and interests of
Sunbelt and New Bank, respectively, in and to any type of property and choses
in action shall be transferred to and vested in the First Surviving Bank by
virtue of the Initial Consolidation without any deed or other transfer. First
Surviving Bank, without any order or other action on the part of any court or
otherwise, shall hold and enjoy all rights of property, franchises and
interest, including appointments, designations and nominations, and
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all other rights and interests as trustee, executor, administrator, transfer
agent or registrar of stocks and bonds, guardian of estates, assignee, receiver
and committee of estates and lunatics, and in every other fiduciary capacity,
in the same manner and to the same extent as such rights, franchises and
interests were held or enjoyed by Sunbelt and New Bank, respectively, as of the
effective date of the Initial Consolidation. As of the effective time of the
Initial Consolidation, the directors and officers of New Bank shall become the
directors and officers of First Surviving Bank.
Section 1.4. Liabilities of the First Surviving Bank. On the
effective date of the Initial Consolidation, the First Surviving Bank shall be
liable for all liabilities of Sunbelt and New Bank. All deposits, debts,
liabilities and obligations of Sunbelt and of New Bank, respectively, accrued,
absolute, contingent or otherwise, and whether or not reflected or reserved
against on balance sheets, books of account or records of Sunbelt or New Bank,
as the case may be, shall be those of the First Surviving Bank and shall not be
released or impaired by the Initial Consolidation. All rights of creditors and
other obligees and all liens on property of either Sunbelt or New Bank shall be
preserved unimpaired.
Section 1.5. Final Consolidation. Immediately after the effective
time of the Initial Consolidation, the First Surviving Bank shall be merged
with and into Prime (which, as the receiving association, is hereinafter
referred to as "Continuing Bank" whenever reference is made to it at or after
the Effective Date (as defined in Section 6.2 of this Agreement)) under the
charter and Articles of Association of Prime pursuant to the provisions of, and
with the effect provided in Texas Banking Act Section 3.301 and the Bank Merger
Act (12 U.S.C. 1828(c)).
Section 1.6. Articles of Association, Bylaws and Facilities of
Continuing Bank. On the Effective Date and until thereafter amended in
accordance with applicable law, the Articles of Association of Continuing Bank
shall be the Articles of Association of Prime as in effect on the Effective
Date. Until altered, amended or repealed as therein provided and in the
Articles of Association of Continuing Bank, the Bylaws of Continuing Bank shall
be the Bylaws of Prime as in effect on the Effective Date. Unless and until
changed by the Board of Directors of Continuing Bank, the main office of
Continuing Bank shall be the main office of Prime as of the Effective Date.
The established offices and facilities of the First Surviving Bank immediately
prior to the Final Consolidation shall become established offices and
facilities of the Continuing Bank. Until thereafter changed in accordance with
law or the Articles of Association or Bylaws of Continuing Bank, all corporate
acts, plans, policies, contracts, approvals and authorizations of the First
Surviving Bank and Prime and their respective shareholders, boards of
directors, committees elected or appointed thereby, officers and agents, which
were valid and effective immediately prior to the Effective Date, shall be
taken for all purposes as the acts, plans, policies, contracts, approvals and
authorizations of Continuing Bank and shall be as effective and binding thereon
as the same
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were with respect to the First Surviving Bank and Prime, respectively, as of
the Effective Date.
Section 1.7. Effect of Final Consolidation. On the Effective
Date, the corporate existence of the First Surviving Bank and Prime shall, as
provided in the provisions of law heretofore mentioned, be merged into and
continued in Continuing Bank, and Continuing Bank shall be deemed to be a
continuation in entity and identity of the First Surviving Bank and Prime. All
rights, franchises and interests of the First Surviving Bank and Prime,
respectively, in and to any type of property and choses in action shall be
transferred to and vested in Continuing Bank by virtue of such Final
Consolidation without any deed or other transfer. Continuing Bank, without any
order or other action on the part of any court or otherwise, shall hold and
enjoy all rights of property, franchises and interest, including appointments,
designations and nominations, and all other rights and interests as trustee,
executor, administrator, transfer agent or registrar of stocks and bonds,
guardian of estates, assignee, receiver and committee of estates and lunatics,
and in every other fiduciary capacity, in the same manner and to the same
extent as such rights, franchises, and interests were held or enjoyed by
Sunbelt and Prime, respectively, as of the Effective Date. On the Effective
Date, the directors and officers of Prime shall become the directors and
officers of the Continuing Bank.
Section 1.8. Liabilities of Continuing Bank. On the Effective
Date of the Final Consolidation, Continuing Bank shall be liable for all
liabilities of the First Surviving Bank and Prime. All deposits, debts,
liabilities, obligations and contracts of the First Surviving Bank and of
Prime, respectively, matured or unmatured, whether accrued, absolute,
contingent or otherwise, and whether or not reflected or reserved against on
balance sheets, books of account, or records of the First Surviving Bank or
Prime, as the case may be, shall be those of Continuing Bank and shall not be
released or impaired by the Consolidations. All rights of creditors and other
obligees and all liens on property of either the First Surviving Bank or Prime
shall be preserved unimpaired subsequent to the Consolidations.
Section 1.9. Consolidation Consideration.
(a) Each share of Sunbelt's Common Stock issued and
outstanding immediately prior to the effective date of the Initial
Consolidation, other than Dissenting Shares (as defined in Section 1.11 of the
Agreement), shall, by virtue of the Consolidations and without any action on
the part of the holder thereof, be converted into and represent the right to
receive the consideration payable as set forth below (the "Consolidation
Consideration") to the holder of record thereof, without interest thereon, upon
surrender of the certificate representing such share.
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(b) Based on a total of 460,000 shares of Sunbelt Common
Stock issued and outstanding, each holder of Sunbelt Common Stock shall receive
Consolidation Consideration in the form of shares of common stock, $.25 par
value, of Bancshares ("Bancshares Common Stock") equal to 2.0023 shares of
Bancshares Common Stock for each share of Sunbelt Common Stock owned on the
Effective Date.
(c) The aggregate number of shares of Bancshares Common
Stock to be exchanged for each share of Sunbelt Common Stock shall be adjusted
appropriately to reflect any change in the number of shares of Bancshares
Common Stock by reason of any stock dividends or splits, reclassification,
recapitalization or conversion with respect to Bancshares Common Stock,
received or to be received by holders of Bancshares Common Stock, when the
record date or payment occurs prior to the Effective Date.
(d) Bancshares will not issue any certificates for
fractional shares of Bancshares Common Stock otherwise issuable pursuant to the
Consolidation. In lieu of issuing such fractional shares, Bancshares shall pay
cash to any holder of shares of Sunbelt Common Stock otherwise entitled to
receive such fractional share. Such cash payment shall be based on the closing
bid price of a share of Bancshares Common Stock as listed on the NASDAQ
National Market on the day prior to the Effective Date.
Section 1.10. Adjustments to Consolidation Consideration. The
Consolidation Consideration shall be adjusted as follows:
(a) In the event that one-half of any net earnings of
Sunbelt, calculated in accordance with generally accepted accounting principles
applicable to financial institutions, from January 1, 1998 through the end of
the month prior to the month in which the Effective Date occurs, exceed an
amount calculated by multiplying (i) the difference between the average closing
bid and asked prices of Bancshares' Common Stock as quoted on NASDAQ for the
twenty (20) trading days immediately preceding the fifth calendar day prior to
the Effective Date ("Average Price") (provided that such Average Price is
greater than $19.00) and $19.00 by (ii) 920,000 ("Net Earnings Difference"),
the aggregate number of shares of Bancshares Common Stock to be paid to
shareholders of Sunbelt on the Effective Date shall be increased by dividing
such Net Earnings Difference by the Average Price. It is specifically provided
that proceeds from the sales of assets other than in the ordinary course of
business and any income from the sale of SBA loans which is in excess of the
amount of such income contained in Sunbelt's 1998 budget (which is attached as
Schedule 1.10) shall not be included in the calculation of net earnings.
(b) If the Average Price is $22.00 or greater, the
aggregate number of shares of Bancshares Common Stock into which shares of
Sunbelt Common Stock will be converted on the Effective Date shall be decreased
by (i) subtracting $20,240,000 from
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920,000 multiplied by the Average Price and (ii) dividing that difference by
the Average Price.
(c) If the Board of Directors of Sunbelt exercises its
right to termination set forth in Section 7.1(e) of the Agreement, Bancshares
shall have the option of increasing the Consolidation Consideration as set
forth in Section 7.1(e).
Section 1.11. Dissenting Shares. Each share of Sunbelt Common
Stock issued and outstanding immediately prior to the Effective Date, the
holder of which has not voted in favor of the Initial Consolidation and who has
properly perfected his dissenters' rights of appraisal by following the
procedures set forth in the National Bank Act, is referred to herein as a
"Dissenting Share." Dissenting Shares owned by each holder thereof who has not
failed to perfect his dissenters' rights shall not be converted into or
represent the right to receive the Consolidation Consideration pursuant to
Section 1.9 of this Agreement and shall be entitled only to such rights as are
available to such holder pursuant to the applicable provisions of the National
Bank Act. Each holder of Dissenting Shares shall be entitled to receive the
value of such Dissenting Shares held by him in accordance with the applicable
provisions of the National Bank Act, provided that such holder complies with
the procedures contemplated by and set forth in the applicable provisions of
the National Bank Act. As set forth in Section 8.6 of this Agreement, if the
holders of more than 5% of the Sunbelt Common Stock shall have exercised their
dissenters' rights, Bancshares shall have no obligation to consummate the
Consolidation.
Section 1.12. Exchange of Shares.
(a) Bancshares shall deposit or cause to be deposited in
trust with American Securities Transfer and Trust, Inc., Denver, Colorado (the
"Exchange Agent") prior to the Effective Date cash in an aggregate amount
estimated to be sufficient to make the cash payments in lieu of fractional
shares of Bancshares Common Stock pursuant to Section 1.9 hereof and to make
the appropriate cash payments, if any, to holders of Dissenting Shares pursuant
to Section 1.11 hereof (such amounts being hereinafter referred to as the
"Exchange Fund"). The Exchange Agent shall promptly make the payments in lieu
of fractional shares out of the Exchange Fund upon surrender of such shares.
Payments to holders of Dissenting Shares shall be made as required by the
National Bank Act. The Exchange Fund shall not be used for any other purpose,
except as provided in this Agreement.
(b) Promptly after the Effective Date, the Exchange
Agent shall mail to each record holder of an outstanding certificate or
certificates which as of the Effective Date represented shares of Sunbelt
Common Stock (the "Certificates"), a form letter of transmittal which will
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent and contain
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instructions for use in effecting the surrender of the Certificates for payment
therefor. Upon surrender to the Exchange Agent of a Certificate, together with
such letter of transmittal duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor the amount of cash and number of
shares of Bancshares Common Stock provided in Section 1.9 hereof, and such
Certificate shall forthwith be canceled. Bancshares shall provide the Exchange
Agent with certificates for Bancshares Common Stock, as requested by the
Exchange Agent, in the amounts provided in Section 1.9 hereof. No interest
will be paid or accrued on the cash payable upon surrender of the Certificate.
If payment or delivery of Bancshares Common Stock is to be made to a person
other than the person in whose name the Certificate surrendered is registered,
it shall be a condition of payment that the Certificate so surrendered shall be
properly endorsed or otherwise in proper form for transfer and that the person
requesting such payment shall pay any transfer or other taxes required by
reason of the payment and delivery of Bancshares Common Stock to a person other
than the registered holder of the Certificate surrendered or established to the
satisfaction of Bancshares that such tax has been paid or is not applicable.
Until surrendered in accordance with the provisions of this Section 1.12, each
Certificate (other than Certificates representing Dissenting Shares) shall
represent for all purposes the right to receive the Consolidation Consideration
without any interest thereon. Former shareholders of Sunbelt shall be entitled
to vote after the Effective Date at any meeting of Bancshares' shareholders the
number of shares of Bancshares Common Stock into which their shares are
converted, regardless of whether such shareholders have exchanged their
Certificates. Immediately after the Effective Date, shareholders of Sunbelt
shall be entitled to any dividends with respect to shares of Bancshares Common
Stock received by them in the Consolidation, provided that no dividend will be
disbursed with respect to the shares of Bancshares Common Stock until the
holder's shares are surrendered in exchange therefor.
(c) After the Effective Date, the stock transfer ledger
of Sunbelt shall be closed and there shall be no transfers on the stock
transfer books of Sunbelt of the shares of Sunbelt Common Stock which were
outstanding immediately prior to such time of filing. If, after the Effective
Date, Certificates are presented to Bancshares, they shall be promptly
presented to the Exchange Agent and exchanged as provided in this Section 1.12.
(d) Any portion of the Exchange Fund (including the
proceeds of any investments thereof) that remains unclaimed by the shareholders
of Sunbelt for six months after the Effective Date shall be paid to Bancshares,
and the holders of shares of Sunbelt Common Stock not theretofore presented to
the Exchange Agent shall look to Bancshares only, and not the Exchange Agent,
for the payment of any Consolidation Consideration in respect of such shares.
Section 1.13. Ratification by Shareholders. This Agreement shall
be submitted to the shareholders of Sunbelt and, if required, to either
Bancshares or Delaware-Company as
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the sole shareholder of New Bank and to Delaware-Company as the sole
shareholder of Prime, in accordance with applicable provisions of law and the
respective Articles of Association and Bylaws of Sunbelt, New Bank and Prime.
Sunbelt and Bancshares and Prime shall proceed expeditiously and cooperate
fully in the procurement of any other consents and approvals and the taking of
any other actions in satisfaction of all other requirements prescribed by law
or otherwise necessary for consummation of the Consolidation on the terms
herein provided, including, without limitation, the preparation and submission
of all necessary filings, requests for waivers and certificates with the Board
of Governors of the Federal Reserve System ("Federal Reserve Board"), the OCC,
the Federal Deposit Insurance Corporation ("FDIC") and the Texas Department of
Banking ("Banking Department").
Section 1.14. Registration of the Bancshares Common Stock.
(a) Bancshares shall file a registration statement (the
"Registration Statement") with the Securities and Exchange Commission ("SEC")
under the Securities Act of 1933, as amended ("Securities Act"), covering the
shares of Bancshares Common Stock to be issued to shareholders of Sunbelt in
the Consolidation.
(b) Within 30 days after the date hereof, Sunbelt shall
enter into and cause each Sunbelt shareholder who is an "affiliate" (as defined
in SEC Rule 405) of Sunbelt to enter into with Bancshares an Affiliate
Agreement in substantially the form of Exhibit "C" attached hereto.
II. REPRESENTATIONS AND WARRANTIES OF SUNBELT
Sunbelt represents and warrants to Bancshares, Delaware-Company and
Prime that each of the statements made in this Article II are true and correct
in all material respects. The Schedules required pursuant to this Article II
and elsewhere in this Agreement will be delivered and made part of this
Agreement no later than January 12, 1998. Sunbelt agrees that, at the Closing,
it shall provide Bancshares with supplemental Schedules reflecting any changes
in the information contained in the Schedules which have occurred in the period
from the date of delivery of such Schedules to the date of Closing.
Section 2.1. Organization. Sunbelt is a national banking
association duly organized, validly existing and in good standing under the
laws of the United States of America. Sunbelt (i) has full power and authority
(including all licenses, franchises, permits and other governmental
authorizations which are legally required) to own, lease and operate its
properties, to engage in the business and activities now conducted by it and to
enter into this Agreement; (ii) is duly authorized to conduct a general banking
business, embracing all usual deposit functions of commercial banks as well as
commercial, industrial and real estate
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loans, installment credits, collections and safe deposit facilities subject to
the supervision of the OCC; and (iii) is an insured bank as defined in the
Federal Deposit Insurance Act. Sunbelt does not conduct any trust activities.
True and complete copies of the Articles of Association and Bylaws of Sunbelt,
as amended to date, have been delivered or made available to Bancshares.
Except as otherwise disclosed in Schedule 2.1 to this Agreement, Sunbelt (a)
does not have any subsidiaries or affiliates, (b) is not a general partner or
material owner in any joint venture, general partnership, limited partnership,
trust or other non-corporate entity, and (c) does not know of any arrangement
pursuant to which the stock of any corporation is or has been held in trust
(whether express, constructive, resulting or otherwise) for the benefit of all
shareholders of Sunbelt.
Section 2.2. Capitalization. The authorized capital stock of
Sunbelt consists of 875,000 shares of Sunbelt Common Stock, 460,000 of which
are issued and outstanding. All of the issued and outstanding shares of
Sunbelt Common Stock are validly issued, fully paid and nonassessable, and have
not been issued in violation of the preemptive rights of any person or in
violation of any applicable federal or state laws. Except as disclosed in
Schedule 2.2, there are no existing options, warrants, calls, convertible
securities or commitments of any kind obligating Sunbelt to issue any
authorized and unissued Sunbelt Common Stock nor does Sunbelt have any
outstanding commitment or obligation to repurchase, reacquire or redeem any of
its outstanding capital stock. Other than the Sunbelt National Bank Voting and
Stock Restriction Agreement dated May 26, 1984 ("Sunbelt Voting Agreement") and
except as disclosed in Schedule 2.2 to this Agreement, there are no voting
trusts, voting agreements, buy-sell agreements or other similar arrangements
affecting the Sunbelt Common Stock.
Section 2.3. Approvals; Authority. The Board of Directors has
approved this Agreement and the transactions contemplated herein subject to the
approval thereof by the shareholders of Sunbelt as required by law, and, other
than shareholder approval, no further corporate proceedings of Sunbelt are
needed to execute and deliver this Agreement and consummate the Consolidations.
This Agreement has been duly executed and delivered by Sunbelt and, is a duly
authorized, valid, legally binding agreement of Sunbelt enforceable against
Sunbelt in accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
creditors' rights generally and general equitable principles.
Section 2.4. Investments. Sunbelt has furnished to Bancshares, as
Schedule 2.4 of this Agreement, a complete list, as of September 30, 1997, of
all securities, including municipal bonds, owned by Sunbelt (the "Securities
Portfolio"). All securities listed in Schedule 2.4 are owned by Sunbelt (i) of
record, except those held in bearer form, and (ii) beneficially, free and clear
of all mortgages, liens, pledges and encumbrances, except as noted in Schedule
2.4. Schedule 2.4 also discloses any entities in which Sunbelt's ownership
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interest equals 5% or more of the issued and outstanding voting securities of
the issuer thereof. There are no voting trusts or other agreements or
understandings with respect to the voting of the securities listed in Schedule
2.4.
Section 2.5. Financial Statements. Sunbelt has furnished or made
available to Bancshares true and complete copies of Sunbelt's audited balance
sheet as of December 31, 1996, 1995 and 1994, and the related statements of
income and statements of cash flow for the periods then ended, together with
the notes thereto. Sunbelt has also delivered to Bancshares a true and correct
copy of the Consolidated Reports of Condition and Income ("Call Reports") filed
by Sunbelt as of and for the nine months ended September 30, 1997. The audited
financial information and Call Reports referred to in this Section 2.5 are
collectively referred to in this Article II as the "Sunbelt Financial
Statements." The Sunbelt Financial Statements fairly present the financial
position of Sunbelt and the results of its operations at the dates and for the
periods indicated in conformity with generally accepted accounting principles
applied on a consistent basis. Except as set forth on Schedule 2.5 to this
Agreement, as of the dates of the Sunbelt Financial Statements referred to
above, Sunbelt did not have any liabilities, fixed or contingent, which are
material and are not fully shown or provided for in such Sunbelt Financial
Statements or otherwise disclosed in this Agreement, or in any of the documents
delivered to Bancshares. Except as set forth in Schedule 2.20 to this
Agreement, since September 30, 1997, there have been no material changes in the
financial condition, assets, liabilities or business of Sunbelt, other than
changes in the ordinary course of business, which individually or in the
aggregate have materially and adversely affected the financial condition,
results of operations or business of Sunbelt.
Section 2.6. Title. True and complete copies of all of Sunbelt's
deeds and leases and title insurance policies, if any, for all real property
owned or leased by Sunbelt and all mortgages, deeds of trust and security
agreements to which such property is subject are attached on Schedule 2.6 of
this Agreement. Sunbelt has good and indefeasible title to all of its assets
and properties including, without limitation, land and improvements thereon,
and all personal and intangible properties reflected in the Sunbelt Financial
Statements or acquired subsequent thereto, subject to no liens, mortgages,
security interests, encumbrances or charges of any kind except (a) defects,
irregularities in title and encumbrances set forth in the public record of the
applicable county, (b) as noted in the Sunbelt Financial Statements or as set
forth in Schedule 2.6, (c) statutory liens not yet delinquent, (d) minor
defects and irregularities in title and encumbrances which do not materially
impair the use thereof for the purposes for which they are held, and (e) those
assets and properties disposed of for fair value in the ordinary course of
business since the dates of the Sunbelt Financial Statements. Except as set
forth in Schedule 2.6 to this Agreement, Sunbelt owns no securities of or other
interest in any other commercial bank.
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Section 2.7. Environmental Laws. Sunbelt is in compliance with
all terms and conditions of all applicable federal and state Environmental Laws
(as defined below) and permits thereunder. Except as set forth on Schedule 2.7
of this Agreement, (a) Sunbelt has not received notice of any violation of any
Environmental Laws or generated, stored, or disposed of any materials
designated as Hazardous Materials (as defined below) under the Environmental
Laws, and is not subject to any claim or lien under any Environmental Laws; (b)
during the term of ownership by Sunbelt, no real estate currently owned,
operated, or leased (including any property acquired by foreclosure or deeded
in lieu thereof) by Sunbelt, or owned, operated or leased by Sunbelt within the
ten years preceding the date of this Agreement, has been designated as
requiring any environmental cleanup or response action to comply with
Environmental Laws, or has been the site of release of any Hazardous Materials;
(c) to the knowledge of Sunbelt, no asbestos was used in the construction of
any portion of Sunbelt's facilities; and (d) to the knowledge of Sunbelt, no
real property currently owned by Sunbelt is, or has been, an industrial site or
landfill. Bancshares and its consultants, agents and representatives shall
have the right to inspect Sunbelt's assets for the purpose of conducting
asbestos and other environmental surveys.
"Environmental Laws," for purposes of this Section 2.7, includes, but
is not limited to, any federal, state or local statute, law, rule, regulation,
ordinance, code, policy or rule of common law now in effect and in each case as
amended to date and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree, or judgment,
relating to the environment, human health or safety, or Hazardous Materials,
including without limitation the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Sections 9601, et
seq.; The Hazardous Materials Transaction Act, as amended, 49 U.S.C. Sections
1801, et seq.; the Resource Conservation and Recovery Act of 1976, as amended,
42 U.S.C. Sections 6901, et seq.; the Federal Water Pollution Control Act, as
amended, 33 U.S.C. Sections 1201, et seq.; the Toxic Substances Control Act, 15
U.S.C. Sections 2601, et seq.; the Clean Air Act, 42 U.S.C. Sections 7401, et
seq.; and the Safe Drinking Water Act, 42 U.S.C. Sections 3808, et seq.
"Hazardous Materials," for purposes of this Section 2.7, includes, but
is not limited to, (a) any petroleum or petroleum products, natural gas, or
natural gas products, radioactive materials, asbestos, urea formaldehyde foam
insulation, transformers or other equipment that contains dielectric fluid
containing levels of polychlorinated biphenyls (PCBs), and radon gas; (b) any
chemicals, materials, waste or substances defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic
substances," "toxic pollutants," "contaminants," or "pollutants," or words of
similar import, under any Environmental Laws; and (c) any other chemical,
material, waste or substance which is in any way regulated by any federal,
state or local government authority, agency or instrumentality, including
mixtures thereof with other materials, and including any regulated building
materials such as asbestos and lead.
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Section 2.8. Litigation and Other Proceedings. Except as
otherwise noted on Schedule 2.8 hereto, there are no legal, quasi-judicial,
regulatory or administrative proceedings of any kind or nature now pending or,
to the knowledge of Sunbelt, threatened before any court or administrative body
in any manner against Sunbelt, or any of its properties or capital stock, which
might have a material adverse effect on Sunbelt, its financial condition,
assets, operations or earnings or the transactions proposed by this Agreement.
Sunbelt does not know of any basis on which any litigation or proceeding could
be brought which could have a materially adverse effect on the financial
condition or prospects of Sunbelt or which could question the validity of any
action taken or to be taken in connection with this Agreement and the
transactions contemplated hereby. Sunbelt is not in default with respect to
any judgment, order, writ, injunction, decree, award, rule or regulation of any
court, arbitrator or governmental agency or instrumentality.
Section 2.9. Taxes. Except as otherwise noted in Schedule 2.9
hereto, Sunbelt has filed with the appropriate federal, state and local
governmental agencies all tax returns and reports required to be filed, and has
paid all taxes and assessments shown or claimed to be due. Sunbelt has not
executed or filed with the Internal Revenue Service any agreement extending the
period for assessment and collection of any federal tax, nor is Sunbelt a party
to any action or proceeding by any governmental authority for assessment or
collection of taxes, nor has any claim for assessment or collection of taxes
been asserted against Sunbelt. Sunbelt has not waived any statute of
limitations with respect to any tax or other assessment or levy, and all such
taxes and other assessments and levies which Sunbelt is required by law to
withhold or to collect have been duly withheld and collected and have been paid
over to the proper governmental agency, domestic and foreign, or segregated and
set aside for such payment and, if so segregated and set aside will be so paid
by Sunbelt, as required by law.
True and complete copies of the federal income tax returns of Sunbelt
as filed with the Internal Revenue Service for the years ended December 31,
1996, December 31, 1995, and December 31, 1994, have been delivered or made
available to Bancshares.
Section 2.10. Contracts. Except as otherwise noted in Schedule
2.10 hereto, Sunbelt is not a party to nor bound by any (a) employment contract
or severance arrangement (including without limitation any collective
bargaining contract or union agreement or agreement with an independent
consultant) which is not terminable by Sunbelt on less than sixty (60) days'
notice without payment of any amount on account of such termination; (b) bonus,
stock option, deferred compensation or profit-sharing, pension or retirement
plan or other employee benefit arrangement; (c) material lease or license with
respect to any property, real or personal, whether as landlord, tenant,
licensor or licensee; (d) contract or commitment for capital expenditures; (e)
material contract or commitment made in the ordinary course of business for the
purchase of materials or supplies or for the performance of services over a
period of more than one hundred twenty (120) days from the date of this
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Agreement; (f) contract or option to purchase or sell any real or personal
property other than in the ordinary course of business; (g) contract, agreement
or letter with respect to the management or operations of Sunbelt imposed by
any bank regulatory authority having supervisory jurisdiction over Sunbelt; (h)
agreement, contract or indenture related to the borrowing by Sunbelt of money
other than those entered into in the ordinary course of business; (i) guaranty
of any obligation for the borrowing of money, excluding endorsements made for
collection, repurchase or resell agreements, letters of credit and guaranties
made in the ordinary course of business; (j) agreement with or extension of
credit to any executive officer or director of Sunbelt or holder of more than
ten percent (10%) of the issued and outstanding Sunbelt Common Stock, or any
affiliate of such person, which is not on substantially the same terms
(including, without limitation, in the case of lending transactions, interest
rates and collateral) as, and following credit underwriting practices that are
not less stringent than, those prevailing at the time for comparable
transactions with unrelated parties or which involve more than the normal risk
of collectibility or other unfavorable features; or (k) material contracts,
other than the foregoing, not made in the ordinary course of business and not
otherwise disclosed in this Agreement, in any schedule attached hereto or in
any document delivered or referred to or described in writing by Sunbelt to
Bancshares. Sunbelt has in all material respects performed all material
obligations required to be performed by it to date and is not in default under,
and no event has occurred which, with the lapse of time or action by a third
party could result in default under, any indenture, mortgage, contract, lease
or other agreement to which Sunbelt is a party or by which Sunbelt is bound or
under any provision of its Articles of Association or Bylaws.
Section 2.11. Insurance. A true and complete list of all insurance
policies owned or held by or on behalf of Sunbelt (other than credit-life
policies), including policy numbers, retention levels, insurance carriers, and
effective and termination dates, is set forth in Schedule 2.11 to this
Agreement. In the judgment of the Board of Directors of Sunbelt, such
insurance policies are adequate for the business conducted by Sunbelt in
respect of amounts, types and risks insured.
Section 2.12. No Conflict With Other Instruments. Neither the
execution and delivery of this Agreement nor the consummation of the
Consolidations contemplated hereby, subject to obtaining all required
shareholder consents, will conflict with or result in a breach of any provision
of Sunbelt's Articles of Association or Bylaws. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby,
subject to obtaining all required shareholder and regulatory approvals, will
not violate any provision of, or constitute a default under, any law, or any
order, writ, injunction or decree of any court or other governmental agency, or
any contract, agreement or instrument to which Sunbelt is a party or by which
either is bound or constitute an event which, with the lapse of time or action
by a third party, could result in any default under any of the foregoing
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or result in the creation of any lien, charge or encumbrance upon the assets or
properties of Sunbelt or upon the Sunbelt Common Stock.
Section 2.13. Laws. Except as otherwise noted in Schedule 2.13
hereto, Sunbelt is in material compliance with all applicable federal, state
and local laws, rules, regulations and orders applicable to it. Except for
approvals by regulatory authorities having jurisdiction over Sunbelt, no prior
consent, approval or authorization of, or declaration, filing or registrations
with, any person or regulatory authority is required of Sunbelt in connection
with the execution, delivery and performance by Sunbelt of this Agreement and
the transactions contemplated hereby or the resulting change of control of
Sunbelt except for certain instruments necessary to consummate the
Consolidations contemplated hereby. Sunbelt has filed all reports,
registrations and statements, together with any amendments required to be made
thereto, that are required to be filed with the OCC or any other regulatory
authority having jurisdiction over Sunbelt, and such reports, registrations and
statements are, to the best knowledge of Sunbelt, true and correct in all
material respects.
Section 2.14. Conduct. Except as otherwise noted in Schedule 2.14
hereto, since September 30, 1997, Sunbelt has not (a) issued or sold any of its
capital stock or corporate debt obligations; (b) declared or set aside or paid
any dividend or made any other distribution in respect of or, directly or
indirectly, purchased, redeemed or otherwise acquired any shares of Sunbelt
Common Stock; (c) incurred any obligations or liabilities (fixed or
contingent), except obligations or liabilities incurred in the ordinary course
of business, or mortgaged, pledged or subjected any of its assets to a lien or
encumbrance (other than in the ordinary course of business and other than
statutory liens not yet delinquent); (d) discharged or satisfied any lien or
encumbrance or paid any obligation or liability (fixed or contingent), other
than accruals, accounts and notes payable included in the Sunbelt Financial
Statements, accruals, accounts and notes payable incurred since September 30,
1997 in the ordinary course of business and accruals, accounts and notes
payable incurred in connection with the transactions contemplated by this
Agreement; (e) sold, exchanged or otherwise disposed of any of its capital
assets other than in the ordinary course of business; (f) made any general or
individual wage or salary increase (including increases in directors' or
consultants' fees), paid any bonus, granted or paid any perquisites such as
automobile allowance, club membership or dues or other similar benefits, or
instituted any employee welfare, retirement or similar plan or arrangement; (g)
suffered any physical damage, destruction or casualty loss, whether or not
covered by insurance, materially and adversely affecting its business, property
or assets; (h) made any or acquiesced with any change in accounting methods,
principles and practices; (i) entered into any contract, agreement or
commitment which obligates Sunbelt for an amount in excess of $10,000 over the
term of any such contract, agreement or commitment; or (j) except in the
ordinary course of business, entered or agreed to enter into any agreement or
arrangement granting any preferential rights to purchase any
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of its assets, properties or rights or requiring the consent of any party to
the transfer and assignment of any such assets, properties or rights.
Section 2.15. Allowance for Credit Losses. The allowance for
credit losses of Sunbelt has been calculated in accordance with generally
accepted accounting principles as applied to banking institutions and in
accordance with all applicable rules and regulations. The allowance for credit
losses shown on Sunbelt's Call Report of September 30, 1997 is substantially
adequate in all material respects to provide for all losses, net of recoveries
relating to loans previously charged off, on loans outstanding as of September
30, 1997. On the Effective Date, no material facts relevant to the adequacy of
the allowance for credit losses as of that date shall have been withheld from
Bancshares. Except as disclosed in writing to Bancshares by Sunbelt on or
before the date of the Agreement, there are no loans of Sunbelt that have been
classified by bank examiners on Sunbelt's most recent examination report as
"Other Assets Especially Mentioned," "Substandard," "Doubtful" or "Loss."
Section 2.16. Employment Relations. The relations of Sunbelt with
its employees are satisfactory, and Sunbelt has not received any notice of any
controversies with, or organizational efforts or other pending actions by,
representatives of its employees. Sunbelt has materially complied with all
laws relating to the employment of labor with respect to its employees,
including any provisions thereof relating to wages, hours, collective
bargaining and the payment of workman's compensation insurance and social
security and similar taxes, and, except as disclosed in Schedule 2.16 hereto,
no person has asserted that Sunbelt is liable for any arrearages of wages,
workman's compensation insurance premiums or any taxes or penalties for failure
to comply with any of the foregoing.
Section 2.17. ERISA. The employee pension benefits plans and
welfare benefit plans (referred to collectively herein as the "Plans") in
effect at Sunbelt (all of which are included in Schedule 2.10 hereto) have all
been operated in all material respects in compliance with ERISA since ERISA
became applicable with respect thereto. None of the Plans nor any of their
respective related trusts have been terminated (except the termination of any
Plan which is in compliance with the requirements of ERISA and which will not
result in any additional liability to Sunbelt), and there has been no
"reportable event," as that term is defined in Section 4043 of ERISA, required
to be reported since the effective date of ERISA which has not been reported,
and none of such Plans nor their respective related trusts have incurred any
"accumulated funding deficiency," as such term is defined in Section 302 of
ERISA (whether or not waived), since the effective date of ERISA. The Plans
are the only employee pension benefit plans covering employees of Sunbelt.
Sunbelt will not have any material liabilities with respect to employee pension
benefits, whether vested or unvested as of the Closing, for any of its
employees other than under the Plans, and as of the date hereof the actuarial
present value of Plan assets of each Plan is not less (and as of the Closing
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of the Consolidation such present value will not be less) than the present
value of all benefits payable or to be payable thereunder.
Section 2.18. Deferred Compensation Arrangements. The schedule
attached as Schedule 2.18 contains a full description of all of Sunbelt's
deferred compensation arrangements, including the terms under which the cash
value of any life insurance purchased in connection with any such arrangement
can be realized.
Section 2.19. List of Loans. Schedule 2.19 to this Agreement sets
forth a true and complete list, as of September 30, 1997, of all loans
(individually, a "Loan" and collectively, the "Loans") of Sunbelt, showing for
each such Loan the outstanding principal balance due, before reduction for any
discount. All currently outstanding Loans of Sunbelt, including any current
extensions of any Loan, were solicited, originated and currently exist in
material compliance with all applicable requirements of federal and state law
and regulations promulgated thereunder. The Loans are adequately documented
and each note evidencing a Loan or credit agreement or security instrument
related to a Loan constitutes a valid and binding obligation of the obligor
thereunder, enforceable in accordance with the terms thereof, except where the
failure thereof, individually or in the aggregate, would not have a material
adverse effect on the condition (financial or otherwise), operations or
prospects of Sunbelt. There are no oral modifications or amendments or
additional agreements related to the Loans that are not reflected in Sunbelt's
records, and no claim of defense as to the enforcement of any Loan has been
asserted, and Sunbelt is not aware of any acts or omissions that would give
rise to any claim or right of rescission, set off, counterclaim or defense,
except where such claim would not have, either individually or in the
aggregate, a material adverse effect on the condition (financial or otherwise),
operations or prospects of Sunbelt.
Section 2.20. Absence of Changes. Since September 30, 1997, except
as disclosed in Schedule 2.20 to this Agreement, there has not been any
material adverse change in the condition (financial or otherwise), assets,
liabilities, earnings or business of Sunbelt. Since such date, the business of
Sunbelt has been conducted only in the ordinary course consistent with prior
practices.
Section 2.21. Brokers and Finders. Neither Sunbelt nor any of its
officers, directors or employees has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finders' fees in
connection with the Consolidations contemplated herein.
Section 2.22. Absence of Property Taxes and Liens. All property
taxes due under the applicable provisions of the Texas Tax Code have been paid
by either Sunbelt or the shareholders of Sunbelt, and no liens imposed or
authorized by the Texas Tax Code exist on
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the shares of Sunbelt Common Stock, except as otherwise disclosed in Schedule
2.22 to this Agreement.
Section 2.23. Community Reinvestment Act. Sunbelt is in material
compliance with the Community Reinvestment Act (12 U.S.C. Section 2901 et
seq.) and all regulations promulgated thereunder, and Sunbelt has supplied
Bancshares with copies of Sunbelt's current CRA Statement, all support papers
therefor, all letters and written comments received by Sunbelt since January 1,
1995 pertaining thereto and any responses by Sunbelt to such comments. Sunbelt
has a rating of "satisfactory" as of its most recent CRA compliance examination
and knows of no reason why it would not receive a rating of "satisfactory" or
better pursuant to its next CRA compliance examination or why the OCC or any
other governmental entity may seek to restrain, delay or prohibit the
transactions contemplated hereby as a result of any act or omission of Sunbelt
under the CRA.
Section 2.24. Fair Housing Act, Home Mortgage Disclosure Act and
Equal Credit Opportunity Act. Sunbelt is in material compliance with the Fair
Housing Act (42 U.S.C. Section 3601 et seq.), the Home Mortgage Disclosure Act
(12 U.S.C. Section 2801 et seq.) and the Equal Credit Opportunity Act (15
U.S.C. Section 1691 et seq.) and all regulations promulgated thereunder.
Sunbelt has not received any notices of any violation of said Acts or any of
the regulations promulgated thereunder, nor does Sunbelt have any notice of, or
knowledge of, any threatened administrative inquiry, proceeding or
investigation with respect to Sunbelt's compliance with said Acts.
Section 2.25. Usury Laws and Other Consumer Compliance Laws. All
loans of Sunbelt have been made substantially in accordance with all applicable
statutes and regulatory requirements at the time of such loan or any renewal
thereof, including without limitation, the Texas usury statutes as they are
currently interpreted, Regulation Z (12 C.F.R. Section 226 et seq.) issued by
the Board of Governors of the Federal Reserve System, the Federal Consumer
Credit Protection Act (15 U.S.C. Section 1601 et seq.), the Texas Consumer
Credit Code (Tex. Rev. Civ. Stat. Ann. art. 5069-2.01, et seq.) and all
statutes governing the operation of national banks located in Texas. Each loan
on the books of Sunbelt was made in the ordinary course of Sunbelt's business.
Section 2.26. Bank Secrecy Act. Sunbelt is in material compliance
with the Bank Secrecy Act (12 U.S.C. Sections 1730(d) and 1829(b)) and all
regulations promulgated thereunder, and Sunbelt has properly certified all
foreign deposit accounts and has made all necessary tax withholdings on all of
its deposit accounts; furthermore, Sunbelt has timely and properly filed and
maintained all requisite Currency Transaction Reports and other related forms,
including, but not limited to, any requisite Custom Reports required by any
agency of the United States Treasury Department, including but not limited to
the Internal Revenue Service.
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Section 2.27. Zoning and Related Laws. All real property owned by
Sunbelt and the use thereof materially complies with all applicable laws,
ordinances, regulations, orders or requirements, including without limitation,
building, zoning and other laws.
Section 2.28. Securities Laws. Sunbelt and its officers, employees
and agents are now, and at all times in the past have been, in full compliance
with all applicable federal and state securities laws and any regulations
promulgated thereunder. Sunbelt and its officers, employees and agents have
complied with, and currently hold, all necessary licenses and permits required
under any federal or state securities law or regulation to conduct any
securities activities in which Sunbelt or its officers, employees, or agents
are now engaged or have been engaged in the past.
Section 2.29. Regulatory Approvals. Sunbelt has no reason to
believe that it will not be able to obtain all requisite regulatory approvals
necessary to consummate the Consolidations as set forth in this Agreement.
Section 2.30. Shareholders' List. Sunbelt has provided or made
available to Bancshares as of a date within ten (10) days of the date of this
Agreement a list of the holders of shares of Sunbelt Common Stock containing
for Sunbelt's shareholders the names, addresses and number of shares held of
record, which shareholders' list is in all respects accurate as of such date
and will be updated prior to Closing.
III. REPRESENTATIONS AND WARRANTIES OF BANCSHARES,
DELAWARE-COMPANY AND PRIME
Bancshares, Delaware-Company and Prime, respectively as indicated
below, represent and warrant to Sunbelt that the statements contained in this
Article III are true and correct in all material respects as follows:
Section 3.1. Organization. Bancshares is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas and a bank holding company duly registered under the Bank Holding Company
Act of 1956, as amended (the "BHC Act"), subject to all laws, rules and
regulations applicable to bank holding companies. Delaware-Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and a bank holding company duly registered under
the BHC Act subject to all laws, rules and regulations applicable to bank
holding companies. Bancshares owns 100% of the issued and outstanding common
stock of Delaware-Company and, indirectly through Delaware-Company, 100% of the
issued and outstanding capital stock of Prime. Prime is a Texas banking
corporation duly organized, validly existing and in good standing under the
laws of the State of Texas. Prime is an insured bank as defined in the Federal
Deposit Insurance Act. Upon the organization of New Bank, Bancshares or
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Delaware-Company will own 100% of the issued and outstanding capital stock of
New Bank. When organized, New Bank will be duly organized, validly existing
and in good standing under the laws of the State of Texas. Bancshares,
Delaware-Company and Prime have full power and authority (including all
licenses, franchises, permits and other governmental authorizations which are
legally required) to own their properties, to engage in the business and
activities now conducted by them and to enter into this Agreement.
Section 3.2. Capitalization. The authorized capital stock of
Bancshares consists of 50,000,000 shares of common stock, $0.25 par value
("Bancshares Common Stock"), 12,010,980 of which are issued and 9,317,020 are
outstanding and 15,000,000 shares of preferred stock, $1.00 par value,
1,250,000 of which are designated as Series B 10% Non-Cumulative Preferred
Stock, 1,000,000 of which are issued and outstanding ("Bancshares Preferred
Stock"). All of the issued and outstanding shares of Bancshares Common Stock
and Bancshares Preferred Stock are validly issued, fully paid and
non-assessable. Except as disclosed on Schedule 3.2, Bancshares has no
existing options, warrants, calls, convertible securities or commitments of any
kind obligating Bancshares to issue any authorized but unissued shares of
Bancshares Common Stock or Bancshares Preferred Stock nor does Bancshares have
any outstanding commitment or obligation to repurchase, reacquire or redeem any
of its outstanding capital stock.
Section 3.3. Approvals; Authority. The Boards of Directors of
Bancshares, Delaware-Company and Prime have each approved this Agreement and
the transactions contemplated herein subject to the approval thereof by the
shareholders of Bancshares, Delaware-Company and Prime as required by law, and,
other than shareholder approval, no further corporate proceedings of
Bancshares, Delaware-Company or Prime are needed to execute and deliver this
Agreement and consummate the Consolidations. This Agreement has been duly
executed and delivered by Bancshares, Delaware-Company and Prime and is a duly
authorized, valid, legally binding agreement of Bancshares, Delaware-Company
and Prime enforceable against each entity in accordance with its terms, subject
to the effect of bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to creditors' rights generally and general equitable
principles.
Section 3.4. No Conflict With Other Instruments. Neither the
execution and delivery of this Agreement nor the consummation of the
Consolidations contemplated thereby, subject to obtaining all required
shareholder consents, will conflict with or result in a breach of any provision
of any Articles of Incorporation or Association of Bancshares,
Bancshares-Delaware, Prime or New Bank, as applicable, or their respective
Bylaws. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby, subject to obtaining all required
shareholder and regulatory approvals, will not violate any provision of, or
constitute a default under, any law, or any order, writ, injunction or decree
of any court or other governmental agency, or any contract, agreement
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or instrument to which Bancshares, Delaware-Company, Prime or New Bank is a
party or by which it is bound or constitute an event which, with the lapse of
time or action by a third party, could result in any default under any of the
foregoing or result in the creation of any lien, charge or encumbrance upon the
assets or properties of Bancshares, Delaware-Company or Prime or upon the stock
of Bancshares, Delaware-Company or Prime.
Section 3.5. Financial Statements. Bancshares' audited
consolidated balance sheets and the related statements of income, changes in
shareholders' equity and cash flows, together with the notes thereto, as of and
for the three years ended December 31, 1996, December 31, 1995 and December 31,
1994 and Bancshares unaudited balance sheet as of September 30, 1997 and
statements of income, changes in shareholders' equity and cash flows for the
nine months then ended have been furnished to Sunbelt. The financial
information referred to in this Section 3.5 is collectively referred to in this
Article III as the "Bancshares Financial Statements." The Bancshares Financial
Statements fairly present the financial position of Bancshares and Prime and
the results of their respective operations at the dates and for the periods
indicated in conformity with agreed upon selected procedures applied on a
consistent basis with previous accounting periods. As of the dates of the
Bancshares Financial Statements referred to above neither Bancshares nor Prime
had any liabilities, fixed or contingent, which are material and are not fully
shown or provided for in such Financial Statements or otherwise disclosed in
this Agreement, or in any of the documents delivered to Sunbelt. Since
September 30, 1997 there have been no material changes in the financial
condition, assets, liabilities or business of Bancshares or Prime, other than
changes in the ordinary course of business, which individually or in the
aggregate have materially and adversely affected the financial condition of
Bancshares or Prime.
Section 3.6. SEC Reports. Bancshares has filed all material
reports and statements, together with any amendments required to be made with
respect thereto, that it was required to file with the Securities and Exchange
Commission ("SEC"). As of their respective dates, each of such reports and
statements, as amended, were true and correct and complied in all material
respects with the relevant statutes, rules and regulations enforced or
promulgated by the SEC.
Section 3.7. Litigation and Other Proceedings. Except as
otherwise noted on Schedule 3.7 hereto, there are no legal, quasi-judicial or
administrative proceedings of any kind or nature now pending or, to the
knowledge of Bancshares, threatened before any court or administrative body in
any manner against Bancshares or Prime, or any of their respective properties
or capital stock, which might have a material adverse effect on Bancshares or
Prime, their respective financial conditions, assets, operations or earnings or
the transactions proposed by this Agreement. Neither Bancshares nor Prime
knows of any basis on which any litigation or proceeding could be brought which
could have a materially adverse effect on the financial condition or prospects
of Bancshares or Prime or which could question the
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validity of any action taken or to be taken in connection with this Agreement
and the transactions contemplated hereby. Neither Bancshares nor Prime is in
default with respect to any judgment, order, writ, injunction, decree, award,
rule or regulation of any court, arbitrator or governmental agency or
instrumentality.
Section 3.8. Ability to Pay Consolidation Consideration.
Bancshares has available a sufficient number of authorized and unissued shares
of Bancshares Common Stock to pay the portion of the Consolidation
Consideration payable in shares of Bancshares Common Stock, and Bancshares will
not take any action during the term of this Agreement that will cause it not to
have a sufficient number of authorized and unissued shares of Bancshares Common
Stock to pay the portion of the Consolidation Consideration payable in shares
of Bancshares Common Stock. Bancshares has available through internal funds
cash in the amount of the Consolidation Consideration to be paid in cash to
shareholders of Sunbelt as set forth in Section 1.9 hereof.
Section 3.9. Regulatory Approvals. Bancshares has no reason to
believe that it will not be able to obtain all requisite regulatory approvals
necessary to consummate the transactions set forth in this Agreement.
Section 3.10. Capitalization. The shares of Bancshares Common
Stock to be issued pursuant to this Agreement, when so issued, will be duly and
validly authorized and issued, fully paid and nonassessable, and not issued in
violation of any preemptive rights. As of September 30, 1997, Bancshares had
issued 12,010,980 shares of common stock, $.25 per share par value, 9,317,020
of which were outstanding. None of the shares of Bancshares Common Stock to be
issued pursuant to this Agreement will be subject to any lien, charge,
encumbrance, claim, rights of others, mortgage, pledge or security interest,
and none will be subject to any agreements or understandings among any persons
with respect to the voting or transfer of such shares of Bancshares Common
Stock except as contemplated hereby.
IV. COVENANTS OF SUNBELT
Sunbelt covenants and agrees with Bancshares, Delaware-Company and
Prime as follows:
Section 4.1. Shareholder Approval and Best Efforts. Sunbelt will,
as soon as practicable, present for the approval of its shareholders this
Agreement and the transactions contemplated hereby. Sunbelt will take all
reasonable action to arrange for a meeting of its shareholders for the purpose
of considering the Agreement and, if the transaction is approved by such
shareholders, to aid and assist in the consummation of the Consolidations, and
will use its best efforts to take or cause to be taken all other actions
necessary, proper or advisable to consummate the transactions contemplated by
this Agreement, including such actions as
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Bancshares reasonably considers necessary, proper or advisable in connection
with filing applications and registration statements with, or obtaining
approvals from, all regulatory authorities having jurisdiction over the
transactions contemplated by this Agreement.
Section 4.2. Operations. From and after the date of this
Agreement to the Effective Date, Sunbelt agrees to (a) conduct its business in
substantially the same manner as it has been conducted since September 30, 1997
and in accordance with prudent business and banking practices, (b) maintain and
keep its properties in as good repair and condition as at present, except for
deterioration due to ordinary wear and tear and damage due to casualty, (c)
maintain in full force and effect insurance comparable in amount and scope of
coverage to that currently maintained for Sunbelt, (d) make no alteration in
the manner of maintaining its books, accounts or records, or in the accounting
practices relating to its business, properties or assets, (e) perform all of
its material obligations under contracts, leases and documents relating to or
affecting its assets, properties and business, except such obligations as
Sunbelt may in good faith reasonably dispute, (f) maintain and preserve its
corporate existence, business organization, assets, licenses, permits,
authorizations and business opportunities intact, use its best efforts to
retain its present employees and maintain all relationships with depositors and
customers of Sunbelt, (g) comply with and perform all obligations and duties
imposed upon Sunbelt by all federal, state and local laws, and all rules,
regulations and orders imposed by federal, state or local governmental
authorities, (h) notify Bancshares immediately upon commencement of any
compliance, safety and soundness or other type of examination conducted by the
OCC or any other agency having supervisory authority over Sunbelt or in the
event of any actual or threatened litigation, (i) use its best efforts to amend
the Articles of Association or Bylaws of Sunbelt in any manner which
Bancshares, in its reasonable discretion, shall deem necessary, proper or
advisable, (j) promptly give written notice to Bancshares upon obtaining
knowledge of any event or fact that would cause any of the representations or
warranties of Sunbelt contained in this Agreement to be untrue or misleading in
any material respect, and (k) use its best efforts to continue to solicit
deposits, maintain deposits and operate its deposit gathering procedures
consistent with existing practices.
Sunbelt will not, without the prior written consent of Bancshares, (i)
permit any amendment or change to be made in Articles of Association or Bylaws
of Sunbelt except as directed by Bancshares as set forth in (i) above, (ii)
take any action described or do any of the things listed in Section 2.14 hereof
except with respect to Section 2.14(g), (iii) enter into or amend any contract,
agreement or other instrument of any of the types listed in Section 2.10
hereof, (iv) undertake any additional borrowings in excess of ninety (90) days,
(v) sell any investment securities, (vi) purchase any investment securities
other than United States Treasury obligations or obligations of any United
States governmental agency with maturities of more than two (2) years, (vii)
modify any outstanding loan, make any new loan, or acquire any loan
participation, unless such modification, new loan or participation is made
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in the ordinary course of business, consistent with existing practice, (viii)
commit to or make any extension of credit in an amount exceeding an aggregate
of $250,000 to any one borrower or his related interests, or (ix) agree to
settle all or part of any litigation matters, provided that with respect to
sections (iv), (v), (vi), (vii), (viii) and (ix) written consent of Bancshares
shall not be unreasonably withheld.
Section 4.3. Access to Properties and Records. To the extent
permitted by applicable law, Sunbelt will afford the executive officers and
authorized representatives (including legal counsel, accountants and
consultants) of Bancshares full access to the properties, books and records of
Sunbelt in order that Bancshares may have full opportunity to make such
reasonable investigation as it shall desire to make of the affairs of Sunbelt,
and the officers of Sunbelt will furnish Bancshares with such additional
financial and operating data and other information as to the business and
properties of Sunbelt as Bancshares shall, from time to time, request. As soon
as practicable after they become available, Sunbelt will deliver or make
available to Bancshares all unaudited quarterly financial statements prepared
for the internal use of management of Sunbelt and all Call Reports filed by
Sunbelt with the appropriate federal regulatory authority after the date of
this Agreement. All such financial statements shall be prepared in accordance
with generally accepted accounting principles applied on a consistent basis
with previous accounting periods. In the event of the termination of this
Agreement, Bancshares will return to Sunbelt all documents and other
information obtained pursuant hereto and will keep confidential any information
obtained pursuant to this Agreement.
Section 4.4. Information for Regulatory Applications and SEC
filings. To the extent permitted by law, Sunbelt will furnish Bancshares with
all information concerning Sunbelt required for inclusion in (i) any
application, statement or document to be made or filed by Bancshares,
Delaware-Company or Prime with any federal or state regulatory or supervisory
authority in connection with the transactions contemplated by this Agreement
during the pendency of this Agreement and (ii) any filings with the SEC,
including a Registration Statement on Form S-4, and any applicable state
securities authorities. Sunbelt represents and warrants that all information
so furnished for such applications and filings shall, to the best of its
knowledge, be true and correct in all material respects without omission of any
material fact required to be stated to make the information not misleading.
Sunbelt will indemnify and hold harmless Bancshares, Delaware-Company and Prime
from and against any and all losses, claims, damages, expenses or liabilities
to which any of them may become subject under applicable laws, rules and
regulations and will reimburse Bancshares, Delaware-Company and Prime for any
legal or other expenses reasonably incurred by any of them in connection with
investigating or defending any actions whether or not resulting in liability,
insofar as such losses, claims, damages, expenses, liabilities or actions arise
out of or are based upon any untrue statement of a material fact contained in
any such application or arise out of or are based upon the omission or alleged
omission to state
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therein a material fact required to be stated therein, or necessary in order to
make the statements therein not misleading, but only insofar as any such
statement or omission was made in reliance upon and in conformity with
information furnished in writing by Sunbelt expressly for use therein. Sunbelt
agrees at any time, upon the request of Bancshares, to furnish to Bancshares a
written letter or statement confirming the accuracy of the information with
respect to Sunbelt contained in any report or other application or statement
referred to in Sections 4.1 or 4.4 of this Agreement, and confirming that the
information with respect to Sunbelt contained in such document or draft was
furnished by Sunbelt expressly for use therein or, if such is not the case,
indicating the inaccuracies contained in such document or indicating the
information not furnished by Sunbelt expressly for use therein. The indemnity
agreement contained in this Section 4.4 will terminate at the Closing Date.
Section 4.5. Attendance at Certain Sunbelt Meetings. In order to
facilitate the continuing interaction of Bancshares with Sunbelt, and in order
to keep Bancshares fully advised of all ongoing activities of Sunbelt, Sunbelt
agrees to allow Bancshares to designate one or more representatives, any one of
whom will be allowed to attend as an invited guest and fully monitor all
regular and called meetings of the board of directors and loan and investment
committees of Sunbelt. Such representative shall have no right to vote and may
be excluded from sessions of the board of directors or loan or investment
committee during which there is being discussed (a) matters involving this
Agreement, (b) information or material which Sunbelt is required or obligated
to maintain as confidential under applicable laws or regulations or policies or
procedures of Sunbelt, or (c) pending or threatened litigation or
investigations if, in the opinion of counsel to Sunbelt, the presence of such
representative would or might adversely affect the confidential nature of or
any privilege relating to any matters to be discussed. No attendance by
representatives of Bancshares at board meetings under this Section 4.5 or
knowledge gained or deemed to have been gained by virtue of such attendance
will affect any of the representations and warranties of Sunbelt made in this
Agreement. Bancshares agrees that, until the Closing, it and its
representatives will hold in strict confidence all information so obtained from
Sunbelt and, if the transactions provided for herein are not consummated,
Bancshares will, upon request of Sunbelt, return or cause to be returned to
Sunbelt all written information and documents obtained from Sunbelt concerning
Sunbelt then in its possession.
Section 4.6. Standstill Provision. So long as this Agreement is
in effect, neither Sunbelt nor any of its directors or officers shall
entertain, solicit or encourage any inquiries, or provide any information to or
negotiate with any other party any proposal which could reasonably be expected
to lead to the merger, consolidation, acquisition, or sale of all or
substantially all of the assets or any shares of capital stock of Sunbelt.
Sunbelt agrees to notify Bancshares immediately of any such unsolicited
acquisition proposals and provide reasonable detail as to the identity of the
proposed acquiror and the nature of the proposed transaction.
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Section 4.7. Proxies. Sunbelt acknowledges that the persons
listed in Schedule 4.7 have agreed to vote their shares of Sunbelt Common Stock
pursuant to the terms of the Sunbelt Voting Agreement in favor of this
Agreement and the transactions contemplated hereby, subject to required
regulatory approvals, and that such persons will retain the right to vote such
shares during the term of this Agreement, pursuant to a Voting Agreement
substantially in the form of Exhibit "D" to this Agreement which has been
executed as of the date of this Agreement.
Section 4.8. Accounting and Tax Treatment. Sunbelt agrees to use
its reasonable efforts to cause the Consolidations, and to take no action which
would cause the Consolidations not, to qualify as a pooling of interests for
accounting purposes or as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code for federal income tax purposes.
Section 4.9. Pre-Closing Adjustments. Sunbelt agrees that prior
to December 31, 1997 it will (i) increase its reserve for loan losses by an
additional amount of $300,000 and (ii) adjust the retirement accrual fee for
Mr. B. J. Williams to an amount which is $100,000 less than the amount
provided in the minutes of the February 28, 1991 meeting of Sunbelt's Directors
Review and Advisory Guidance Committee
V. COVENANTS OF BANCSHARES, DELAWARE-COMPANY
AND PRIME
Bancshares, Delaware-Company and Prime covenant and agree with Sunbelt
as follows:
Section 5.1. Best Efforts. If required, Prime and New Bank will,
as soon as practicable, present for the approval of their respective
shareholders, this Agreement and the transactions contemplated thereby.
Bancshares, Delaware-Company and Prime will take all reasonable action to aid
and assist in the consummation of the Consolidations and the transactions
contemplated hereby, and will use their best efforts to take or cause to be
taken all other actions necessary, proper or advisable to consummate the
transactions contemplated by this Agreement, including such actions which are
necessary, proper or advisable in connection with filing applications with, or
obtaining approvals from, all regulatory authorities having jurisdiction over
the transactions contemplated by this Agreement.
Section 5.2. Information for Applications and Proxy Solicitation.
To the extent permitted by law, Bancshares will furnish Sunbelt with all
information concerning Bancshares, Delaware-Company and Prime required for
inclusion in (a) any application, statement or document to be made or filed by
Sunbelt with any federal or state regulatory or supervisory authority in
connection with the transactions contemplated by this Agreement
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during the pendency of this Agreement and (b) any proxy materials to be
furnished to the shareholders of Sunbelt in connection with their consideration
of the Consolidations. Bancshares, Delaware-Company and Prime represent and
warrant that all information so furnished for such statements and applications
shall, to the best of its knowledge, be true and correct in all material
respects without omission of any material fact required to be stated to make
the information not misleading. Bancshares will indemnify and hold harmless
Sunbelt from and against any and all losses, claims, damages, expenses or
liabilities to which Sunbelt may become subject under applicable laws, rules
and regulations and will reimburse Sunbelt for any legal or other expenses
reasonably incurred by Sunbelt in connection with investigating or defending
any actions whether or not resulting in liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are based on
any untrue statement or alleged untrue statement of a material fact contained
in any such application or proxy materials or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to
be stated therein, or necessary in order to make the statements therein not
misleading, but only insofar as such statement or omission was made in reliance
upon and in conformity with information expressly furnished by Bancshares
expressly for use therein. Bancshares agrees, upon the request of Sunbelt, to
furnish to Sunbelt a written letter or statement confirming to the best of its
knowledge the accuracy of the information with respect to Bancshares,
Delaware-Company and Prime contained in any report or other application or
statement referred to in Sections 5.1 or 5.2 of this Agreement, and confirming
that the information with respect to Bancshares and Prime contained in such
document or draft was furnished expressly for use therein or, if such is not
the case, indicating the inaccuracies contained in such document or indicating
the information not furnished by Bancshares expressly for use therein.
Section 5.3. Employee Benefit Plans. Bancshares agrees that the
employees of Sunbelt who are bona fide participants in any of Sunbelt's health
and welfare plans and who are not terminated by Prime will be entitled to
participate in all employee health and welfare plans maintained for employees
of Bancshares and Prime in accordance with the terms of such plans. All
employees of Sunbelt retained by Bancshares or Prime will receive credit for
their prior service with Sunbelt with respect to such plans.
Section 5.4. Confidentiality. Bancshares, Delaware-Company and
Prime shall not, before or after the consummation or termination of this
Agreement, directly or indirectly disclose any confidential information
acquired from Sunbelt to any person, firm, corporation, association or other
entity for any reason or purpose whatsoever, other than in connection with the
regulatory notice and application process or, after termination of this
Agreement pursuant to Section 7.1 hereof, use such information for its own
purposes or for the benefit of any person, firm, corporation, association, or
other entity under any circumstances.
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Section 5.5. Registration Statement. As promptly as practicable
after the execution of this Agreement, Bancshares will file with the SEC the
Registration Statement on Form S-4 under the Securities Act of 1933, as amended
("Securities Act") and any other applicable documents, relating to the shares
of Bancshares Common Stock to be delivered to the shareholders of Sunbelt
pursuant to this Agreement, and will use its best efforts to cause the
Registration Statement to become effective. At the time the Registration
Statement becomes effective, the Registration Statement will comply in all
material respects with the provisions of the Securities Act and the published
rules and regulations thereunder, and will not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not false or misleading, and at the
time of mailing thereof to Sunbelt's shareholders, at the time of the Sunbelt
shareholders' meeting held to approve the Consolidation and at the Effective
Date of the Consolidation, the prospectus included as part of the Registration
Statement, as amended or supplemented by any amendment or supplement filed by
Bancshares (the "Prospectus"), will not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not false or misleading; provided, however, that none of the
provisions of this subparagraph shall apply to statements in or omissions from
the Registration Statement or the Prospectus made in reliance upon and in
conformity with information furnished by Sunbelt for use in the Registration
Statement or the Prospectus.
Section 5.6. NASDAQ Listing. Bancshares will file all documents
required to be filed to list the Bancshares Common Stock to be issued pursuant
to the Agreement on the NASDAQ National Market and use its best efforts to
effect said listing.
Section 5.7. Issuance of Bancshares Common Stock. The shares of
Bancshares Common Stock to be issued by Bancshares to the shareholders of
Sunbelt pursuant to this Agreement will, on the issuance and delivery to such
shareholders pursuant to this Agreement, be duly authorized, validly issued,
fully paid and nonassessable. The shares of Bancshares Common Stock to be
delivered to the shareholders of Sunbelt pursuant to this Agreement are and
will be free of any preemptive rights of the shareholders of Bancshares.
Section 5.8. Delivery of Reports. From the date hereof to the
Effective Date, Bancshares shall deliver to Sunbelt, when reasonably available,
Bancshares' Quarterly Reports on Form 10-Q and Bancshares' Annual Reports on
Form 10-K as filed with the SEC under the Securities Exchange Act and at
Closing will provide written notice of any additional disclosure occurring
after the date of Bancshares' most recent Securities Exchange Act filing.
Section 5.9. Rule 144 Compliance. From and after the Effective
Date of the Merger, Bancshares shall file all reports with the SEC necessary to
permit the shareholders of Sunbelt who may be deemed "underwriters" (within the
meaning of the Rule 145 under
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the Securities Act) of Sunbelt Common Stock to sell Bancshares Common Stock
received by them in connection with the Consolidation pursuant to Rules 144 and
145(d) under the Securities Act if they would otherwise be so entitled;
provided, however, that Bancshares is otherwise obligated to file such reports
with the SEC.
Section 5.10. Publication of Financial Condition. Bancshares will
publish the results of thirty (30) days of combined operations of Bancshares
and Sunbelt as soon as practicable after the Effective Date.
Section 5.11. Employee Protection.
(a) To the extent that Bancshares, within the 180-day
period commencing on the Effective Date, shall terminate, for any reason other
than "good cause" as defined below, any of the employees set forth in Schedule
5.11 without providing at least four (4) months prior notice, Bancshares shall
be required to pay such employee a lump sum severance payment, based on such
employee's base monthly 1997 salary, equal to the difference between four (4)
months and the actual termination notice time period given.
(b) To the extent that Bancshares, within the 90-day
period commencing on the Effective Date, shall terminate, for any reason other
than "good cause" as defined below, any other employee of Sunbelt without
providing at least two (2) months prior notice, Bancshares shall be required to
pay such employee a lump sum severance payment, based on such employee's base
monthly 1997 salary, equal to the difference between two (2) months and the
actual termination notice time period given.
(c) For purposes of this section, good cause shall mean:
(i) a willful and repeated failure to perform duties as may be reasonably
assigned by Prime, (ii) willful and repeated violation of Prime's written
policies and procedures, (iii) habitual use of alcohol or drugs that prevents
the employee from performing duties reasonably assigned by Prime, (iv)
conviction of a felony, or conviction of a misdemeanor involving active and
willful fraud or moral turpitude, or (v) acts of gross disloyalty to Prime,
including but not limited to theft, embezzlement or intentional unauthorized
disclosure of confidential information. Any employee who voluntarily
terminates his or her employment shall not be entitled to any severance
payments.
VI. CLOSING
Section 6.1. Closing. Subject to the other provisions of this
Section VI, on a mutually acceptable date ("Closing Date") as soon as
practicable within a thirty-day period commencing with the latest of the
following dates:
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(a) the receipt of shareholder approval and the last
approval from any requisite regulatory or supervisory authority and the
expiration of any statutory or regulatory waiting period which is necessary to
effect the Consolidations; or
(b) if the transactions contemplated by this Agreement
are being contested in any legal proceeding and Bancshares or Sunbelt, pursuant
to Section 10.1 herein, have elected to contest the same, then the date that
such proceeding has been brought to a conclusion favorable, in the judgment of
each of Bancshares and Sunbelt, to the consummation of the transactions
contemplated herein, or such prior date as each of Bancshares and Sunbelt shall
elect whether or not such proceeding has been brought to a conclusion.
A meeting ("Closing") will take place at which the parties to this
Agreement will exchange certificates, opinions, letters and other documents in
order to determine whether any condition exists which would permit the parties
hereto to terminate this Agreement. If no such condition then exists or if no
party elects to exercise any right it may have to terminate this Agreement,
then and thereupon the appropriate parties shall execute such documents and
instruments as may be necessary or appropriate to effect the transactions
contemplated by this Agreement.
The Closing shall take place at the offices of Bracewell & Patterson,
L.L.P. in Houston, Texas, or at such other place to which the parties hereto
may mutually agree.
Section 6.2. Effective Date. Subject to the terms and upon
satisfaction of all requirements of law and the conditions specified in this
Agreement including, among other conditions, the receipt of any requisite
approvals of the shareholders of Sunbelt and the regulatory approvals of the
OCC, the Federal Reserve Board, FDIC, Banking Department and any other federal
or state regulatory agency whose approval must be received in order to
consummate the Consolidations, the Final Consolidation shall become effective,
and the effective date of the Final Consolidation shall occur, at the date and
time specified in the certificate approving the Final Consolidation to be
issued by the OCC ("Effective Date"). It is anticipated by Bancshares and
Sunbelt that the Closing and the Effective Date will occur on the same day.
VII. TERMINATION
Section 7.1. Termination.
(a) This Agreement may be terminated by action of the
Board of Directors of either Bancshares, Delaware-Company, Prime or Sunbelt at
any time prior to the Effective Date if:
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(i) any court of competent jurisdiction in the
United States or other United States (federal or state)
governmental body shall have issued an order, decree or ruling
or taken any other action restraining, enjoining or otherwise
prohibiting the Consolidations and such order, decree, ruling
or other action shall have been final and non-appealable;
(ii) any of the transactions contemplated by this
Agreement are disapproved by any regulatory authority or other
person whose approval is required to consummate any of such
transactions; or
(iii) the Consolidations shall not have become
effective on or before June 30, 1998 or such later date as
shall have been approved in writing by the Boards of Directors
of Bancshares, Prime and Sunbelt; provided, however, that the
right to terminate under this Section 7.1(a)(iii) shall not be
available to any party whose failure to fulfill any material
obligation under this Agreement has been the cause of, or has
resulted in, the failure of the Consolidations to become
effective on or before such date.
(b) This Agreement may be terminated at any time prior to
the Effective Date by the Board of Directors of Sunbelt if (i) Bancshares,
Delaware-Company or Prime shall fail to comply in any material respect with any
of its covenants or agreements contained in this Agreement, or if any of the
representations or warranties of Bancshares, Delaware-Company or Prime
contained herein shall be defective in any material respect or (ii) there shall
have been any change after September 30, 1997 in the assets, properties,
business or financial condition of Bancshares, Delaware-Company or Prime which
individually or in the aggregate have materially and adversely affected the
ability of Bancshares to pay the Consolidation Price set forth in Section 1.9
hereof. In the event the Board of Directors of Sunbelt desires to terminate
this Agreement as provided above, such Board of Directors must notify
Bancshares in writing of its intent to terminate stating the reason therefor.
Bancshares shall have fifteen days from the receipt of such notice to cure, or
cause Delaware-Company or Prime to cure, the alleged breach or inaccuracy,
subject to the approval of Sunbelt (which approval shall not be unreasonably
delayed or withheld).
(c) This Agreement may be terminated any time prior to
the Effective Date by action of the Board of Directors of Bancshares,
Delaware-Company or Prime if (i) Sunbelt shall fail to comply in any material
respect with any of its covenants or agreements contained in this Agreement, or
if any of the representations or warranties of Sunbelt contained herein shall
be defective in any material respect, (ii) there shall have been any change
after September 30, 1997, in the assets, properties, business or financial
condition of Sunbelt which individually or in the aggregate have materially and
adversely affected the financial condition, results of operation or business of
Sunbelt, or (iii) the Board
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of Directors of Bancshares reasonably concludes, in its sole discretion, that
either Bancshares, Delaware-Company, Prime or New Bank will be unable to obtain
any regulatory approval required in order to consummate the Consolidation or
any such approval is accompanied by terms or conditions unacceptable to
Bancshares or Prime. In the event the Board of Directors of Bancshares desires
to terminate this Agreement because of an alleged breach, inaccuracy or change
as provided in (i) or (ii) above, the Board of Directors must notify Sunbelt in
writing of its intent to terminate stating the cause therefor. Sunbelt shall
have fifteen days from the receipt of such notice to cure the alleged breach,
inaccuracy or change, subject to the approval of Bancshares (which approval
shall not be unreasonably delayed or withheld).
(d) This Agreement may be terminated at any time prior to
the Effective Date with the mutual written consent of Bancshares,
Delaware-Company, Prime and Sunbelt and the approval of such action by their
respective Boards of Directors.
(e) By the Board of Directors of Sunbelt, if the Average
Price (as set forth in Section 1.10 of this Agreement) is $17.50 or less,
provided that, if Sunbelt elects to exercise its termination right pursuant to
this Section 7.1(e), it shall give prompt written notice to Bancshares within
two (2) business days after the calculation of the Average Price, and within
the two (2) business day period commencing with the receipt of such notice,
Bancshares shall have the option of increasing the aggregate number of shares
of Bancshares Common Stock into which shares of Sunbelt Common Stock will be
converted into on the Effective Date by (i) subtracting the Average Price
multiplied by 920,000 from $16,100,000 and (ii) dividing the difference by the
Average Price.
(f) This Agreement may be terminated by Bancshares on or
before January 15, 1998 if the Schedules to be delivered by Sunbelt on or
before January 12, 1998 pursuant to Article II of this Agreement are not
acceptable to Bancshares.
Section 7.2. Effect of Termination. In the event of termination
of this Agreement and the abandonment of the Consolidation without breach by
any party hereto, this Agreement shall become void and have no effect, without
any liability on the part of any party or its directors, officers or
shareholders. Nothing contained in this Section 7.2 shall relieve any party
hereto of any liability for a breach of this Agreement.
VIII. CONDITIONS TO OBLIGATIONS OF BANCSHARES,
DELAWARE-COMPANY AND PRIME
The obligations of Bancshares, Delaware-Company and Prime under this
Agreement are subject to the satisfaction, at or prior to the Closing Date of
the following conditions, which may be waived by Bancshares, Delaware-Company
and Prime in their sole discretion:
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Section 8.1. Compliance with Representations and Covenants. The
representations and warranties made by Sunbelt in this Agreement must have been
true in all material respects when made and shall be true in all material
respects as of the Closing Date with the same force and effect as if such
representations and warranties were made at and as of the Closing Date, and
Sunbelt shall have performed or complied with all covenants and conditions
required by this Agreement to be performed and complied with prior to or at the
Closing. Bancshares shall have been furnished with a certificate, executed by
an appropriate representative of Sunbelt and dated as of the Closing Date, to
the foregoing effect.
Section 8.2. Material Adverse Change. Prior to the Closing Date,
there shall not have occurred any material adverse change in the financial
condition, business or operations of Sunbelt, nor shall any event have occurred
which, with the lapse of time, will cause or create any material adverse change
in the financial condition, business or operations of Sunbelt in the reasonable
judgment of the Board of Directors of Bancshares. Bancshares shall have
received a certificate to the foregoing effect executed by an appropriate
representative of Sunbelt and dated as of the Closing Date.
Section 8.3. Legal Opinion. Bancshares shall have received an
opinion of counsel to Sunbelt, dated as of the Closing Date, in form and
substance satisfactory to counsel for Bancshares, to the effect set forth in
Schedule 8.3 hereof.
Section 8.4. Releases. The directors and officers shall have
delivered to Bancshares an instrument in the form of Exhibit "E" attached
hereto dated the Effective Date releasing Bancshares, Delaware-Company and
Prime from any and all claims of such directors (except as to their deposits
and accounts and any rights of indemnification pursuant to Sunbelt's Articles
of Association), and the directors of Sunbelt shall have delivered to
Bancshares their resignations as directors of Sunbelt.
Section 8.5. Accounting Letters. Bancshares shall have received a
letter from Grant Thornton LLP, dated as of the Effective Date, to the effect
that the Consolidations will qualify for pooling of interests accounting
treatment if consummated in accordance with the Agreement, and shall have
received a letter from Sunbelt's accountants, Harper & Pearson, to the effect
that Harper & Pearson knows of no reason why the Consolidation will not qualify
for pooling of interests accounting treatment if consummated in accordance with
the Agreement.
Section 8.6. Dissenters' Rights. The holders of no more than 5%
of the issued and outstanding Sunbelt Common Stock shall have demanded or shall
be entitled to demand payment of the fair value of their shares as dissenting
shareholders.
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Section 8.7. Tax Opinion. Bancshares shall have received a copy
of the tax opinion described in Section 9.5 of this Agreement.
IX. CONDITIONS TO OBLIGATIONS OF SUNBELT
The obligations of Sunbelt under this Agreement are subject to the
satisfaction, at or prior to the Closing Date, of the following conditions,
which may be waived by Sunbelt in its sole discretion:
Section 9.1. Compliance with Representations and Covenants. The
representations and warranties made by Bancshares, Delaware-Company and Prime
in this Agreement must have been true in all materials respects when made and
shall be true in all material respects as of the Closing Date with the same
force and effect as if such representations and warranties were made at and as
of the Closing Date, and Bancshares, Delaware-Company and Prime shall have
performed and complied in all material respects with all covenants and
conditions required by this Agreement to be performed or complied with by
Bancshares, Delaware-Company and Prime prior to or at the Closing. Sunbelt
shall be furnished with a certificate, executed by appropriate representatives
of Bancshares, Delaware-Company and Prime and dated as of the Closing Date, to
the foregoing effect.
Section 9.2. Material Adverse Change. Prior to the Closing Date,
there shall not have occurred any material adverse change in the financial
condition, business or operations of Bancshares, Delaware-Company or Prime, nor
shall any event have occurred which, with the lapse of time, will cause or
create any material adverse change in the financial condition, business or
operations of Bancshares, Delaware-Company or Prime which would materially and
adversely affect the ability of Bancshares to pay the Consolidation Price set
forth in Section 1.9.
Section 9.3. Legal Opinion. Sunbelt shall have received an
opinion of counsel to Bancshares, dated as of the Closing Date and in form and
substance satisfactory to counsel for Sunbelt, to the effect set forth in
Schedule 9.3 hereof.
Section 9.4. Releases. Sunbelt shall have delivered to the
directors of Sunbelt an instrument in the form of Exhibit "F" attached hereto
dated the Effective Date releasing the directors from any and all claims of
Sunbelt (except as to indebtedness and other contractual liabilities);
provided, however, that such releases shall not release an action against such
directors by Bancshares or Prime in connection with the transactions
contemplated by this Agreement.
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Section 9.5. Tax Opinion. Sunbelt shall have received an opinion
of counsel satisfactory to Sunbelt that the Consolidations will result in a
tax-free exchange to Sunbelt shareholders under Section 368(a) of the Internal
Revenue Code.
X. CONDITIONS TO RESPECTIVE OBLIGATIONS OF BANCSHARES,
DELAWARE-COMPANY, PRIME AND SUNBELT
The respective obligations of Bancshares, Delaware-Company, Prime, and
Sunbelt under this Agreement are subject to the satisfaction of the following
conditions which may be waived by Bancshares, Delaware-Company, Prime, and
Sunbelt, respectively, in their sole discretion:
Section 10.1. Government Approvals. Bancshares and Sunbelt shall
have received the approval, or waiver of approval, of the transactions
contemplated by this Agreement from all necessary governmental agencies and
authorities, including the OCC and any other regulatory agency whose approval
must be received in order to consummate the Consolidations, which approvals
shall not impose any restrictions on the operations of the Continuing Bank
which are unacceptable to Bancshares, and such approvals and the transactions
contemplated hereby shall not have been contested by any federal or state
governmental authority or any third party (except shareholders asserting
dissenters' rights) by formal proceeding. It is understood that, if any such
contest is brought by formal proceeding, Bancshares or Sunbelt may, but shall
not be obligated to, answer and defend such contest or otherwise pursue the
Consolidations over such objection.
Section 10.2. Shareholder Approval. The shareholders of Sunbelt,
the shareholder of New Bank, and Delaware-Company as the sole shareholder of
Prime, shall have approved this Agreement and the transactions contemplated by
this Agreement and the holders of no more than 5% of the Sunbelt Common Stock
shall have exercised their dissenters' rights in accordance with the applicable
laws, rules and regulations as provided in Section 1.10 of this Agreement.
Section 10.3. Registration of Bancshares Common Stock. The
Registration Statement covering the Bancshares Common Stock to be issued in the
Consolidation shall be effective under the Securities Act and any applicable
state securities or "blue sky" acts and no stop orders suspending the
effectiveness of such registration statement shall be in effect.
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XI. MISCELLANEOUS
Section 11.1. Non-Survival of Representations and Warranties. The
representations and warranties of Bancshares, Delaware-Company, Prime and
Sunbelt contained in this Agreement shall terminate at the Closing Date.
Section 11.2. Amendments. This Agreement may be amended only by a
writing signed by Bancshares, Delaware-Company, Prime and Sunbelt at any time
prior to the Closing Date with respect to any of the terms contained herein;
provided, however, that the Consolidation Price to be received by the
shareholders of Sunbelt pursuant to this Agreement shall not be decreased
subsequent to the approval of the transactions contemplated by the Agreement
without the further approval by such shareholders.
Section 11.3. Expenses.
(a) Whether or not the transactions provided for herein
are consummated, each party to this Agreement will pay its respective expenses
incurred in connection with the preparation and performance of its obligations
under this Agreement. Similarly, each party agrees to indemnify the other
parties against any cost, expense or liability (including reasonable attorneys'
fees) in respect of any claim made by any party for a broker's or finder's fee
in connection with this transaction other than one based on communications
between the party and the claimant seeking indemnification. Bancshares and
Sunbelt represent and warrant to each other that neither of them, nor any of
their agents, employees or representatives, has incurred any liability for any
commissions or brokerage fees in connection with this transaction.
(b) Sunbelt shall pay Bancshares, and Bancshares shall be
entitled to payment of, a fee equal to the aggregate consideration paid or to
be paid to shareholders of Sunbelt which exceeds the aggregate Consolidation
Price set forth in Section 1.9 hereof plus all out of pocket expenses incurred
by Bancshares or Prime in connection with the transactions set forth in this
Agreement (the "Fee") upon the occurrence of a Purchase Event (as defined
herein) so long as the Purchase Event occurs prior to a Fee Termination Event
(as defined herein). Such payment shall be made to Bancshares in immediately
available funds within five business days after the occurrence of a Purchase
Event. In the event that the consideration to be paid from the transaction
giving rise to the Purchase Event is other than cash or publicly traded
securities, the Fee shall be paid as determined in Section 11.3(e) hereof. A
Fee Termination Event shall be the first to occur of the following: (i) the
Effective Date, (ii) 18 months following the first occurrence of a Purchase
Event (as defined herein), or (iii) termination of this Agreement in accordance
with the terms hereof prior to the occurrence of a Purchase Event (other than a
termination of this Agreement by Bancshares
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hereof as a result of a willful material breach of any representation,
warranty, covenant or agreement of Sunbelt).
(c) The term "Purchase Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Sunbelt, without having received Bancshares'
prior written consent, shall have entered into an agreement to
engage in an Acquisition Transaction (as defined below) with
any person (the term "person" for purposes of this Agreement
having the meaning assigned thereto in Section 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange
Act") and the rules and regulations thereunder) other than
Bancshares or any affiliate of Bancshares (the term
"affiliate" for purposes of this Agreement having the meaning
assigned thereto in Rule 405 under the Securities Act) or the
Board of Directors of Sunbelt shall have recommended that the
shareholders of Sunbelt approve or accept any Acquisition
Transaction with any person other than Bancshares or any
affiliate of Bancshares. For purposes of this Agreement,
"Acquisition Transaction" shall mean (x) a merger or
consolidation, or any similar transaction, involving Sunbelt,
(y) a purchase, lease or other acquisition of all or
substantially all of the assets of Sunbelt, or (z) a sale of
authorized but unissued securities representing 15% or more of
the voting power of Sunbelt.
(ii) Any person other than Bancshares or any
affiliate of Bancshares, other than in connection with a
transaction to which Bancshares has given its prior written
consent, shall have consummated any proposed transaction or
series of transactions involving or affecting Sunbelt or any
securities or assets of Sunbelt that results in an acquisition
of control of Sunbelt within the meaning of 12 USCA Section
1817(j) or the regulations promulgated thereunder; or
(iii) After a bona fide proposal is made by any
person other than Bancshares or any affiliate of Bancshares to
Sunbelt or its shareholders to engage in an Acquisition
Transaction, Sunbelt shall have breached any covenant or
obligation contained in this Agreement and such breach would
entitle Bancshares to terminate this Agreement, a meeting of
the shareholders to vote on this Agreement shall not have been
held or shall have been canceled prior to termination of this
Agreement or the Board of Directors of Sunbelt shall have
withdrawn or modified in a manner adverse to Bancshares the
recommendation of the Board of Directors of Sunbelt with
respect to this Agreement.
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(d) Sunbelt shall promptly give written notice to
Bancshares of the occurrence of a Purchase Event known to Sunbelt; however, the
giving of such notice by Sunbelt shall not be a condition to the right of
Bancshares to obtain the Fee.
(e) If the consideration to be offered, paid or received
pursuant to a Purchase Event described in Section 11.3(b) hereof shall be other
than in cash or publicly traded securities, the value of such consideration
shall be determined in good faith by an independent nationally recognized
investment banking firm selected by Bancshares and reasonably acceptable to
Sunbelt, which determination shall be conclusive for all purposes of this
Agreement.
(f) The payment of the Fee shall be in lieu of
Bancshares, Delaware-Company or Prime seeking any other relief or damages to
which it is otherwise entitled pursuant to this Agreement.
Section 11.4. Notices. Any notice given hereunder shall be in
writing and shall be delivered in person or mailed by first class mail, postage
prepaid or sent by facsimile, courier or personal delivery to the parties at
the following addresses unless by such notice a different address shall have
been designated:
If to Bancshares, Delaware-Company or Prime:
Prime Bancshares, Inc.
12200 Northwest Freeway
Houston, Texas 77092
Attention: Mr. Stuart D. Saunders
With a copy to:
Bracewell & Patterson, L.L.P.
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
Attention: Mr. William T. Luedke IV
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If to Sunbelt:
Sunbelt National Bank
1160 Dairy Ashford, Suite 100
P.O. Box 55869
Houston, Texas 77255
Attention: Mr. B. J. Williams
With a copy to:
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
3400 Texas Commerce Tower
600 Travis Street
Houston, Texas 77002
Attention: Mr. Donald E. Wood
All notices sent by mail as provided above shall be deemed delivered five (5)
days after deposit in the mail. All notices sent by facsimile or courier as
provided above shall be deemed delivered one day after being sent. All other
notices shall be deemed delivered when actually received. Any party to this
Agreement may change its address for the giving of notice specified above by
giving notice as herein provided.
Section 11.5. Controlling Law. All questions concerning the
validity, operation and interpretation of this Agreement and the performance of
the obligations imposed upon the parties hereunder shall be governed by the
laws of the State of Texas and, to the extent applicable, by the laws of the
United States of America.
Section 11.6. Headings. The headings and titles to the sections of
this Agreement are inserted for convenience only and shall not be deemed a part
hereof or affect the construction or interpretation of any provision hereof.
Section 11.7. Modifications or Waiver. No termination,
cancellation, modification, amendment, deletion, addition or other change in
this Agreement, or any provision hereof, or waiver of any right or remedy
herein provided, shall be effective for any purpose unless specifically set
forth in a writing signed by the party or parties to be bound thereby. The
waiver of any right or remedy in respect to any occurrence or event on one
occasion shall not be deemed a waiver of such right or remedy in respect to
such occurrence or event on any other occasion.
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Section 11.8. Severability. Any provision hereof prohibited by or
unlawful or unenforceable under any applicable law or any jurisdiction shall as
to such jurisdiction be ineffective, without affecting any other provision of
this Agreement, or shall be deemed to be severed or modified to conform with
such law, and the remaining provisions of this Agreement shall remain in force,
provided that the purpose of the Agreement can be effected. To the fullest
extent, however, that the provisions of such applicable law may be waived, they
are hereby waived, to the end that this Agreement be deemed to be a valid and
binding agreement enforceable in accordance with its terms.
Section 11.9. Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, but shall not be assigned by any party without the prior written
consent of the other parties.
Section 11.10. Consolidation of Agreements. All understandings and
agreements heretofore made between the parties hereto are merged in this
Agreement which (together with any agreements executed by the parties hereto
contemporaneously with or subsequent to the execution of this Agreement) shall
be the sole expression of the agreement of the parties respecting the
Consolidations.
Section 11.11. Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original and all of
which shall be deemed to constitute one and the same instrument.
Section 11.12. Binding on Successors. Except as otherwise provided
herein, this Agreement shall be binding upon, and shall inure to the benefit
of, the parties and their respective heirs, executors, trustees,
administrators, guardians, successors and assigns.
Section 11.13. Gender. Any pronoun used herein shall refer to any
gender, either masculine, feminine or neuter, as the context requires.
Section 11.14. Disclosures. Any disclosure made in any document
delivered pursuant to this Agreement or referred to or described in writing in
any section of this Agreement or any schedule attached hereto shall be deemed
to be disclosure for purposes of any section herein or schedule hereto.
Section 11.15. Publicity. Subject to written advice of counsel with
respect to legal requirements relating to public disclosure of matters related
to the transactions contemplated by this Agreement, the timing and content of
any announcements, press releases or other public statements (whether written
or oral) concerning this Agreement or the Consolidation will occur upon, and be
determined by, the mutual consent of Bancshares and Sunbelt;
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provided, however, that this shall not include notices required to be published
pursuant to the regulatory application process.
Section 11.16. Entire Agreement. This Agreement contains the entire
agreement among Bancshares, Delaware-Company, Prime and Sunbelt with respect
to the Consolidation.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
PRIME BANCSHARES, INC.
By:
--------------------------------
ATTEST:
By:
-------------------------------
IBID, INC.
By:
--------------------------------
ATTEST:
By:
-------------------------------
PRIME BANK
By:
--------------------------------
ATTEST:
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By:
-------------------------------
SUNBELT NATIONAL BANK
By:
--------------------------------
ATTEST:
By:
-------------------------------
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<PAGE> 209
EXHIBIT "A"
PLAN OF CONSOLIDATION
BETWEEN NEW PRIME BANK
AND SUNBELT NATIONAL BANK
This PLAN OF CONSOLIDATION (the "Plan") is dated as of the ____ day of
_____________, 1997, by and between Sunbelt National Bank, a national banking
association located in Houston, Texas ("Sunbelt") and New Prime Bank ("New
Bank"), a Texas interim banking association formed as a wholly-owned subsidiary
of Prime Bancshares, Inc. ("Bancshares") solely to facilitate the transactions
contemplated by the Agreement and Plan of Reorganization, defined below.
Sunbelt and New Bank are hereinafter sometimes collectively referred to as the
"Consolidating Institutions."
This Plan of Consolidation is being entered into pursuant to the
Agreement and Plan of Reorganization dated as of November __, 1997 (the
"Agreement") by and among Bancshares, IBID, Inc., Prime Bank, and Sunbelt.
In consideration of the premises, and the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS
Except as otherwise provided herein, the capitalized terms set forth
below shall have the following meanings:
Section 1.1. "Effective Date" shall mean the date at which the
consolidation contemplated by this Plan of Consolidation becomes effective as
determined by the certificate approving the Consolidation to be issued by the
Office of the Comptroller of the Currency (the "OCC").
Section 1.2. "New Bank Common Stock" shall mean the common stock,
par value $1.00 per share, of New Bank owned by Bancshares.
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Section 1.3. "Sunbelt Common Stock" shall mean the common stock,
par value $10.00 per share, of Sunbelt.
Section 1.4. "Initial Consolidation" shall refer to the
consolidation of New Bank with and into Sunbelt as provided in Section 2.1 of
this Plan.
Section 1.5. "First Surviving Bank" shall refer to Sunbelt as the
institution surviving the Initial Consolidation.
ARTICLE 2.
TERMS OF THE CONSOLIDATION
Section 2.1. Initial Consolidation. Subject to the terms and
conditions set forth in the Agreement, on the Effective Date, New Bank shall
be consolidated with and into Sunbelt, with Sunbelt as the First Surviving
Bank, under the charter and Articles of Association of Sunbelt, as determined
by the OCC, and each of the outstanding shares of common stock of New Bank
shall and without any action on the part of Bancshares be canceled and be
converted into shares of common stock of the First Surviving Bank. The shares
of common stock of the First Surviving Bank into which such New Bank common
stock is converted shall represent ownership of 100% of the issued and
outstanding capital stock of the First Surviving Bank, all of which shall be
owned by Bancshares.
Section 2.2. Articles of Association, Bylaws and Facilities of
First Surviving Bank. On the Effective Date and until thereafter amended in
accordance with law, the Articles of Association of the First Surviving Bank
shall be the Articles of Association of Sunbelt as in effect on the Effective
Date. Until altered, amended or repealed as provided therein and in the
Articles of Association of the First Surviving Bank, the Bylaws of the First
Surviving Bank shall be the Bylaws of Sunbelt as in effect on the Effective
Date. The main office of the First Surviving Bank shall be the main office of
Sunbelt as of the Effective Date, and all corporate acts, plans, policies,
contracts, approvals and authorizations of Sunbelt and New Bank and their
respective shareholders, boards of directors, committees elected or appointed
thereby, officers and agents, which were valid and effective immediately prior
to the Effective Date, shall be taken for all purposes as the acts, plans,
policies, contracts, approvals and authorization of the First Surviving Bank
and shall be as effective and binding thereon
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as the same were with respect to Sunbelt and New Bank respectively, as of the
Effective Date.
Section 2.3. Effect of Initial Consolidation. On the Effective
Date of the Initial Consolidation, the corporate existence of Sunbelt and New
Bank shall be consolidated into and continued in the First Surviving Bank, and
the First Surviving Bank shall be deemed to be a continuation in entity and
identity of Sunbelt and New Bank. All rights, franchises and interests of
Sunbelt and New Bank, respectively, in and to any type of property and choses
in action shall be transferred to and vested in the First Surviving Bank by
virtue of the Initial Consolidation without any deed or other transfer. First
Surviving Bank, without any order or other action on the part of any court or
otherwise, shall hold and enjoy all rights of property, franchises and
interest, including appointments, designations and nominations, and all other
rights and interests as trustee, executor, administrator, transfer agent or
registrar of stocks and bonds, guardian of estates, assignee, receiver and
committee of estates and lunatics, and in every other fiduciary capacity, in
the same manner and to the same extent as such rights, franchises and interests
were held or enjoyed by Sunbelt and New Bank, respectively, as of the Effective
Date.
Section 2.4. Liabilities of the First Surviving Bank. On the
Effective Date, the First Surviving Bank shall be liable for all liabilities of
Sunbelt and New Bank. All deposits, debts, liabilities and obligations of
Sunbelt and of New Bank, respectively, accrued, absolute, contingent or
otherwise, and whether or not reflected or reserved against on balance sheets,
books of account or records of Sunbelt or New Bank, as the case may be, shall
be those of the First Surviving Bank and shall not be released or impaired by
the Initial Consolidation. All rights of creditors and other obligees and all
liens on property of either Sunbelt or New Bank shall be preserved unimpaired.
ARTICLE 3.
CONVERSION OF SHARES
Section 3.1. Conversion of Sunbelt Common Stock. On the Effective
Date, each share of Sunbelt Common Stock issued and outstanding immediately
prior to the Effective Date (other than Dissenting Shares as hereinafter
defined) shall, by virtue of the Consolidation and without any action on the
part of the holder thereof, be converted into the
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right to receive the Consolidation Consideration set forth in Section 1.9 of
the Agreement (the "Purchase Price").
Section 3.2. Exchange of Shares. The exchange of Sunbelt Common
Stock for the Consolidation Consideration shall take place as set forth in
Section 1.11 of the Agreement. Each shareholder of Sunbelt shall be entitled
to receive payment for his shares only upon surrender of the certificates
representing his shares of Sunbelt Common Stock or after providing an
appropriate Affidavit of Lost Certificate and Indemnity Agreement and/or a bond
as may be required in each case by Bancshares. Until so surrendered, each
Sunbelt Common Stock certificate will be deemed for all corporate purposes to
represent and evidence solely the right to receive the amount of the Purchase
Price to be paid therefor pursuant to the Agreement without interest thereon.
Section 3.3. Dissenting Shares. Each share of Sunbelt Common
Stock issued and outstanding immediately prior to the Effective Date, the
holder of which has not voted in favor of the Initial Consolidation and who has
properly perfected his dissenters' rights of appraisal by following the
procedures set forth in the National Bank Act, is referred to herein as a
"Dissenting Share." Dissenting Shares owned by each holder thereof who has not
failed to perfect his dissenter's rights, shall not be converted into or
represent the right to receive the Purchase Price pursuant to Section 3.3
hereof and shall be entitled only to such rights as are available to such
holder pursuant to the applicable provisions of the National Bank Act. Each
holder of Dissenting Shares shall be entitled to receive the value of such
Dissenting Shares held by him in accordance with the applicable provisions of
the National Bank Act, provided such holder complies with the procedures
contemplated by and set forth in the applicable provisions of the National Bank
Act.
Section 3.4. New Bank Common Stock. On the Effective Date, the
shares of New Bank Common Stock issued and outstanding immediately prior to the
Effective Date shall be converted automatically and without any action on the
part of the holder thereof into shares of common stock of the First Surviving
Bank. The shares of common stock of the First Surviving Bank into which such
New Bank Common Stock are converted shall represent ownership of 100% of the
issued and outstanding capital stock of the First Surviving Bank, all of which
shall be owned by Bancshares.
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ARTICLE 4.
MISCELLANEOUS
Section 4.1. Conditions Precedent. The respective obligations of
each party under this Plan shall be subject to the satisfaction, or waiver by
the party permitted to do so, of the conditions set forth in Articles VIII, IX
and X of the Agreement.
Section 4.2. Termination. This Plan shall be terminated upon the
termination of the Agreement in accordance with Article VII thereof; provided,
that any such termination of this Plan shall not relieve any party hereto from
liability on account of a breach by such party of any of the terms hereof or
thereof.
Section 4.3. Amendments. To the extent permitted by law, this
Plan may be amended by a subsequent writing signed by all of the parties hereto
upon the approval of the Board of Directors of each of the parties hereto.
Section 4.4. Successors. This Plan shall be binding on the
successors of New Bank and Sunbelt.
IN WITNESS WHEREOF, New Bank and Sunbelt have caused this Plan to be
executed by their duly authorized officers and their corporate seals to be
hereunto affixed as of the date first above written.
NEW PRIME BANK
Attest:
By:
- -------------------------------- -----------------------------------------
SUNBELT NATIONAL BANK
Attest:
By:
- -------------------------------- -----------------------------------------
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<PAGE> 214
EXHIBIT "B"
PLAN OF CONSOLIDATION
BETWEEN
SUNBELT NATIONAL BANK
AND
PRIME BANK
THIS PLAN OF CONSOLIDATION (the "Plan) is dated as of the ____ day of
___________, 1997, by and between Sunbelt National Bank, a national banking
association ("Sunbelt") and Prime Bank ("Prime").
W I T N E S S E T H:
WHEREAS, pursuant to the Agreement and Plan of Reorganization (the
"Agreement") dated as of November __, 1997, by and among Prime Bancshares
("Bancshares"), IBID, Inc., Prime and Sunbelt and the Plan of Consolidation,
dated as of _______________, 1997, by and between Sunbelt and New Prime Bank
("New Bank"), New Bank will consolidate with and into Sunbelt (the "Initial
Consolidation"), with the result that Sunbelt will become a wholly-owned
subsidiary of Bancshares;
WHEREAS, the Agreement provides that simultaneously with or as soon as
practicable after the Initial Consolidation, Sunbelt will be consolidated with
and into Prime;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Sunbelt and Prime hereby agree
that, subject to the terms and conditions hereinafter set forth, and in
accordance with all applicable laws and regulations, Sunbelt shall be
consolidated with and into Prime on the Effective Date (as hereinafter defined)
(the "Final Consolidation"). The parties hereto do hereby agree and covenant
as follows:
1. Conditions of Approval. The Final Consolidation shall not
become effective unless and until all terms and conditions to such
effectiveness contained in the Agreement, which conditions are incorporated
herein by reference, shall have been satisfied or waived.
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2. Identity of Resulting Bank. The resulting bank as a result of
the Final Consolidation (the "Continuing Bank") shall be Prime.
3. Articles of Association, Bylaws and Facilities of Continuing
Bank. On the Effective Date and until thereafter amended in accordance with
law, the Articles of Association of Continuing Bank shall be the Articles of
Association of Prime as in effect on the Effective Date. Until altered,
amended or repealed as therein provided and in the Articles of Association of
Continuing Bank, the Bylaws of Continuing Bank shall be the Bylaws of Prime as
in effect on the Effective Date. Unless and until changed by the Board of
Directors of Continuing Bank, the main office of Continuing Bank shall be the
main office of Prime as of the Effective Date. The established offices and
facilities of Sunbelt immediately prior to the Final Consolidation shall become
established offices and facilities of the Continuing Bank. Until thereafter
changed in accordance with the law or the Articles of Association or Bylaws of
Continuing Bank, all corporate acts, plans, policies, contracts, approvals and
authorizations of Sunbelt and Prime and their respective shareholders, boards
of directors, committees elected or appointed thereby, officers and agents,
which were valid and effective immediately prior to the Effective Date, shall
be taken for all purposes as the acts, plans, policies, contracts, approvals
and authorizations of Continuing Bank and shall be as effective and binding
thereon as the same were with respect to Sunbelt and Prime, respectively, as of
the Effective Date.
4. Effect of Final Consolidation. On the Effective Date, the
corporate existence of the Sunbelt and Prime shall, as provided by law, be
consolidated into and continued in Continuing Bank, and Continuing Bank shall
be deemed to be a continuation in entity and identity of Sunbelt and Prime.
All rights, franchises and interests of Sunbelt and Prime, respectively, in and
to any type of property and choses in action shall be transferred to and vested
in Continuing Bank by virtue of such Final Consolidation without any deed or
other transfer. Continuing Bank, without any order or other action on the part
of any court or otherwise, shall hold and enjoy all rights of property,
franchises and interest, including appointments, designations and nominations,
and all other rights and interests as trustee, executor, administrator,
transfer agent or registrar of stocks and bonds, guardian of estates, assignee,
receiver and committee of estates and lunatics, and in every other fiduciary
capacity, in the same manner and to the same extent as such rights, franchises,
and interests were held or enjoyed by Sunbelt and Prime, respectively, as of
the Effective Date.
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<PAGE> 216
5. Liabilities of Continuing Bank. On the Effective Date of the
Final Consolidation, Continuing Bank shall be liable for all liabilities of
Sunbelt and Prime. All deposits, debts, liabilities, obligations and contracts
of Sunbelt and of Prime, respectively, matured or unmatured, whether accrued,
absolute, contingent or otherwise, and whether or not reflected or reversed
against on balance sheets, books of account, or records of the Sunbelt or Prime
shall be those of Continuing Bank and shall not be released or impaired by the
Final Consolidation. All rights of creditors and other obligees and all liens
on property of either Sunbelt or Prime shall be preserved unimpaired subsequent
to the Final Consolidation.
6. Effective Date. The Consolidation shall become effective upon
the approval of the Articles of Consolidation regarding the Final Consolidation
by Texas Department of Banking. The term "Effective Date" shall mean the date
and time when the certificate approving the Consolidation is so issued. A
closing shall take place on or prior to the Effective Date following the
receipt of all necessary regulatory and governmental approvals and consents and
the expiration of all statutory waiting periods in respect thereof and the
satisfaction or waiver of the conditions to the consummation of the Final
Consolidation specified in Articles VIII, IX and X of the Agreement.
7. Cancellation of Stock. On the Effective Date, all of the
outstanding shares of capital stock of Sunbelt, all of which shares shall be
owned by Bancshares, shall be canceled and shall not be deemed to be
authorized, issued or outstanding for any purpose, and no cash, property,
rights or securities shall be delivered with respect to said shares.
8. Conditions Precedent. The respective obligations of each
party under this Plan shall be subject to the satisfaction, or waiver by the
party permitted to do so, of the conditions set forth in Articles VIII, IX and
X of the Agreement.
9. Termination. This Plan shall be terminated upon the
termination of the Agreement in accordance with Article VII thereof; provided,
that any such termination of this Plan shall not relieve any party hereto from
liability on account of a breach of such party of any of the terms hereof or
thereof.
10. Amendments. To the extent permitted by law, this Plan may be
amended by a subsequent writing signed by all of the parties hereto upon the
approval of the Board of Directors of each of the parties.
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11. Successors. This Plan shall be binding on the successors of
Sunbelt and Prime.
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<PAGE> 218
IN WITNESS WHEREOF, Sunbelt and Prime have caused this Plan to be
executed by their duly authorized officers as of the date first above written.
SUNBELT NATIONAL BANK
ATTEST:
By:
- ------------------------------------------- -----------------------------
PRIME BANK
ATTEST:
By:
- ------------------------------------------ -----------------------------
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<PAGE> 219
AFFILIATE AGREEMENT
This Affiliate Agreement (the "Agreement") is executed and delivered
this ____ day of January, 1998 by and between Prime Bancshares, Inc.
("Bancshares"), Sunbelt National Bank ("Sunbelt") and the undersigned
shareholder of Sunbelt (the "Shareholder").
WHEREAS, Bancshares and Sunbelt entered into an Agreement and Plan of
Reorganization dated December 30, 1997 ("Agreement") pursuant to which Sunbelt
will consolidate into an interim bank formed as a subsidiary of Bancshares
solely to facilitate the transactions contemplated by the Agreement, and
immediately thereafter, Sunbelt will consolidate into Prime Bank, a
wholly-owned subsidiary of Bancshares (collectively, the "Consolidations"); and
WHEREAS, Bancshares has required as a condition to entering into the
Agreement that Sunbelt and the Shareholder and each other affiliate of Sunbelt
(as defined under Rule 405 of the Rules and Regulations of the Securities and
Exchange Commission) deliver to Bancshares an agreement in substantially the
form hereof;
NOW, THEREFORE, in consideration of Bancshares' agreement to enter
into the Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned, intending to be
legally bound, hereby agree as follows:
1. The Shareholder agrees that he will not sell, pledge, transfer
or otherwise dispose of any shares of the Sunbelt common stock, par value
$10.00 per share ("Sunbelt Common Stock"), within 30 days prior to the
Effective Date (as defined in the Agreement). The Shareholder further agrees
that until the publication of financial results covering at least 30 days of
post-consolidation combined operations of Sunbelt and Bancshares, he will not
sell, pledge, transfer or otherwise dispose of any shares of common stock of
Bancshares (the "Bancshares Common Stock") to be acquired by him in the
Consolidation, except for pledges by the Shareholder of all or part of such
Shareholder's Bancshares Common Stock acquired in the Consolidation to secure
loans, provided the lender accepts any pledge of such Bancshares Common Stock
subject to the terms of this Agreement. The Shareholder further agrees that he
will not sell, pledge, transfer or otherwise dispose of any shares of the
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Bancshares Common Stock to be acquired by him in the Consolidation except in a
manner which is consistent with any additional requirements for Bancshares'
accounting for the Consolidation as a pooling of interest, including without
limitation any new requirements imposed by the applicable provisions of the
Securities Act of 1933, as amended ("Securities Act"), the Securities Exchange
Act of 1934 ("Exchange Act") and the respective rules and regulations
thereunder.
2. The Shareholder further acknowledges and agrees that any
distribution by the Shareholder of Bancshares Common Stock has not been
registered under the Securities Act and that shares of Bancshares Common Stock
received pursuant to the Consolidation can only be sold by the Shareholder (i)
following registration under the Securities Act, (ii) in conformity with the
requirements of Rule 145 promulgated by the Securities and Exchange Commission
under the Securities Act or (iii) to the extent some other exemption from
registration under the Securities Act might be available, and agrees not to
transfer any Bancshares Common Stock received by him in the Consolidation
except in compliance with the applicable provisions of the Securities Act, the
Exchange Act and the respective rules and regulations thereunder.
3. The Shareholder agrees that the shares of Bancshares Common
Stock to be issued to him in the Consolidation will bear a restrictive transfer
legend in substantially the following form:
The shares represented by this certificate are subject to an Affiliate
Agreement dated January __, 1998 which restricts any sale or other
transfer of such shares prior to the earlier to occur of (i) the
public release by Prime Bancshares, Inc. of 30 days of
post-consolidation combined operations of Sunbelt National Bank and
Prime Bancshares, Inc. or (ii) [insert due date of next Quarterly
Report on Form 10-Q or Annual Report on Form 10-K that will contain
required combined financial results]. The issuer will furnish to the
record holder of this certificate, without charge, upon written
request to the issuer at its principal place of business, a copy of
the Affiliate Agreement. In addition, the shares represented by this
certificate may not be sold, transferred or otherwise disposed of
except and unless (i) covered by an effective registration statement
under the Securities Act of 1933, as amended, (ii) in accordance with
Rule 145 of the Rules and Regulations under such Act, or (iii) in
accordance with a legal opinion satisfactory to counsel for
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<PAGE> 221
Bancshares that such sale or transfer is exempt from the registration
requirements of such act.
Bancshares agrees to instruct its transfer agent to remove the restrictive
legend from any certificates evidencing shares subject hereto promptly
following the expirations of the transfer restrictions described in Section 1.
4. Sunbelt agrees and the Shareholder acknowledges and agrees
that Sunbelt will not permit the transfer of any shares of Sunbelt Common Stock
by the Shareholder or any other Sunbelt affiliate within 30 days prior to the
Effective Date.
5. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned set his hand effective as of the
day first written above.
PRIME BANCSHARES, INC.
By:
----------------------------------
Name:
-------------------------------
Title:
-------------------------------
SUNBELT NATIONAL BANK
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
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<PAGE> 222
Signature of Shareholder
-------------------------------------
Printed Name of Shareholder
-------------------------------------
A-56
<PAGE> 223
VOTING AGREEMENT
AND IRREVOCABLE PROXY
This Voting Agreement and Irrevocable Proxy (the "Voting Agreement")
dated as of January __, 1998 is executed by and among Prime Bancshares, Inc., a
Texas corporation ("Bancshares"), Sunbelt National Bank, a national banking
association ("Sunbelt"), and the other persons who are signatories hereto
(referred to herein individually as a "Shareholder" and collectively as the
"Shareholders").
WHEREAS, Bancshares, IBID, Inc., Prime Bank and Sunbelt have executed
that certain Agreement and Plan of Reorganization dated as December 30, 1997
(the "Agreement") whereby Sunbelt will consolidate into an interim bank formed
as a subsidiary of Bancshares solely to facilitate the transactions
contemplated by the Agreement, and immediately thereafter, Sunbelt will
consolidate into Prime Bank, a wholly owned subsidiary of Bancshares
(collectively, the "Consolidations"); and
WHEREAS, the Agreement provides that all of issued and outstanding
stock of Sunbelt will be converted into shares of Bancshares Common Stock; and
WHEREAS, Section 4.7 of the Agreement requires that Sunbelt deliver to
Bancshares the irrevocable proxies of the Shareholders; and
WHEREAS, the undersigned Shareholders are the voting representatives
pursuant to the Sunbelt National Bank Voting and Stock Restriction Agreement
dated May 26, 1984 (the "Sunbelt Voting Agreement"); and
WHEREAS, Sunbelt and Bancshares are relying on the irrevocable proxies
in incurring expenses in reviewing Sunbelt's business, in preparing a proxy
statement, in proceeding with the filing of applications for regulatory
approvals, and in undertaking other actions necessary for the consummation of
the Consolidations;
NOW, THEREFORE, the parties hereto agree as follows:
12. The Shareholders hereby represent and warrant to Bancshares
and Sunbelt that they are the voting representatives under the Sunbelt Voting
Agreement and that they
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<PAGE> 224
have the exclusive right to vote all 381,147 of the shares of common stock,
$10.00 par value, of Sunbelt subject to the Sunbelt Voting Agreement (the
"Shares"), which Shares constitute 83% of the total number of issued and
outstanding shares of Sunbelt common stock. The Shareholders hereby agree to
vote the Shares at the shareholders' meeting referred to in Section 1.13 of the
Agreement (the "Meeting") in favor of the authorization and approval of the
Agreement, and the other agreements and transactions contemplated thereby.
13. In order better to effect the provisions of Section 1, each
Shareholder individually and the Shareholders collectively hereby revoke any
previously executed proxies and hereby constitute and appoint Fredric M.
Saunders (the "Proxy Holder"), with full power of substitution, his and their
true and lawful proxy and attorney-in-fact to vote at the Meeting all of the
Shares in favor of the authorization and approval of the Agreement and the
other agreements and transactions contemplated thereby, with such modifications
to the Agreement and the other agreements and transactions contemplated thereby
as the parties thereto may make, in the event the Shareholders do not vote in
favor of the authorization and approval of the Agreement and the other
agreements and transactions contemplated thereby.
14. The Shareholders hereby covenant and agree that until this
Voting Agreement is terminated in accordance with its terms, the Shareholders
will use their best efforts to ensure that in the event of any sale, transfer,
assignment, pledge, hypothecation, or other disposition of any of the Shares
subject to the Sunbelt Voting Agreement, any such transferee or other holder
will become bound by the terms of the Sunbelt Voting Agreement.
15. This proxy shall be limited strictly and solely to the power
to vote the Shares in the manner and for the purpose set forth in Section 2 and
shall not extend to any other matters.
16. Each Shareholder acknowledges that Bancshares and Sunbelt are
relying on this Voting Agreement in incurring expenses in reviewing Sunbelt's
business, in preparing a proxy statement, in proceeding with the filing of
applications for regulatory approvals, and in undertaking other actions
necessary for the consummation of the Consolidations and that the proxy granted
hereby is coupled with an interest and is irrevocable to the full extent
permitted by applicable law, including 12 U.S.C. 61 of the National Bank Act
and Article 2.29C of the Texas Business Corporation Act. Each Shareholder and
Sunbelt acknowledge that the performance of this Voting Agreement is intended
to benefit Bancshares.
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<PAGE> 225
17. The irrevocable proxy granted pursuant hereto shall continue
in effect until the earlier to occur of (i) the termination of the Agreement,
as it may be amended or extended from time to time, or (ii) the consummation of
the Consolidations.
18. The vote of the Proxy Holder shall control in any conflict
between its vote of the Shares and a vote by the Shareholders of the Shares and
Sunbelt agrees to recognize the vote of the Proxy Holder instead of the vote of
the Shareholders in the event the Shareholders do not vote in favor of the
approval of the Agreement as set forth in Section 1 hereof.
19. This Voting Agreement may not be modified, amended, altered or
supplemented with respect to a particular Shareholder except upon the execution
and delivery of a written agreement executed by Sunbelt, Bancshares and the
Shareholders.
20. This Voting Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument.
21. This Voting Agreement, together with the Agreement and the
agreements contemplated thereby, embody the entire agreement and understanding
of the parties hereto in respect to the subject matter contained herein. This
Voting Agreement supersedes all prior agreements and understandings among the
parties with respect to such subject matter contained herein.
22. All notices, requests, demands and other communications
required or permitted hereby shall be in writing and shall be deemed to have
been duly given if delivered by hand or mail, certified or registered mail
(return receipt requested) with postage prepaid to the addresses of the parties
hereto set forth below their signature on the signature pages hereof or to such
other address as any party may have furnished to the others in writing in
accordance herewith.
23. This Voting Agreement and the relations among the parties
hereto arising from this Voting Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date above written.
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<PAGE> 226
PRIME BANCSHARES, INC.
By:
----------------------------------
E. J. Guzzo
President
Address:
P.O. Box 70
811 Sheldon
Channelview, Texas 77530
Attention: E. J. Guzzo
SUNBELT NATIONAL BANK
By:
----------------------------------
B. J. Williams
President
Address:
1160 Dairy Ashford, Suite 100
P.O. Box 55869
Houston, Texas 77255
Attention: B. J. Williams
SHAREHOLDERS:
-------------------------------------
D. C. Daniels
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<PAGE> 227
------------------------------------
Thomas W. Ferguson
-------------------------------------
Curtis R. Kayem
-------------------------------------
B. J. Williams
-------------------------------------
George A. Wolcott
A-61
<PAGE> 228
EXHIBIT "E"
RELEASE OF CLAIMS
THIS RELEASE OF CLAIMS ("Release") dated the ______ day of
____________, 1997, is executed and delivered by the undersigned individual to
Sunbelt National Bank ("Sunbelt").
WHEREAS, Prime Bancshares, Inc. ("Bancshares") will acquire Sunbelt
pursuant to that certain Agreement and Plan of Reorganization dated as of
November __, 1997 by and between Bancshares, IBID, Inc., Prime Bank and Sunbelt
(the "Agreement"); and
WHEREAS, Bancshares has required as a condition of the acquisition
that the undersigned execute and deliver this Release to confirm the absence of
any claims by the undersigned against Sunbelt;
NOW THEREFORE, in consideration of the premises contained herein and
ten dollars and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned hereby agrees as
follows:
Section 1. Release. The undersigned hereby RELEASES and FOREVER
DISCHARGES Sunbelt and its successors, assigns, representatives and attorneys
from all manners of action, causes of action, suits, debts, sums of money,
accounts, reckonings, bonds, bills, specialties, covenants, contracts,
controversies, agreements, premises, variances, trespasses, damages, judgments,
executions, claims and demands whatsoever in law or in equity which the
undersigned ever had, now has, or hereafter can, shall or may have against
Sunbelt, in respect of any and all agreements and obligations incurred on or
prior to the date hereof, or in respect of any event occurring or circumstances
existing on or prior to the date hereof; provided, however, that Sunbelt shall
not be released from any of its obligations or liabilities to the undersigned
(i) pursuant to the provisions of the certificate or articles of incorporation
or association or bylaws of Sunbelt regarding the indemnification of directors
and officers; and (ii) in connection with any indebtedness or contractual
obligation or liability to the undersigned existing on the date hereof.
A-62
<PAGE> 229
Section 2. Successors. This Release shall be binding upon the
undersigned and his or her heirs, devisees, administrators, executors, personal
representatives, successors and assigns and shall inure to the benefit of
Sunbelt and its successors and assigns.
Section 3. Governing Law. This Release shall be governed by and
construed in accordance with the laws of the State of Texas, without giving
effect to Texas principles of conflicts of law.
Section 4. Modification. This Release may be modified only by a
written instrument executed by the undersigned and Sunbelt.
IN WITNESS WHEREOF, the undersigned has executed this Release
effective as of the date first above written.
---------------------------
Signature
---------------------------
Printed Name
STATE OF TEXAS )
)
COUNTY OF HARRIS )
This instrument was acknowledged before me on _____________________,
1997 by ________________________________.
-------------------------------
Notary Public in and for the
State of Texas
-------------------------------
Notary's Name Typed or Printed
My Commission Expires:
--------
A-63
<PAGE> 230
EXHIBIT "F"
RELEASE OF CLAIMS
THIS RELEASE OF CLAIMS ("Release") dated the _____ day of ____________
1997, is executed and delivered by Sunbelt National Bank ("Sunbelt") to
______________________ ("Person").
WHEREAS, Prime Bancshares, Inc. will acquire Sunbelt National Bank
("Sunbelt") pursuant to that certain Agreement and Plan of Reorganization dated
as of November __, 1997 by and between Prime Bancshares, Inc., IBID, Inc.,
Prime Bank and Sunbelt (the "Agreement"); and
WHEREAS, Bancshares has required as a condition of the acquisition
that Sunbelt execute and deliver this Release to confirm the absence of any
claims by Sunbelt against Person;
NOW THEREFORE, in consideration of the premises contained herein and
ten dollars and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned hereby agrees as
follows:
Section 1. Release. The undersigned hereby RELEASES and FOREVER
DISCHARGES Person and his successors, assigns, representatives and attorneys
from all manners of action, causes of action, suits, debts, sums of money,
accounts, reckonings, bonds, bills, specialties, covenants, contracts,
controversies, agreements, premises, variances, trespasses, damages, judgments,
executions, claims and demands whatsoever in law or in equity which the
undersigned ever had, now has, or hereafter can, shall or may have against
Person in respect of any and all agreements and obligations incurred on or
prior to the date hereof, or in respect of any event occurring or circumstances
existing on or prior to the date hereof; provided, however, that Person shall
not be released from any of his obligations or liabilities to the undersigned
in connection with any indebtedness or contractual obligation or liability
related to deposits, accounts and loans which the undersigned may have with
Sunbelt existing on the date hereof.
Section 2. Successors. This Release shall be binding upon the
undersigned and his or her heirs, devisees, administrators, executors, personal
representatives, successors and assigns and shall inure to the benefit of the
Bancshares and Person and their successors and assigns.
Section 3. Governing Law. This Release shall be governed by and
construed in accordance with the laws of the State of Texas, without giving
effect to Texas principles of conflicts of law.
A-64
<PAGE> 231
Section 4. Modification. This Release may be modified only by a
written instrument executed by the Sunbelt and Person.
IN WITNESS WHEREOF, the undersigned has executed this Release
effective as of the date first above written.
SUNBELT NATIONAL BANK
---------------------------
Signature
---------------------------
Printed Name
PERSON
---------------------------
Signature
---------------------------
Printed Name
A-65
<PAGE> 232
STATE OF TEXAS )
)
COUNTY OF HARRIS )
This instrument was acknowledged before me on _____________________,
1997 by __________________________, the ________________ of Prime Bancshares,
Inc.
---------------------------------
Notary Public in and for the
State of Texas
---------------------------------
Notary's Name Typed or Printed
My Commission Expires:
-----------
STATE OF TEXAS )
)
COUNTY OF HARRIS )
This instrument was acknowledged before me on _____________________,
1997 by __________________________, the ________________ of Prime Bank.
---------------------------------
Notary Public in and for the
State of Texas
---------------------------------
Notary's Name Typed or Printed
My Commission Expires:
-----------
A-66
<PAGE> 233
EXHIBIT B
12 Section 215 Consolidation of national banks or State banks with national
banks
(a) . . . .
(b) Liability of consolidated association; capital stock; dissenting
shareholders
The consolidated association shall be liable for all liabilities of
the respective consolidating banks or associations. The capital stock of such
consolidated association shall not be less than that required under existing
law for the organization of a national bank in the place in which it is
located: Provided, that if such consolidation shall be voted for at such
meetings by the necessary majority of the shareholders of each association and
State bank proposing to consolidate, and thereafter the consolidation shall be
approved by the Comptroller, any shareholder of any of the associations or
State banks so consolidated who has voted against such consolidation at the
meeting of the association or bank of which he is a stockholder, or who has
given notice in writing at or prior to such meeting to the presiding officer
that he dissents from the plan of consolidation, shall be entitled to receive
the value of the shares so held by him when such consolidation is approved by
the Comptroller upon written request made to the consolidated association at
any time before thirty days after the date of consummation of the
consolidation, accompanied by the surrender of his stock certificates.
(c) Valuation of shares
The value of the shares of any dissenting shareholder shall be
ascertained, as of the effective date of the consolidation, by an appraisal
made by a committee of three persons, composed of (1) one selected by the vote
of the holders of the majority of the stock, the owners of which are entitled
to payment in cash; (2) one selected by the directors of the consolidated
banking association; and (3) one selected by the two so selected. The
valuation agreed upon by any two of the three appraisers shall govern. If the
value so fixed shall not be satisfactory to any dissenting shareholder who has
requested payment, that shareholder may, within five days after being notified
of the appraised value of his shares, appeal to the Comptroller, who shall
cause a reappraisal to be made which shall be final and binding as to the value
of the shares of the appellant.
(d) Appraisal by Comptroller, expenses of consolidated association; sale
and resale of shares; State appraisal and consolidation law
If, within ninety days from the date of consummation of the
consolidation, for any reason one or more of the appraisers is not selected as
herein provided, or the appraisers fail to determine the value of such shares,
the Comptroller shall upon written request of any interested party cause an
appraisal to be made which shall be final and binding on all parties. The
expenses of the Comptroller in making the reappraisal or the appraisal, as the
case may be, shall be paid by the
B-1
<PAGE> 234
consolidated banking association. The value of the shares ascertained shall be
promptly paid to the dissenting shareholders by the consolidated banking
association. Within thirty days after payment has been made to all dissenting
shareholders as provided for in this section the shares of stock of the
consolidated banking association which would have been delivered to such
dissenting shareholders had they not requested payment shall be sold by the
consolidated banking association at an advertised public auction, unless some
other method of sale is approved by the Comptroller, and the consolidated
banking association shall have the right to purchase any of such shares at such
public auction, if it is the highest bidder therefor, for the purpose of
reselling such shares within thirty days thereafter to such person or persons
and at such price not less than par as its board of directors by resolution may
determine. If the shares are sold at public auction at a price greater than
the amount paid to the dissenting shareholders the excess in such sale price
shall be paid to such shareholders. The appraisal of such shares of stock in
any State bank shall be determined in the manner prescribed by the law of the
State in such cases, rather than as provided in this section, if such provision
is made in the State law; and no such consolidation shall be in contravention
of the law of the State under which such bank is incorporated.
(e) . . . .
(f) . . . .
(g) . . . .
B-2
<PAGE> 235
EXHIBIT C
OCC-BC-259 STOCK APPRAISALS
OCC-BC-259 STOCK APPRAISALS
Comptroller of the Currency BC 259
Administrator of National Banks
Type: Banking Circular Subject: Stock Appraisals
TO: Chief Executive Officers of National Banks, Deputy
Comptrollers (District), Department and Division Heads,
and Examining Personnel
PURPOSE
This Banking Circular informs all national banks of the valuation methods used
by the Office of the Comptroller of the Currency (OCC) to estimate the value of
a bank's shares when requested to do so by a shareholder dissenting to the
conversion, merger, or consolidation of its bank. The results of appraisals
performed by the OCC between January 1, 1985, and September 30, 1991 are
summarized.
References: 12 U.S.C. 214a, 215 and 215a; 12 CFR 11.590 (Item 2)
BACKGROUND
Under 12 U.S.C. Section 214a, a shareholder dissenting from a conversion,
consolidation, or merger involving a national bank is entitled to receive the
value of his or her shares from the resulting bank. A valuation of the shares
shall be made by a committee of three appraisers (a representative of the
dissenting shareholder, a representative of the resulting bank, and a third
appraiser selected by the other two). If the committee is formed and renders an
appraisal that is acceptable to the dissenting shareholder, the process is
complete and the appraised value of the shares is paid to the dissenting
shareholder by the resulting bank. If, for any reason, the committee is not
formed or if it renders an appraisal that is not acceptable to the dissenting
shareholder, an interested party may request an
C-1
<PAGE> 236
appraisal by the OCC. 12 U.S.C. Section 215 provides these appraisal rights to
any shareholder dissenting to a consolidation. Any dissenting shareholder of a
target bank in a merger is also entitled to these appraisal rights pursuant to
12 U.S.C. Section 215a.
The above provides only a general overview of the appraisal process. The
specific requirements of the process are set forth in the statutes themselves.
METHODS OF VALUATION USED
Through its appraisal process, the OCC attempts to arrive at a fair estimate of
the value of a bank's shares. After reviewing the particular facts in each case
and the available information on a bank's shares, the OCC selects an
appropriate valuation method, or combination of methods, to determine a
reasonable estimate of the shares' value.
Market Value
The OCC uses various methods to establish the market value of shares being
appraised. If sufficient trading in the shares exists and the prices are
available from direct quotes from the Wall Street Journal or a market-maker,
those quotes are considered in determining the market value. If no market value
is readily available, or if the market value available is not well established,
the OCC may use other methods of estimating market value, such as the
investment value and adjusted book value methods.
Investment Value
Investment value requires an assessment of the value to investors of a share in
the future earnings of the target bank. Investment value is estimated by
applying an average price/earnings ratio of banks with similar earnings
potential to the earnings capacity of the target bank.
The peer group selection is based on location, size, and earnings patterns. If
the state in which the subject bank is located provides a sufficient number of
comparable banks using location, size and earnings patterns as the criteria for
selection, the price/earnings ratios assigned to the banks are applied to the
earnings per share estimated for the subject bank. In order to select a
reasonable peer group when there are too few comparable independent banks in a
location that is comparable to that of the subject bank, the pool of banks from
which a peer group is selected is broadened by including one-bank holding
company banks in a comparable location, and/or by selecting banks in less
comparable locations, including adjacent states, that have earnings patterns
similar to the subject bank.
C-2
<PAGE> 237
Adjusted Book Value
The OCC also uses an "adjusted book value" method for estimating value.
Historically, the OCC has not placed any weight on the bank's "unadjusted book
value", since that value is based on historical acquisition costs of the bank's
assets, and does not reflect investors' perceptions of the value of the bank as
an ongoing concern. Adjusted book value is calculated by multiplying the book
value of the target bank's assets per share times the average market price to
book value ratio of comparable banking organizations. The average market price
to book value ratio measures the premium or discount to book value, which
investors attribute to shares of similarly situated banking organizations.
Both the investment value method and the adjusted book value method present
appraised values which are based on the target bank's value as a going concern.
These techniques provide estimates of the market value of the shares of the
subject bank.
OVERALL VALUATION
The OCC may use more than one of the above-described methods in deriving the
value of shares of stock. If more than one method is used, varying weights may
be applied in reaching an overall valuation. The weight given to the value by a
particular valuation method is based on how accurately the given method is
believed to represent market value. For example, the OCC may give more weight
to a market value representing infrequent trading by shareholders than to the
value derived from the investment value method when the subject bank's earnings
trend is so irregular that it is considered to be a poor predictor of future
earnings.
PURCHASE PREMIUMS
For mergers and consolidations, the OCC recognizes that purchase premiums do
exist and may, in some instances, be paid in the purchase of small blocks of
shares. However, the payment of purchase premiums depends entirely on the
acquisition or control plans of the purchasers, and such payments are not
regular or predictable elements of market value. Consequently, the OCC's
valuation methods do not include consideration of purchase premiums in arriving
at the value of shares.
STATISTICAL DATA
The chart below lists the results of appraisals the OCC performed between
January 1, 1985 and September 30, 1991. The OCC provides statistical data on
book value and price/earnings ratios for comparative purposes, but does not
necessarily rely on such data in determining the value of the banks' shares.
Dissenting shareholders should not view these statistics as determinative for
future appraisals.
C-3
<PAGE> 238
In connection with disclosures given to shareholders under 12 CFR 11.590 (Item
2), banks may provide shareholders a copy of this Banking Circular or disclose
the information in the Banking Circular, including the past results of OCC
appraisals. If the bank discloses the past results of the OCC appraisals, it
should advise shareholders that: (1) the OCC did not rely on all the
information set forth in the chart in performing each appraisal; and, (2) the
OCC's past appraisals are not necessarily determinative of its future
appraisals of a particular bank's shares.
APPRAISAL RESULTS
<TABLE>
<CAPTION>
OCC AVERAGE PRICE/
APPRAISAL APPRAISAL PRICE BOOK EARNINGS RATIO
DATE VALUE OFFERED VALUE OF PEER GROUP
<S> <C> <C> <C> <C>
01/01/85 107.05 110.00 178.29 5.3
01/02/85 73.16 NA 66.35 6.8
01/15/85 53.41 60.00 83.95 4.8
01/31/85 22.72 20.00 38.49 5.4
02/01/85 30.63 24.00 34.08 5.7
2/25/85 27.74 27.55 41.62 5.9
04/30/85 25.98 35.00 42.21 4.5
07/30/85 3,153.10 2,640.00 6,063.66 NC
09/01/85 17.23 21.00 21.84 4.7
11/22/85 316.74 338.75 519.89 5.0
11/22/85 30.28 NA 34.42 5.9
12/16/85 66.29 77.00 89.64 5.6
12/27/85 60.85 57.00 119.36 5.3
12/31/85 61.77 NA 73.56 5.9
12/31/85 75.79 40.00 58.74 12.1
01/12/86 19.93 NA 26.37 7.0
</TABLE>
C-4
<PAGE> 239
<TABLE>
<CAPTION>
OCC AVERAGE PRICE/
APPRAISAL APPRAISAL PRICE BOOK EARNINGS RATIO
DATE VALUE OFFERED VALUE OF PEER GROUP
<S> <C> <C> <C> <C>
03/14/86 59.02 200.00 132.20 3.1
04/21/86 40.44 35.00 43.54 6.4
05/02/86 15.50 16.50 23.69 5.0
07/03/86 405.74 NA 612.82 3.9
07/31/86 297.34 600.00 650.63 4.4
08/22/86 103.53 106.67 136.23 NC
12/26/86 16.66 NA 43.57 4.0
12/31/86 53.39 95.58 69.66 7.1
05/01/87 186.42 NA 360.05 5.1
06/11/87 50.46 70.00 92.35 4.5
06/11/87 38.53 55.00 77.75 4.5
07/31/87 13.10 NA 20.04 6.7
08/26/87 55.92 57.52 70.88 NC
08/31/87 19.55 23.75 30.64 5.0
08/31/87 10.98 NA 17.01 4.2
10/06/87 56.48 60.00 73.11 5.6
03/15/88 297.63 NA 414.95 6.1
06/02/88 27.26 NA 28.45 5.4
06/30/88 137.78 NA 215.36 6.0
08/30/88 768.62 677.00 1,090.55 10.7
03/31/89 773.62 NA 557.30 7.9
05/26/89 136.47 180.00 250.42 4.5
</TABLE>
C-5
<PAGE> 240
<TABLE>
<CAPTION>
OCC AVERAGE PRICE/
APPRAISAL APPRAISAL PRICE BOOK EARNINGS RATIO
DATE VALUE OFFERED VALUE OF PEER GROUP
<S> <C> <C> <C> <C>
05/29/90 9.87 NA 11.04 9.9
</TABLE>
* - The "Appraisal Date" is the consummation date for the conversion,
consolidation, or merger.
NA - Not Available NC - Not Computed
For more information regarding the OCC's stock appraisal process, contact the
Office of the Comptroller of the Currency, Bank Organization and Structure.
Frank Maguire
Acting Senior Deputy Comptroller
Corporate Policy and Economic Analysis
Date: March 10, 1992
C-6
<PAGE> 241
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Articles of Incorporation and Bylaws require the
Registrant to indemnify officers and directors of the Registrant to the fullest
extent permitted by Article 2.02-1 of the Business Corporation Act of the State
of Texas (the "TBCA"). The Articles of Incorporation and Bylaws of the
Registrant are incorporated by reference as Exhibits 3.1 and 3.2 to the
Registration Statement. Generally, Article 2.02-1 of the TBCA permits a
corporation to indemnify a person who was, is, or is threatened to be made a
named defendant or respondent in a proceeding because the person was or is a
director or officer if it is determined that such person (i) conducted himself
in good faith, (ii) reasonably believed (a) in the case of conduct in his
official capacity as a director or officer of the corporation, that his conduct
was in the corporation's best interest, or (b) in other cases, that his conduct
was at least not opposed to the corporation's best interests, and (iii) in the
case of any criminal proceeding, had no reasonable cause to believe that his
conduct was unlawful. In addition, the TBCA requires a corporation to indemnify
a director or officer for any action that such director or officer is wholly
successful in defending on the merits.
The Registrant's Articles of Incorporation provide that a director of the
Registrant will not be liable to the corporation for monetary damages for an act
or omission in the director's capacity as a director, except to the extent not
permitted by law. Texas law does not permit exculpation of liability in the case
of (i) a breach of the director's duty of loyalty to the corporation or its
shareholders, (ii) an act or omission not in good faith that involves
intentional misconduct or a knowing violation of the law, (iii) a transaction
from which a director received an improper benefit, whether or not the benefit
resulted from an action taken within the scope of the director's office, (iv) an
act or omission for which the liability of the director is expressly provided by
statute, or (v) an act related to an unlawful stock repurchase or dividend.
The Registrant may provide liability insurance for each director and
officer for certain losses arising from claims or changes made against them
while acting in their capabilities as directors or officers of Registrant,
whether or not Registrant would have the power to indemnify such person against
such liability, as permitted by law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following documents are filed as exhibits to this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2 -- Agreement and Plan of Reorganization
*3.1 -- Amended and Restated Articles of Incorporation of the
Company
*3.2 -- Amended and Restated Bylaws of the Company.
5 -- Opinion of Bracewell & Patterson, L.L.P. as to the
legality of the securities being registered.
8 -- Opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
as to tax matters
9.1 -- Sunbelt National Bank Voting and Stock Restriction
Agreement
9.2 -- Voting Agreement and Irrevocable Proxy (included as
Exhibit D of the Agreement and Plan of Reorganization to
be filed as Exhibit 2 to this Registration Statement)
*10.1 -- Prime Bancshares, Inc. 1997 Stock Incentive Plan
**10.2 -- Prime Bancshares, Inc. 1993 Incentive Stock Option Plan
**10.3 -- Prime Bancshares, Inc. 1984 Incentive Stock Option Plan
10.4 -- Employment Agreement between Prime Bank and B.J. Williams
*21 -- Subsidiaries of the Registrant
23.1 -- Consent of Grant Thornton LLP
</TABLE>
II-1
<PAGE> 242
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
23.2 -- Consent of Harper & Pearson Company
23.3 -- Consent of Bracewell & Patterson, L.L.P. (included in the
Opinion to be filed as Exhibit 5 to this Registration
Statement)
23.4 -- Consent of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
(included in the Opinion to be filed as Exhibit 8 to this
Registration Statement)
27 -- Financial Data Schedule
</TABLE>
- ---------------
* Incorporated by reference from Form S-1 Registration Statement filed by
Registrant.
** To be provided by amendment.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed pursuant
to the immediately preceding paragraph or (ii) that purports to meet the
requirements of section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act 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.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE> 243
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Prime Bancshares, Inc., has duly caused this Registration Statement or amendment
thereto to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston and State of Texas on March 3, 1998.
PRIME BANCSHARES, INC.
By: /s/ E. J. GUZZO
----------------------------------
E. J. Guzzo,
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement or amendment thereto has been signed by the
following persons in the indicated capacities on March 3, 1998.
<TABLE>
<CAPTION>
SIGNATURE POSITIONS
--------- ---------
<C> <S>
/s/ FREDRIC M. SAUNDERS Chairman of the Board, (principal executive
- ----------------------------------------------------- officer)
Fredric M. Saunders
/s/ L. ANDERSON CREEL Treasurer (principal financial officer and
- ----------------------------------------------------- principal accounting officer)
L. Anderson Creel
/s/ E. J. GUZZO President and Director
- -----------------------------------------------------
E. J. Guzzo
/s/ DAVID PASTERNAK Director
- -----------------------------------------------------
David Pasternak
/s/ STUART D. SAUNDERS Director
- -----------------------------------------------------
Stuart D. Saunders
/s/ JAMES B. WESLEY Director
- -----------------------------------------------------
James B. Wesley
/s/ JERRY S. DOMINY Director
- -----------------------------------------------------
Jerry S. Dominy
</TABLE>
II-3
<PAGE> 244
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
2 -- Agreement and Plan of Reorganization
*3.1 -- Amended and Restated Articles of Incorporation of the
Company
*3.2 -- Amended and Restated Bylaws of the Company.
5 -- Opinion of Bracewell & Patterson, L.L.P. as to the
legality of the securities being registered.
8 -- Opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
as to tax matters
9.1 -- Sunbelt National Bank Voting and Stock Restriction
Agreement
9.2 -- Voting Agreement and Irrevocable Proxy (included as
Exhibit D of the Agreement and Plan of Reorganization to
be filed as Exhibit 2 to this Registration Statement)
*10.1 -- Prime Bancshares, Inc. 1997 Stock Incentive Plan
**10.2 -- Prime Bancshares, Inc. 1993 Incentive Stock Option Plan
**10.3 -- Prime Bancshares, Inc. 1984 Incentive Stock Option Plan
10.4 -- Employment Agreement between Prime Bank and B.J. Williams
*21 -- Subsidiaries of the Registrant
23.1 -- Consent of Grant Thornton LLP
23.2 -- Consent of Harper & Pearson Company
23.3 -- Consent of Bracewell & Patterson, L.L.P. (included in the
Opinion to be filed as Exhibit 5 to this Registration
Statement)
23.4 -- Consent of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
(included in the Opinion to be filed as Exhibit 8 to this
Registration Statement)
27 -- Financial Data Schedule
</TABLE>
- ---------------
* Incorporated by reference from Form S-1 Registration Statement filed by
Registrant.
** To be provided by amendment.
<PAGE> 1
EXHIBIT 2
________________________________________________
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
PRIME BANCSHARES, INC.,
IBID, INC.
PRIME BANK
AND
SUNBELT NATIONAL BANK
DATED AS OF DECEMBER 30, 1997
________________________________________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
I. THE CONSOLIDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1. Initial Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2. Articles of Association, Bylaws and Facilities of
First Surviving Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.3. Effect of Initial Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.4. Liabilities of the First Surviving Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.5. Final Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.6. Articles of Association, Bylaws and Facilities of
Continuing Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.7. Effect of Final Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.8. Liabilities of Continuing Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.9. Consolidation Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.10. Adjustments to Consolidation Consideration . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.11. Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 1.12. Exchange of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 1.13. Ratification by Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 1.14. Registration of the Bancshares Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . 8
II. REPRESENTATIONS AND WARRANTIES OF SUNBELT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.1. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.2. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.3. Approvals; Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.4. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.5. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.6. Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.7. Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.8. Litigation and Other Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.9. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.10. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.11. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.12. No Conflict With Other Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.13. Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.14. Conduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.15. Allowance for Credit Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
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Section 2.16. Employment Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.17. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.18. Deferred Compensation Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.19. List of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.20. Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.21. Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.22. Absence of Property Taxes and Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.23. Community Reinvestment Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.24. Fair Housing Act, Home Mortgage Disclosure Act and Equal Credit Opportunity Act . . . . . . 17
Section 2.25. Usury Laws and Other Consumer Compliance Laws . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.26. Bank Secrecy Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.27. Zoning and Related Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.28. Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.29. Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.30. Shareholders' List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
III. REPRESENTATIONS AND WARRANTIES OF BANCSHARES,DELAWARE-COMPANY AND PRIME . . . . . . . . . . . . . . . . . . . . 18
Section 3.1. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.2. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.3. Approvals; Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.4. No Conflict With Other Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.5. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.6. SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.7. Litigation and Other Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.8. Ability to Pay Consolidation Consideration . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.9. Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.10. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
IV. COVENANTS OF SUNBELT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.1. Shareholder Approval and Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.2. Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.3. Access to Properties and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.4. Information for Regulatory Applications and SEC filings . . . . . . . . . . . . . . . . . . 23
Section 4.5. Attendance at Certain Sunbelt Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.6. Standstill Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.7. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.8. Accounting and Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.9. Pre-Closing Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
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V. COVENANTS OF BANCSHARES, DELAWARE-COMPANY AND PRIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.1. Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.2. Information for Applications and Proxy Solicitation . . . . . . . . . . . . . . . . . . . . 25
Section 5.3. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.4. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.5. Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.6. NASDAQ Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.7. Issuance of Bancshares Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.8. Delivery of Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.9. Rule 144 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.10. Publication of Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.11. Employee Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
VI. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.1. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.2. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
VII. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 7.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 7.2. Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
VIII. CONDITIONS TO OBLIGATIONS OF BANCSHARES,DELAWARE-COMPANY AND PRIME . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.1. Compliance with Representations and Covenants . . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.2. Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.3. Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.4. Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.5. Accounting Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.6. Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.7. Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
IX. CONDITIONS TO OBLIGATIONS OF SUNBELT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.1. Compliance with Representations and Covenants . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.2. Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.3. Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.4. Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.5. Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
X. CONDITIONS TO RESPECTIVE OBLIGATIONS OF BANCSHARES,DELAWARE-COMPANY, PRIME AND SUNBELT . . . . . . . . . . . . . 34
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Section 10.1. Government Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.2. Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.3. Registration of Bancshares Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 34
XI. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.1. Non-Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.2. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.3. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.4. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 11.5. Controlling Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.6. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.7. Modifications or Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.8. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 11.9. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 11.10. Consolidation of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 11.11. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 11.12. Binding on Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 11.13. Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 11.14. Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 11.15. Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 11.16. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SCHEDULE 1.10 TO THE AGREEMENT: 1998 Budget - Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SCHEDULE 2.1 TO THE AGREEMENT: Organization - Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SCHEDULE 2.2 TO THE AGREEMENT: Capitalization - Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SCHEDULE 2.4 TO THE AGREEMENT: Investments - Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SCHEDULE 2.5 TO THE AGREEMENT: Undisclosed Liabilities - Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SCHEDULE 2.7 TO THE AGREEMENT: Environmental Laws - Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
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SCHEDULE 2.8 TO THE AGREEMENT: Litigation and Other Proceedings - Sunbelt . . . . . . . . . . . . . . . . . . . . . . 49
SCHEDULE 2.9 TO THE AGREEMENT: Taxes - Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SCHEDULE 2.10 TO THE AGREEMENT: Contracts - Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SCHEDULE 2.11 TO THE AGREEMENT: Insurance Policies - Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SCHEDULE 2.13 TO THE AGREEMENT: Compliance with Laws - Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SCHEDULE 2.14 TO THE AGREEMENT: Conduct - Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SCHEDULE 2.16 TO THE AGREEMENT: Employment Relations - Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SCHEDULE 2.18 TO THE AGREEMENT: Deferred Compensation Arrangements - Sunbelt . . . . . . . . . . . . . . . . . . . . 56
SCHEDULE 2.20 TO THE AGREEMENT: Absence of Changes - Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SCHEDULE 2.22 TO THE AGREEMENT: Absence of Property Taxes and Liens - Sunbelt . . . . . . . . . . . . . . . . . . . . 58
SCHEDULE 4.7 TO THE AGREEMENT: Voting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SCHEDULE 5.11 TO THE AGREEMENT: Employee Protection--Sunbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SCHEDULE 8.3 TO THE AGREEMENT: Legal Opinion to be Delivered by Sunbelt . . . . . . . . . . . . . . . . . . . . . . . 61
SCHEDULE 9.3 TO THE AGREEMENT: Legal Opinion to be Delivered by Bancshares . . . . . . . . . . . . . . . . . . . . . 63
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AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization ("Agreement") dated as of
December 30, 1997, is by and among Prime Bancshares, Inc., a Texas corporation
("Bancshares"), IBID, Inc., a Delaware corporation ("Delaware-Company"), Prime
Bank, a Texas banking corporation ("Prime"), and Sunbelt National Bank, a
national banking association ("Sunbelt").
WHEREAS, Sunbelt desires to affiliate with Bancshares and Prime and
Bancshares and Prime desire to affiliate with Sunbelt in the manner provided in
this Agreement; and
WHEREAS, Bancshares, Delaware-Company, Prime and Sunbelt believe that
the acquisition of Sunbelt by Bancshares in the manner provided by, and subject
to the terms and conditions set forth in, this Agreement and all exhibits,
schedules and supplements hereto is desirable and in the best interests of
their respective shareholders; and
WHEREAS, the respective Boards of Directors of Bancshares,
Delaware-Company, Prime and Sunbelt have approved this Agreement and the
transactions proposed herein substantially on the terms and conditions set
forth in this Agreement;
NOW, THEREFORE, in consideration of such premises and the mutual
representations, warranties, covenants and agreements contained herein, the
parties agree as set forth below.
INTRODUCTION
Following the execution of this Agreement by Bancshares,
Delaware-Company, Prime and Sunbelt, Bancshares or Delaware-Company will
charter and organize as a wholly-owned subsidiary an interim Texas banking
corporation ("New Bank") solely for the purpose of consummating the
consolidation transaction described herein. This Agreement provides for (i)
the consolidation of New Bank with and into Sunbelt with Sunbelt as the
survivor (the "Initial Consolidation"), all pursuant to this Agreement and a
Plan of Consolidation by and between New Bank and Sunbelt, a copy of which is
attached hereto as Exhibit "A" and all of the terms of which are incorporated
by reference for all purposes and, immediately thereafter, (ii) the
consolidation of Sunbelt with and into Prime with Prime as the survivor (the
"Final Consolidation"), all pursuant to this Agreement and a Plan of
Consolidation by and between Sunbelt and Prime, a copy of which is attached
hereto as Exhibit "B" and all of the terms of which are incorporated by
reference for all purposes. The Initial Consolidation and the Final
Consolidation shall sometimes be referred to collectively as the
"Consolidations." In connection with the Consolidations, Bancshares will
purchase all of
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the issued and outstanding shares of common stock, $10.00 par value, of Sunbelt
("Sunbelt Common Stock") for an aggregate consideration as set forth in this
Agreement.
I. THE CONSOLIDATIONS
Section 1.1. Initial Consolidation. New Bank shall be merged with
and into Sunbelt (the resulting bank being herein referred to as the "First
Surviving Bank") as of the effective time of the Initial Consolidation under
the charter and Articles of Association of Sunbelt, as determined by the Office
of the Comptroller of the Currency ("OCC"), and each of the outstanding shares
of common stock of New Bank shall and without any action on the part of
Bancshares or Delaware-Company be canceled and be converted into shares of
common stock of the First Surviving Bank. The shares of common stock of the
First Surviving Bank into which such New Bank common stock is converted shall
represent ownership of 100% of the issued and outstanding capital stock of the
First Surviving Bank, all of which shall be owned by Bancshares or
Delaware-Company.
Section 1.2. Articles of Association, Bylaws and Facilities of
First Surviving Bank. On the effective date of the Initial Consolidation and
until thereafter amended in accordance with applicable law, the Articles of
Association of the First Surviving Bank shall be the Articles of Association of
Sunbelt as in effect on the effective date of the Initial Consolidation. Until
altered, amended or repealed as provided therein and in the Articles of
Association of the First Surviving Bank, the Bylaws of the First Surviving Bank
shall be the Bylaws of Sunbelt as in effect on the effective date of the
Initial Consolidation. The main office of the First Surviving Bank shall be
the main office of Sunbelt as of the effective date of the Initial
Consolidation, and all corporate acts, plans, policies, contracts, approvals
and authorizations of Sunbelt and New Bank and their respective shareholders,
boards of directors, committees elected or appointed thereby, officers and
agents, which were valid and effective immediately prior to the effective date
of the Initial Consolidation, shall be taken for all purposes as the acts,
plans, policies, contracts, approvals and authorization of the First Surviving
Bank and shall be as effective and binding thereon as the same were with
respect to Sunbelt and New Bank respectively, as of the effective date of the
Initial Consolidation.
Section 1.3. Effect of Initial Consolidation. On the effective
date of the Initial Consolidation, the corporate existence of Sunbelt and New
Bank shall be merged into and continued in the First Surviving Bank, and the
First Surviving Bank shall be deemed to be a continuation in entity and
identity of Sunbelt and New Bank. All rights, franchises and interests of
Sunbelt and New Bank, respectively, in and to any type of property and choses
in action shall be transferred to and vested in the First Surviving Bank by
virtue of the Initial Consolidation without any deed or other transfer. First
Surviving Bank, without any order or other action on the part of any court or
otherwise, shall hold and enjoy all rights of property, franchises and
interest, including appointments, designations and nominations, and
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all other rights and interests as trustee, executor, administrator, transfer
agent or registrar of stocks and bonds, guardian of estates, assignee, receiver
and committee of estates and lunatics, and in every other fiduciary capacity,
in the same manner and to the same extent as such rights, franchises and
interests were held or enjoyed by Sunbelt and New Bank, respectively, as of the
effective date of the Initial Consolidation. As of the effective time of the
Initial Consolidation, the directors and officers of New Bank shall become the
directors and officers of First Surviving Bank.
Section 1.4. Liabilities of the First Surviving Bank. On the
effective date of the Initial Consolidation, the First Surviving Bank shall be
liable for all liabilities of Sunbelt and New Bank. All deposits, debts,
liabilities and obligations of Sunbelt and of New Bank, respectively, accrued,
absolute, contingent or otherwise, and whether or not reflected or reserved
against on balance sheets, books of account or records of Sunbelt or New Bank,
as the case may be, shall be those of the First Surviving Bank and shall not be
released or impaired by the Initial Consolidation. All rights of creditors and
other obligees and all liens on property of either Sunbelt or New Bank shall be
preserved unimpaired.
Section 1.5. Final Consolidation. Immediately after the effective
time of the Initial Consolidation, the First Surviving Bank shall be merged
with and into Prime (which, as the receiving association, is hereinafter
referred to as "Continuing Bank" whenever reference is made to it at or after
the Effective Date (as defined in Section 6.2 of this Agreement)) under the
charter and Articles of Association of Prime pursuant to the provisions of, and
with the effect provided in Texas Banking Act Section 3.301 and the Bank Merger
Act (12 U.S.C. 1828(c)).
Section 1.6. Articles of Association, Bylaws and Facilities of
Continuing Bank. On the Effective Date and until thereafter amended in
accordance with applicable law, the Articles of Association of Continuing Bank
shall be the Articles of Association of Prime as in effect on the Effective
Date. Until altered, amended or repealed as therein provided and in the
Articles of Association of Continuing Bank, the Bylaws of Continuing Bank shall
be the Bylaws of Prime as in effect on the Effective Date. Unless and until
changed by the Board of Directors of Continuing Bank, the main office of
Continuing Bank shall be the main office of Prime as of the Effective Date.
The established offices and facilities of the First Surviving Bank immediately
prior to the Final Consolidation shall become established offices and
facilities of the Continuing Bank. Until thereafter changed in accordance with
law or the Articles of Association or Bylaws of Continuing Bank, all corporate
acts, plans, policies, contracts, approvals and authorizations of the First
Surviving Bank and Prime and their respective shareholders, boards of
directors, committees elected or appointed thereby, officers and agents, which
were valid and effective immediately prior to the Effective Date, shall be
taken for all purposes as the acts, plans, policies, contracts, approvals and
authorizations of Continuing Bank and shall be as effective and binding thereon
as the same
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were with respect to the First Surviving Bank and Prime, respectively, as of
the Effective Date.
Section 1.7. Effect of Final Consolidation. On the Effective
Date, the corporate existence of the First Surviving Bank and Prime shall, as
provided in the provisions of law heretofore mentioned, be merged into and
continued in Continuing Bank, and Continuing Bank shall be deemed to be a
continuation in entity and identity of the First Surviving Bank and Prime. All
rights, franchises and interests of the First Surviving Bank and Prime,
respectively, in and to any type of property and choses in action shall be
transferred to and vested in Continuing Bank by virtue of such Final
Consolidation without any deed or other transfer. Continuing Bank, without any
order or other action on the part of any court or otherwise, shall hold and
enjoy all rights of property, franchises and interest, including appointments,
designations and nominations, and all other rights and interests as trustee,
executor, administrator, transfer agent or registrar of stocks and bonds,
guardian of estates, assignee, receiver and committee of estates and lunatics,
and in every other fiduciary capacity, in the same manner and to the same
extent as such rights, franchises, and interests were held or enjoyed by
Sunbelt and Prime, respectively, as of the Effective Date. On the Effective
Date, the directors and officers of Prime shall become the directors and
officers of the Continuing Bank.
Section 1.8. Liabilities of Continuing Bank. On the Effective
Date of the Final Consolidation, Continuing Bank shall be liable for all
liabilities of the First Surviving Bank and Prime. All deposits, debts,
liabilities, obligations and contracts of the First Surviving Bank and of
Prime, respectively, matured or unmatured, whether accrued, absolute,
contingent or otherwise, and whether or not reflected or reserved against on
balance sheets, books of account, or records of the First Surviving Bank or
Prime, as the case may be, shall be those of Continuing Bank and shall not be
released or impaired by the Consolidations. All rights of creditors and other
obligees and all liens on property of either the First Surviving Bank or Prime
shall be preserved unimpaired subsequent to the Consolidations.
Section 1.9. Consolidation Consideration.
(a) Each share of Sunbelt's Common Stock issued and
outstanding immediately prior to the effective date of the Initial
Consolidation, other than Dissenting Shares (as defined in Section 1.11 of the
Agreement), shall, by virtue of the Consolidations and without any action on
the part of the holder thereof, be converted into and represent the right to
receive the consideration payable as set forth below (the "Consolidation
Consideration") to the holder of record thereof, without interest thereon, upon
surrender of the certificate representing such share.
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(b) Based on a total of 460,000 shares of Sunbelt Common
Stock issued and outstanding, each holder of Sunbelt Common Stock shall receive
Consolidation Consideration in the form of shares of common stock, $.25 par
value, of Bancshares ("Bancshares Common Stock") equal to 2.0023 shares of
Bancshares Common Stock for each share of Sunbelt Common Stock owned on the
Effective Date.
(c) The aggregate number of shares of Bancshares Common
Stock to be exchanged for each share of Sunbelt Common Stock shall be adjusted
appropriately to reflect any change in the number of shares of Bancshares
Common Stock by reason of any stock dividends or splits, reclassification,
recapitalization or conversion with respect to Bancshares Common Stock,
received or to be received by holders of Bancshares Common Stock, when the
record date or payment occurs prior to the Effective Date.
(d) Bancshares will not issue any certificates for
fractional shares of Bancshares Common Stock otherwise issuable pursuant to the
Consolidation. In lieu of issuing such fractional shares, Bancshares shall pay
cash to any holder of shares of Sunbelt Common Stock otherwise entitled to
receive such fractional share. Such cash payment shall be based on the closing
bid price of a share of Bancshares Common Stock as listed on the NASDAQ
National Market on the day prior to the Effective Date.
Section 1.10. Adjustments to Consolidation Consideration. The
Consolidation Consideration shall be adjusted as follows:
(a) In the event that one-half of any net earnings of
Sunbelt, calculated in accordance with generally accepted accounting principles
applicable to financial institutions, from January 1, 1998 through the end of
the month prior to the month in which the Effective Date occurs, exceed an
amount calculated by multiplying (i) the difference between the average closing
bid and asked prices of Bancshares' Common Stock as quoted on NASDAQ for the
twenty (20) trading days immediately preceding the fifth calendar day prior to
the Effective Date ("Average Price") (provided that such Average Price is
greater than $19.00) and $19.00 by (ii) 920,000 ("Net Earnings Difference"),
the aggregate number of shares of Bancshares Common Stock to be paid to
shareholders of Sunbelt on the Effective Date shall be increased by dividing
such Net Earnings Difference by the Average Price. It is specifically provided
that proceeds from the sales of assets other than in the ordinary course of
business and any income from the sale of SBA loans which is in excess of the
amount of such income contained in Sunbelt's 1998 budget (which is attached as
Schedule 1.10) shall not be included in the calculation of net earnings.
(b) If the Average Price is $22.00 or greater, the
aggregate number of shares of Bancshares Common Stock into which shares of
Sunbelt Common Stock will be converted on the Effective Date shall be decreased
by (i) subtracting $20,240,000 from
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920,000 multiplied by the Average Price and (ii) dividing that difference by
the Average Price.
(c) If the Board of Directors of Sunbelt exercises its
right to termination set forth in Section 7.1(e) of the Agreement, Bancshares
shall have the option of increasing the Consolidation Consideration as set
forth in Section 7.1(e).
Section 1.11. Dissenting Shares. Each share of Sunbelt Common
Stock issued and outstanding immediately prior to the Effective Date, the
holder of which has not voted in favor of the Initial Consolidation and who has
properly perfected his dissenters' rights of appraisal by following the
procedures set forth in the National Bank Act, is referred to herein as a
"Dissenting Share." Dissenting Shares owned by each holder thereof who has not
failed to perfect his dissenters' rights shall not be converted into or
represent the right to receive the Consolidation Consideration pursuant to
Section 1.9 of this Agreement and shall be entitled only to such rights as are
available to such holder pursuant to the applicable provisions of the National
Bank Act. Each holder of Dissenting Shares shall be entitled to receive the
value of such Dissenting Shares held by him in accordance with the applicable
provisions of the National Bank Act, provided that such holder complies with
the procedures contemplated by and set forth in the applicable provisions of
the National Bank Act. As set forth in Section 8.6 of this Agreement, if the
holders of more than 5% of the Sunbelt Common Stock shall have exercised their
dissenters' rights, Bancshares shall have no obligation to consummate the
Consolidation.
Section 1.12. Exchange of Shares.
(a) Bancshares shall deposit or cause to be deposited in
trust with American Securities Transfer and Trust, Inc., Denver, Colorado (the
"Exchange Agent") prior to the Effective Date cash in an aggregate amount
estimated to be sufficient to make the cash payments in lieu of fractional
shares of Bancshares Common Stock pursuant to Section 1.9 hereof and to make
the appropriate cash payments, if any, to holders of Dissenting Shares pursuant
to Section 1.11 hereof (such amounts being hereinafter referred to as the
"Exchange Fund"). The Exchange Agent shall promptly make the payments in lieu
of fractional shares out of the Exchange Fund upon surrender of such shares.
Payments to holders of Dissenting Shares shall be made as required by the
National Bank Act. The Exchange Fund shall not be used for any other purpose,
except as provided in this Agreement.
(b) Promptly after the Effective Date, the Exchange
Agent shall mail to each record holder of an outstanding certificate or
certificates which as of the Effective Date represented shares of Sunbelt
Common Stock (the "Certificates"), a form letter of transmittal which will
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent and contain
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instructions for use in effecting the surrender of the Certificates for payment
therefor. Upon surrender to the Exchange Agent of a Certificate, together with
such letter of transmittal duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor the amount of cash and number of
shares of Bancshares Common Stock provided in Section 1.9 hereof, and such
Certificate shall forthwith be canceled. Bancshares shall provide the Exchange
Agent with certificates for Bancshares Common Stock, as requested by the
Exchange Agent, in the amounts provided in Section 1.9 hereof. No interest
will be paid or accrued on the cash payable upon surrender of the Certificate.
If payment or delivery of Bancshares Common Stock is to be made to a person
other than the person in whose name the Certificate surrendered is registered,
it shall be a condition of payment that the Certificate so surrendered shall be
properly endorsed or otherwise in proper form for transfer and that the person
requesting such payment shall pay any transfer or other taxes required by
reason of the payment and delivery of Bancshares Common Stock to a person other
than the registered holder of the Certificate surrendered or established to the
satisfaction of Bancshares that such tax has been paid or is not applicable.
Until surrendered in accordance with the provisions of this Section 1.12, each
Certificate (other than Certificates representing Dissenting Shares) shall
represent for all purposes the right to receive the Consolidation Consideration
without any interest thereon. Former shareholders of Sunbelt shall be entitled
to vote after the Effective Date at any meeting of Bancshares' shareholders the
number of shares of Bancshares Common Stock into which their shares are
converted, regardless of whether such shareholders have exchanged their
Certificates. Immediately after the Effective Date, shareholders of Sunbelt
shall be entitled to any dividends with respect to shares of Bancshares Common
Stock received by them in the Consolidation, provided that no dividend will be
disbursed with respect to the shares of Bancshares Common Stock until the
holder's shares are surrendered in exchange therefor.
(c) After the Effective Date, the stock transfer ledger
of Sunbelt shall be closed and there shall be no transfers on the stock
transfer books of Sunbelt of the shares of Sunbelt Common Stock which were
outstanding immediately prior to such time of filing. If, after the Effective
Date, Certificates are presented to Bancshares, they shall be promptly
presented to the Exchange Agent and exchanged as provided in this Section 1.12.
(d) Any portion of the Exchange Fund (including the
proceeds of any investments thereof) that remains unclaimed by the shareholders
of Sunbelt for six months after the Effective Date shall be paid to Bancshares,
and the holders of shares of Sunbelt Common Stock not theretofore presented to
the Exchange Agent shall look to Bancshares only, and not the Exchange Agent,
for the payment of any Consolidation Consideration in respect of such shares.
Section 1.13. Ratification by Shareholders. This Agreement shall
be submitted to the shareholders of Sunbelt and, if required, to either
Bancshares or Delaware-Company as
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the sole shareholder of New Bank and to Delaware-Company as the sole
shareholder of Prime, in accordance with applicable provisions of law and the
respective Articles of Association and Bylaws of Sunbelt, New Bank and Prime.
Sunbelt and Bancshares and Prime shall proceed expeditiously and cooperate
fully in the procurement of any other consents and approvals and the taking of
any other actions in satisfaction of all other requirements prescribed by law
or otherwise necessary for consummation of the Consolidation on the terms
herein provided, including, without limitation, the preparation and submission
of all necessary filings, requests for waivers and certificates with the Board
of Governors of the Federal Reserve System ("Federal Reserve Board"), the OCC,
the Federal Deposit Insurance Corporation ("FDIC") and the Texas Department of
Banking ("Banking Department").
Section 1.14. Registration of the Bancshares Common Stock.
(a) Bancshares shall file a registration statement (the
"Registration Statement") with the Securities and Exchange Commission ("SEC")
under the Securities Act of 1933, as amended ("Securities Act"), covering the
shares of Bancshares Common Stock to be issued to shareholders of Sunbelt in
the Consolidation.
(b) Within 30 days after the date hereof, Sunbelt shall
enter into and cause each Sunbelt shareholder who is an "affiliate" (as defined
in SEC Rule 405) of Sunbelt to enter into with Bancshares an Affiliate
Agreement in substantially the form of Exhibit "C" attached hereto.
II. REPRESENTATIONS AND WARRANTIES OF SUNBELT
Sunbelt represents and warrants to Bancshares, Delaware-Company and
Prime that each of the statements made in this Article II are true and correct
in all material respects. The Schedules required pursuant to this Article II
and elsewhere in this Agreement will be delivered and made part of this
Agreement no later than January 12, 1998. Sunbelt agrees that, at the Closing,
it shall provide Bancshares with supplemental Schedules reflecting any changes
in the information contained in the Schedules which have occurred in the period
from the date of delivery of such Schedules to the date of Closing.
Section 2.1. Organization. Sunbelt is a national banking
association duly organized, validly existing and in good standing under the
laws of the United States of America. Sunbelt (i) has full power and authority
(including all licenses, franchises, permits and other governmental
authorizations which are legally required) to own, lease and operate its
properties, to engage in the business and activities now conducted by it and to
enter into this Agreement; (ii) is duly authorized to conduct a general banking
business, embracing all usual deposit functions of commercial banks as well as
commercial, industrial and real estate
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loans, installment credits, collections and safe deposit facilities subject to
the supervision of the OCC; and (iii) is an insured bank as defined in the
Federal Deposit Insurance Act. Sunbelt does not conduct any trust activities.
True and complete copies of the Articles of Association and Bylaws of Sunbelt,
as amended to date, have been delivered or made available to Bancshares.
Except as otherwise disclosed in Schedule 2.1 to this Agreement, Sunbelt (a)
does not have any subsidiaries or affiliates, (b) is not a general partner or
material owner in any joint venture, general partnership, limited partnership,
trust or other non-corporate entity, and (c) does not know of any arrangement
pursuant to which the stock of any corporation is or has been held in trust
(whether express, constructive, resulting or otherwise) for the benefit of all
shareholders of Sunbelt.
Section 2.2. Capitalization. The authorized capital stock of
Sunbelt consists of 875,000 shares of Sunbelt Common Stock, 460,000 of which
are issued and outstanding. All of the issued and outstanding shares of
Sunbelt Common Stock are validly issued, fully paid and nonassessable, and have
not been issued in violation of the preemptive rights of any person or in
violation of any applicable federal or state laws. Except as disclosed in
Schedule 2.2, there are no existing options, warrants, calls, convertible
securities or commitments of any kind obligating Sunbelt to issue any
authorized and unissued Sunbelt Common Stock nor does Sunbelt have any
outstanding commitment or obligation to repurchase, reacquire or redeem any of
its outstanding capital stock. Other than the Sunbelt National Bank Voting and
Stock Restriction Agreement dated May 26, 1984 ("Sunbelt Voting Agreement") and
except as disclosed in Schedule 2.2 to this Agreement, there are no voting
trusts, voting agreements, buy-sell agreements or other similar arrangements
affecting the Sunbelt Common Stock.
Section 2.3. Approvals; Authority. The Board of Directors has
approved this Agreement and the transactions contemplated herein subject to the
approval thereof by the shareholders of Sunbelt as required by law, and, other
than shareholder approval, no further corporate proceedings of Sunbelt are
needed to execute and deliver this Agreement and consummate the Consolidations.
This Agreement has been duly executed and delivered by Sunbelt and, is a duly
authorized, valid, legally binding agreement of Sunbelt enforceable against
Sunbelt in accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
creditors' rights generally and general equitable principles.
Section 2.4. Investments. Sunbelt has furnished to Bancshares, as
Schedule 2.4 of this Agreement, a complete list, as of September 30, 1997, of
all securities, including municipal bonds, owned by Sunbelt (the "Securities
Portfolio"). All securities listed in Schedule 2.4 are owned by Sunbelt (i) of
record, except those held in bearer form, and (ii) beneficially, free and clear
of all mortgages, liens, pledges and encumbrances, except as noted in Schedule
2.4. Schedule 2.4 also discloses any entities in which Sunbelt's ownership
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interest equals 5% or more of the issued and outstanding voting securities of
the issuer thereof. There are no voting trusts or other agreements or
understandings with respect to the voting of the securities listed in Schedule
2.4.
Section 2.5. Financial Statements. Sunbelt has furnished or made
available to Bancshares true and complete copies of Sunbelt's audited balance
sheet as of December 31, 1996, 1995 and 1994, and the related statements of
income and statements of cash flow for the periods then ended, together with
the notes thereto. Sunbelt has also delivered to Bancshares a true and correct
copy of the Consolidated Reports of Condition and Income ("Call Reports") filed
by Sunbelt as of and for the nine months ended September 30, 1997. The audited
financial information and Call Reports referred to in this Section 2.5 are
collectively referred to in this Article II as the "Sunbelt Financial
Statements." The Sunbelt Financial Statements fairly present the financial
position of Sunbelt and the results of its operations at the dates and for the
periods indicated in conformity with generally accepted accounting principles
applied on a consistent basis. Except as set forth on Schedule 2.5 to this
Agreement, as of the dates of the Sunbelt Financial Statements referred to
above, Sunbelt did not have any liabilities, fixed or contingent, which are
material and are not fully shown or provided for in such Sunbelt Financial
Statements or otherwise disclosed in this Agreement, or in any of the documents
delivered to Bancshares. Except as set forth in Schedule 2.20 to this
Agreement, since September 30, 1997, there have been no material changes in the
financial condition, assets, liabilities or business of Sunbelt, other than
changes in the ordinary course of business, which individually or in the
aggregate have materially and adversely affected the financial condition,
results of operations or business of Sunbelt.
Section 2.6. Title. True and complete copies of all of Sunbelt's
deeds and leases and title insurance policies, if any, for all real property
owned or leased by Sunbelt and all mortgages, deeds of trust and security
agreements to which such property is subject are attached on Schedule 2.6 of
this Agreement. Sunbelt has good and indefeasible title to all of its assets
and properties including, without limitation, land and improvements thereon,
and all personal and intangible properties reflected in the Sunbelt Financial
Statements or acquired subsequent thereto, subject to no liens, mortgages,
security interests, encumbrances or charges of any kind except (a) defects,
irregularities in title and encumbrances set forth in the public record of the
applicable county, (b) as noted in the Sunbelt Financial Statements or as set
forth in Schedule 2.6, (c) statutory liens not yet delinquent, (d) minor
defects and irregularities in title and encumbrances which do not materially
impair the use thereof for the purposes for which they are held, and (e) those
assets and properties disposed of for fair value in the ordinary course of
business since the dates of the Sunbelt Financial Statements. Except as set
forth in Schedule 2.6 to this Agreement, Sunbelt owns no securities of or other
interest in any other commercial bank.
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Section 2.7. Environmental Laws. Sunbelt is in compliance with
all terms and conditions of all applicable federal and state Environmental Laws
(as defined below) and permits thereunder. Except as set forth on Schedule 2.7
of this Agreement, (a) Sunbelt has not received notice of any violation of any
Environmental Laws or generated, stored, or disposed of any materials
designated as Hazardous Materials (as defined below) under the Environmental
Laws, and is not subject to any claim or lien under any Environmental Laws; (b)
during the term of ownership by Sunbelt, no real estate currently owned,
operated, or leased (including any property acquired by foreclosure or deeded
in lieu thereof) by Sunbelt, or owned, operated or leased by Sunbelt within the
ten years preceding the date of this Agreement, has been designated as
requiring any environmental cleanup or response action to comply with
Environmental Laws, or has been the site of release of any Hazardous Materials;
(c) to the knowledge of Sunbelt, no asbestos was used in the construction of
any portion of Sunbelt's facilities; and (d) to the knowledge of Sunbelt, no
real property currently owned by Sunbelt is, or has been, an industrial site or
landfill. Bancshares and its consultants, agents and representatives shall
have the right to inspect Sunbelt's assets for the purpose of conducting
asbestos and other environmental surveys.
"Environmental Laws," for purposes of this Section 2.7, includes, but
is not limited to, any federal, state or local statute, law, rule, regulation,
ordinance, code, policy or rule of common law now in effect and in each case as
amended to date and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree, or judgment,
relating to the environment, human health or safety, or Hazardous Materials,
including without limitation the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Sections 9601, et
seq.; The Hazardous Materials Transaction Act, as amended, 49 U.S.C. Sections
1801, et seq.; the Resource Conservation and Recovery Act of 1976, as amended,
42 U.S.C. Sections 6901, et seq.; the Federal Water Pollution Control Act, as
amended, 33 U.S.C. Sections 1201, et seq.; the Toxic Substances Control Act, 15
U.S.C. Sections 2601, et seq.; the Clean Air Act, 42 U.S.C. Sections 7401, et
seq.; and the Safe Drinking Water Act, 42 U.S.C. Sections 3808, et seq.
"Hazardous Materials," for purposes of this Section 2.7, includes, but
is not limited to, (a) any petroleum or petroleum products, natural gas, or
natural gas products, radioactive materials, asbestos, urea formaldehyde foam
insulation, transformers or other equipment that contains dielectric fluid
containing levels of polychlorinated biphenyls (PCBs), and radon gas; (b) any
chemicals, materials, waste or substances defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic
substances," "toxic pollutants," "contaminants," or "pollutants," or words of
similar import, under any Environmental Laws; and (c) any other chemical,
material, waste or substance which is in any way regulated by any federal,
state or local government authority, agency or instrumentality, including
mixtures thereof with other materials, and including any regulated building
materials such as asbestos and lead.
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Section 2.8. Litigation and Other Proceedings. Except as
otherwise noted on Schedule 2.8 hereto, there are no legal, quasi-judicial,
regulatory or administrative proceedings of any kind or nature now pending or,
to the knowledge of Sunbelt, threatened before any court or administrative body
in any manner against Sunbelt, or any of its properties or capital stock, which
might have a material adverse effect on Sunbelt, its financial condition,
assets, operations or earnings or the transactions proposed by this Agreement.
Sunbelt does not know of any basis on which any litigation or proceeding could
be brought which could have a materially adverse effect on the financial
condition or prospects of Sunbelt or which could question the validity of any
action taken or to be taken in connection with this Agreement and the
transactions contemplated hereby. Sunbelt is not in default with respect to
any judgment, order, writ, injunction, decree, award, rule or regulation of any
court, arbitrator or governmental agency or instrumentality.
Section 2.9. Taxes. Except as otherwise noted in Schedule 2.9
hereto, Sunbelt has filed with the appropriate federal, state and local
governmental agencies all tax returns and reports required to be filed, and has
paid all taxes and assessments shown or claimed to be due. Sunbelt has not
executed or filed with the Internal Revenue Service any agreement extending the
period for assessment and collection of any federal tax, nor is Sunbelt a party
to any action or proceeding by any governmental authority for assessment or
collection of taxes, nor has any claim for assessment or collection of taxes
been asserted against Sunbelt. Sunbelt has not waived any statute of
limitations with respect to any tax or other assessment or levy, and all such
taxes and other assessments and levies which Sunbelt is required by law to
withhold or to collect have been duly withheld and collected and have been paid
over to the proper governmental agency, domestic and foreign, or segregated and
set aside for such payment and, if so segregated and set aside will be so paid
by Sunbelt, as required by law.
True and complete copies of the federal income tax returns of Sunbelt
as filed with the Internal Revenue Service for the years ended December 31,
1996, December 31, 1995, and December 31, 1994, have been delivered or made
available to Bancshares.
Section 2.10. Contracts. Except as otherwise noted in Schedule
2.10 hereto, Sunbelt is not a party to nor bound by any (a) employment contract
or severance arrangement (including without limitation any collective
bargaining contract or union agreement or agreement with an independent
consultant) which is not terminable by Sunbelt on less than sixty (60) days'
notice without payment of any amount on account of such termination; (b) bonus,
stock option, deferred compensation or profit-sharing, pension or retirement
plan or other employee benefit arrangement; (c) material lease or license with
respect to any property, real or personal, whether as landlord, tenant,
licensor or licensee; (d) contract or commitment for capital expenditures; (e)
material contract or commitment made in the ordinary course of business for the
purchase of materials or supplies or for the performance of services over a
period of more than one hundred twenty (120) days from the date of this
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Agreement; (f) contract or option to purchase or sell any real or personal
property other than in the ordinary course of business; (g) contract, agreement
or letter with respect to the management or operations of Sunbelt imposed by
any bank regulatory authority having supervisory jurisdiction over Sunbelt; (h)
agreement, contract or indenture related to the borrowing by Sunbelt of money
other than those entered into in the ordinary course of business; (i) guaranty
of any obligation for the borrowing of money, excluding endorsements made for
collection, repurchase or resell agreements, letters of credit and guaranties
made in the ordinary course of business; (j) agreement with or extension of
credit to any executive officer or director of Sunbelt or holder of more than
ten percent (10%) of the issued and outstanding Sunbelt Common Stock, or any
affiliate of such person, which is not on substantially the same terms
(including, without limitation, in the case of lending transactions, interest
rates and collateral) as, and following credit underwriting practices that are
not less stringent than, those prevailing at the time for comparable
transactions with unrelated parties or which involve more than the normal risk
of collectibility or other unfavorable features; or (k) material contracts,
other than the foregoing, not made in the ordinary course of business and not
otherwise disclosed in this Agreement, in any schedule attached hereto or in
any document delivered or referred to or described in writing by Sunbelt to
Bancshares. Sunbelt has in all material respects performed all material
obligations required to be performed by it to date and is not in default under,
and no event has occurred which, with the lapse of time or action by a third
party could result in default under, any indenture, mortgage, contract, lease
or other agreement to which Sunbelt is a party or by which Sunbelt is bound or
under any provision of its Articles of Association or Bylaws.
Section 2.11. Insurance. A true and complete list of all insurance
policies owned or held by or on behalf of Sunbelt (other than credit-life
policies), including policy numbers, retention levels, insurance carriers, and
effective and termination dates, is set forth in Schedule 2.11 to this
Agreement. In the judgment of the Board of Directors of Sunbelt, such
insurance policies are adequate for the business conducted by Sunbelt in
respect of amounts, types and risks insured.
Section 2.12. No Conflict With Other Instruments. Neither the
execution and delivery of this Agreement nor the consummation of the
Consolidations contemplated hereby, subject to obtaining all required
shareholder consents, will conflict with or result in a breach of any provision
of Sunbelt's Articles of Association or Bylaws. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby,
subject to obtaining all required shareholder and regulatory approvals, will
not violate any provision of, or constitute a default under, any law, or any
order, writ, injunction or decree of any court or other governmental agency, or
any contract, agreement or instrument to which Sunbelt is a party or by which
either is bound or constitute an event which, with the lapse of time or action
by a third party, could result in any default under any of the foregoing
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or result in the creation of any lien, charge or encumbrance upon the assets or
properties of Sunbelt or upon the Sunbelt Common Stock.
Section 2.13. Laws. Except as otherwise noted in Schedule 2.13
hereto, Sunbelt is in material compliance with all applicable federal, state
and local laws, rules, regulations and orders applicable to it. Except for
approvals by regulatory authorities having jurisdiction over Sunbelt, no prior
consent, approval or authorization of, or declaration, filing or registrations
with, any person or regulatory authority is required of Sunbelt in connection
with the execution, delivery and performance by Sunbelt of this Agreement and
the transactions contemplated hereby or the resulting change of control of
Sunbelt except for certain instruments necessary to consummate the
Consolidations contemplated hereby. Sunbelt has filed all reports,
registrations and statements, together with any amendments required to be made
thereto, that are required to be filed with the OCC or any other regulatory
authority having jurisdiction over Sunbelt, and such reports, registrations and
statements are, to the best knowledge of Sunbelt, true and correct in all
material respects.
Section 2.14. Conduct. Except as otherwise noted in Schedule 2.14
hereto, since September 30, 1997, Sunbelt has not (a) issued or sold any of its
capital stock or corporate debt obligations; (b) declared or set aside or paid
any dividend or made any other distribution in respect of or, directly or
indirectly, purchased, redeemed or otherwise acquired any shares of Sunbelt
Common Stock; (c) incurred any obligations or liabilities (fixed or
contingent), except obligations or liabilities incurred in the ordinary course
of business, or mortgaged, pledged or subjected any of its assets to a lien or
encumbrance (other than in the ordinary course of business and other than
statutory liens not yet delinquent); (d) discharged or satisfied any lien or
encumbrance or paid any obligation or liability (fixed or contingent), other
than accruals, accounts and notes payable included in the Sunbelt Financial
Statements, accruals, accounts and notes payable incurred since September 30,
1997 in the ordinary course of business and accruals, accounts and notes
payable incurred in connection with the transactions contemplated by this
Agreement; (e) sold, exchanged or otherwise disposed of any of its capital
assets other than in the ordinary course of business; (f) made any general or
individual wage or salary increase (including increases in directors' or
consultants' fees), paid any bonus, granted or paid any perquisites such as
automobile allowance, club membership or dues or other similar benefits, or
instituted any employee welfare, retirement or similar plan or arrangement; (g)
suffered any physical damage, destruction or casualty loss, whether or not
covered by insurance, materially and adversely affecting its business, property
or assets; (h) made any or acquiesced with any change in accounting methods,
principles and practices; (i) entered into any contract, agreement or
commitment which obligates Sunbelt for an amount in excess of $10,000 over the
term of any such contract, agreement or commitment; or (j) except in the
ordinary course of business, entered or agreed to enter into any agreement or
arrangement granting any preferential rights to purchase any
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of its assets, properties or rights or requiring the consent of any party to
the transfer and assignment of any such assets, properties or rights.
Section 2.15. Allowance for Credit Losses. The allowance for
credit losses of Sunbelt has been calculated in accordance with generally
accepted accounting principles as applied to banking institutions and in
accordance with all applicable rules and regulations. The allowance for credit
losses shown on Sunbelt's Call Report of September 30, 1997 is substantially
adequate in all material respects to provide for all losses, net of recoveries
relating to loans previously charged off, on loans outstanding as of September
30, 1997. On the Effective Date, no material facts relevant to the adequacy of
the allowance for credit losses as of that date shall have been withheld from
Bancshares. Except as disclosed in writing to Bancshares by Sunbelt on or
before the date of the Agreement, there are no loans of Sunbelt that have been
classified by bank examiners on Sunbelt's most recent examination report as
"Other Assets Especially Mentioned," "Substandard," "Doubtful" or "Loss."
Section 2.16. Employment Relations. The relations of Sunbelt with
its employees are satisfactory, and Sunbelt has not received any notice of any
controversies with, or organizational efforts or other pending actions by,
representatives of its employees. Sunbelt has materially complied with all
laws relating to the employment of labor with respect to its employees,
including any provisions thereof relating to wages, hours, collective
bargaining and the payment of workman's compensation insurance and social
security and similar taxes, and, except as disclosed in Schedule 2.16 hereto,
no person has asserted that Sunbelt is liable for any arrearages of wages,
workman's compensation insurance premiums or any taxes or penalties for failure
to comply with any of the foregoing.
Section 2.17. ERISA. The employee pension benefits plans and
welfare benefit plans (referred to collectively herein as the "Plans") in
effect at Sunbelt (all of which are included in Schedule 2.10 hereto) have all
been operated in all material respects in compliance with ERISA since ERISA
became applicable with respect thereto. None of the Plans nor any of their
respective related trusts have been terminated (except the termination of any
Plan which is in compliance with the requirements of ERISA and which will not
result in any additional liability to Sunbelt), and there has been no
"reportable event," as that term is defined in Section 4043 of ERISA, required
to be reported since the effective date of ERISA which has not been reported,
and none of such Plans nor their respective related trusts have incurred any
"accumulated funding deficiency," as such term is defined in Section 302 of
ERISA (whether or not waived), since the effective date of ERISA. The Plans
are the only employee pension benefit plans covering employees of Sunbelt.
Sunbelt will not have any material liabilities with respect to employee pension
benefits, whether vested or unvested as of the Closing, for any of its
employees other than under the Plans, and as of the date hereof the actuarial
present value of Plan assets of each Plan is not less (and as of the Closing
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of the Consolidation such present value will not be less) than the present
value of all benefits payable or to be payable thereunder.
Section 2.18. Deferred Compensation Arrangements. The schedule
attached as Schedule 2.18 contains a full description of all of Sunbelt's
deferred compensation arrangements, including the terms under which the cash
value of any life insurance purchased in connection with any such arrangement
can be realized.
Section 2.19. List of Loans. Schedule 2.19 to this Agreement sets
forth a true and complete list, as of September 30, 1997, of all loans
(individually, a "Loan" and collectively, the "Loans") of Sunbelt, showing for
each such Loan the outstanding principal balance due, before reduction for any
discount. All currently outstanding Loans of Sunbelt, including any current
extensions of any Loan, were solicited, originated and currently exist in
material compliance with all applicable requirements of federal and state law
and regulations promulgated thereunder. The Loans are adequately documented
and each note evidencing a Loan or credit agreement or security instrument
related to a Loan constitutes a valid and binding obligation of the obligor
thereunder, enforceable in accordance with the terms thereof, except where the
failure thereof, individually or in the aggregate, would not have a material
adverse effect on the condition (financial or otherwise), operations or
prospects of Sunbelt. There are no oral modifications or amendments or
additional agreements related to the Loans that are not reflected in Sunbelt's
records, and no claim of defense as to the enforcement of any Loan has been
asserted, and Sunbelt is not aware of any acts or omissions that would give
rise to any claim or right of rescission, set off, counterclaim or defense,
except where such claim would not have, either individually or in the
aggregate, a material adverse effect on the condition (financial or otherwise),
operations or prospects of Sunbelt.
Section 2.20. Absence of Changes. Since September 30, 1997, except
as disclosed in Schedule 2.20 to this Agreement, there has not been any
material adverse change in the condition (financial or otherwise), assets,
liabilities, earnings or business of Sunbelt. Since such date, the business of
Sunbelt has been conducted only in the ordinary course consistent with prior
practices.
Section 2.21. Brokers and Finders. Neither Sunbelt nor any of its
officers, directors or employees has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finders' fees in
connection with the Consolidations contemplated herein.
Section 2.22. Absence of Property Taxes and Liens. All property
taxes due under the applicable provisions of the Texas Tax Code have been paid
by either Sunbelt or the shareholders of Sunbelt, and no liens imposed or
authorized by the Texas Tax Code exist on
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the shares of Sunbelt Common Stock, except as otherwise disclosed in Schedule
2.22 to this Agreement.
Section 2.23. Community Reinvestment Act. Sunbelt is in material
compliance with the Community Reinvestment Act (12 U.S.C. Section 2901 et
seq.) and all regulations promulgated thereunder, and Sunbelt has supplied
Bancshares with copies of Sunbelt's current CRA Statement, all support papers
therefor, all letters and written comments received by Sunbelt since January 1,
1995 pertaining thereto and any responses by Sunbelt to such comments. Sunbelt
has a rating of "satisfactory" as of its most recent CRA compliance examination
and knows of no reason why it would not receive a rating of "satisfactory" or
better pursuant to its next CRA compliance examination or why the OCC or any
other governmental entity may seek to restrain, delay or prohibit the
transactions contemplated hereby as a result of any act or omission of Sunbelt
under the CRA.
Section 2.24. Fair Housing Act, Home Mortgage Disclosure Act and
Equal Credit Opportunity Act. Sunbelt is in material compliance with the Fair
Housing Act (42 U.S.C. Section 3601 et seq.), the Home Mortgage Disclosure Act
(12 U.S.C. Section 2801 et seq.) and the Equal Credit Opportunity Act (15
U.S.C. Section 1691 et seq.) and all regulations promulgated thereunder.
Sunbelt has not received any notices of any violation of said Acts or any of
the regulations promulgated thereunder, nor does Sunbelt have any notice of, or
knowledge of, any threatened administrative inquiry, proceeding or
investigation with respect to Sunbelt's compliance with said Acts.
Section 2.25. Usury Laws and Other Consumer Compliance Laws. All
loans of Sunbelt have been made substantially in accordance with all applicable
statutes and regulatory requirements at the time of such loan or any renewal
thereof, including without limitation, the Texas usury statutes as they are
currently interpreted, Regulation Z (12 C.F.R. Section 226 et seq.) issued by
the Board of Governors of the Federal Reserve System, the Federal Consumer
Credit Protection Act (15 U.S.C. Section 1601 et seq.), the Texas Consumer
Credit Code (Tex. Rev. Civ. Stat. Ann. art. 5069-2.01, et seq.) and all
statutes governing the operation of national banks located in Texas. Each loan
on the books of Sunbelt was made in the ordinary course of Sunbelt's business.
Section 2.26. Bank Secrecy Act. Sunbelt is in material compliance
with the Bank Secrecy Act (12 U.S.C. Sections 1730(d) and 1829(b)) and all
regulations promulgated thereunder, and Sunbelt has properly certified all
foreign deposit accounts and has made all necessary tax withholdings on all of
its deposit accounts; furthermore, Sunbelt has timely and properly filed and
maintained all requisite Currency Transaction Reports and other related forms,
including, but not limited to, any requisite Custom Reports required by any
agency of the United States Treasury Department, including but not limited to
the Internal Revenue Service.
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Section 2.27. Zoning and Related Laws. All real property owned by
Sunbelt and the use thereof materially complies with all applicable laws,
ordinances, regulations, orders or requirements, including without limitation,
building, zoning and other laws.
Section 2.28. Securities Laws. Sunbelt and its officers, employees
and agents are now, and at all times in the past have been, in full compliance
with all applicable federal and state securities laws and any regulations
promulgated thereunder. Sunbelt and its officers, employees and agents have
complied with, and currently hold, all necessary licenses and permits required
under any federal or state securities law or regulation to conduct any
securities activities in which Sunbelt or its officers, employees, or agents
are now engaged or have been engaged in the past.
Section 2.29. Regulatory Approvals. Sunbelt has no reason to
believe that it will not be able to obtain all requisite regulatory approvals
necessary to consummate the Consolidations as set forth in this Agreement.
Section 2.30. Shareholders' List. Sunbelt has provided or made
available to Bancshares as of a date within ten (10) days of the date of this
Agreement a list of the holders of shares of Sunbelt Common Stock containing
for Sunbelt's shareholders the names, addresses and number of shares held of
record, which shareholders' list is in all respects accurate as of such date
and will be updated prior to Closing.
III. REPRESENTATIONS AND WARRANTIES OF BANCSHARES,
DELAWARE-COMPANY AND PRIME
Bancshares, Delaware-Company and Prime, respectively as indicated
below, represent and warrant to Sunbelt that the statements contained in this
Article III are true and correct in all material respects as follows:
Section 3.1. Organization. Bancshares is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas and a bank holding company duly registered under the Bank Holding Company
Act of 1956, as amended (the "BHC Act"), subject to all laws, rules and
regulations applicable to bank holding companies. Delaware-Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and a bank holding company duly registered under
the BHC Act subject to all laws, rules and regulations applicable to bank
holding companies. Bancshares owns 100% of the issued and outstanding common
stock of Delaware-Company and, indirectly through Delaware-Company, 100% of the
issued and outstanding capital stock of Prime. Prime is a Texas banking
corporation duly organized, validly existing and in good standing under the
laws of the State of Texas. Prime is an insured bank as defined in the Federal
Deposit Insurance Act. Upon the organization of New Bank, Bancshares or
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Delaware-Company will own 100% of the issued and outstanding capital stock of
New Bank. When organized, New Bank will be duly organized, validly existing
and in good standing under the laws of the State of Texas. Bancshares,
Delaware-Company and Prime have full power and authority (including all
licenses, franchises, permits and other governmental authorizations which are
legally required) to own their properties, to engage in the business and
activities now conducted by them and to enter into this Agreement.
Section 3.2. Capitalization. The authorized capital stock of
Bancshares consists of 50,000,000 shares of common stock, $0.25 par value
("Bancshares Common Stock"), 12,010,980 of which are issued and 9,317,020 are
outstanding and 15,000,000 shares of preferred stock, $1.00 par value,
1,250,000 of which are designated as Series B 10% Non-Cumulative Preferred
Stock, 1,000,000 of which are issued and outstanding ("Bancshares Preferred
Stock"). All of the issued and outstanding shares of Bancshares Common Stock
and Bancshares Preferred Stock are validly issued, fully paid and
non-assessable. Except as disclosed on Schedule 3.2, Bancshares has no
existing options, warrants, calls, convertible securities or commitments of any
kind obligating Bancshares to issue any authorized but unissued shares of
Bancshares Common Stock or Bancshares Preferred Stock nor does Bancshares have
any outstanding commitment or obligation to repurchase, reacquire or redeem any
of its outstanding capital stock.
Section 3.3. Approvals; Authority. The Boards of Directors of
Bancshares, Delaware-Company and Prime have each approved this Agreement and
the transactions contemplated herein subject to the approval thereof by the
shareholders of Bancshares, Delaware-Company and Prime as required by law, and,
other than shareholder approval, no further corporate proceedings of
Bancshares, Delaware-Company or Prime are needed to execute and deliver this
Agreement and consummate the Consolidations. This Agreement has been duly
executed and delivered by Bancshares, Delaware-Company and Prime and is a duly
authorized, valid, legally binding agreement of Bancshares, Delaware-Company
and Prime enforceable against each entity in accordance with its terms, subject
to the effect of bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to creditors' rights generally and general equitable
principles.
Section 3.4. No Conflict With Other Instruments. Neither the
execution and delivery of this Agreement nor the consummation of the
Consolidations contemplated thereby, subject to obtaining all required
shareholder consents, will conflict with or result in a breach of any provision
of any Articles of Incorporation or Association of Bancshares,
Bancshares-Delaware, Prime or New Bank, as applicable, or their respective
Bylaws. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby, subject to obtaining all required
shareholder and regulatory approvals, will not violate any provision of, or
constitute a default under, any law, or any order, writ, injunction or decree
of any court or other governmental agency, or any contract, agreement
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or instrument to which Bancshares, Delaware-Company, Prime or New Bank is a
party or by which it is bound or constitute an event which, with the lapse of
time or action by a third party, could result in any default under any of the
foregoing or result in the creation of any lien, charge or encumbrance upon the
assets or properties of Bancshares, Delaware-Company or Prime or upon the stock
of Bancshares, Delaware-Company or Prime.
Section 3.5. Financial Statements. Bancshares' audited
consolidated balance sheets and the related statements of income, changes in
shareholders' equity and cash flows, together with the notes thereto, as of and
for the three years ended December 31, 1996, December 31, 1995 and December 31,
1994 and Bancshares unaudited balance sheet as of September 30, 1997 and
statements of income, changes in shareholders' equity and cash flows for the
nine months then ended have been furnished to Sunbelt. The financial
information referred to in this Section 3.5 is collectively referred to in this
Article III as the "Bancshares Financial Statements." The Bancshares Financial
Statements fairly present the financial position of Bancshares and Prime and
the results of their respective operations at the dates and for the periods
indicated in conformity with agreed upon selected procedures applied on a
consistent basis with previous accounting periods. As of the dates of the
Bancshares Financial Statements referred to above neither Bancshares nor Prime
had any liabilities, fixed or contingent, which are material and are not fully
shown or provided for in such Financial Statements or otherwise disclosed in
this Agreement, or in any of the documents delivered to Sunbelt. Since
September 30, 1997 there have been no material changes in the financial
condition, assets, liabilities or business of Bancshares or Prime, other than
changes in the ordinary course of business, which individually or in the
aggregate have materially and adversely affected the financial condition of
Bancshares or Prime.
Section 3.6. SEC Reports. Bancshares has filed all material
reports and statements, together with any amendments required to be made with
respect thereto, that it was required to file with the Securities and Exchange
Commission ("SEC"). As of their respective dates, each of such reports and
statements, as amended, were true and correct and complied in all material
respects with the relevant statutes, rules and regulations enforced or
promulgated by the SEC.
Section 3.7. Litigation and Other Proceedings. Except as
otherwise noted on Schedule 3.7 hereto, there are no legal, quasi-judicial or
administrative proceedings of any kind or nature now pending or, to the
knowledge of Bancshares, threatened before any court or administrative body in
any manner against Bancshares or Prime, or any of their respective properties
or capital stock, which might have a material adverse effect on Bancshares or
Prime, their respective financial conditions, assets, operations or earnings or
the transactions proposed by this Agreement. Neither Bancshares nor Prime
knows of any basis on which any litigation or proceeding could be brought which
could have a materially adverse effect on the financial condition or prospects
of Bancshares or Prime or which could question the
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validity of any action taken or to be taken in connection with this Agreement
and the transactions contemplated hereby. Neither Bancshares nor Prime is in
default with respect to any judgment, order, writ, injunction, decree, award,
rule or regulation of any court, arbitrator or governmental agency or
instrumentality.
Section 3.8. Ability to Pay Consolidation Consideration.
Bancshares has available a sufficient number of authorized and unissued shares
of Bancshares Common Stock to pay the portion of the Consolidation
Consideration payable in shares of Bancshares Common Stock, and Bancshares will
not take any action during the term of this Agreement that will cause it not to
have a sufficient number of authorized and unissued shares of Bancshares Common
Stock to pay the portion of the Consolidation Consideration payable in shares
of Bancshares Common Stock. Bancshares has available through internal funds
cash in the amount of the Consolidation Consideration to be paid in cash to
shareholders of Sunbelt as set forth in Section 1.9 hereof.
Section 3.9. Regulatory Approvals. Bancshares has no reason to
believe that it will not be able to obtain all requisite regulatory approvals
necessary to consummate the transactions set forth in this Agreement.
Section 3.10. Capitalization. The shares of Bancshares Common
Stock to be issued pursuant to this Agreement, when so issued, will be duly and
validly authorized and issued, fully paid and nonassessable, and not issued in
violation of any preemptive rights. As of September 30, 1997, Bancshares had
issued 12,010,980 shares of common stock, $.25 per share par value, 9,317,020
of which were outstanding. None of the shares of Bancshares Common Stock to be
issued pursuant to this Agreement will be subject to any lien, charge,
encumbrance, claim, rights of others, mortgage, pledge or security interest,
and none will be subject to any agreements or understandings among any persons
with respect to the voting or transfer of such shares of Bancshares Common
Stock except as contemplated hereby.
IV. COVENANTS OF SUNBELT
Sunbelt covenants and agrees with Bancshares, Delaware-Company and
Prime as follows:
Section 4.1. Shareholder Approval and Best Efforts. Sunbelt will,
as soon as practicable, present for the approval of its shareholders this
Agreement and the transactions contemplated hereby. Sunbelt will take all
reasonable action to arrange for a meeting of its shareholders for the purpose
of considering the Agreement and, if the transaction is approved by such
shareholders, to aid and assist in the consummation of the Consolidations, and
will use its best efforts to take or cause to be taken all other actions
necessary, proper or advisable to consummate the transactions contemplated by
this Agreement, including such actions as
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Bancshares reasonably considers necessary, proper or advisable in connection
with filing applications and registration statements with, or obtaining
approvals from, all regulatory authorities having jurisdiction over the
transactions contemplated by this Agreement.
Section 4.2. Operations. From and after the date of this
Agreement to the Effective Date, Sunbelt agrees to (a) conduct its business in
substantially the same manner as it has been conducted since September 30, 1997
and in accordance with prudent business and banking practices, (b) maintain and
keep its properties in as good repair and condition as at present, except for
deterioration due to ordinary wear and tear and damage due to casualty, (c)
maintain in full force and effect insurance comparable in amount and scope of
coverage to that currently maintained for Sunbelt, (d) make no alteration in
the manner of maintaining its books, accounts or records, or in the accounting
practices relating to its business, properties or assets, (e) perform all of
its material obligations under contracts, leases and documents relating to or
affecting its assets, properties and business, except such obligations as
Sunbelt may in good faith reasonably dispute, (f) maintain and preserve its
corporate existence, business organization, assets, licenses, permits,
authorizations and business opportunities intact, use its best efforts to
retain its present employees and maintain all relationships with depositors and
customers of Sunbelt, (g) comply with and perform all obligations and duties
imposed upon Sunbelt by all federal, state and local laws, and all rules,
regulations and orders imposed by federal, state or local governmental
authorities, (h) notify Bancshares immediately upon commencement of any
compliance, safety and soundness or other type of examination conducted by the
OCC or any other agency having supervisory authority over Sunbelt or in the
event of any actual or threatened litigation, (i) use its best efforts to amend
the Articles of Association or Bylaws of Sunbelt in any manner which
Bancshares, in its reasonable discretion, shall deem necessary, proper or
advisable, (j) promptly give written notice to Bancshares upon obtaining
knowledge of any event or fact that would cause any of the representations or
warranties of Sunbelt contained in this Agreement to be untrue or misleading in
any material respect, and (k) use its best efforts to continue to solicit
deposits, maintain deposits and operate its deposit gathering procedures
consistent with existing practices.
Sunbelt will not, without the prior written consent of Bancshares, (i)
permit any amendment or change to be made in Articles of Association or Bylaws
of Sunbelt except as directed by Bancshares as set forth in (i) above, (ii)
take any action described or do any of the things listed in Section 2.14 hereof
except with respect to Section 2.14(g), (iii) enter into or amend any contract,
agreement or other instrument of any of the types listed in Section 2.10
hereof, (iv) undertake any additional borrowings in excess of ninety (90) days,
(v) sell any investment securities, (vi) purchase any investment securities
other than United States Treasury obligations or obligations of any United
States governmental agency with maturities of more than two (2) years, (vii)
modify any outstanding loan, make any new loan, or acquire any loan
participation, unless such modification, new loan or participation is made
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in the ordinary course of business, consistent with existing practice, (viii)
commit to or make any extension of credit in an amount exceeding an aggregate
of $250,000 to any one borrower or his related interests, or (ix) agree to
settle all or part of any litigation matters, provided that with respect to
sections (iv), (v), (vi), (vii), (viii) and (ix) written consent of Bancshares
shall not be unreasonably withheld.
Section 4.3. Access to Properties and Records. To the extent
permitted by applicable law, Sunbelt will afford the executive officers and
authorized representatives (including legal counsel, accountants and
consultants) of Bancshares full access to the properties, books and records of
Sunbelt in order that Bancshares may have full opportunity to make such
reasonable investigation as it shall desire to make of the affairs of Sunbelt,
and the officers of Sunbelt will furnish Bancshares with such additional
financial and operating data and other information as to the business and
properties of Sunbelt as Bancshares shall, from time to time, request. As soon
as practicable after they become available, Sunbelt will deliver or make
available to Bancshares all unaudited quarterly financial statements prepared
for the internal use of management of Sunbelt and all Call Reports filed by
Sunbelt with the appropriate federal regulatory authority after the date of
this Agreement. All such financial statements shall be prepared in accordance
with generally accepted accounting principles applied on a consistent basis
with previous accounting periods. In the event of the termination of this
Agreement, Bancshares will return to Sunbelt all documents and other
information obtained pursuant hereto and will keep confidential any information
obtained pursuant to this Agreement.
Section 4.4. Information for Regulatory Applications and SEC
filings. To the extent permitted by law, Sunbelt will furnish Bancshares with
all information concerning Sunbelt required for inclusion in (i) any
application, statement or document to be made or filed by Bancshares,
Delaware-Company or Prime with any federal or state regulatory or supervisory
authority in connection with the transactions contemplated by this Agreement
during the pendency of this Agreement and (ii) any filings with the SEC,
including a Registration Statement on Form S-4, and any applicable state
securities authorities. Sunbelt represents and warrants that all information
so furnished for such applications and filings shall, to the best of its
knowledge, be true and correct in all material respects without omission of any
material fact required to be stated to make the information not misleading.
Sunbelt will indemnify and hold harmless Bancshares, Delaware-Company and Prime
from and against any and all losses, claims, damages, expenses or liabilities
to which any of them may become subject under applicable laws, rules and
regulations and will reimburse Bancshares, Delaware-Company and Prime for any
legal or other expenses reasonably incurred by any of them in connection with
investigating or defending any actions whether or not resulting in liability,
insofar as such losses, claims, damages, expenses, liabilities or actions arise
out of or are based upon any untrue statement of a material fact contained in
any such application or arise out of or are based upon the omission or alleged
omission to state
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therein a material fact required to be stated therein, or necessary in order to
make the statements therein not misleading, but only insofar as any such
statement or omission was made in reliance upon and in conformity with
information furnished in writing by Sunbelt expressly for use therein. Sunbelt
agrees at any time, upon the request of Bancshares, to furnish to Bancshares a
written letter or statement confirming the accuracy of the information with
respect to Sunbelt contained in any report or other application or statement
referred to in Sections 4.1 or 4.4 of this Agreement, and confirming that the
information with respect to Sunbelt contained in such document or draft was
furnished by Sunbelt expressly for use therein or, if such is not the case,
indicating the inaccuracies contained in such document or indicating the
information not furnished by Sunbelt expressly for use therein. The indemnity
agreement contained in this Section 4.4 will terminate at the Closing Date.
Section 4.5. Attendance at Certain Sunbelt Meetings. In order to
facilitate the continuing interaction of Bancshares with Sunbelt, and in order
to keep Bancshares fully advised of all ongoing activities of Sunbelt, Sunbelt
agrees to allow Bancshares to designate one or more representatives, any one of
whom will be allowed to attend as an invited guest and fully monitor all
regular and called meetings of the board of directors and loan and investment
committees of Sunbelt. Such representative shall have no right to vote and may
be excluded from sessions of the board of directors or loan or investment
committee during which there is being discussed (a) matters involving this
Agreement, (b) information or material which Sunbelt is required or obligated
to maintain as confidential under applicable laws or regulations or policies or
procedures of Sunbelt, or (c) pending or threatened litigation or
investigations if, in the opinion of counsel to Sunbelt, the presence of such
representative would or might adversely affect the confidential nature of or
any privilege relating to any matters to be discussed. No attendance by
representatives of Bancshares at board meetings under this Section 4.5 or
knowledge gained or deemed to have been gained by virtue of such attendance
will affect any of the representations and warranties of Sunbelt made in this
Agreement. Bancshares agrees that, until the Closing, it and its
representatives will hold in strict confidence all information so obtained from
Sunbelt and, if the transactions provided for herein are not consummated,
Bancshares will, upon request of Sunbelt, return or cause to be returned to
Sunbelt all written information and documents obtained from Sunbelt concerning
Sunbelt then in its possession.
Section 4.6. Standstill Provision. So long as this Agreement is
in effect, neither Sunbelt nor any of its directors or officers shall
entertain, solicit or encourage any inquiries, or provide any information to or
negotiate with any other party any proposal which could reasonably be expected
to lead to the merger, consolidation, acquisition, or sale of all or
substantially all of the assets or any shares of capital stock of Sunbelt.
Sunbelt agrees to notify Bancshares immediately of any such unsolicited
acquisition proposals and provide reasonable detail as to the identity of the
proposed acquiror and the nature of the proposed transaction.
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Section 4.7. Proxies. Sunbelt acknowledges that the persons
listed in Schedule 4.7 have agreed to vote their shares of Sunbelt Common Stock
pursuant to the terms of the Sunbelt Voting Agreement in favor of this
Agreement and the transactions contemplated hereby, subject to required
regulatory approvals, and that such persons will retain the right to vote such
shares during the term of this Agreement, pursuant to a Voting Agreement
substantially in the form of Exhibit "D" to this Agreement which has been
executed as of the date of this Agreement.
Section 4.8. Accounting and Tax Treatment. Sunbelt agrees to use
its reasonable efforts to cause the Consolidations, and to take no action which
would cause the Consolidations not, to qualify as a pooling of interests for
accounting purposes or as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code for federal income tax purposes.
Section 4.9. Pre-Closing Adjustments. Sunbelt agrees that prior
to December 31, 1997 it will (i) increase its reserve for loan losses by an
additional amount of $300,000 and (ii) adjust the retirement accrual fee for
Mr. B. J. Williams to an amount which is $100,000 less than the amount
provided in the minutes of the February 28, 1991 meeting of Sunbelt's Directors
Review and Advisory Guidance Committee
V. COVENANTS OF BANCSHARES, DELAWARE-COMPANY
AND PRIME
Bancshares, Delaware-Company and Prime covenant and agree with Sunbelt
as follows:
Section 5.1. Best Efforts. If required, Prime and New Bank will,
as soon as practicable, present for the approval of their respective
shareholders, this Agreement and the transactions contemplated thereby.
Bancshares, Delaware-Company and Prime will take all reasonable action to aid
and assist in the consummation of the Consolidations and the transactions
contemplated hereby, and will use their best efforts to take or cause to be
taken all other actions necessary, proper or advisable to consummate the
transactions contemplated by this Agreement, including such actions which are
necessary, proper or advisable in connection with filing applications with, or
obtaining approvals from, all regulatory authorities having jurisdiction over
the transactions contemplated by this Agreement.
Section 5.2. Information for Applications and Proxy Solicitation.
To the extent permitted by law, Bancshares will furnish Sunbelt with all
information concerning Bancshares, Delaware-Company and Prime required for
inclusion in (a) any application, statement or document to be made or filed by
Sunbelt with any federal or state regulatory or supervisory authority in
connection with the transactions contemplated by this Agreement
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during the pendency of this Agreement and (b) any proxy materials to be
furnished to the shareholders of Sunbelt in connection with their consideration
of the Consolidations. Bancshares, Delaware-Company and Prime represent and
warrant that all information so furnished for such statements and applications
shall, to the best of its knowledge, be true and correct in all material
respects without omission of any material fact required to be stated to make
the information not misleading. Bancshares will indemnify and hold harmless
Sunbelt from and against any and all losses, claims, damages, expenses or
liabilities to which Sunbelt may become subject under applicable laws, rules
and regulations and will reimburse Sunbelt for any legal or other expenses
reasonably incurred by Sunbelt in connection with investigating or defending
any actions whether or not resulting in liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are based on
any untrue statement or alleged untrue statement of a material fact contained
in any such application or proxy materials or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to
be stated therein, or necessary in order to make the statements therein not
misleading, but only insofar as such statement or omission was made in reliance
upon and in conformity with information expressly furnished by Bancshares
expressly for use therein. Bancshares agrees, upon the request of Sunbelt, to
furnish to Sunbelt a written letter or statement confirming to the best of its
knowledge the accuracy of the information with respect to Bancshares,
Delaware-Company and Prime contained in any report or other application or
statement referred to in Sections 5.1 or 5.2 of this Agreement, and confirming
that the information with respect to Bancshares and Prime contained in such
document or draft was furnished expressly for use therein or, if such is not
the case, indicating the inaccuracies contained in such document or indicating
the information not furnished by Bancshares expressly for use therein.
Section 5.3. Employee Benefit Plans. Bancshares agrees that the
employees of Sunbelt who are bona fide participants in any of Sunbelt's health
and welfare plans and who are not terminated by Prime will be entitled to
participate in all employee health and welfare plans maintained for employees
of Bancshares and Prime in accordance with the terms of such plans. All
employees of Sunbelt retained by Bancshares or Prime will receive credit for
their prior service with Sunbelt with respect to such plans.
Section 5.4. Confidentiality. Bancshares, Delaware-Company and
Prime shall not, before or after the consummation or termination of this
Agreement, directly or indirectly disclose any confidential information
acquired from Sunbelt to any person, firm, corporation, association or other
entity for any reason or purpose whatsoever, other than in connection with the
regulatory notice and application process or, after termination of this
Agreement pursuant to Section 7.1 hereof, use such information for its own
purposes or for the benefit of any person, firm, corporation, association, or
other entity under any circumstances.
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Section 5.5. Registration Statement. As promptly as practicable
after the execution of this Agreement, Bancshares will file with the SEC the
Registration Statement on Form S-4 under the Securities Act of 1933, as amended
("Securities Act") and any other applicable documents, relating to the shares
of Bancshares Common Stock to be delivered to the shareholders of Sunbelt
pursuant to this Agreement, and will use its best efforts to cause the
Registration Statement to become effective. At the time the Registration
Statement becomes effective, the Registration Statement will comply in all
material respects with the provisions of the Securities Act and the published
rules and regulations thereunder, and will not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not false or misleading, and at the
time of mailing thereof to Sunbelt's shareholders, at the time of the Sunbelt
shareholders' meeting held to approve the Consolidation and at the Effective
Date of the Consolidation, the prospectus included as part of the Registration
Statement, as amended or supplemented by any amendment or supplement filed by
Bancshares (the "Prospectus"), will not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not false or misleading; provided, however, that none of the
provisions of this subparagraph shall apply to statements in or omissions from
the Registration Statement or the Prospectus made in reliance upon and in
conformity with information furnished by Sunbelt for use in the Registration
Statement or the Prospectus.
Section 5.6. NASDAQ Listing. Bancshares will file all documents
required to be filed to list the Bancshares Common Stock to be issued pursuant
to the Agreement on the NASDAQ National Market and use its best efforts to
effect said listing.
Section 5.7. Issuance of Bancshares Common Stock. The shares of
Bancshares Common Stock to be issued by Bancshares to the shareholders of
Sunbelt pursuant to this Agreement will, on the issuance and delivery to such
shareholders pursuant to this Agreement, be duly authorized, validly issued,
fully paid and nonassessable. The shares of Bancshares Common Stock to be
delivered to the shareholders of Sunbelt pursuant to this Agreement are and
will be free of any preemptive rights of the shareholders of Bancshares.
Section 5.8. Delivery of Reports. From the date hereof to the
Effective Date, Bancshares shall deliver to Sunbelt, when reasonably available,
Bancshares' Quarterly Reports on Form 10-Q and Bancshares' Annual Reports on
Form 10-K as filed with the SEC under the Securities Exchange Act and at
Closing will provide written notice of any additional disclosure occurring
after the date of Bancshares' most recent Securities Exchange Act filing.
Section 5.9. Rule 144 Compliance. From and after the Effective
Date of the Merger, Bancshares shall file all reports with the SEC necessary to
permit the shareholders of Sunbelt who may be deemed "underwriters" (within the
meaning of the Rule 145 under
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the Securities Act) of Sunbelt Common Stock to sell Bancshares Common Stock
received by them in connection with the Consolidation pursuant to Rules 144 and
145(d) under the Securities Act if they would otherwise be so entitled;
provided, however, that Bancshares is otherwise obligated to file such reports
with the SEC.
Section 5.10. Publication of Financial Condition. Bancshares will
publish the results of thirty (30) days of combined operations of Bancshares
and Sunbelt as soon as practicable after the Effective Date.
Section 5.11. Employee Protection.
(a) To the extent that Bancshares, within the 180-day
period commencing on the Effective Date, shall terminate, for any reason other
than "good cause" as defined below, any of the employees set forth in Schedule
5.11 without providing at least four (4) months prior notice, Bancshares shall
be required to pay such employee a lump sum severance payment, based on such
employee's base monthly 1997 salary, equal to the difference between four (4)
months and the actual termination notice time period given.
(b) To the extent that Bancshares, within the 90-day
period commencing on the Effective Date, shall terminate, for any reason other
than "good cause" as defined below, any other employee of Sunbelt without
providing at least two (2) months prior notice, Bancshares shall be required to
pay such employee a lump sum severance payment, based on such employee's base
monthly 1997 salary, equal to the difference between two (2) months and the
actual termination notice time period given.
(c) For purposes of this section, good cause shall mean:
(i) a willful and repeated failure to perform duties as may be reasonably
assigned by Prime, (ii) willful and repeated violation of Prime's written
policies and procedures, (iii) habitual use of alcohol or drugs that prevents
the employee from performing duties reasonably assigned by Prime, (iv)
conviction of a felony, or conviction of a misdemeanor involving active and
willful fraud or moral turpitude, or (v) acts of gross disloyalty to Prime,
including but not limited to theft, embezzlement or intentional unauthorized
disclosure of confidential information. Any employee who voluntarily
terminates his or her employment shall not be entitled to any severance
payments.
VI. CLOSING
Section 6.1. Closing. Subject to the other provisions of this
Section VI, on a mutually acceptable date ("Closing Date") as soon as
practicable within a thirty-day period commencing with the latest of the
following dates:
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(a) the receipt of shareholder approval and the last
approval from any requisite regulatory or supervisory authority and the
expiration of any statutory or regulatory waiting period which is necessary to
effect the Consolidations; or
(b) if the transactions contemplated by this Agreement
are being contested in any legal proceeding and Bancshares or Sunbelt, pursuant
to Section 10.1 herein, have elected to contest the same, then the date that
such proceeding has been brought to a conclusion favorable, in the judgment of
each of Bancshares and Sunbelt, to the consummation of the transactions
contemplated herein, or such prior date as each of Bancshares and Sunbelt shall
elect whether or not such proceeding has been brought to a conclusion.
A meeting ("Closing") will take place at which the parties to this
Agreement will exchange certificates, opinions, letters and other documents in
order to determine whether any condition exists which would permit the parties
hereto to terminate this Agreement. If no such condition then exists or if no
party elects to exercise any right it may have to terminate this Agreement,
then and thereupon the appropriate parties shall execute such documents and
instruments as may be necessary or appropriate to effect the transactions
contemplated by this Agreement.
The Closing shall take place at the offices of Bracewell & Patterson,
L.L.P. in Houston, Texas, or at such other place to which the parties hereto
may mutually agree.
Section 6.2. Effective Date. Subject to the terms and upon
satisfaction of all requirements of law and the conditions specified in this
Agreement including, among other conditions, the receipt of any requisite
approvals of the shareholders of Sunbelt and the regulatory approvals of the
OCC, the Federal Reserve Board, FDIC, Banking Department and any other federal
or state regulatory agency whose approval must be received in order to
consummate the Consolidations, the Final Consolidation shall become effective,
and the effective date of the Final Consolidation shall occur, at the date and
time specified in the certificate approving the Final Consolidation to be
issued by the OCC ("Effective Date"). It is anticipated by Bancshares and
Sunbelt that the Closing and the Effective Date will occur on the same day.
VII. TERMINATION
Section 7.1. Termination.
(a) This Agreement may be terminated by action of the
Board of Directors of either Bancshares, Delaware-Company, Prime or Sunbelt at
any time prior to the Effective Date if:
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(i) any court of competent jurisdiction in the
United States or other United States (federal or state)
governmental body shall have issued an order, decree or ruling
or taken any other action restraining, enjoining or otherwise
prohibiting the Consolidations and such order, decree, ruling
or other action shall have been final and non-appealable;
(ii) any of the transactions contemplated by this
Agreement are disapproved by any regulatory authority or other
person whose approval is required to consummate any of such
transactions; or
(iii) the Consolidations shall not have become
effective on or before June 30, 1998 or such later date as
shall have been approved in writing by the Boards of Directors
of Bancshares, Prime and Sunbelt; provided, however, that the
right to terminate under this Section 7.1(a)(iii) shall not be
available to any party whose failure to fulfill any material
obligation under this Agreement has been the cause of, or has
resulted in, the failure of the Consolidations to become
effective on or before such date.
(b) This Agreement may be terminated at any time prior to
the Effective Date by the Board of Directors of Sunbelt if (i) Bancshares,
Delaware-Company or Prime shall fail to comply in any material respect with any
of its covenants or agreements contained in this Agreement, or if any of the
representations or warranties of Bancshares, Delaware-Company or Prime
contained herein shall be defective in any material respect or (ii) there shall
have been any change after September 30, 1997 in the assets, properties,
business or financial condition of Bancshares, Delaware-Company or Prime which
individually or in the aggregate have materially and adversely affected the
ability of Bancshares to pay the Consolidation Price set forth in Section 1.9
hereof. In the event the Board of Directors of Sunbelt desires to terminate
this Agreement as provided above, such Board of Directors must notify
Bancshares in writing of its intent to terminate stating the reason therefor.
Bancshares shall have fifteen days from the receipt of such notice to cure, or
cause Delaware-Company or Prime to cure, the alleged breach or inaccuracy,
subject to the approval of Sunbelt (which approval shall not be unreasonably
delayed or withheld).
(c) This Agreement may be terminated any time prior to
the Effective Date by action of the Board of Directors of Bancshares,
Delaware-Company or Prime if (i) Sunbelt shall fail to comply in any material
respect with any of its covenants or agreements contained in this Agreement, or
if any of the representations or warranties of Sunbelt contained herein shall
be defective in any material respect, (ii) there shall have been any change
after September 30, 1997, in the assets, properties, business or financial
condition of Sunbelt which individually or in the aggregate have materially and
adversely affected the financial condition, results of operation or business of
Sunbelt, or (iii) the Board
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of Directors of Bancshares reasonably concludes, in its sole discretion, that
either Bancshares, Delaware-Company, Prime or New Bank will be unable to obtain
any regulatory approval required in order to consummate the Consolidation or
any such approval is accompanied by terms or conditions unacceptable to
Bancshares or Prime. In the event the Board of Directors of Bancshares desires
to terminate this Agreement because of an alleged breach, inaccuracy or change
as provided in (i) or (ii) above, the Board of Directors must notify Sunbelt in
writing of its intent to terminate stating the cause therefor. Sunbelt shall
have fifteen days from the receipt of such notice to cure the alleged breach,
inaccuracy or change, subject to the approval of Bancshares (which approval
shall not be unreasonably delayed or withheld).
(d) This Agreement may be terminated at any time prior to
the Effective Date with the mutual written consent of Bancshares,
Delaware-Company, Prime and Sunbelt and the approval of such action by their
respective Boards of Directors.
(e) By the Board of Directors of Sunbelt, if the Average
Price (as set forth in Section 1.10 of this Agreement) is $17.50 or less,
provided that, if Sunbelt elects to exercise its termination right pursuant to
this Section 7.1(e), it shall give prompt written notice to Bancshares within
two (2) business days after the calculation of the Average Price, and within
the two (2) business day period commencing with the receipt of such notice,
Bancshares shall have the option of increasing the aggregate number of shares
of Bancshares Common Stock into which shares of Sunbelt Common Stock will be
converted into on the Effective Date by (i) subtracting the Average Price
multiplied by 920,000 from $16,100,000 and (ii) dividing the difference by the
Average Price.
(f) This Agreement may be terminated by Bancshares on or
before January 15, 1998 if the Schedules to be delivered by Sunbelt on or
before January 12, 1998 pursuant to Article II of this Agreement are not
acceptable to Bancshares.
Section 7.2. Effect of Termination. In the event of termination
of this Agreement and the abandonment of the Consolidation without breach by
any party hereto, this Agreement shall become void and have no effect, without
any liability on the part of any party or its directors, officers or
shareholders. Nothing contained in this Section 7.2 shall relieve any party
hereto of any liability for a breach of this Agreement.
VIII. CONDITIONS TO OBLIGATIONS OF BANCSHARES,
DELAWARE-COMPANY AND PRIME
The obligations of Bancshares, Delaware-Company and Prime under this
Agreement are subject to the satisfaction, at or prior to the Closing Date of
the following conditions, which may be waived by Bancshares, Delaware-Company
and Prime in their sole discretion:
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Section 8.1. Compliance with Representations and Covenants. The
representations and warranties made by Sunbelt in this Agreement must have been
true in all material respects when made and shall be true in all material
respects as of the Closing Date with the same force and effect as if such
representations and warranties were made at and as of the Closing Date, and
Sunbelt shall have performed or complied with all covenants and conditions
required by this Agreement to be performed and complied with prior to or at the
Closing. Bancshares shall have been furnished with a certificate, executed by
an appropriate representative of Sunbelt and dated as of the Closing Date, to
the foregoing effect.
Section 8.2. Material Adverse Change. Prior to the Closing Date,
there shall not have occurred any material adverse change in the financial
condition, business or operations of Sunbelt, nor shall any event have occurred
which, with the lapse of time, will cause or create any material adverse change
in the financial condition, business or operations of Sunbelt in the reasonable
judgment of the Board of Directors of Bancshares. Bancshares shall have
received a certificate to the foregoing effect executed by an appropriate
representative of Sunbelt and dated as of the Closing Date.
Section 8.3. Legal Opinion. Bancshares shall have received an
opinion of counsel to Sunbelt, dated as of the Closing Date, in form and
substance satisfactory to counsel for Bancshares, to the effect set forth in
Schedule 8.3 hereof.
Section 8.4. Releases. The directors and officers shall have
delivered to Bancshares an instrument in the form of Exhibit "E" attached
hereto dated the Effective Date releasing Bancshares, Delaware-Company and
Prime from any and all claims of such directors (except as to their deposits
and accounts and any rights of indemnification pursuant to Sunbelt's Articles
of Association), and the directors of Sunbelt shall have delivered to
Bancshares their resignations as directors of Sunbelt.
Section 8.5. Accounting Letters. Bancshares shall have received a
letter from Grant Thornton LLP, dated as of the Effective Date, to the effect
that the Consolidations will qualify for pooling of interests accounting
treatment if consummated in accordance with the Agreement, and shall have
received a letter from Sunbelt's accountants, Harper & Pearson, to the effect
that Harper & Pearson knows of no reason why the Consolidation will not qualify
for pooling of interests accounting treatment if consummated in accordance with
the Agreement.
Section 8.6. Dissenters' Rights. The holders of no more than 5%
of the issued and outstanding Sunbelt Common Stock shall have demanded or shall
be entitled to demand payment of the fair value of their shares as dissenting
shareholders.
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Section 8.7. Tax Opinion. Bancshares shall have received a copy
of the tax opinion described in Section 9.5 of this Agreement.
IX. CONDITIONS TO OBLIGATIONS OF SUNBELT
The obligations of Sunbelt under this Agreement are subject to the
satisfaction, at or prior to the Closing Date, of the following conditions,
which may be waived by Sunbelt in its sole discretion:
Section 9.1. Compliance with Representations and Covenants. The
representations and warranties made by Bancshares, Delaware-Company and Prime
in this Agreement must have been true in all materials respects when made and
shall be true in all material respects as of the Closing Date with the same
force and effect as if such representations and warranties were made at and as
of the Closing Date, and Bancshares, Delaware-Company and Prime shall have
performed and complied in all material respects with all covenants and
conditions required by this Agreement to be performed or complied with by
Bancshares, Delaware-Company and Prime prior to or at the Closing. Sunbelt
shall be furnished with a certificate, executed by appropriate representatives
of Bancshares, Delaware-Company and Prime and dated as of the Closing Date, to
the foregoing effect.
Section 9.2. Material Adverse Change. Prior to the Closing Date,
there shall not have occurred any material adverse change in the financial
condition, business or operations of Bancshares, Delaware-Company or Prime, nor
shall any event have occurred which, with the lapse of time, will cause or
create any material adverse change in the financial condition, business or
operations of Bancshares, Delaware-Company or Prime which would materially and
adversely affect the ability of Bancshares to pay the Consolidation Price set
forth in Section 1.9.
Section 9.3. Legal Opinion. Sunbelt shall have received an
opinion of counsel to Bancshares, dated as of the Closing Date and in form and
substance satisfactory to counsel for Sunbelt, to the effect set forth in
Schedule 9.3 hereof.
Section 9.4. Releases. Sunbelt shall have delivered to the
directors of Sunbelt an instrument in the form of Exhibit "F" attached hereto
dated the Effective Date releasing the directors from any and all claims of
Sunbelt (except as to indebtedness and other contractual liabilities);
provided, however, that such releases shall not release an action against such
directors by Bancshares or Prime in connection with the transactions
contemplated by this Agreement.
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Section 9.5. Tax Opinion. Sunbelt shall have received an opinion
of counsel satisfactory to Sunbelt that the Consolidations will result in a
tax-free exchange to Sunbelt shareholders under Section 368(a) of the Internal
Revenue Code.
X. CONDITIONS TO RESPECTIVE OBLIGATIONS OF BANCSHARES,
DELAWARE-COMPANY, PRIME AND SUNBELT
The respective obligations of Bancshares, Delaware-Company, Prime, and
Sunbelt under this Agreement are subject to the satisfaction of the following
conditions which may be waived by Bancshares, Delaware-Company, Prime, and
Sunbelt, respectively, in their sole discretion:
Section 10.1. Government Approvals. Bancshares and Sunbelt shall
have received the approval, or waiver of approval, of the transactions
contemplated by this Agreement from all necessary governmental agencies and
authorities, including the OCC and any other regulatory agency whose approval
must be received in order to consummate the Consolidations, which approvals
shall not impose any restrictions on the operations of the Continuing Bank
which are unacceptable to Bancshares, and such approvals and the transactions
contemplated hereby shall not have been contested by any federal or state
governmental authority or any third party (except shareholders asserting
dissenters' rights) by formal proceeding. It is understood that, if any such
contest is brought by formal proceeding, Bancshares or Sunbelt may, but shall
not be obligated to, answer and defend such contest or otherwise pursue the
Consolidations over such objection.
Section 10.2. Shareholder Approval. The shareholders of Sunbelt,
the shareholder of New Bank, and Delaware-Company as the sole shareholder of
Prime, shall have approved this Agreement and the transactions contemplated by
this Agreement and the holders of no more than 5% of the Sunbelt Common Stock
shall have exercised their dissenters' rights in accordance with the applicable
laws, rules and regulations as provided in Section 1.10 of this Agreement.
Section 10.3. Registration of Bancshares Common Stock. The
Registration Statement covering the Bancshares Common Stock to be issued in the
Consolidation shall be effective under the Securities Act and any applicable
state securities or "blue sky" acts and no stop orders suspending the
effectiveness of such registration statement shall be in effect.
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XI. MISCELLANEOUS
Section 11.1. Non-Survival of Representations and Warranties. The
representations and warranties of Bancshares, Delaware-Company, Prime and
Sunbelt contained in this Agreement shall terminate at the Closing Date.
Section 11.2. Amendments. This Agreement may be amended only by a
writing signed by Bancshares, Delaware-Company, Prime and Sunbelt at any time
prior to the Closing Date with respect to any of the terms contained herein;
provided, however, that the Consolidation Price to be received by the
shareholders of Sunbelt pursuant to this Agreement shall not be decreased
subsequent to the approval of the transactions contemplated by the Agreement
without the further approval by such shareholders.
Section 11.3. Expenses.
(a) Whether or not the transactions provided for herein
are consummated, each party to this Agreement will pay its respective expenses
incurred in connection with the preparation and performance of its obligations
under this Agreement. Similarly, each party agrees to indemnify the other
parties against any cost, expense or liability (including reasonable attorneys'
fees) in respect of any claim made by any party for a broker's or finder's fee
in connection with this transaction other than one based on communications
between the party and the claimant seeking indemnification. Bancshares and
Sunbelt represent and warrant to each other that neither of them, nor any of
their agents, employees or representatives, has incurred any liability for any
commissions or brokerage fees in connection with this transaction.
(b) Sunbelt shall pay Bancshares, and Bancshares shall be
entitled to payment of, a fee equal to the aggregate consideration paid or to
be paid to shareholders of Sunbelt which exceeds the aggregate Consolidation
Price set forth in Section 1.9 hereof plus all out of pocket expenses incurred
by Bancshares or Prime in connection with the transactions set forth in this
Agreement (the "Fee") upon the occurrence of a Purchase Event (as defined
herein) so long as the Purchase Event occurs prior to a Fee Termination Event
(as defined herein). Such payment shall be made to Bancshares in immediately
available funds within five business days after the occurrence of a Purchase
Event. In the event that the consideration to be paid from the transaction
giving rise to the Purchase Event is other than cash or publicly traded
securities, the Fee shall be paid as determined in Section 11.3(e) hereof. A
Fee Termination Event shall be the first to occur of the following: (i) the
Effective Date, (ii) 18 months following the first occurrence of a Purchase
Event (as defined herein), or (iii) termination of this Agreement in accordance
with the terms hereof prior to the occurrence of a Purchase Event (other than a
termination of this Agreement by Bancshares
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hereof as a result of a willful material breach of any representation,
warranty, covenant or agreement of Sunbelt).
(c) The term "Purchase Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Sunbelt, without having received Bancshares'
prior written consent, shall have entered into an agreement to
engage in an Acquisition Transaction (as defined below) with
any person (the term "person" for purposes of this Agreement
having the meaning assigned thereto in Section 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange
Act") and the rules and regulations thereunder) other than
Bancshares or any affiliate of Bancshares (the term
"affiliate" for purposes of this Agreement having the meaning
assigned thereto in Rule 405 under the Securities Act) or the
Board of Directors of Sunbelt shall have recommended that the
shareholders of Sunbelt approve or accept any Acquisition
Transaction with any person other than Bancshares or any
affiliate of Bancshares. For purposes of this Agreement,
"Acquisition Transaction" shall mean (x) a merger or
consolidation, or any similar transaction, involving Sunbelt,
(y) a purchase, lease or other acquisition of all or
substantially all of the assets of Sunbelt, or (z) a sale of
authorized but unissued securities representing 15% or more of
the voting power of Sunbelt.
(ii) Any person other than Bancshares or any
affiliate of Bancshares, other than in connection with a
transaction to which Bancshares has given its prior written
consent, shall have consummated any proposed transaction or
series of transactions involving or affecting Sunbelt or any
securities or assets of Sunbelt that results in an acquisition
of control of Sunbelt within the meaning of 12 USCA Section
1817(j) or the regulations promulgated thereunder; or
(iii) After a bona fide proposal is made by any
person other than Bancshares or any affiliate of Bancshares to
Sunbelt or its shareholders to engage in an Acquisition
Transaction, Sunbelt shall have breached any covenant or
obligation contained in this Agreement and such breach would
entitle Bancshares to terminate this Agreement, a meeting of
the shareholders to vote on this Agreement shall not have been
held or shall have been canceled prior to termination of this
Agreement or the Board of Directors of Sunbelt shall have
withdrawn or modified in a manner adverse to Bancshares the
recommendation of the Board of Directors of Sunbelt with
respect to this Agreement.
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<PAGE> 43
(d) Sunbelt shall promptly give written notice to
Bancshares of the occurrence of a Purchase Event known to Sunbelt; however, the
giving of such notice by Sunbelt shall not be a condition to the right of
Bancshares to obtain the Fee.
(e) If the consideration to be offered, paid or received
pursuant to a Purchase Event described in Section 11.3(b) hereof shall be other
than in cash or publicly traded securities, the value of such consideration
shall be determined in good faith by an independent nationally recognized
investment banking firm selected by Bancshares and reasonably acceptable to
Sunbelt, which determination shall be conclusive for all purposes of this
Agreement.
(f) The payment of the Fee shall be in lieu of
Bancshares, Delaware-Company or Prime seeking any other relief or damages to
which it is otherwise entitled pursuant to this Agreement.
Section 11.4. Notices. Any notice given hereunder shall be in
writing and shall be delivered in person or mailed by first class mail, postage
prepaid or sent by facsimile, courier or personal delivery to the parties at
the following addresses unless by such notice a different address shall have
been designated:
If to Bancshares, Delaware-Company or Prime:
Prime Bancshares, Inc.
12200 Northwest Freeway
Houston, Texas 77092
Attention: Mr. Stuart D. Saunders
With a copy to:
Bracewell & Patterson, L.L.P.
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
Attention: Mr. William T. Luedke IV
37
<PAGE> 44
If to Sunbelt:
Sunbelt National Bank
1160 Dairy Ashford, Suite 100
P.O. Box 55869
Houston, Texas 77255
Attention: Mr. B. J. Williams
With a copy to:
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
3400 Texas Commerce Tower
600 Travis Street
Houston, Texas 77002
Attention: Mr. Donald E. Wood
All notices sent by mail as provided above shall be deemed delivered five (5)
days after deposit in the mail. All notices sent by facsimile or courier as
provided above shall be deemed delivered one day after being sent. All other
notices shall be deemed delivered when actually received. Any party to this
Agreement may change its address for the giving of notice specified above by
giving notice as herein provided.
Section 11.5. Controlling Law. All questions concerning the
validity, operation and interpretation of this Agreement and the performance of
the obligations imposed upon the parties hereunder shall be governed by the
laws of the State of Texas and, to the extent applicable, by the laws of the
United States of America.
Section 11.6. Headings. The headings and titles to the sections of
this Agreement are inserted for convenience only and shall not be deemed a part
hereof or affect the construction or interpretation of any provision hereof.
Section 11.7. Modifications or Waiver. No termination,
cancellation, modification, amendment, deletion, addition or other change in
this Agreement, or any provision hereof, or waiver of any right or remedy
herein provided, shall be effective for any purpose unless specifically set
forth in a writing signed by the party or parties to be bound thereby. The
waiver of any right or remedy in respect to any occurrence or event on one
occasion shall not be deemed a waiver of such right or remedy in respect to
such occurrence or event on any other occasion.
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<PAGE> 45
Section 11.8. Severability. Any provision hereof prohibited by or
unlawful or unenforceable under any applicable law or any jurisdiction shall as
to such jurisdiction be ineffective, without affecting any other provision of
this Agreement, or shall be deemed to be severed or modified to conform with
such law, and the remaining provisions of this Agreement shall remain in force,
provided that the purpose of the Agreement can be effected. To the fullest
extent, however, that the provisions of such applicable law may be waived, they
are hereby waived, to the end that this Agreement be deemed to be a valid and
binding agreement enforceable in accordance with its terms.
Section 11.9. Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, but shall not be assigned by any party without the prior written
consent of the other parties.
Section 11.10. Consolidation of Agreements. All understandings and
agreements heretofore made between the parties hereto are merged in this
Agreement which (together with any agreements executed by the parties hereto
contemporaneously with or subsequent to the execution of this Agreement) shall
be the sole expression of the agreement of the parties respecting the
Consolidations.
Section 11.11. Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original and all of
which shall be deemed to constitute one and the same instrument.
Section 11.12. Binding on Successors. Except as otherwise provided
herein, this Agreement shall be binding upon, and shall inure to the benefit
of, the parties and their respective heirs, executors, trustees,
administrators, guardians, successors and assigns.
Section 11.13. Gender. Any pronoun used herein shall refer to any
gender, either masculine, feminine or neuter, as the context requires.
Section 11.14. Disclosures. Any disclosure made in any document
delivered pursuant to this Agreement or referred to or described in writing in
any section of this Agreement or any schedule attached hereto shall be deemed
to be disclosure for purposes of any section herein or schedule hereto.
Section 11.15. Publicity. Subject to written advice of counsel with
respect to legal requirements relating to public disclosure of matters related
to the transactions contemplated by this Agreement, the timing and content of
any announcements, press releases or other public statements (whether written
or oral) concerning this Agreement or the Consolidation will occur upon, and be
determined by, the mutual consent of Bancshares and Sunbelt;
39
<PAGE> 46
provided, however, that this shall not include notices required to be published
pursuant to the regulatory application process.
Section 11.16. Entire Agreement. This Agreement contains the entire
agreement among Bancshares, Delaware-Company, Prime and Sunbelt with respect
to the Consolidation.
40
<PAGE> 47
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
PRIME BANCSHARES, INC.
By:
--------------------------------
ATTEST:
By:
-------------------------------
IBID, INC.
By:
--------------------------------
ATTEST:
By:
-------------------------------
PRIME BANK
By:
--------------------------------
ATTEST:
41
<PAGE> 48
By:
-------------------------------
SUNBELT NATIONAL BANK
By:
--------------------------------
ATTEST:
By:
-------------------------------
42
<PAGE> 49
EXHIBIT "A"
PLAN OF CONSOLIDATION
BETWEEN NEW PRIME BANK
AND SUNBELT NATIONAL BANK
This PLAN OF CONSOLIDATION (the "Plan") is dated as of the ____ day of
_____________, 1997, by and between Sunbelt National Bank, a national banking
association located in Houston, Texas ("Sunbelt") and New Prime Bank ("New
Bank"), a Texas interim banking association formed as a wholly-owned subsidiary
of Prime Bancshares, Inc. ("Bancshares") solely to facilitate the transactions
contemplated by the Agreement and Plan of Reorganization, defined below.
Sunbelt and New Bank are hereinafter sometimes collectively referred to as the
"Consolidating Institutions."
This Plan of Consolidation is being entered into pursuant to the
Agreement and Plan of Reorganization dated as of November __, 1997 (the
"Agreement") by and among Bancshares, IBID, Inc., Prime Bank, and Sunbelt.
In consideration of the premises, and the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS
Except as otherwise provided herein, the capitalized terms set forth
below shall have the following meanings:
Section 1.1. "Effective Date" shall mean the date at which the
consolidation contemplated by this Plan of Consolidation becomes effective as
determined by the certificate approving the Consolidation to be issued by the
Office of the Comptroller of the Currency (the "OCC").
Section 1.2. "New Bank Common Stock" shall mean the common stock,
par value $1.00 per share, of New Bank owned by Bancshares.
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<PAGE> 50
Section 1.3. "Sunbelt Common Stock" shall mean the common stock,
par value $10.00 per share, of Sunbelt.
Section 1.4. "Initial Consolidation" shall refer to the
consolidation of New Bank with and into Sunbelt as provided in Section 2.1 of
this Plan.
Section 1.5. "First Surviving Bank" shall refer to Sunbelt as the
institution surviving the Initial Consolidation.
ARTICLE 2.
TERMS OF THE CONSOLIDATION
Section 2.1. Initial Consolidation. Subject to the terms and
conditions set forth in the Agreement, on the Effective Date, New Bank shall
be consolidated with and into Sunbelt, with Sunbelt as the First Surviving
Bank, under the charter and Articles of Association of Sunbelt, as determined
by the OCC, and each of the outstanding shares of common stock of New Bank
shall and without any action on the part of Bancshares be canceled and be
converted into shares of common stock of the First Surviving Bank. The shares
of common stock of the First Surviving Bank into which such New Bank common
stock is converted shall represent ownership of 100% of the issued and
outstanding capital stock of the First Surviving Bank, all of which shall be
owned by Bancshares.
Section 2.2. Articles of Association, Bylaws and Facilities of
First Surviving Bank. On the Effective Date and until thereafter amended in
accordance with law, the Articles of Association of the First Surviving Bank
shall be the Articles of Association of Sunbelt as in effect on the Effective
Date. Until altered, amended or repealed as provided therein and in the
Articles of Association of the First Surviving Bank, the Bylaws of the First
Surviving Bank shall be the Bylaws of Sunbelt as in effect on the Effective
Date. The main office of the First Surviving Bank shall be the main office of
Sunbelt as of the Effective Date, and all corporate acts, plans, policies,
contracts, approvals and authorizations of Sunbelt and New Bank and their
respective shareholders, boards of directors, committees elected or appointed
thereby, officers and agents, which were valid and effective immediately prior
to the Effective Date, shall be taken for all purposes as the acts, plans,
policies, contracts, approvals and authorization of the First Surviving Bank
and shall be as effective and binding thereon
44
<PAGE> 51
as the same were with respect to Sunbelt and New Bank respectively, as of the
Effective Date.
Section 2.3. Effect of Initial Consolidation. On the Effective
Date of the Initial Consolidation, the corporate existence of Sunbelt and New
Bank shall be consolidated into and continued in the First Surviving Bank, and
the First Surviving Bank shall be deemed to be a continuation in entity and
identity of Sunbelt and New Bank. All rights, franchises and interests of
Sunbelt and New Bank, respectively, in and to any type of property and choses
in action shall be transferred to and vested in the First Surviving Bank by
virtue of the Initial Consolidation without any deed or other transfer. First
Surviving Bank, without any order or other action on the part of any court or
otherwise, shall hold and enjoy all rights of property, franchises and
interest, including appointments, designations and nominations, and all other
rights and interests as trustee, executor, administrator, transfer agent or
registrar of stocks and bonds, guardian of estates, assignee, receiver and
committee of estates and lunatics, and in every other fiduciary capacity, in
the same manner and to the same extent as such rights, franchises and interests
were held or enjoyed by Sunbelt and New Bank, respectively, as of the Effective
Date.
Section 2.4. Liabilities of the First Surviving Bank. On the
Effective Date, the First Surviving Bank shall be liable for all liabilities of
Sunbelt and New Bank. All deposits, debts, liabilities and obligations of
Sunbelt and of New Bank, respectively, accrued, absolute, contingent or
otherwise, and whether or not reflected or reserved against on balance sheets,
books of account or records of Sunbelt or New Bank, as the case may be, shall
be those of the First Surviving Bank and shall not be released or impaired by
the Initial Consolidation. All rights of creditors and other obligees and all
liens on property of either Sunbelt or New Bank shall be preserved unimpaired.
ARTICLE 3.
CONVERSION OF SHARES
Section 3.1. Conversion of Sunbelt Common Stock. On the Effective
Date, each share of Sunbelt Common Stock issued and outstanding immediately
prior to the Effective Date (other than Dissenting Shares as hereinafter
defined) shall, by virtue of the Consolidation and without any action on the
part of the holder thereof, be converted into the
45
<PAGE> 52
right to receive the Consolidation Consideration set forth in Section 1.9 of
the Agreement (the "Purchase Price").
Section 3.2. Exchange of Shares. The exchange of Sunbelt Common
Stock for the Consolidation Consideration shall take place as set forth in
Section 1.11 of the Agreement. Each shareholder of Sunbelt shall be entitled
to receive payment for his shares only upon surrender of the certificates
representing his shares of Sunbelt Common Stock or after providing an
appropriate Affidavit of Lost Certificate and Indemnity Agreement and/or a bond
as may be required in each case by Bancshares. Until so surrendered, each
Sunbelt Common Stock certificate will be deemed for all corporate purposes to
represent and evidence solely the right to receive the amount of the Purchase
Price to be paid therefor pursuant to the Agreement without interest thereon.
Section 3.3. Dissenting Shares. Each share of Sunbelt Common
Stock issued and outstanding immediately prior to the Effective Date, the
holder of which has not voted in favor of the Initial Consolidation and who has
properly perfected his dissenters' rights of appraisal by following the
procedures set forth in the National Bank Act, is referred to herein as a
"Dissenting Share." Dissenting Shares owned by each holder thereof who has not
failed to perfect his dissenter's rights, shall not be converted into or
represent the right to receive the Purchase Price pursuant to Section 3.3
hereof and shall be entitled only to such rights as are available to such
holder pursuant to the applicable provisions of the National Bank Act. Each
holder of Dissenting Shares shall be entitled to receive the value of such
Dissenting Shares held by him in accordance with the applicable provisions of
the National Bank Act, provided such holder complies with the procedures
contemplated by and set forth in the applicable provisions of the National Bank
Act.
Section 3.4. New Bank Common Stock. On the Effective Date, the
shares of New Bank Common Stock issued and outstanding immediately prior to the
Effective Date shall be converted automatically and without any action on the
part of the holder thereof into shares of common stock of the First Surviving
Bank. The shares of common stock of the First Surviving Bank into which such
New Bank Common Stock are converted shall represent ownership of 100% of the
issued and outstanding capital stock of the First Surviving Bank, all of which
shall be owned by Bancshares.
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<PAGE> 53
ARTICLE 4.
MISCELLANEOUS
Section 4.1. Conditions Precedent. The respective obligations of
each party under this Plan shall be subject to the satisfaction, or waiver by
the party permitted to do so, of the conditions set forth in Articles VIII, IX
and X of the Agreement.
Section 4.2. Termination. This Plan shall be terminated upon the
termination of the Agreement in accordance with Article VII thereof; provided,
that any such termination of this Plan shall not relieve any party hereto from
liability on account of a breach by such party of any of the terms hereof or
thereof.
Section 4.3. Amendments. To the extent permitted by law, this
Plan may be amended by a subsequent writing signed by all of the parties hereto
upon the approval of the Board of Directors of each of the parties hereto.
Section 4.4. Successors. This Plan shall be binding on the
successors of New Bank and Sunbelt.
IN WITNESS WHEREOF, New Bank and Sunbelt have caused this Plan to be
executed by their duly authorized officers and their corporate seals to be
hereunto affixed as of the date first above written.
NEW PRIME BANK
Attest:
By:
- -------------------------------- -----------------------------------------
SUNBELT NATIONAL BANK
Attest:
By:
- -------------------------------- -----------------------------------------
47
<PAGE> 54
EXHIBIT "B"
PLAN OF CONSOLIDATION
BETWEEN
SUNBELT NATIONAL BANK
AND
PRIME BANK
THIS PLAN OF CONSOLIDATION (the "Plan) is dated as of the ____ day of
___________, 1997, by and between Sunbelt National Bank, a national banking
association ("Sunbelt") and Prime Bank ("Prime").
W I T N E S S E T H:
WHEREAS, pursuant to the Agreement and Plan of Reorganization (the
"Agreement") dated as of November __, 1997, by and among Prime Bancshares
("Bancshares"), IBID, Inc., Prime and Sunbelt and the Plan of Consolidation,
dated as of _______________, 1997, by and between Sunbelt and New Prime Bank
("New Bank"), New Bank will consolidate with and into Sunbelt (the "Initial
Consolidation"), with the result that Sunbelt will become a wholly-owned
subsidiary of Bancshares;
WHEREAS, the Agreement provides that simultaneously with or as soon as
practicable after the Initial Consolidation, Sunbelt will be consolidated with
and into Prime;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Sunbelt and Prime hereby agree
that, subject to the terms and conditions hereinafter set forth, and in
accordance with all applicable laws and regulations, Sunbelt shall be
consolidated with and into Prime on the Effective Date (as hereinafter defined)
(the "Final Consolidation"). The parties hereto do hereby agree and covenant
as follows:
1. Conditions of Approval. The Final Consolidation shall not
become effective unless and until all terms and conditions to such
effectiveness contained in the Agreement, which conditions are incorporated
herein by reference, shall have been satisfied or waived.
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<PAGE> 55
2. Identity of Resulting Bank. The resulting bank as a result of
the Final Consolidation (the "Continuing Bank") shall be Prime.
3. Articles of Association, Bylaws and Facilities of Continuing
Bank. On the Effective Date and until thereafter amended in accordance with
law, the Articles of Association of Continuing Bank shall be the Articles of
Association of Prime as in effect on the Effective Date. Until altered,
amended or repealed as therein provided and in the Articles of Association of
Continuing Bank, the Bylaws of Continuing Bank shall be the Bylaws of Prime as
in effect on the Effective Date. Unless and until changed by the Board of
Directors of Continuing Bank, the main office of Continuing Bank shall be the
main office of Prime as of the Effective Date. The established offices and
facilities of Sunbelt immediately prior to the Final Consolidation shall become
established offices and facilities of the Continuing Bank. Until thereafter
changed in accordance with the law or the Articles of Association or Bylaws of
Continuing Bank, all corporate acts, plans, policies, contracts, approvals and
authorizations of Sunbelt and Prime and their respective shareholders, boards
of directors, committees elected or appointed thereby, officers and agents,
which were valid and effective immediately prior to the Effective Date, shall
be taken for all purposes as the acts, plans, policies, contracts, approvals
and authorizations of Continuing Bank and shall be as effective and binding
thereon as the same were with respect to Sunbelt and Prime, respectively, as of
the Effective Date.
4. Effect of Final Consolidation. On the Effective Date, the
corporate existence of the Sunbelt and Prime shall, as provided by law, be
consolidated into and continued in Continuing Bank, and Continuing Bank shall
be deemed to be a continuation in entity and identity of Sunbelt and Prime.
All rights, franchises and interests of Sunbelt and Prime, respectively, in and
to any type of property and choses in action shall be transferred to and vested
in Continuing Bank by virtue of such Final Consolidation without any deed or
other transfer. Continuing Bank, without any order or other action on the part
of any court or otherwise, shall hold and enjoy all rights of property,
franchises and interest, including appointments, designations and nominations,
and all other rights and interests as trustee, executor, administrator,
transfer agent or registrar of stocks and bonds, guardian of estates, assignee,
receiver and committee of estates and lunatics, and in every other fiduciary
capacity, in the same manner and to the same extent as such rights, franchises,
and interests were held or enjoyed by Sunbelt and Prime, respectively, as of
the Effective Date.
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<PAGE> 56
5. Liabilities of Continuing Bank. On the Effective Date of the
Final Consolidation, Continuing Bank shall be liable for all liabilities of
Sunbelt and Prime. All deposits, debts, liabilities, obligations and contracts
of Sunbelt and of Prime, respectively, matured or unmatured, whether accrued,
absolute, contingent or otherwise, and whether or not reflected or reversed
against on balance sheets, books of account, or records of the Sunbelt or Prime
shall be those of Continuing Bank and shall not be released or impaired by the
Final Consolidation. All rights of creditors and other obligees and all liens
on property of either Sunbelt or Prime shall be preserved unimpaired subsequent
to the Final Consolidation.
6. Effective Date. The Consolidation shall become effective upon
the approval of the Articles of Consolidation regarding the Final Consolidation
by Texas Department of Banking. The term "Effective Date" shall mean the date
and time when the certificate approving the Consolidation is so issued. A
closing shall take place on or prior to the Effective Date following the
receipt of all necessary regulatory and governmental approvals and consents and
the expiration of all statutory waiting periods in respect thereof and the
satisfaction or waiver of the conditions to the consummation of the Final
Consolidation specified in Articles VIII, IX and X of the Agreement.
7. Cancellation of Stock. On the Effective Date, all of the
outstanding shares of capital stock of Sunbelt, all of which shares shall be
owned by Bancshares, shall be canceled and shall not be deemed to be
authorized, issued or outstanding for any purpose, and no cash, property,
rights or securities shall be delivered with respect to said shares.
8. Conditions Precedent. The respective obligations of each
party under this Plan shall be subject to the satisfaction, or waiver by the
party permitted to do so, of the conditions set forth in Articles VIII, IX and
X of the Agreement.
9. Termination. This Plan shall be terminated upon the
termination of the Agreement in accordance with Article VII thereof; provided,
that any such termination of this Plan shall not relieve any party hereto from
liability on account of a breach of such party of any of the terms hereof or
thereof.
10. Amendments. To the extent permitted by law, this Plan may be
amended by a subsequent writing signed by all of the parties hereto upon the
approval of the Board of Directors of each of the parties.
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<PAGE> 57
11. Successors. This Plan shall be binding on the successors of
Sunbelt and Prime.
51
<PAGE> 58
IN WITNESS WHEREOF, Sunbelt and Prime have caused this Plan to be
executed by their duly authorized officers as of the date first above written.
SUNBELT NATIONAL BANK
ATTEST:
By:
- ------------------------------------------- -----------------------------
PRIME BANK
ATTEST:
By:
- ------------------------------------------ -----------------------------
52
<PAGE> 59
AFFILIATE AGREEMENT
This Affiliate Agreement (the "Agreement") is executed and delivered
this ____ day of January, 1998 by and between Prime Bancshares, Inc.
("Bancshares"), Sunbelt National Bank ("Sunbelt") and the undersigned
shareholder of Sunbelt (the "Shareholder").
WHEREAS, Bancshares and Sunbelt entered into an Agreement and Plan of
Reorganization dated December 30, 1997 ("Agreement") pursuant to which Sunbelt
will consolidate into an interim bank formed as a subsidiary of Bancshares
solely to facilitate the transactions contemplated by the Agreement, and
immediately thereafter, Sunbelt will consolidate into Prime Bank, a
wholly-owned subsidiary of Bancshares (collectively, the "Consolidations"); and
WHEREAS, Bancshares has required as a condition to entering into the
Agreement that Sunbelt and the Shareholder and each other affiliate of Sunbelt
(as defined under Rule 405 of the Rules and Regulations of the Securities and
Exchange Commission) deliver to Bancshares an agreement in substantially the
form hereof;
NOW, THEREFORE, in consideration of Bancshares' agreement to enter
into the Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned, intending to be
legally bound, hereby agree as follows:
1. The Shareholder agrees that he will not sell, pledge, transfer
or otherwise dispose of any shares of the Sunbelt common stock, par value
$10.00 per share ("Sunbelt Common Stock"), within 30 days prior to the
Effective Date (as defined in the Agreement). The Shareholder further agrees
that until the publication of financial results covering at least 30 days of
post-consolidation combined operations of Sunbelt and Bancshares, he will not
sell, pledge, transfer or otherwise dispose of any shares of common stock of
Bancshares (the "Bancshares Common Stock") to be acquired by him in the
Consolidation, except for pledges by the Shareholder of all or part of such
Shareholder's Bancshares Common Stock acquired in the Consolidation to secure
loans, provided the lender accepts any pledge of such Bancshares Common Stock
subject to the terms of this Agreement. The Shareholder further agrees that he
will not sell, pledge, transfer or otherwise dispose of any shares of the
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<PAGE> 60
Bancshares Common Stock to be acquired by him in the Consolidation except in a
manner which is consistent with any additional requirements for Bancshares'
accounting for the Consolidation as a pooling of interest, including without
limitation any new requirements imposed by the applicable provisions of the
Securities Act of 1933, as amended ("Securities Act"), the Securities Exchange
Act of 1934 ("Exchange Act") and the respective rules and regulations
thereunder.
2. The Shareholder further acknowledges and agrees that any
distribution by the Shareholder of Bancshares Common Stock has not been
registered under the Securities Act and that shares of Bancshares Common Stock
received pursuant to the Consolidation can only be sold by the Shareholder (i)
following registration under the Securities Act, (ii) in conformity with the
requirements of Rule 145 promulgated by the Securities and Exchange Commission
under the Securities Act or (iii) to the extent some other exemption from
registration under the Securities Act might be available, and agrees not to
transfer any Bancshares Common Stock received by him in the Consolidation
except in compliance with the applicable provisions of the Securities Act, the
Exchange Act and the respective rules and regulations thereunder.
3. The Shareholder agrees that the shares of Bancshares Common
Stock to be issued to him in the Consolidation will bear a restrictive transfer
legend in substantially the following form:
The shares represented by this certificate are subject to an Affiliate
Agreement dated January __, 1998 which restricts any sale or other
transfer of such shares prior to the earlier to occur of (i) the
public release by Prime Bancshares, Inc. of 30 days of
post-consolidation combined operations of Sunbelt National Bank and
Prime Bancshares, Inc. or (ii) [insert due date of next Quarterly
Report on Form 10-Q or Annual Report on Form 10-K that will contain
required combined financial results]. The issuer will furnish to the
record holder of this certificate, without charge, upon written
request to the issuer at its principal place of business, a copy of
the Affiliate Agreement. In addition, the shares represented by this
certificate may not be sold, transferred or otherwise disposed of
except and unless (i) covered by an effective registration statement
under the Securities Act of 1933, as amended, (ii) in accordance with
Rule 145 of the Rules and Regulations under such Act, or (iii) in
accordance with a legal opinion satisfactory to counsel for
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<PAGE> 61
Bancshares that such sale or transfer is exempt from the registration
requirements of such act.
Bancshares agrees to instruct its transfer agent to remove the restrictive
legend from any certificates evidencing shares subject hereto promptly
following the expirations of the transfer restrictions described in Section 1.
4. Sunbelt agrees and the Shareholder acknowledges and agrees
that Sunbelt will not permit the transfer of any shares of Sunbelt Common Stock
by the Shareholder or any other Sunbelt affiliate within 30 days prior to the
Effective Date.
5. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned set his hand effective as of the
day first written above.
PRIME BANCSHARES, INC.
By:
----------------------------------
Name:
-------------------------------
Title:
-------------------------------
SUNBELT NATIONAL BANK
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
55
<PAGE> 62
Signature of Shareholder
-------------------------------------
Printed Name of Shareholder
-------------------------------------
56
<PAGE> 63
VOTING AGREEMENT
AND IRREVOCABLE PROXY
This Voting Agreement and Irrevocable Proxy (the "Voting Agreement")
dated as of January __, 1998 is executed by and among Prime Bancshares, Inc., a
Texas corporation ("Bancshares"), Sunbelt National Bank, a national banking
association ("Sunbelt"), and the other persons who are signatories hereto
(referred to herein individually as a "Shareholder" and collectively as the
"Shareholders").
WHEREAS, Bancshares, IBID, Inc., Prime Bank and Sunbelt have executed
that certain Agreement and Plan of Reorganization dated as December 30, 1997
(the "Agreement") whereby Sunbelt will consolidate into an interim bank formed
as a subsidiary of Bancshares solely to facilitate the transactions
contemplated by the Agreement, and immediately thereafter, Sunbelt will
consolidate into Prime Bank, a wholly owned subsidiary of Bancshares
(collectively, the "Consolidations"); and
WHEREAS, the Agreement provides that all of issued and outstanding
stock of Sunbelt will be converted into shares of Bancshares Common Stock; and
WHEREAS, Section 4.7 of the Agreement requires that Sunbelt deliver to
Bancshares the irrevocable proxies of the Shareholders; and
WHEREAS, the undersigned Shareholders are the voting representatives
pursuant to the Sunbelt National Bank Voting and Stock Restriction Agreement
dated May 26, 1984 (the "Sunbelt Voting Agreement"); and
WHEREAS, Sunbelt and Bancshares are relying on the irrevocable proxies
in incurring expenses in reviewing Sunbelt's business, in preparing a proxy
statement, in proceeding with the filing of applications for regulatory
approvals, and in undertaking other actions necessary for the consummation of
the Consolidations;
NOW, THEREFORE, the parties hereto agree as follows:
12. The Shareholders hereby represent and warrant to Bancshares
and Sunbelt that they are the voting representatives under the Sunbelt Voting
Agreement and that they
57
<PAGE> 64
have the exclusive right to vote all 381,147 of the shares of common stock,
$10.00 par value, of Sunbelt subject to the Sunbelt Voting Agreement (the
"Shares"), which Shares constitute 83% of the total number of issued and
outstanding shares of Sunbelt common stock. The Shareholders hereby agree to
vote the Shares at the shareholders' meeting referred to in Section 1.13 of the
Agreement (the "Meeting") in favor of the authorization and approval of the
Agreement, and the other agreements and transactions contemplated thereby.
13. In order better to effect the provisions of Section 1, each
Shareholder individually and the Shareholders collectively hereby revoke any
previously executed proxies and hereby constitute and appoint Fredric M.
Saunders (the "Proxy Holder"), with full power of substitution, his and their
true and lawful proxy and attorney-in-fact to vote at the Meeting all of the
Shares in favor of the authorization and approval of the Agreement and the
other agreements and transactions contemplated thereby, with such modifications
to the Agreement and the other agreements and transactions contemplated thereby
as the parties thereto may make, in the event the Shareholders do not vote in
favor of the authorization and approval of the Agreement and the other
agreements and transactions contemplated thereby.
14. The Shareholders hereby covenant and agree that until this
Voting Agreement is terminated in accordance with its terms, the Shareholders
will use their best efforts to ensure that in the event of any sale, transfer,
assignment, pledge, hypothecation, or other disposition of any of the Shares
subject to the Sunbelt Voting Agreement, any such transferee or other holder
will become bound by the terms of the Sunbelt Voting Agreement.
15. This proxy shall be limited strictly and solely to the power
to vote the Shares in the manner and for the purpose set forth in Section 2 and
shall not extend to any other matters.
16. Each Shareholder acknowledges that Bancshares and Sunbelt are
relying on this Voting Agreement in incurring expenses in reviewing Sunbelt's
business, in preparing a proxy statement, in proceeding with the filing of
applications for regulatory approvals, and in undertaking other actions
necessary for the consummation of the Consolidations and that the proxy granted
hereby is coupled with an interest and is irrevocable to the full extent
permitted by applicable law, including 12 U.S.C. 61 of the National Bank Act
and Article 2.29C of the Texas Business Corporation Act. Each Shareholder and
Sunbelt acknowledge that the performance of this Voting Agreement is intended
to benefit Bancshares.
58
<PAGE> 65
17. The irrevocable proxy granted pursuant hereto shall continue
in effect until the earlier to occur of (i) the termination of the Agreement,
as it may be amended or extended from time to time, or (ii) the consummation of
the Consolidations.
18. The vote of the Proxy Holder shall control in any conflict
between its vote of the Shares and a vote by the Shareholders of the Shares and
Sunbelt agrees to recognize the vote of the Proxy Holder instead of the vote of
the Shareholders in the event the Shareholders do not vote in favor of the
approval of the Agreement as set forth in Section 1 hereof.
19. This Voting Agreement may not be modified, amended, altered or
supplemented with respect to a particular Shareholder except upon the execution
and delivery of a written agreement executed by Sunbelt, Bancshares and the
Shareholders.
20. This Voting Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument.
21. This Voting Agreement, together with the Agreement and the
agreements contemplated thereby, embody the entire agreement and understanding
of the parties hereto in respect to the subject matter contained herein. This
Voting Agreement supersedes all prior agreements and understandings among the
parties with respect to such subject matter contained herein.
22. All notices, requests, demands and other communications
required or permitted hereby shall be in writing and shall be deemed to have
been duly given if delivered by hand or mail, certified or registered mail
(return receipt requested) with postage prepaid to the addresses of the parties
hereto set forth below their signature on the signature pages hereof or to such
other address as any party may have furnished to the others in writing in
accordance herewith.
23. This Voting Agreement and the relations among the parties
hereto arising from this Voting Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date above written.
59
<PAGE> 66
PRIME BANCSHARES, INC.
By:
----------------------------------
E. J. Guzzo
President
Address:
P.O. Box 70
811 Sheldon
Channelview, Texas 77530
Attention: E. J. Guzzo
SUNBELT NATIONAL BANK
By:
----------------------------------
B. J. Williams
President
Address:
1160 Dairy Ashford, Suite 100
P.O. Box 55869
Houston, Texas 77255
Attention: B. J. Williams
SHAREHOLDERS:
-------------------------------------
D. C. Daniels
60
<PAGE> 67
------------------------------------
Thomas W. Ferguson
-------------------------------------
Curtis R. Kayem
-------------------------------------
B. J. Williams
-------------------------------------
George A. Wolcott
61
<PAGE> 68
EXHIBIT "E"
RELEASE OF CLAIMS
THIS RELEASE OF CLAIMS ("Release") dated the ______ day of
____________, 1997, is executed and delivered by the undersigned individual to
Sunbelt National Bank ("Sunbelt").
WHEREAS, Prime Bancshares, Inc. ("Bancshares") will acquire Sunbelt
pursuant to that certain Agreement and Plan of Reorganization dated as of
November __, 1997 by and between Bancshares, IBID, Inc., Prime Bank and Sunbelt
(the "Agreement"); and
WHEREAS, Bancshares has required as a condition of the acquisition
that the undersigned execute and deliver this Release to confirm the absence of
any claims by the undersigned against Sunbelt;
NOW THEREFORE, in consideration of the premises contained herein and
ten dollars and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned hereby agrees as
follows:
Section 1. Release. The undersigned hereby RELEASES and FOREVER
DISCHARGES Sunbelt and its successors, assigns, representatives and attorneys
from all manners of action, causes of action, suits, debts, sums of money,
accounts, reckonings, bonds, bills, specialties, covenants, contracts,
controversies, agreements, premises, variances, trespasses, damages, judgments,
executions, claims and demands whatsoever in law or in equity which the
undersigned ever had, now has, or hereafter can, shall or may have against
Sunbelt, in respect of any and all agreements and obligations incurred on or
prior to the date hereof, or in respect of any event occurring or circumstances
existing on or prior to the date hereof; provided, however, that Sunbelt shall
not be released from any of its obligations or liabilities to the undersigned
(i) pursuant to the provisions of the certificate or articles of incorporation
or association or bylaws of Sunbelt regarding the indemnification of directors
and officers; and (ii) in connection with any indebtedness or contractual
obligation or liability to the undersigned existing on the date hereof.
62
<PAGE> 69
Section 2. Successors. This Release shall be binding upon the
undersigned and his or her heirs, devisees, administrators, executors, personal
representatives, successors and assigns and shall inure to the benefit of
Sunbelt and its successors and assigns.
Section 3. Governing Law. This Release shall be governed by and
construed in accordance with the laws of the State of Texas, without giving
effect to Texas principles of conflicts of law.
Section 4. Modification. This Release may be modified only by a
written instrument executed by the undersigned and Sunbelt.
IN WITNESS WHEREOF, the undersigned has executed this Release
effective as of the date first above written.
---------------------------
Signature
---------------------------
Printed Name
STATE OF TEXAS )
)
COUNTY OF HARRIS )
This instrument was acknowledged before me on _____________________,
1997 by ________________________________.
-------------------------------
Notary Public in and for the
State of Texas
-------------------------------
Notary's Name Typed or Printed
My Commission Expires:
--------
63
<PAGE> 70
EXHIBIT "F"
RELEASE OF CLAIMS
THIS RELEASE OF CLAIMS ("Release") dated the _____ day of ____________
1997, is executed and delivered by Sunbelt National Bank ("Sunbelt") to
______________________ ("Person").
WHEREAS, Prime Bancshares, Inc. will acquire Sunbelt National Bank
("Sunbelt") pursuant to that certain Agreement and Plan of Reorganization dated
as of November __, 1997 by and between Prime Bancshares, Inc., IBID, Inc.,
Prime Bank and Sunbelt (the "Agreement"); and
WHEREAS, Bancshares has required as a condition of the acquisition
that Sunbelt execute and deliver this Release to confirm the absence of any
claims by Sunbelt against Person;
NOW THEREFORE, in consideration of the premises contained herein and
ten dollars and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned hereby agrees as
follows:
Section 1. Release. The undersigned hereby RELEASES and FOREVER
DISCHARGES Person and his successors, assigns, representatives and attorneys
from all manners of action, causes of action, suits, debts, sums of money,
accounts, reckonings, bonds, bills, specialties, covenants, contracts,
controversies, agreements, premises, variances, trespasses, damages, judgments,
executions, claims and demands whatsoever in law or in equity which the
undersigned ever had, now has, or hereafter can, shall or may have against
Person in respect of any and all agreements and obligations incurred on or
prior to the date hereof, or in respect of any event occurring or circumstances
existing on or prior to the date hereof; provided, however, that Person shall
not be released from any of his obligations or liabilities to the undersigned
in connection with any indebtedness or contractual obligation or liability
related to deposits, accounts and loans which the undersigned may have with
Sunbelt existing on the date hereof.
Section 2. Successors. This Release shall be binding upon the
undersigned and his or her heirs, devisees, administrators, executors, personal
representatives, successors and assigns and shall inure to the benefit of the
Bancshares and Person and their successors and assigns.
Section 3. Governing Law. This Release shall be governed by and
construed in accordance with the laws of the State of Texas, without giving
effect to Texas principles of conflicts of law.
64
<PAGE> 71
Section 4. Modification. This Release may be modified only by a
written instrument executed by the Sunbelt and Person.
IN WITNESS WHEREOF, the undersigned has executed this Release
effective as of the date first above written.
SUNBELT NATIONAL BANK
---------------------------
Signature
---------------------------
Printed Name
PERSON
---------------------------
Signature
---------------------------
Printed Name
65
<PAGE> 72
STATE OF TEXAS )
)
COUNTY OF HARRIS )
This instrument was acknowledged before me on _____________________,
1997 by __________________________, the ________________ of Prime Bancshares,
Inc.
---------------------------------
Notary Public in and for the
State of Texas
---------------------------------
Notary's Name Typed or Printed
My Commission Expires:
-----------
STATE OF TEXAS )
)
COUNTY OF HARRIS )
This instrument was acknowledged before me on _____________________,
1997 by __________________________, the ________________ of Prime Bank.
---------------------------------
Notary Public in and for the
State of Texas
---------------------------------
Notary's Name Typed or Printed
My Commission Expires:
-----------
66
<PAGE> 1
EXHIBIT 5
____________, 1998
Prime Bancshares, Inc.
12200 Northwest Freeway
Houston, Texas 77092
Gentlemen:
We have acted as counsel for Prime Bancshares, Inc., a Texas corporation
("Company"), in connection with the Registration Statement on Form S-4
(Registration No. 333- ), filed by the Company under the Securities Act of
1933, as amended ("Registration Statement"), with respect to up to a maximum of
921,058 shares of common stock, $.25 par value ("Common Stock"), of the Company
to be issued to the shareholders of Sunbelt National Bank ("Sunbelt") pursuant
to the Agreement and Plan of Reorganization as of December 30, 1997 by and
among the Company, IBID, Inc., Prime Bank and Sunbelt (the "Agreement").
In such capacity we are familiar with the Restated Articles of Incorporation,
as amended, and the Bylaws of the Company, the Registration Statement and the
Agreement and have examined all statutes, records, instruments and documents as
we have deemed necessary for purposes hereof. In addition, we have relied on
certificates of officers of the Company and of public officials and others as
to certain matters of fact relating to this opinion and have made such
investigations of law as we have deemed necessary and relevant as a basis
hereof. We have assumed the genuineness of all signatures, the authenticity of
all documents and records submitted to us as originals, the conformity to
original documents and records of all documents and records submitted to us as
copies and the truthfulness of all statements of fact contained therein.
Based on the foregoing and subject to the limitations and assumptions set forth
herein, and having due regard for such legal considerations as we deem
relevant, we are of the opinion that:
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Texas.
<PAGE> 2
Prime Bancshares, Inc.
__________, 1998
Page 2
2. The shares of Common Stock proposed to be issued pursuant to the
Agreement will, when issued in accordance with the terms thereof, be validly
issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the
reference to us under the caption "Legal Matters."
Very truly yours,
Bracewell & Patterson, L.L.P.
WTL/bev
<PAGE> 1
EXHIBIT 8
[LIDDELL, SAPP, ZIVLEY, HILL & LABOON, L.L.P. LETTERHEAD]
__________ ___, 1998
Sunbelt National Bank
1160 Dairy Ashford, Suite 100
P.O. Box 55869
Houston, Texas 77255
Ladies and Gentlemen:
We have acted as counsel to Sunbelt National Bank, a national banking
association ("Sunbelt"), in connection with the planned consolidation of
___________ ___, a Texas banking corporation ("New Bank") and a wholly-owned
first-tier subsidiary of Prime Bancshares, Inc., a Texas corporation
("Bancshares") with and into Sunbelt, with Sunbelt as the survivor (the
"Initial Consolidation"), pursuant to a Plan of Consolidation, dated as of
___________ ___, 1998, by and between New Bank and Sunbelt (the "Initial
Consolidation Agreement") and the subsequent consolidation of Sunbelt with and
into Prime Bank, a Texas banking corporation ("Prime") and a wholly-owned
first-tier subsidiary of IBID, Inc., a Delaware corporation ("IBID") and a
wholly-owned first-tier subsidiary of Bancshares, with Prime as the survivor
(the "Final Consolidation"), pursuant to a Plan of Consolidation, dated as of
___________ ___, 1998, by and between Sunbelt and Prime (the "Final
Consolidation Agreement"), with the Initial Consolidation and the Final
Consolidation collectively referred to herein as the "Consolidations" and the
Initial Consolidation Agreement and the Final Consolidation Agreement
collectively referred to herein as the "Consolidation Agreements", all as
contemplated by an Agreement and Plan of Reorganization, dated as of December
30, 1997, as amended, by and among Bancshares, IBID, Prime, New Bank and
Sunbelt (the "Reorganization Agreement"), pursuant to which the shareholders of
Sunbelt will receive solely Bancshares Common Stock in exchange for their
Sunbelt Common Stock, as described in the Registration Statement on Form S-4
filed by Bancshares with the Securities and Exchange Commission on
___________ ___, 1998 (the "Registration Statement"). All capitalized terms,
unless otherwise specified, have the meaning assigned to them in the
Reorganization Agreement.
For purposes of the opinion set forth below, we have reviewed (i) the
Reorganization Agreement, (ii) the Consolidation Agreements, (iii) the Proxy
Statement/Prospectus included in the
<PAGE> 2
Sunbelt National Bank
_______________, 1998
Page 2
Registration Statement (the "Proxy Statement/Prospectus") and (iv) such other
documents, records and instruments as we have deemed necessary or appropriate
in order to enable us to render our opinion. Our opinion is based and
conditioned upon certain statements and representations, which we have neither
investigated or verified, made by certain Sunbelt shareholders and by
Bancshares, New Bank and Sunbelt (the "Certified Representations"), including a
representation by Sunbelt that the management of Sunbelt knows of no plan or
intention by the shareholders of Sunbelt to sell, exchange, transfer,
distribute or otherwise dispose of, or reduce the risk of loss relating to, any
of the shares of Bancshares to be received by them in the Consolidations that
would reduce Sunbelt shareholders' ownership of, or risks incident to the
ownership of, Bancshares Common Shares to a number of shares having a value, as
of the Effective Date, of less than 50% of the value of all the formerly
outstanding stock of Sunbelt as of the same date. In addition, we have relied
upon certain statements and representations contained in the Reorganization
Agreement and the Consolidation Agreements, which we also have neither
investigated or verified. We have assumed that all such statements and
representations are true, correct, complete and not breached, and that no
actions that are or would be inconsistent with such statements and
representations have been or will be taken. We have also assumed that all
representations in the Certified Representations made "to the knowledge of" any
person or entity will be true, correct and complete as if made without such
qualification.
In addition, we have assumed that (i) the Consolidations will be
consummated in accordance with the Reorganization Agreement, the Consolidation
Agreements and as described in the Registration Statement (including
satisfaction of all covenants and conditions to the obligations of the parties
without amendment or waiver thereof), (ii) the Consolidations will qualify as
consolidations under the applicable laws of the United States and the State of
Texas, (iii) each of Bancshares, New Bank and Sunbelt will comply with all
reporting obligations with respect to the Consolidations required under the
Internal Revenue Code of 1986, as amended (the "Code"), and the Treasury
Regulations promulgated thereunder, (iv) the Reorganization Agreement, the
Consolidation Agreements and all of the documents and instruments referred to
therein are valid and binding in accordance with their terms and (v) there are
no agreements, arrangements or understandings among any of Bancshares, Sunbelt
and/or any of their subsidiaries, affiliates, or shareholders concerning the
Consolidations, other than those described or referenced in the Reorganization
Agreement or the Consolidation Agreements. Any inaccuracy in, or breach of, any
of the aforementioned statements, representations and assumptions could
adversely affect our opinion.
Our opinion is based upon existing provisions of the Code, regulations
promulgated or proposed thereunder, and interpretations thereof by the Internal
Revenue Service ("IRS") and the courts, all of which are subject to change with
prospective or retroactive effect, and our opinion could be adversely affected
or rendered obsolete by any such change. No ruling has been or will be
2
<PAGE> 3
Sunbelt National Bank
___________ ___, 1998
Page 3
sought from the IRS by Bancshares, New Bank or Sunbelt as to the federal income
tax consequences of any aspect of the Consolidations. The opinion expressed
herein is not binding on the IRS or any court, and there can be no assurance
that the IRS or a court of competent jurisdiction will not disagree with such
opinion.
Based upon and subject to the foregoing as well as the limitations set
forth below, it is our opinion that (i) the Consolidations will qualify as a
reorganization within the meaning of Section 368(a)(1)(A) of the Code and (ii)
the statements contained in numbered paragraphs (a) through (e) of the section
of the Proxy Statement/Prospectus entitled "THE CONSOLIDATIONS -- Federal
Income Tax Consequences" are correct.
Except as set forth above, we express no opinion as to the tax
consequences to any party, whether federal, state, local or foreign, of the
Consolidations or of any transactions related to the Consolidations or
contemplated by the Reorganization Agreement or the Consolidation Agreements.
Furthermore, our opinion is based on current federal income tax law and
administrative practice, and we do not undertake to advise you as to any
changes after the Effective Date in federal income tax law or administrative
practice that may affect our
opinion.
This opinion is furnished to you as contemplated by the Reorganization
Agreement and for use in connection with the Registration Statement. We hereby
consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of our name under the captions "SUMMARY -- Federal
Income Tax Consequences" and "THE CONSOLIDATIONS -- Federal Income Tax
Consequences" in the Registration Statement and the Proxy Statement/Prospectus
which is a part thereof. In giving this consent, we do not thereby admit that
we are within the category of persons whose consent is required under Section 7
of the Securities Act and the rules and regulations thereunder.
Very truly yours,
<PAGE> 1
EXHIBIT 9.1
SUNBELT NATIONAL BANK
HOUSTON, TEXAS
VOTING AND STOCK RESTRICTION AGREEMENT
THIS VOTING AND STOCK RESTRICTION AGREEMENT (Agreement) is by and
among those persons whose names appear on the signature pages hereof under the
designation "Stockholders" (individually referred to as a "Stockholder" and
collectively referred to as "Stockholders") and D. C. Daniels, John V. Melcher,
Roy S. Peterson, Ray E. Plumb, Jr., B. J. Williams and George A. Wolcott as
voting representatives (Voting Representatives), with respect to certain shares
of the capital stock, $5.00 par value, of Sunbelt National Bank, Houston, Texas
(Bank).
1. Introduction. Each Stockholder at present owns or holds,
legally or beneficially, directly or indirectly, of record or otherwise, the
number of issued and outstanding shares of capital stock of the Bank specified
beside his respective name on the signature pages of this Agreement. It is the
intent and purpose of the Stockholders to join in this Agreement to make more
effective their participation in the election of directors of the Bank and in
the resolution of issues submitted to a vote of all stockholders of the Bank,
and to attempt to secure continuity and stability of policy and management of
the Bank, and, to these ends, to unite the voting power of the capital stock
subject to this Agreement and to vest such voting power in the Voting
Representatives as hereinafter provided.
All shares of capital stock of the Bank owned or held, legally or
beneficially, directly or indirectly, of record or otherwise, by each
Stockholder and set forth beside his respective name on the signature pages of
this Agreement shall be collectively referred to in this Agreement as the
"Stock." Any additional shares of capital stock of the Bank or other voting
securities (of the Bank or any other entity which is an affiliate of the Bank)
which may be owned, held or acquired in any manner, legally or beneficially,
directly or indirectly, of record or otherwise, by any Stockholder at any time
during the term of this Agreement, including, without limitation, capital or
voting securities acquired incident to any stock split, stock dividend,
increase in capitalization, recapitalization, merger, consolidation or other
reorganization or like transaction, and which are received with respect to
Stock then subject to this Agreement, shall be included within the term "Stock"
as used herein and shall be subject to this Agreement.
2. Consideration. In order to accomplish the purposes set forth
in Paragraph 1 and in consideration of the mutual covenants and agreements
contained in this Agreement and for other good and valuable considerations, the
receipt and sufficiency of which are hereby acknowledged by each Stockholder,
the Stockholders and Voting Representatives make this Agreement.
<PAGE> 2
3. Joint Action. During the term of this Agreement, all shares
of the Stock shall be voted as a unit on all matters as to which the
Stockholders shall be entitled to vote, pursuant to the following terms and
conditions:
3.1. Rights of Voting Representatives. Each Stockholder
by execution of this Agreement irrevocably names, constitutes and appoints D.
C. Daniels, John V. Melcher, Roy S. Peterson, Ray E. Plumb, Jr., B. J. Williams
and George A. Wolcott, or any of them, and their respective successor(s) or
assign(s), the true and lawful attorneys, agents, proxies and Voting
Representatives of the undersigned, each with full power of substitution, to
vote all shares of Stock owned or held by such Stockholder subject to this
Agreement at any and all regular and special meetings of stockholders of the
Bank whenever and wherever held during the term of this Agreement, or at any
adjournment thereof, hereby ratifying and confirming all that the said
attorneys, agents, proxies and Voting Representatives might do. The proxies
hereby granted are irrevocable and coupled with an interest. Each Stockholder
hereby terminates, revokes and rescinds any and all proxies, rights, agreements
or arrangements, written or verbal, previously entered into or given with
respect to any shares of Stock owned or held by such Stockholder subject to
this Agreement and relating to any such rights hereby vested in the Voting
Representatives, specifically including the Sunbelt National Bank Voting and
Stock Restriction and Purchase Agreement dated and effective as of March 2,
1983.
The Voting Representatives shall have the right to vote the
Stock at any meeting or on any issue with respect to which the Stockholders
would otherwise have the right to vote the Stock, including, without
limitation, proposals to dissolve and liquidate the Bank, to sell all or a
major portion of its assets, to merge or consolidate the Bank or to amend its
Articles of Association or Bylaws. Each Stockholder by execution of this
Agreement expressly authorizes the Voting Representatives to call special
meetings of stockholders of the Bank for any purpose or purposes which the
Voting Representatives shall in their sole discretion deem necessary and
appropriate. In voting the Stock, either in person or by their collective
nominee or proxy, the Voting Representatives shall exercise their best Judgment
to select suitable directors for the Bank, and shall otherwise take such action
with respect to the management of the Banks affairs as they may deem necessary
and in the best interests of the Bank.
The Stock shall be voted, and the actions required of the
Voting Representatives by the terms of this Agreement shall be taken, in the
manner determined by the concurrence of a majority of the Voting
Representatives, who upon such concurrence shall have the authority to exercise
all the rights and powers granted hereunder, which concurrence and exercise may
be in person, by telephone, by written consent or by proxy, which written
consent or proxy shall include telegraphic communications. In the event of a
failure of the Voting Representatives to agree on the manner of voting the
Stock, the Stock shall be voted in accordance with the desires of the holders
-2-
<PAGE> 3
of a majority of such Stock as determined at a meeting called for that purpose
upon 10 days prior written notice. If the proxy granted pursuant to Paragraph
3.1 hereof is determined to be invalid for any reason, each Stockholder agrees
to vote his Stock on any proposals submitted to a vote of stockholders in the
same manner as a majority of the Voting Representatives vote their Stock with
respect to such proposals.
3.2. Liability of Voting Representatives. No Voting
Representative shall be personally or otherwise liable with respect to any
action taken or omitted to be taken under this Agreement, provided such
commission or omission does not amount to willful misconduct on his part and
provided also that each Voting Representative shall at all times exercise good
faith in the discharge of his obligations and responsibilities hereunder. The
Stockholders agree, jointly and severally, to indemnify and hold the Voting
Representatives and their successors or assigns harmless from any liability or
cost resulting from any action or failure to act by any Voting Representative
pursuant to this Agreement, provided such action or failure to act does not
amount to willful misconduct and provided also that each Voting Representative
who is to be indemnified shall at all times have exercised good faith in the
discharge of his respective obligations and responsibilities hereunder.
3.3. Resignation, Removal, Incapacity and Replacement of
Voting Representatives. Any Voting Representative may at any time resign by
mailing to each other Voting Representative and each party to this Agreement a
written resignation effective upon the date stated therein. If any vacancy in
the position of Voting Representative shall occur by death, incapacity or
resignation, the position shall be filled by the person then or theretofore
designated in writing by the Voting Representative vacating such position. If a
successor Voting Representative has not been so named within 10 days from the
date such Voting Representative ceases to serve, then a successor shall be
named by the written consent of a majority of the remaining Voting
Representatives. If the remaining Voting Representatives shall fail to name a
successor Voting Representative within 30 days from the date such position is
vacated, a successor shall be named by the holders of at least 67% of the
Stock, acting either by written consent delivered to the Voting Representatives
or at a meeting convened for such purpose upon 10 days prior written notice.
The holders of at least 67% of the Stock, acting either by written consent
delivered to the Voting Representatives or at a meeting convened for such
purpose upon 10 days prior written notice, shall be entitled to remove one or
more of the Voting Representatives, with or without cause, and appoint a
successor Voting Representative to fill any vacant position. Any successor
Voting Representative named in accordance with this Agreement shall have all
the rights, powers, privileges and authority granted to a Voting Representative
under this Agreement and any amendment hereof or supplement hereto. Pending
the selection of a successor Voting Representative, the remaining Voting
Representative(s) shall have full power and authority to act pursuant to the
terms of this Agreement.
-3-
<PAGE> 4
3.4. Compensation and Reimbursement of Expenses of Voting
Representatives. The Voting Representatives shall serve hereunder without
compensation. The Voting Representatives shall have the right to incur and pay
such reasonable expenses and charges and to employ and pay such agents,
attorneys or other persons as they may deem necessary and proper for carrying
out the terms of this Agreement. Such expenses or charges incurred by the
Voting Representatives shall he paid by the Stockholders pro rata according to
their respective ownership of the Stock within 10 days after receipt of written
notice from the Voting Representatives. The Stockholders hereby authorize the
Voting Representatives (i) to direct the Bank to pay to the Voting
Representatives all cash dividends respecting the Stock and (ii) to deduct from
such dividends, pro rata, any amounts due the Voting Representatives as
reimbursement for expenses incurred pursuant to this Agreement. Any portion of
such cash dividends remaining after the deduction of such expenses shall be
distributed pro rata to the respective Stockholders. Dividends paid to the
Voting Representatives pursuant to this Paragraph 3 may not be used for any
purpose other than for the payment or reimbursement of expenses properly
incurred by the Voting Representatives in accordance with this Agreement.
Nothing contained in this Agreement shall disqualify any Voting Representative
from serving the Bank as an officer or director, or in any other capacity, or
from receiving compensation or reimbursement of expenses in any such capacity.
4. Addition and Release of Shares. Stockholders of the Bank not
parties to this Agreement as of its effective date may join in this Agreement
and subject all or part of their stock of the Bank, or any successor entity, to
the provisions hereof with the consent of a majority of the Voting
Representatives then serving and by execution and delivery to the Voting
Representatives of a counterpart of this Agreement. Each such additional
Stockholder by his signature to a counterpart of this Agreement shall become
subject to all of the terms and conditions hereof as to the shares of stock of
the Bank made subject hereto.
In the event that any Stockholder (including any Voting
Representative in his capacity as a Stockholder) is at present a member of, or
subsequently is elected to, the Board of Directors of the Bank and does not
otherwise hold unencumbered qualifying shares, a sufficient number of shares of
Stock owned or held by such Stockholder shall, subject to the other provisions
of this Agreement, be automatically released from this Agreement for the
purpose of providing such Stockholder with the necessary qualifying shares of
capital stock of the Bank. At such time as any Stockholder for whose benefit
shares have been released herefrom shall cease to serve on the Board of
Directors of the Bank, such released shares (including all shares of capital
stock of the Bank and other securities issued or exchanged with respect
thereto) shall, at the written option of such Stockholder, be made subject to
this Agreement and the certificates representing such shares shall be presented
forthwith to the Voting Representatives for affixation of the legend then
required by this Agreement or any amendment hereof.
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<PAGE> 5
Notwithstanding anything contained in this Agreement to the
contrary, at all times during the term of this Agreement, a minimum of 50.1% of
the issued and outstanding capital stock of the Bank shall be subject to this
Agreement.
5. Restrictions on Sale or Other Disposition of the Stock.
During the term of this Agreement, the sale, assignment, transfer or other
disposition by a Stockholder of any of his or its shares of Stock shall be
subject to the terms and conditions of Paragraphs 5, 6 and 7 of this Agreement.
5.1. Permitted Transfers. The transfer of title to shares
of Stock resulting from any of the following events shall be permitted without
compliance with the provisions of Paragraph 6 of this Agreement.
5.1.1. A transfer to another Stockholder;
5.1.2. A transfer to the spouse of a Stockholder
incident to divorce;
5.1.3. A transfer to legatees, heirs or trustees of
a testamentary trust of a Stockholder as a result of the death
of the Stockholder;
5.1.4. A transfer of title to a guardian of the
estate of a Stockholder or to an executor or administrator of
the estate of a deceased Stockholder incident to guardianship
or probate proceedings involving the estate of the
Stockholder;
5.1.5. A transfer as a result of gift by a
Stockholder to his spouse or any of his descendants or to a
trustee of a trust for the primary benefit of such
Stockholder, his spouse or any of his descendants;
5.1.6. A transfer to the shareholders of any
corporate Stockholder as a dividend or incident to liquidation
or dissolution of such corporate Stockholder;
5.1.7. A transfer to the partners of any partnership
which is a Stockholder incident to any liquidation or
distribution of such partnership;
5.1.8. A transfer by a corporate Stockholder to
another corporation incident to merger or consolidation of
such corporation or incident to a sale by the corporate
Stockholder of all or substantially all of its assets to such
other corporation;
5.1.9. A transfer as result of a gift of Stock as a
charitable contribution;
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<PAGE> 6
5.1.10. A transfer as a result of a sale pursuant to
Paragraph 7 of this Agreement; or
5.1.11. A transfer by Ray E. Plumb, Jr., Trustee, or
any successor trustee, of any of the 163,930 shares of Stock
held as trustee by Ray E. Plumb, Jr. on the effective date of
this Agreement;
provided, however, that each and every person or entity acquiring any shares of
Stock incident to any permitted transfer specified in this Paragraph 5.1 shall
and must take and hold the shares of Stock subject to this Agreement and shall
be deemed a "Stockholder" for the purposes of this Agreement.
5.2. Pledges. A Stockholder shall be permitted to pledge
any shares of Stock owned or held subject to this Agreement to secure bona
fide indebtedness of the Stockholder, but any sale or transfer of such shares
incident to the pledge shall be subject to this Agreement and any person or
entity acquiring such shares of Stock shall and must take and hold such shares
subject to the terms and conditions of this Agreement and shall be deemed a
"Stockholder" for the purposes of this Agreement.
6. Right of First Refusal.
6.1. If a Stockholder shall at any time or times (i)
desire to sell any of his shares of Stock to a specified purchaser or (ii)
receive a bona fide offer from any person or entity for the purchase of any
shares of Stock owned or held by the Stockholder, which offer the Stockholder
desires to accept, such Stockholder shall first offer in writing to sell such
Stock to the other Stockholders who are parties to this Agreement, pro rata in
accordance with the number of shares of Stock owned by the respective
Stockholders (excluding the Stock owned by the selling Stockholder), at the
same price, and upon the same terms and conditions, at which the selling
Stockholder intends to sell the Stock. The other Stockholders shall have 30
days following the giving of such notice within which to exercise, by written
notice to the selling Stockholder, their option to acquire their pro rata
portion of the Stock proposed to be sold. All Stock not purchased at the end
of such 30 day period may be purchased by any Stockholder(s) for an additional
period of 15 days. Payment for all of the Stock offered for sale by the
selling Stockholder must be made no later than the end of such 15 day period.
If the Stockholders fail to purchase all of the Stock offered
for sale by the selling Stockholder in accordance with the provisions of this
Paragraph 6, the selling Stockholder shall be free, for a period of 60 days, to
transfer or sell the Stock only to the originally specified purchaser or the
person from whom the original offer was received for the same price and upon
the same terms
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<PAGE> 7
and conditions as were contained in such offer. Any Stock not sold within such
60 day period must be reoffered to the Stockholders in accordance with this
Paragraph 6 in the event of any subsequent proposed sale.
6.2. Any transferee of Stock hereunder shall take such
Stock subject to this Agreement, and by acceptance of the certificate(s)
representing such Stock, shall be bound by this Agreement to the same extent as
if such transferee were a party hereto and shall be deemed a "Stockholder" for
the purposes of this Agreement
7. Sale of All or Part of the Stock Pursuant to a Bona Fide Offer.
7.1. If the Voting Representatives shall receive a bona
fide offer (Offer) from any person or entity, including, but not by way of
limitation, a Stockholder (Offeror), for the purchase for cash, promissory
obligations or an exchange of securities in a transaction not requiring a vote
of all stockholders of the Bank (or any successor entity), or a combination
thereof, of more than 50% of the capital stock of the Bank at the same price
per share and on the same terms and conditions, the Voting Representatives
shall call a meeting (Meeting) of all Stockholders within 15 days for the
purpose of determining whether to accept the Offer on behalf of all the
Stockholders. A majority of shares of Stock then subject to this Agreement,
represented in person or by proxy, shall constitute a quorum at the Meeting.
Attendance by a Stockholder at the Meeting, whether in person or by proxy,
shall constitute a waiver of any notice of the Meeting. Stockholders may give a
proxy to any person in connection with the Meeting, without regard to any other
proxy granted hereunder. The decision of the Stockholders owning a majority of
the Stock, voting in person or by proxy at the Meeting, shall be binding on all
of the Stockholders.
If the holders of a majority of the Stock determine
to accept the Offer, the Voting Representatives shall notify all the
Stockholders of the decision, specifying the price per share and the terms and
conditions of sale (Sale Notice). Each Stockholder shall (i) sell to the
Offeror his respective shares of Stock for the price per share and on the terms
and conditions specified in the Sale Notice or (ii) if a Stockholder desires
not to sell his Stock, at the sole option of the Offeror, subject the shares of
Stock owned or held by him to a new voting agreement or other control device
acceptable to the Offeror. If less than all the Stock subject to this
Agreement is to be sold, each Stockholder shall sell to the purchaser his
proportionate part of the shares to be sold in the same ratio which the number
of shares of Stock owned by the Stockholder bears to the total number of shares
of Stock then subject to this Agreement. If the Stockholders determine not to
accept an offer, the Voting Representatives shall, within 15 days of such
determination, notify all Stockholders of such determination.
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<PAGE> 8
7.2. In connection with any sale pursuant to Paragraph 7.1
hereof, each of the Stockholders hereby nominates, constitutes and appoints the
Voting Representatives, or any of them, his true and lawful agents and
attorneys in fact, for and on his behalf and in his name, place and stead (such
agents and attorneys being herein called the "Agents") to: (i) deliver to the
Offeror at the closing of the sale transaction certificates evidencing the
number of shares of Stock to be transferred by each Stockholder to the Offeror;
(ii) accept delivery from the Offeror at the closing of cashiers or certified
checks, securities, promissory obligations or other consideration as payment
for the Stock transferred to the Offeror, apply any funds received to
indebtedness of the respective Stockholder which is secured by the Stock being
transferred and forward any excess funds or other consideration received to
such Stockholder or his designee; and (iii) do all things, and execute, deliver
and complete all documents, necessary or proper, required, contemplated or
deemed advisable by the Agents, and generally to act for and in the name of the
Stockholders with respect to the transactions contemplated by this Paragraph 7,
as fully as could the Stockholders if then present and acting either personally
or by an authorized representative.
Each of the Stockholders hereby agrees and
acknowledges that he has granted the Power of Attorney herein contained in
order to further the objectives set forth in this Agreement and to facilitate
the closing of the transactions contemplated by this Paragraph 7, and each
Stockholder therefore agrees that the Power of Attorney shall be deemed to be
coupled with an interest and irrevocable, and further agrees that he will not
take or permit to occur any action which might in any manner frustrate
consummation of the transactions contemplated by this Paragraph 7. Each of the
Stockholders hereby ratifies and confirms all that the Agents may do on behalf
of such Stockholder pursuant to this Paragraph 7 and agrees to indemnify and
hold the Agents free and harmless for any action taken in good faith hereunder
on behalf of such Stockholder.
The Voting Representatives, by their execution of
this Agreement, hereby accept their appointment as Agents as set forth in this
Paragraph 7 and agree to act in accordance therewith in the manner provided.
7.3. If the Stockholders determine to reject the Offer in
accordance with the provisions of this Agreement, all of the Stock shall remain
subject to the terms and conditions of this Agreement.
8. Assignment of Subscription Rights. If any Stockholder elects
not to exercise his right to subscribe to purchase capital stock or other
securities of the Bank which may be offered from time to time to all of the
stockholders of the Bank for subscription, such nonsubscribing Stockholder will
give notice of his intent not to exercise his subscription rights to the Voting
Representatives at least 10 days prior to the expiration of such subscription
rights, and the Voting Representatives shall have the preferential right and
option to exercise or cause to be exercised such nonsubscribing
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<PAGE> 9
Stockholders subscription rights. Each nonsubscribing Stockholder agrees to
execute at the request of the Voting Representatives such assignment of
subscription rights or other instruments as the Voting Representatives may deem
advisable or appropriate to vest conclusively such subscription rights in the
Voting Representatives or their designee(s).
The Voting Representatives will notify the Stockholders other
than the nonsubscribing Stockholders of the number of subscription rights
available, and each such Stockholder shall have the right to subscribe for his
pro rata portion of the number of shares of capital stock or other securities
available for subscription by virtue of such subscription rights by notifying
the Voting Representatives in writing, within 5 days following the giving of
notice by the Voting Representatives, of his desire to subscribe for such
shares of capital stock or other securities, such written notice to be
accompanied by the purchase price of such securities in the form of a bank
cashiers check payable in Houston Clearing House funds. Upon receipt of such
written notice and purchase money, the Voting Representatives shall deliver the
written subscription and purchase price to the Bank, and direct the Bank to
issue such securities in the name of, and to deliver such securities to, the
respective purchasing Stockholder. To the extent the Stockholders do not
subscribe for their pro rata portion of the securities specified in the notice,
the Voting Representatives may purchase such remaining securities or assign the
subscription rights respecting such securities to any other person or entity at
their discretion.
Each and every person or entity acquiring any shares of
capital stock having general voting powers by exercise of such subscription
rights pursuant to this Paragraph 8 shall be deemed a "Stockholder" for
purposes of this Agreement and such shares shall be included within the term
"Stock" as used herein and shall be subject to this Agreement.
9. Deposit of Counterpart of Agreement. A counterpart of this
Agreement shall be deposited with the Bank at its principal office and with any
state or federal regulatory authority with which counterparts of this Agreement
are required to be filed.
10. Legend on Certificates.
10.1. Legend. All certificates representing shares of
Stock shall bear the following legend (with the blank appropriately completed):
The shares represented by this certificate are subject to the
provisions of a Voting and Stock Restriction Agreement dated
as of May 25, 1984 (Agreement), a counterpart of which has
been deposited with the Bank at its principal office. The
Bank will furnish a copy of such Agreement to the holder of
this certificate without charge upon written request to the
Bank at its principal office. The Agreement vests the
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<PAGE> 10
voting rights with respect to the shares represented by this
certificate in designated Voting Representatives and contains
restrictions on the transfer of such shares.
10.2. Responsibility to Affix Legend. Within 10 days after
the execution of this Agreement, unless a later date is specified in writing by
the Voting Representatives, each Stockholder shall deliver to the Voting
Representatives; or such other person as may be designated in a written notice
to all Stockholders signed by any Voting Representative, all of the
certificates representing his respective shares of Stock. The Voting
Representatives or their designee shall affix the legend conspicuously on each
certificate and promptly return the certificate(s) to the Stockholder.
Certificates representing subsequently acquired shares of Stock subject to this
Agreement, within 10 days after acquisition of the shares of Stock, shall be
submitted in the same manner for affixing the legend. Each Stockholder shall
make arrangements for affixation of the legend to any certificates representing
any such shares of Stock which he does not have in his personal possession and
therefore cannot deliver pursuant to this Paragraph 10.2, and the Bank is
hereby authorized to affix the legend to any such certificate presented to it
for transfer or reissuance. Each Stockholder agrees to indemnify and hold the
Voting Representatives and their successors and assigns and each other
Stockholder harmless from any loss, damage or cost suffered by such persons as
a result of the failure of such Stockholder to deliver, or cause to be
delivered, certificates representing his Stock for legending in accordance with
the provisions of this Paragraph 10.2. Certificates representing any shares of
Stock released pursuant to this Agreement must be presented to the Voting
Representatives or their designee for removal of the legend.
11. Term of Agreement. The term of this Agreement is for a period
of 10 years, commencing on the effective date of this Agreement and terminating
at the expiration of 10 years from such date, but this Agreement may be
terminated earlier by (i) the written agreement of the Stockholders owning not
less than 67% of the Stock, (ii) the sale of all or part of the Stock pursuant
to the provisions of Paragraph 7 or (iii) dissolution or liquidation of the
Bank or any successor entity.
This Agreement shall be automatically renewed for an
additional period of 10 years unless the holders of 67% or more of the Stock
give written notice to the Voting Representatives that they desire not to
continue the Agreement. Such notice must be given at least 90 days prior to
the end of the initial ten year term.
12. General.
12.1. Notices. Any notice pursuant to this Agreement shall
be deemed given when received by the Voting Representatives or the Stockholder
to whom it is directed, or when deposited in the United States mail, certified,
return receipt requested, with postage prepaid, addressed to the Stockholder at
the address specified beside his name on the signature page of this Agreement
or to
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<PAGE> 11
the Voting Representatives at the address of the principal office of the Bank.
An address may be changed by (i) any Stockholder by written notice given to the
Voting Representatives and (ii) the Voting Representatives by written notice
given to each Stockholder in the manner provided in this Paragraph 12.1.
12.2. Effect of Agreement. This Agreement shall be binding
on and enforceable against each Stockholder, his heirs, administrators,
executors, legal representatives and assigns, and on all subsequent owners of
any shares of the Stock, who shall be deemed "Stockholders" within the meaning
of and shall hold such shares subject to this Agreement. No other person(s)
shall have or be construed to have any legal or equitable right, remedy or
claim under or in respect of or by virtue of this Agreement or any provision
herein contained.
12.3. Separability. If a court of competent jurisdiction
shall adjudge to be invalid any clause, sentence, subparagraph, paragraph or
section of this Agreement, such judgment or decree shall not affect, impair,
invalidate or nullify the remainder of this Agreement, but the effect thereof
shall be confined to the clause, sentence, subparagraph, paragraph or section
so adjudged to be invalid.
12.4. Amendment of Agreement. This Agreement may be
changed, modified or amended by a written instrument signed by the holders of
not less than 67% of the Stock. Any such amendment shall become effective as
of the date specified in the written instrument or if no date is specified, on
the date the Voting Representatives receive the written instrument containing
the amendment from the Stockholders.
12.5. Execution of Other Instruments. Each Stockholder
shall execute and deliver such other agreements and instruments, or take such
other actions as the Voting Representatives from time to time may deem
advisable or appropriate to effectuate the intent and purpose of this
Agreement, including, but not by way of limitation, the execution and delivery
of a supplemental or additional proxy or proxies to vote all of the Stock
subject to this Agreement, in a manner consistent with the terms of the
Agreement, but the delivery of such a proxy or proxies shall in no way affect
the validity of the proxy granted pursuant to Paragraph 3.1.
12.6. Miscellaneous.
12.6.1. Paragraph and Subparagraph Headings. The
paragraph and subparagraph headings in this Agreement are for
reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
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<PAGE> 12
12.6.2. Numbers and Gender. When required by the
context, each number (singular and plural) shall include all
numbers and each gender shall include all genders.
12.6.3. Choice of Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of Texas.
12.6.4. Affiliate. For purposes of this Agreement,
an affiliate of the Bank shall mean another person or entity
which controls, is controlled by or is under common control
with the Bank.
THIS AGREEMENT is executed in multiple counterparts, any one or more
of which may contain the signature of any party hereto. All of such
counterparts taken together shall constitute a complete executed original of
this Agreement, dated and effective as of May 25, 1984.
VOTING REPRESENTATIVES
- ---------------------------------- ------------------------------------
- ---------------------------------- ------------------------------------
- ---------------------------------- ------------------------------------
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<PAGE> 13
STOCKHOLDERS
<TABLE>
<CAPTION>
Number of
Shares of Stock
Subject to Agreement
--------------------
<S> <C>
- ------------------------------------------------------- -----------
Signature of Stockholder
- -------------------------------------------------------
- -------------------------------------------------------
Address of Stockholder
- -------------------------------------------------------
Please print name above
- -------------------------------------------------------
Social Security or I.R.S. Number
</TABLE>
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<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT CONTRACT
THE STATE OF TEXAS
COUNTY OF HARRIS
This AGREEMENT is made this ___the day of December, 1997 between PRIME
BANK, a Texas banking association, having a principal place of business at
12200 Northwest Freeway, Houston, Texas 77092 hereinafter referred to as the
"Employer", and B. J. WILLIAMS who resides at ____________________, Houston,
Texas hereinafter referred to as the "Employee" (this "Agreement"). Prime
Bancshares, Inc. is also executing this Agreement as guarantor of the
obligations under the Agreement of its subsidiary, Prime Bank.
ARTICLE I
TERM OF EMPLOYMENT
The Employer hereby employs the Employee and the Employee hereby
accepts employment with the Employer for a period of three (3) years beginning
on the Closing Date (as that term is defined in that certain Agreement and Plan
of Reorganization dated the 30th day of December, 1997 among Prime Bancshares,
Inc. Ibid, Inc., Prime Bank and Sunbelt National Bank) (referred to herein as
the "Effective Date"); however, this Agreement may be terminated earlier as
hereinafter provided.
ARTICLE II
DUTIES OF EMPLOYEE
1. Primary Duties. The Employee is hereby employed by Employer
and shall primarily manage the solicitation and servicing of loan and
depositary accounts of Employer associated with the locations of Employer which
were previously those of Sunbelt National Bank and shall perform such other
work as may be assigned to him subject to the instructions, directions, and
control of the Employer which shall be consistent with the type and nature of
work normally performed by senior banking officers.
2. Location. Employee shall work at 1160 Dairy Ashford and shall
be furnished with an office and other business facilities and services
sufficient to carry out his duties of office.
3. Changes of Duties or Location-Mutual Consent. The duties of
the Employee and the location at which Employee shall work may be changed from
time to time by the mutual consent of the Employer and the Employee without
resulting in a rescission of this Agreement. Notwithstanding any such change,
the employment of the Employee shall be construed as continuing under this
Agreement as modified.
<PAGE> 2
4. Secretarial Assistance. Consistent with Employer's policies
and procedures, Employee shall have the right to hire and terminate his own
secretary.
ARTICLE III
ENGAGING IN OTHER EMPLOYMENT
The Employee shall devote his entire productive time, ability, and
attention to the business of the Employer. The Employee shall not directly or
indirectly render any services of a business, commercial, or professional
nature relating to banking or financial matters to any other person or
organization, whether for compensation or otherwise, without the prior written
consent of the Employer; during the term of this Agreement and during the
non-competition period described in Article VI below.
ARTICLE IV
COMPENSATION
1. Basic Compensation. As compensation for employment services
rendered under this Agreement, the Employee shall be entitled to receive from
the Employer a salary of TEN THOUSAND FOUR HUNDRED SIXTEEN AND 67/100 DOLLARS
($10,416.67) per month, prorated for any partial employment period during the
three (3) year term of this Agreement.
2. Additional Compensation.
a. Employee Bonus Plan. So long as the Employee is
working on a full-time basis (i.e., five days per week, exclusive of holidays,
etc.), the Employee shall be eligible for such additional compensation, if any,
from the Employer for services rendered hereunder based upon Employee's annual
performance evaluation, and the Employee shall be included in the Employer's
employee bonus plan and be entitled to such additional compensation as may
accrue to him by reason of his inclusion in such plan.
ARTICLE V
REIMBURSEMENT OF EMPLOYEE BUSINESS EXPENSES
1. Out of Pocket Expenses. The Employee is authorized to incur
reasonable business expenses for promoting the business of the Employer,
including expenditures for entertainment and travel, including, without
limitation, trade association convention attendance, country club dues, mobile
telephone expense, and other similar business expenses. The Employer and
Employee will mutually determine a reasonable range for such business expenses.
The Employer will reimburse the Employee from time to time for all such
business expenses provided that the Employee presents
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<PAGE> 3
the Employer with appropriate documentation of such expenditures in accordance
with the Employer's established procedures relating to such reimbursements.
2. Automobile Expense Allowance. During the term of his
employment but not thereafter, the Employer shall pay the Employee an
automobile expense allowance of $975.00 per month to reimburse the Employee for
the business use of his personal automobile.
ARTICLE VI
EMPLOYEE'S OBLIGATIONS OTHER THAN TO PERFORM SERVICES
1. Non-Competition by Employee. For a three year period following
the later of (a) the date of the immediately preceding Annual Covenant Payment
(as defined below) or (b) the date that Employee's employment is terminated for
any reason, the Employee shall not, directly or indirectly, either as an
employee, employer, consultant, agent, principal, partner, greater than 10%
stockholder, corporate officer, director, or in any other individual or
representative capacity, (i) solicit the banking business (loan, deposit or
otherwise) of any then existing customers of Employer, and (ii) engage or
participate in any business that is in competition in any manner whatever with
the business of Employer within a ten-mile radius of either the office building
located at 1160 Dairy Ashford, Houston, Texas or the branch locations located
at 8800 Katy Freeway, Houston, Texas or 8501 Katy Freeway, Houston, Texas.
2. Covenant Payments. In consideration for the Employee's
agreement and covenant of non-competition described in the preceding paragraph
1; the Employer agrees to pay the Employee ONE HUNDRED SEVENTY-FIVE THOUSAND &
NO/100 ($175,000) DOLLARS in three (3) annual installments of FIFTY-EIGHT
THOUSAND THREE HUNDRED THIRTY-THREE & 33/100 DOLLARS ($58,333.33) each ("Annual
Covenant Payments"); the first of which Annual Covenant Payments shall be due
and payable on the Effective Date, and the two remaining Annual covenant
Payments shall be due on each of the two anniversary dates of the Effective
Date hereof.
3. Enforcement and Legal Remedies. The parties recognize the
difficulty of properly measuring the damages which reasonably would accrue by
reason of a breach of this covenant of non-competition and thereof agree that
the party suffering by reason of any breach of this Agreement shall be entitled
to the equitable remedy of injunctive relief.
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<PAGE> 4
ARTICLE VII
PROPERTY RIGHTS
1. Trade Secrets and Confidentiality. During the term of
employment, the Employee will have access to and become familiar with various
trade secrets, consisting of customer lists, analytical information, financial
data, and compilations of information, records, and specifications, owned by
the Employer and regularly used in the operation of the business of the
Employer. The Employee shall not disclose any such trade secrets, directly or
indirectly, nor use them in any way, either during the term of this Agreement
or at any time thereafter, except as required in the course of his employment
with the Employer. All files, records, documents, drawings, specification,
equipment, and similar items relating to the business of the Employer, whether
or not prepared by the Employee, shall remain the exclusive property of the
Employer and shall not be removed from the premises of the Employer under any
circumstances without the prior written consent of the Employer.
2. Processes and Improvements. The Employee agrees that he will
promptly from time to time fully inform and disclose to the Employer all
inventions, processes, designs, improvements and discoveries which he now has
or may hereafter have during the term of this Agreement which pertain or relate
to the business of the Employer or to any experimental work carried on by the
Employer, whether conceived by the Employee alone or with others and whether or
not conceived during regular working hours. All such inventions, processes,
designs, improvements, and discoveries shall be the exclusive property of the
Employer. The Employee shall assist the Employer in obtaining patents on all
such inventions, designs, improvements, and discoveries deemed patentable by
the Employer and shall execute all documents and do all things necessary to
obtain letters patent, vest the Employer with full and exclusive title thereto,
and protect the same against infringement by others.
ARTICLE VIII
TERMINATION RIGHTS
1. Employee's Termination Rights. The Employee shall have the
right, at his election and for any reason prior to the expiration of the term
of this Agreement, to voluntarily terminate his employment with the Employer.
Any such voluntary termination of employment by the Employee shall terminate
the Employer's obligation to pay any further compensation provided for in
Article IV above; but shall not impair or effect that obligation of the
Employer to pay the Annual Covenant Payments described in Article VI above;
providing the Employee is not then, or at any time thereafter, in violation of
the covenant of non-competition.
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<PAGE> 5
2. Employer's Termination Rights. The Employer shall have the
right to terminate the Employee, but only for good cause. For purposes of this
Agreement, "good cause" shall mean:
a. Employee's willful and repeated failure to perform
his duties under Article II.1 of this Agreement;
b. Employee's willful and repeated violation of
Employer's written policies and procedures;
c. Habitual use of alcohol or drugs that prevents
Employee from performing his duties under Article II.1 of this Agreement;
d. Conviction of a felony, or conviction of a
misdemeanor involving active and willful fraud or moral turpitude; or
e. Acts of gross disloyalty to Prime, including but not
limited to theft, embezzlement or intentional unauthorized disclosure of
confidential information.
In the event of either (i) the termination for good cause factors d. or e.
above, or (ii) death of Employee, the Employer's obligations to pay the
compensation described in Article IV and its obligations to pay the Annual
Covenant Payments described in Article VI shall automatically cease. In the
event of termination for good cause factors a., b. or c. above, the Employer's
obligations to pay the compensation described in Article IV shall automatically
cease, but Employer's obligations to pay the Annual Covenant Payments as
described in Article VI shall continue, providing that Employee is not in
violation of the covenant of non-competition.
ARTICLE IX
GENERAL PROVISIONS
1. Notices. Any notices to be given hereunder by either party to
the other may be effected either by personal delivery in writing or by mail,
registered or certified, postage prepaid with return receipt requested. Mailed
notices shall be addressed to the parties at the addresses appearing in the
introductory paragraph of this Agreement, but each party may change his address
by written notice in accordance with this paragraph. Notices delivered
personally shall be deemed communicated as of actual receipt; mailed notices
shall be deemed communicated as of three (3) days after mailing.
2. Inclusion of Entire Agreement Herein. This Agreement
supersedes any and all other agreements, either oral or in writing, between
the parties hereto with respect to the employment of
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<PAGE> 6
the Employee by the Employer and contains all of the covenants and agreements
between the parties with respect to such employment in any manner whatsoever.
3. Law Governing Agreement. This Agreement shall be governed by
and construed in accordance with the laws of the State of Texas.
4. Modification. This Agreement shall not be amended, modified,
or altered in any manner except in a writing signed by both parties.
5. Failure to Enforce Not Waiver. Any failure or delay on the
part of either the Employer or the Employee to exercise any remedy or right
under this Agreement shall not operate as a waiver. The failure of either
party to require performance of any of the terms, covenants, or provisions of
this Agreement by other party shall not constitute a waiver of any of the
rights under the Agreement. No forbearance by either party to exercise any
rights or privileges under this Agreement shall be construed as a waiver, but
all rights and privileges shall continue in effect as if no forbearance had
occurred. No covenant or condition of this Agreement may be waived except by
the written consent of the waiving party. Any such written waiver of any term
of this Agreement shall be effective only in the specific instance and for the
specific purpose given.
6. Partial Invalidity. If any provision of this Agreement is
held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remaining provisions shall remain in full force and effect,
as if this Agreement had been executed without any such invalid provisions
having been included. Such invalid provision shall be reformed in a manner
that is both (i) legal and enforceable, and (ii) most closely represents the
parties original intent.
7. Attorney's Fees and Costs. If any action at law or in equity
is necessary to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorney's fees, costs, and
necessary disbursements in addition to any other relief to which he may be
entitled.
8. Counterparts. This Agreement has been executed in duplicate,
each of which shall be deemed an original, but both of which shall constitute
one and the same instrument.
9. Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of the Employer and the Employee, and their
respective heirs, executors, administrators, successors and assigns, including,
without limitation, any successor by merger, consolidation or stock purchase of
the Employer and any entity or person that acquires all or substantially all of
the assets of the Employer.
-6-
<PAGE> 7
EMPLOYER
PRIME BANK
By:
----------------------------------------
E. J. Guzzo, its President
PRIME BANCSHARES, INC.
By:
----------------------------------------
E. J. Guzzo, its President
EMPLOYEE
----------------------------------------
B. J. Williams
-7-
<PAGE> 8
STATE OF TEXAS
COUNTY OF HARRIS
This instrument was acknowledged before me on this ______ day of
__________, 1997 by E. J. GUZZO in the capacity stated.
---------------------------------------
Notary Public - State of Texas
---------------------------------------
Printed Name of Notary
My Commission Expires:
-----------------
STATE OF TEXAS
COUNTY OF HARRIS
This instrument was acknowledged before me on this ______ day of
__________, 1997 by E. J. GUZZO in the capacity stated.
---------------------------------------
Notary Public - State of Texas
---------------------------------------
Printed Name of Notary
My Commission Expires:
----------------
STATE OF TEXAS
COUNTY OF HARRIS
This instrument was acknowledged before me on this ______ day of
__________, 1997 by B. J. WILLIAMS.
---------------------------------------
Notary Public - State of Texas
---------------------------------------
Printed Name of Notary
My Commission Expires:
-----------------
-8-
<PAGE> 1
Exhibit 23.1
We have issued our reports dated January 20, 1998, accompanying the
financial statements of Prime Bancshares Inc. and Subsidiaries contained in the
Registration Statement and Prospectus. We consent to the use of the
aforementioned reports in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Experts."
/s/ GRANT THORNTON LLP
GRANT THORNTON LLP
Houston, Texas
March 3, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 15, 1998, accompanying the financial
statements of Sunbelt National Bank contained in this Registration Statement on
Form S-4. We consent to the use of the aforementioned report in the
Registration Statement, and to the use of our name as it appears under the
caption "Experts".
/s/ HARPER & PEARSON COMPANY
HARPER & PEARSON COMPANY
Houston, Texas
March 2, 1998
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<S> <C> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1996
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<PERIOD-END> DEC-31-1997 SEP-30-1997 DEC-31-1996
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<INTEREST-INVEST> 31,695 22,833 28,722
<INTEREST-OTHER> 0 785 420
<INTEREST-TOTAL> 66,038 48,651 53,815
<INTEREST-DEPOSIT> 29,784 22,144 23,741
<INTEREST-EXPENSE> 30,017 22,175 23,741
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<INCOME-PRETAX> 17,598 12,781 14,064
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<EPS-DILUTED> 1.14 0.65 .92
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