<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Prime Bancshares, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
----------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE> 2
PRIME BANCSHARES, INC.
12200 NORTHWEST FREEWAY
HOUSTON, TEXAS 77092
NOTICE OF 1999 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON THURSDAY, APRIL 15, 1999
Shareholders of Prime Bancshares, Inc.:
The 1999 Annual Meeting of Shareholders (the "Meeting") of Prime
Bancshares, Inc. (the "Company") will be held at 12200 Northwest Freeway,
Houston, Texas, on Thursday, April 15, 1999, beginning at 1:30 p.m.
(local time), for the following purposes:
1. To elect two directors of Class II to serve on the Board of
Directors of the Company until the Company's 2002 Annual Meeting of Shareholders
and until their successors are duly elected and qualified;
2. To consider and act upon a proposal to ratify the appointment of
Grant Thornton LLP as the independent auditors of the books and accounts of the
Company for the year ending December 31, 1999; and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The close of business on March 15, 1999 has been fixed as the record
date for the determination of shareholders entitled to notice of and to vote at
the Meeting or at any adjournments thereof. A list of shareholders entitled to
vote at the Meeting will be available for inspection by any shareholder at the
offices of the Company during ordinary business hours for a period of at least
ten days prior to the Meeting.
You are cordially invited and urged to attend the Meeting. If you are
unable to attend the Meeting, you are requested to sign and date the enclosed
proxy and return it promptly in the enclosed envelope. If you attend the
Meeting, you may vote in person, regardless of whether you have given your
proxy. Your proxy may be revoked at any time before it is voted.
By order of the Board of Directors,
/s/ E. J. GUZZO
E. J. Guzzo
President
Houston, Texas
March 17, 1999
YOUR VOTE IS IMPORTANT.
TO ENSURE YOUR REPRESENTATION AT THE MEETING, PLEASE COMPLETE, DATE,
AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ACCOMPANYING ENVELOPE AT YOUR
EARLIEST CONVENIENCE, REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE MEETING. NO
ADDITIONAL POSTAGE IS NECESSARY IF THE PROXY IS MAILED IN THE UNITED STATES. THE
PROXY IS REVOCABLE AT ANY TIME BEFORE IT IS VOTED AT THE MEETING.
<PAGE> 3
PRIME BANCSHARES, INC.
12200 NORTHWEST FREEWAY
HOUSTON, TEXAS 77092
MARCH 17, 1999
------------------------
PROXY STATEMENT
FOR
1999 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON THURSDAY, APRIL 15, 1999
------------------------
INTRODUCTION
This Proxy Statement is being furnished in connection with the
solicitation of proxies by the Board of Directors of Prime Bancshares, Inc. (the
"Company") for use at the 1999 Annual Meeting of Shareholders of the Company to
be held at 12200 Northwest Freeway, Houston, Texas, on Thursday, April 15, 1999,
beginning at 1:30 p.m. (local time), and any adjournment thereof (the "Meeting")
for the purposes set forth in this Proxy Statement and the accompanying Notice
of 1999 Annual Meeting of Shareholders ("Notice of Meeting"). This Proxy
Statement, the Notice of Meeting and the enclosed form of proxy will first be
sent to shareholders on or about March 17, 1999.
PROXIES
This Proxy Statement is furnished to the shareholders of the Company
for solicitation of proxies on behalf of the Board of Directors of the Company
for use at the Meeting, and at any and all adjournments thereof. The purpose of
the Meeting and the matters to be acted upon are set forth herein and in the
accompanying Notice of Meeting.
Shares represented at the Meeting by an executed and unrevoked proxy in
the form enclosed will be voted in accordance with the instructions contained
therein. If no instructions are given on an executed and returned form of proxy,
the proxies intend to vote the shares represented thereby in favor of each of
the proposals to be presented to and voted upon by the shareholders as set forth
herein.
The Board of Directors knows of no other matters to be presented at the
Meeting. If any other matter should be presented at the Meeting upon which a
vote may be properly taken, shares represented by an executed and unrevoked
proxy received by the Board of Directors may be voted with respect thereto in
accordance with the judgment of the proxies. The proxy also confers on the
proxies the discretionary authority to vote with respect to any matter presented
at the Meeting for which advance notice was not received by the Company in
accordance with the Company's Bylaws.
<PAGE> 4
Any proxy given by a shareholder may be revoked by such shareholder at
any time before it is exercised by submitting to the Secretary of the Company a
duly executed proxy bearing a later date, delivering to the Secretary of the
Company a written notice of revocation or attending the Meeting and voting in
person.
The cost of this solicitation of proxies is being borne by the Company.
Solicitations will be made only by the use of the mail, except that, if deemed
desirable, officers and regular employees of the Company may solicit proxies by
telephone, telegraph or personal calls, without being paid additional
compensation for such services. Brokerage houses, custodians, nominees and
fiduciaries will be requested to forward the proxy soliciting material to the
beneficial owners of the common stock, par value $0.25 per share, of the Company
(the "Common Stock") held of record by such persons, and the Company will
reimburse them for their reasonable expenses incurred in this connection.
The Company's Annual Report to Shareholders, including financial
statements, for the year ended December 31, 1998, accompanies but does not
constitute part of this proxy statement.
VOTING SHARES AND VOTING RIGHTS
Only holders of record of Common Stock at the close of business on
March 15, 1999 (the "Record Date"), are entitled to notice of and to vote at the
Meeting and any adjournments or postponements thereof. At that time, there were
outstanding 10,304,483 shares of Common Stock, which is the only outstanding
class of voting securities of the Company. A majority of the outstanding shares
of Common Stock must be represented at the Meeting in person or by proxy in
order to constitute a quorum for the transaction of business. Each holder of
Common Stock shall have one vote for each share of Common Stock registered, on
the Record Date, in such holder's name on the books of the Company.
The affirmative vote of the holders of a plurality of the outstanding
shares of Common Stock represented at the Meeting is required to elect the Class
II nominees to the Board of Directors. There will be no cumulative voting in the
election of directors. Abstentions and shares held of record by a broker or
nominee that are voted on any matter are included in determining whether a
quorum exists. An abstention, a non-vote or a withholding of authority to vote
with respect to one or more nominees for director will not have the effect of a
vote against such nominee or nominees.
The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock represented at the Meeting is required to approve the
appointment of the auditors. An abstention or a non-vote will have the effect of
a vote against the appointment.
ELECTION OF DIRECTORS
ELECTION PROCEDURES; TERM OF OFFICE
The Board of Directors currently consists of six directors. In
accordance with the Company's Amended and Restated Bylaws, members of the Board
of Directors are divided into three classes: Class I, Class II and Class III.
The members of each class are elected for a term of office to expire at the
third succeeding annual meeting of shareholders following their election. The
term of office of the current Class II directors expires at the Meeting. The
terms of the current Class III and Class I directors expire at the annual
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<PAGE> 5
meetings of shareholders in 2000 and 2001, respectively. The two Class II
nominees, if elected at the Meeting, will serve until the annual meeting of
shareholders in 2002.
The Board of Directors has nominated Jerry S. Dominy and David
Pasternak for election as Class II directors at the Meeting. Mr. Dominy and Mr.
Pasternak are currently serving as Class II directors.
The Class II nominees receiving the affirmative vote of the holders of
a plurality of the shares of Common Stock represented at the Meeting will be
elected. Unless the authority to vote for the election of directors is withheld
as to either or both of the nominees, all shares of Common Stock represented by
proxy will be voted FOR the election of the nominees. If the authority to vote
for the election of directors is withheld as to one but not both of the
nominees, all shares of Common Stock represented by any such proxy will be voted
FOR the election of the nominee as to whom such authority is not withheld. If a
nominee becomes unavailable to serve as a director for any reason before the
election, the shares represented by proxy will be voted for such other person,
if any, as may be designated by the Board of Directors. The Board of Directors,
however, has no reason to believe that any nominee will be unavailable to serve
as a director.
Any director vacancy occurring after the election may be filled only by
a majority of the remaining directors, even if less than a quorum of the Board
of Directors. A director elected to fill a vacancy will be elected for the
unexpired portion of the term of his predecessor in office.
NOMINEES FOR ELECTION
The following table sets forth certain information with respect to each
nominee for election as a director of the Company.
<TABLE>
<CAPTION>
POSITIONS WITH THE COMPANY
NAME AGE AND PRIME BANK ("BANK")
- ---- --- --------------------------
<S> <C> <C>
Jerry S. Dominy 64 Class II Director of the Company;
Director of the Bank
David Pasternak 76 Class II Director of the Company;
Director of the Bank
</TABLE>
Jerry S. Dominy. Mr. Dominy became a director of the 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 the 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.
David Pasternak. Mr. Pasternak has been a director of the Bank since
the 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
the Bank's Investment Committee. Mr. Pasternak's principal occupation is
investing in real estate and securities.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF
THE NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS.
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<PAGE> 6
CONTINUING DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Company's Class III and Class I directors, whose terms of office do not expire
at the Meeting, and certain officers of the Company:
<TABLE>
<CAPTION>
NAME POSITION AGE
---- -------- ---
<S> <C> <C>
L. Anderson Creel.......... Secretary and Treasurer of the Company;
Executive Vice President and Chief Financial
Officer of the Company and the Bank;
Director of the Bank 51
James G. Dickson, Jr....... Executive Vice President of the Company and
the Bank; Director of the Bank 54
E. J. Guzzo................ Class I Director and President of the
Company; Director and President of the Bank 55
Steven H. Jackson.......... Executive Vice President of the Company and
the Bank; Director and Chief Credit Officer of
the Bank 38
Walter L. Kopycinski....... Executive Vice President of the Company and
the Bank; Director and Operations Division
Manager of the Bank 62
Fredric M. Saunders........ Chairman of the Board, Class I Director and
Chief Executive Officer of the Company;
Chairman of the Board, Director and Chief
Executive Officer of the Bank 67
Stuart D. Saunders......... Class III Director, Senior Vice President and
General Counsel of the Company; Director,
Senior Vice President and General Counsel of
the Bank; Legal and Loan Services Division 34
Manager
James B. Wesley............ Class III Director of the Company; Director of
the Bank 58
</TABLE>
L. Anderson Creel. Mr. Creel joined the 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
responsibilities of Secretary and Treasurer of the Company in 1996. Mr. Creel
was elected Senior Vice President of the Company in 1997 and named an Executive
Vice President of the Company and the Bank in
4
<PAGE> 7
1998. In addition, Mr. Creel serves as a Director of the 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 the 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 a
Director of the Bank. Mr. Dickson was elected a Senior Vice President of the
Company in 1997 and named an Executive Vice President of the Company and the
Bank in 1998. Mr. Dickson came to the Bank with 20 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.
E. J. Guzzo. Mr. Guzzo joined the Bank as Executive Vice President and
director in 1983 and became President of the 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 the Bank in 1989 as Senior Vice
President. He has since been promoted to Chief Credit Officer. In addition, Mr.
Jackson serves as a Director of the Bank. Mr. Jackson was elected a Senior Vice
President of the Company in 1997 and named an Executive Vice President in 1998.
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 the Bank in 1991 as
Operations Division Manager. He has since been promoted to Executive Vice
President and Operations Division Manager. He also serves as a Director of the
Bank. Mr. Kopycinski was elected a Senior Vice President of the Company in 1997
and named an Executive Vice President in 1998. Mr. Kopycinski has 39 years of
experience in bank operations. Prior to joining the 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.
Fredric M. Saunders. Mr. Saunders joined the Bank in 1962 as President
and director. In 1969, Mr. Saunders began serving as Chairman of the Board of
the 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 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
5
<PAGE> 8
involved in the Rotary Club of Northshore, the North Channel Area Chamber of
Commerce and the YMCA. Mr. Saunders is the father of Stuart D. Saunders.
Stuart D. Saunders. Mr. Saunders began serving the Bank as an Advisory
Director in 1991. In 1994, he joined the 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 the Bank in
1997. Prior to joining the 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 the Bank in 1985. He
has served as Chairman of the 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.
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.
OPERATION OF THE BOARD OF DIRECTORS
The Board of Directors of the Company held 12 meetings during 1998.
There was no director who attended less than 75% of the aggregate of the (i)
total number of meetings of the Board and (ii) total number of meetings held by
committees on which he served.
The Board of Directors has 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. During 1998, the Audit Committee held three meetings. 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. During 1998, the Compensation Committee held one
meeting. 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
The Compensation Committee of the Board of Directors determines the
compensation of the Company's executive officers. The Compensation Committee
consists of Jerry S. Dominy, David Pasternak
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<PAGE> 9
and James B. Wesley, each of whom is an outside director of the Company. No
member of the Compensation Committee is or was an officer or employee of the
Company or the Bank.
DIRECTOR COMPENSATION
Directors of the Company do not receive any fees for attending meetings
of the Company's Board of Directors. Non-employee directors of the Bank receive
a fee of $250 for each meeting of the Bank's Board of Directors attended and a
fee of $300 for each Bank Board committee meeting attended. Mr. Wesley receives
a fee of $10,000 per quarter for serving as Chairman of the Audit Committee. The
Bank has historically paid non-employee directors of the Bank an annual bonus
based on the Bank's performance in lieu of a retainer. In 1998, the Bank paid
each of Messrs. Dominy, Pasternak and Wesley, who are also directors of the
Company, a bonus of $250.
EXECUTIVE COMPENSATION AND OTHER MATTERS
SUMMARY COMPENSATION TABLE
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 three fiscal years ended December 31, 1998:
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......................... 1998 $ 223,000 $ 22,648 $ -- $ 2,500
Chairman of the Board 1997 205,100 121,000 829 2,371
1996 220,000 121,000 -- 2,250
E. J. Guzzo................................. 1998 240,000 132,000 6,808 2,500
President 1997 220,000 110,000 2,970 2,371
1996 200,000 110,000 3,000 2,250
L. Anderson Creel........................... 1998 115,000 31,625 6,000 1,725
Executive Vice President, Chief Financial 1997 100,000 27,500 6,000 1,590
Officer, Secretary and Treasurer 1996 100,000 27,500 9,000 1,538
James G. Dickson, Jr........................ 1998 125,000 34,375 -- 1,785
Executive Vice President 1997 110,000 28,250 -- 1,650
1996 110,000 28,250 12,550 1,793
Steven H. Jackson........................... 1998 125,000 34,375 7,800 1,902
Executive Vice President 1997 110,000 30,250 7,800 1,767
1996 110,000 30,250 10,800 1,767
Walter L. Kopycinski........................ 1998 115,000 31,625 6,000 1,725
Executive Vice President 1997 100,000 27,500 6,000 1,590
1996 100,000 27,500 9,000 1,574
</TABLE>
- ----------
(1) CONSISTS OF CONTRIBUTIONS BY THE COMPANY TO THE 401(K) PLAN.
7
<PAGE> 10
STOCK OPTION PLANS
The Company has outstanding options to purchase 369,000 shares of
Common Stock issued pursuant to the 1993 Incentive Stock Option Plan (the "1993
Plan") and 51,000 shares of Common Stock issued pursuant to the 1997 Incentive
Stock Option Plan (the "1997 Plan.") Under both the 1993 Plan and the 1997 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 and the 1997 Plan generally must be exercised within ten years
following the date of grant or no later than three months after termination of
the optionee's employment, if earlier.
The 1997 Plan also provides for the granting of restricted stock
awards, stock appreciation rights, phantom stock awards and performance awards
on substantially similar terms. None of these types of awards have been granted
under the 1997 Plan. The 1997 Plan provides that in the event of a change in
control of the Company, all options granted immediately vest and become
exercisable. In addition, the 1997 Plan permits the Compensation Committee,
which administers the 1997 Plan, discretion in the event of a change in control
to modify in certain respects the terms of awards under the 1997 Plan, including
(i) providing for the payment of cash in lieu of such award, (ii) limiting the
time during which an option may be exercised, (iii) making adjustments to
options to reflect the change in control and (iv) providing that options shall
be exercisable for another form of consideration in lieu of the Common Stock
pursuant to the terms of the transaction resulting in a change in control.
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. Although
it does not require the fair value based method to be adopted, 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 1998
There were no option grants to executive officers or directors during
fiscal 1998.
8
<PAGE> 11
STOCK OPTION EXERCISES AND FISCAL YEAR END VALUES
The following table sets forth certain information concerning stock
options exercised during fiscal 1998 and the number and value of unexercised
options held by each of the named executives at December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS IN-THE-MONEY OPTIONS AT
SHARES DOLLAR AT DECEMBER 31, 1998 DECEMBER 31, 1998(2)
ACQUIRED UPON VALUE --------------------------- ---------------------------
NAME OPTION EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
E. J. Guzzo ............. 30,000 $ 545,750 24,000 96,000 $ 314,000 $ 1,256,000
L. Anderson Creel ....... 54,000 1,136,152 6,000 30,000 87,500 401,500
James G. Dickson, Jr .... 42,000 782,302 3,000 24,000 43,750 350,000
Steven H. Jackson ....... -- -- 60,000 30,000 876,000 401,500
Walter L. Kopycinski .... -- -- 60,000 30,000 876,000 401,500
</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, 1998, minus the
exercise price.
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"). The 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 1998, 1997 and 1996 were approximately $148,000, $118,000 and
$97,000, respectively.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following is a report from the Compensation Committee of the
Company describing the policies pursuant to which compensation was paid to
executive officers of the Company and the Bank during 1998.
The Compensation Committee of the Board of Directors is responsible for
developing and making recommendations to the Board with respect to the Company's
executive compensation policies. David Pasternak (Chairman), Jerry S. Dominy and
James B. Wesley serve on the Compensation Committee. The Compensation Committee
prepares a report which sets forth the components of the Company's executive
officer compensation program and describes the basis on which the 1998
compensation determinations were made by the Compensation Committee with respect
to the executive officers of the Company and the Bank.
9
<PAGE> 12
COMPENSATION PHILOSOPHY AND BASE SALARY
The Company believes that compensation of its executive officers should
enhance and reinforce the goals of the Company for profitable growth and
continuation of a sound overall condition by providing key employees with
additional financial rewards for the attainment of such growth and stable
financial and operating conditions. The Compensation Committee believes that
these goals are best supported by rewarding individuals for outstanding
contributions to the Company's success and by compensating its executive
officers competitively with the compensation of similarly situated executive
officers.
The base salary levels are determined through comparisons of salary
levels of executive officers of banks and bank holding companies of similar
size. In addition, the Compensation Committee takes into account individual
experience, individual performance, individual potential, cost of living
considerations and specific issues particular to the Company. Executive officer
base salaries are considered by the Compensation Committee to be competitive and
reasonable.
INCENTIVE COMPENSATION PLAN
In addition to the base salary, the Company has adopted an incentive
compensation program (the "Incentive Plan") for certain officers of the Company
and the Bank, including the named executive officers of the Company. The
Incentive Plan provides that certain officers will receive incentive
compensation equal to a designated percentage of such officer's base salary
depending on both individual consideration and Company performance. The level of
incentive compensation awarded is based on a graduated scale with the maximum
incentive granted only if the Company achieves a return on equity of 16% or
above. The entire incentive compensation fund is allocated among key officers of
the Company and the Bank based on a number of factors including base salary,
level of responsibility, individual performance and, where applicable, Company
and Bank performance.
CONTRIBUTORY PROFIT SHARING PLAN
In addition, each of the named executive officers are participants in
the Company-wide contributory profit sharing plan established pursuant to
Internal Revenue Code Section 401(k) covering substantially all employees. The
Company partially matches employee contributions to this plan up to 6% of the
employee's base salary.
INCENTIVE STOCK OPTION PLANS
Finally, each of the named executive officers may be selected to
participate in the Company's Incentive Stock Option Plans. In 1998, there were
no option grants made to executive officers.
The Compensation Committee will continue to monitor the base salary
levels and the various incentives of the named executive officers to ensure that
overall compensation is consistent with the Company's objectives and competitive
in the marketplace.
1998 COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In reviewing the 1998 compensation of the Company's Chief Executive
Officer, Fredric M. Saunders, the Compensation Committee undertook the same
evaluation set forth above with respect to executive officers. In addition, the
Compensation Committee reviewed his compensation history, executive compensation
survey
10
<PAGE> 13
data and comparative performance information. Upon recommendation by the
Compensation Committee, the Board of Directors of the Bank set Mr. Saunders'
salary for 1998 at $223,000. In addition to his base salary, Mr. Saunders
participates in the Incentive Plan along with other key officers of the Company
and the Bank. From the Incentive Plan in 1998, Mr. Saunders was paid a bonus of
$22,648 resulting in approximately 9% of his 1998 compensation being dependent
on the success of the Company. The amount contributed by the Company to the
401(k) plan for the benefit of Mr. Saunders in fiscal year 1998 was $2,500. The
Compensation Committee believes that Mr. Saunders' total compensation is
reasonable and competitive based on comparative performance information and the
overall performance of the Company.
The Compensation Committee
David Pasternak
Jerry S. Dominy
James B. Wesley
INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Many of the directors of the Bank and 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 1998, 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, 1998, all of such loans aggregated $492,415
which was approximately 0.58% 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.
11
<PAGE> 14
BENEFICIAL OWNERSHIP OF 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 the date hereof, by (i)
directors and executive officers 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>
NUMBER PERCENTAGE
NAME OF SHARES BENEFICIALLY OWNED
- ---------------------------------------- --------------- ------------------
<S> <C> <C>
Boston Partners......................... 588,900(1) 5.71%
L. Anderson Creel....................... 66,170(2) *
James G. Dickson, Jr.................... 61,470(3) *
Jerry S. Dominy....................... 308,385(4) 3.00%
E. J. Guzzo............................. 556,402(5) 5.38%
Steven H. Jackson....................... 93,390(6) *
Walter L. Kopycinski.................... 73,170(7) *
Mission-Heights Management
Company, Ltd....................... 3,160,000(8) 30.69%
David Pasternak......................... 360,006(9) 3.50%
Fredric M. Saunders..................... 3,180,720(10) 30.89%
Stuart D. Saunders...................... 10,260(11) *
James B. Wesley......................... 30,000 *
Directors and Executive Officers as a
Group.............................. 4,739,973 45.12%
</TABLE>
- ----------
*Denotes ownership less than 1.0%
(1) This information regarding beneficial ownership is included in reliance
on a Schedule 13G filed jointly in February 1999 by Boston Partners
Asset Management, L.P., ("BPAM"), Boston Partners, Inc. and Desmond
John Heathwood reflecting beneficial ownership as of December 31, 1998.
The address of BPAM, Boston Partners, Inc. and Mr. Heathwood is 28
State Street, 20th Floor, Boston, Massachusetts 02109. Each of BPAM,
Boston Partners, Inc. and Mr. Heathwood has shared voting and
investment control over 588,900 shares of Common Stock. Boston
Partners, Inc. and Mr. Heathwood disclaim any beneficial ownership of
such shares of Common Stock.
(2) Includes 16,670 shares held of record by Mr. Creel's individual
retirement account and 12,000 shares which may be acquired within 60
days pursuant to outstanding stock options.
(3) Includes 9,000 shares held of record by Mr. Dickson's IRA and 9,000
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 control.
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<PAGE> 15
(5) Includes 273,000 shares owned of record by Guzzo Partners, Ltd., 8,700
shares held by the Bank as custodian for Mr. Guzzo's individual
retirement account, 48,000 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
control over all of such shares.
(6) Includes 66,000 shares which may be acquired within 60 days pursuant
to outstanding stock options.
(7) Includes 66,000 shares which may be acquired within 60 days pursuant
to outstanding stock options.
(8) Fredric M. Saunders is the managing general partner of Mission-Heights
Management Company, Ltd., a Texas limited partnership
("Mission-Heights") and has voting and investment control over the
shares held by Mission-Heights.
(9) 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 control over all of such
shares.
(10) Consists of 3,150 shares held of record by the Stuart D. Saunders Trust
#1 of which 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 the wife of Fredric M. Saunders is the trustee, 14,420 shares
held of record by a charitable foundation, over which Fredric M.
Saunders has sole voting control and 3,160,000 shares held of record by
Mission-Heights. Fredric M. Saunders is the managing general partner of
Mission-Heights and has voting and investment control over the shares
held by Mission-Heights.
(11) 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.
13
<PAGE> 16
PERFORMANCE GRAPH
The following Performance Graph compares the cumulative total
shareholder return on the Company's Common Stock for the period from September
26, 1997, when the Common Stock was first listed on the Nasdaq National Market,
to December 31, 1998, with the cumulative total return of the S&P 500 Composite
Index and the Keefe, Bruyette & Woods, Inc.'s KBW 50 Bank Index for the same
period. Dividend reinvestment has been assumed. The Performance Graph assumes
$100 invested on September 26, 1997 in the Company's Common Stock, the S&P 500
Composite Index and the Keefe, Bruyette & Woods, Inc.'s KBW 50 Bank Index.
[GRAPHIC OMITTED]
[GRAPH]
9/26/97 12/31/97 12/31/98
------- -------- -------
PBTX 100.00 119.49 99.52
KBW 50 100.00 105.87 114.59
S&P 500 100.00 103.11 132.27
14
<PAGE> 17
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") requires the Company's directors and executive officers and
persons who own more than ten percent of the outstanding Common Stock to file
with the Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Officers, directors and greater than ten-percent shareholders are
required by regulation to furnish the Company with copies of all Section 16(a)
forms they file.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company, during the year ended December 31, 1998,
all Section 16(a) reporting requirements applicable to the Company's officers,
directors and greater than ten-percent shareholders were complied with except
that Mr. Creel was late in filing one report on Form 4 covering six
transactions, Mr. Dickson was late in filing two reports on Form 4 covering an
aggregate of nine transactions, Mr. Dominy was late in filing one report on Form
4 covering one transaction, Mr. Guzzo was late in filing two reports on Form 4
covering an aggregate of three transactions, Mr. Pasternak was late in filing
one report on Form 4 covering one transaction, Mr. Fredric Saunders was late in
filing two reports on Form 4 covering an aggregate of two transactions, C.C.
Smitherman, who resigned as a director in January 1998, was late in filing one
report on Form 4 covering one transaction, and Mission-Heights was late in
filing its initial report on Form 3 and two reports on Form 4 covering an
aggregate of two transactions. After discovery of the inadvertent omissions in
reporting such transactions, all necessary filings have been made with the
Commission.
PROPOSAL TO RATIFY APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Grant Thornton LLP as the
independent auditors of the books and accounts of the Company for the year
ending December 31, 1999. Grant Thornton LLP has served as the Company's
independent audit firm continuously for over ten years. At the Meeting, the
shareholders will be asked to consider and act upon a proposal to ratify the
appointment of Grant Thornton LLP. The ratification of such appointment will
require the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock entitled to vote and present in person or represented by
proxy at the Meeting. Representatives of Grant Thornton LLP will be present at
the Meeting, will be given an opportunity to make a statement (if they desire to
do so) and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO
RATIFY SUCH APPOINTMENT.
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
In order for shareholder proposals submitted pursuant to the
Commission's Rule 14a-8 to be included in the Company's proxy statement and form
of proxy relating to the Company's 2000 Annual Meeting of Shareholders, such
proposals must be submitted to the Secretary of the Company at the Company's
principal executive offices not later than November 17, 1999. A shareholder
choosing not to use the procedures established in Commission Rule 14a-8 to
submit a proposal for action at the Company's 2000 Annual Meeting of
Shareholders must deliver the proposal to the Secretary of the Company not later
than the close of business on February 14, 2000.
15
<PAGE> 18
OTHER MATTERS
The Board of Directors does not intend to bring any other matter before
the Meeting. Additionally, no shareholder of the Company has complied with the
advance notice provisions contained in the Company's Bylaws, which preclude the
bringing of matters before a meeting of shareholders unless such provisions are
complied with. Accordingly, no other matter is expected to be brought before the
Meeting. However, if any other matter does properly come before the Meeting, the
proxies will be voted in accordance with the discretion of the person or persons
voting the proxies.
You are cordially invited to attend the Meeting. Regardless of whether
you plan to attend the Meeting, you are urged to complete, date, sign and return
the enclosed proxy in the accompanying envelope at your earliest convenience.
By order of the Board of Directors,
/s/ E. J. GUZZO
E. J. Guzzo
President
16
<PAGE> 19
PROXY
PRIME BANCSHARES, INC.
1999 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON THURSDAY, APRIL 15, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The 1999 Annual Meeting of Shareholders of Prime Bancshares, Inc. (the
"Company") will be held at 12200 Northwest Freeway, Houston, Texas, on Thursday,
April 15, 1999, beginning at 1:30 p.m. (local time). The undersigned hereby
acknowledges receipt of the related Notice of 1999 Annual Meeting of
Shareholders and Proxy Statement dated March 17, 1999 accompanying this proxy.
The undersigned hereby appoints Fredric M. Saunders and E. J. Guzzo and
each of them, attorneys and agents, with full power of substitution, to vote as
proxy all shares of Common Stock, par value $0.25 per share, of the Company
owned of record by the undersigned and otherwise to act on behalf of the
undersigned at the 1999 Annual Meeting of Shareholders and any adjournment
thereof in accordance with the directions set forth herein and with
discretionary authority with respect to such other matters, as may properly come
before such meeting or any adjournment thereof, including any matter presented
by a shareholder at such meeting for which advance notice was not received by
the Company in accordance with the Company's Bylaws.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE
COMPANY AND WILL BE VOTED FOR THE FOLLOWING PROPOSALS UNLESS OTHERWISE
INDICATED.
1. ELECTION OF DIRECTORS to serve until the 2002 Annual Meeting of
Shareholders and until their successors are duly elected and qualified.
[ ] FOR all nominees listed below (except as otherwise indicated*)
[ ] WITHHOLD AUTHORITY for all nominees listed below
* Instruction: To withhold authority to vote for any nominee,
draw a line through the name of such nominee in the list
below.
Jerry S. Dominy David Pasternak
<PAGE> 20
2. RATIFICATION OF THE APPOINTMENT OF GRANT THORNTON LLP as the
independent auditors of the books and accounts of the Company for the year
ending December 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
This proxy is solicited by the Board of Directors and will be voted in
accordance with the undersigned's directions set forth herein. If no direction
is made, this proxy will be voted FOR the election of all nominees for director
named herein to serve on the Board of Directors until the 2002 Annual Meeting of
Shareholders and until their successors are duly elected and qualified and FOR
the ratification of the appointment of Grant Thornton LLP as the independent
auditors of the books and accounts of the Company for the year ending December
31, 1999.
Please sign your name exactly as it appears below. If shares are held
jointly, all joint owners should sign. If shares are held by a corporation,
please sign the full corporate name by the president or any other authorized
corporate officer. If shares are held by a partnership, please sign the full
partnership name by an authorized person. If you are signing as attorney,
executor, administrator, trustee or guardian, please set forth your full title
as such.
-------------------------------
-------------------------------
Signature(s) of Shareholder(s)
Date: ___________________, 1999
