<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER , 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BAY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
TEXAS 6711 76-0046244
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
<TABLE>
<S> <C>
L.D. WRIGHT
PRESIDENT
1001 HIGHWAY 146 SOUTH 1001 HIGHWAY 146 SOUTH
LAPORTE, TEXAS 77571 LAPORTE, TEXAS 77571
(281)471-4400 (281) 471-4400
(Name, address, including zip code and telephone
(Address, including zip code, and telephone number, number, including area code, of agent for service)
including area code, of registrant's principal
executive offices)
</TABLE>
--------------------------
COPIES TO:
<TABLE>
<S> <C>
JOHN R. BRANTLEY, ESQ. HERBERT H. DAVIS, III, ESQ.
WILLIAM T. LUEDKE IV, ESQ. ROTHGERBER, APPEL, POWERS & JOHNSON, LLP
BRACEWELL & PATTERSON, L.L.P. ONE TABOR CENTER, SUITE 3000
2900 SOUTH TOWER PENNZOIL PLACE 1200 SEVENTEENTH STREET
HOUSTON, TEXAS 77002-2781 DENVER, COLORADO 80202-5839
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 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, please 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(e)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $1.00 par value.......... 690,000 $15.00 $10,350,000 $3,136
</TABLE>
(1) Includes 90,000 shares of Common Stock subject to the Underwriter's
over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
600,000 SHARES
[LOGO]
BAY BANCSHARES, INC.
COMMON STOCK
------------------
All of the shares of Common Stock (the "Common Stock") offered hereby (the
"Offering") are being sold by Bay Bancshares, Inc. (the "Company"). The Company,
which is headquartered in LaPorte, Texas, serves as a bank holding company for
its wholly-owned subsidiary, Bayshore National Bank of La Porte (the "Bank").
Prior to or simultaneously with the closing of this Offering, the Company
intends to acquire Texas Bank, Baytown, Texas ("Texas Bank"), Texas National
Bank of Baytown ("TNB") and First Bank of Deer Park ("First Bank")
(collectively, the "Acquisitions"). The proceeds of the Offering will be used to
fund a portion of the purchase price for the acquisitions of TNB and First Bank.
The closing of this Offering is contingent upon the closing of the acquisitions
of TNB and First Bank. See "The Acquisitions" and "Use of Proceeds."
Prior to this Offering, there has been no established public market for the
Common Stock. The initial public offering price will be determined by
negotiations between the Company and the Underwriter. It is estimated that the
initial public offering price will be in the range of $13.00 to $15.00 per
share. See "Underwriting." Application has been made to have the shares of
Common Stock approved for quotation on The Nasdaq Stock Market's National Market
("Nasdaq/National Market") under the symbol "BAYB."
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT
ACCOUNTS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
BANK INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
SEE "RISK FACTORS" ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................................ $ $ $
Total(3)................................................. $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting offering expenses payable by the Company, estimated at
$300,000.
(3) The Company has granted the Underwriter a 30-day option to purchase up to
90,000 additional shares of Common Stock, on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. If such option
is exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to Company will be approximately $ , $ , and $ ,
respectively. See "Underwriting."
The shares of Common Stock to be distributed to the public are offered by
the Underwriter subject to prior sale, when, as and if received and accepted by
the Underwriter, subject to approval of certain legal matters by counsel for the
Underwriter and certain other conditions. It is expected that delivery of the
certificates for the shares of Common Stock will be made against payment
therefor in Houston, Texas on or about , 1997.
------------------------
HOEFER & ARNETT
INCORPORATED
The date of this Prospectus is , 1997
<PAGE>
[MAP OF LOCATIONS]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ/NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OFFERED
HEREBY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING THE MARKET PRICE OF THE COMMON
STOCK, THE PURCHASE OF COMMON STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS.
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE
UNDERWRITER'S OVER-ALLOTMENT OPTION IS NOT EXERCISED. INFORMATION CONTAINED IN
THIS 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 FACTORS DESCRIBED HEREIN, INCLUDING IN "RISK FACTORS" AND OTHER
FACTORS BEYOND THE COMPANY'S CONTROL COULD CAUSE ACTUAL EXPERIENCE TO VARY
MATERIALLY FROM THE FUTURE RESULTS COVERED IN SUCH FORWARD-LOOKING STATEMENTS.
THE COMPANY
Bay Bancshares, Inc. (the "Company") is a bank holding company headquartered
in La Porte, Texas, which is located in eastern Harris County, the county that
comprises most of the greater Houston metropolitan area. The Company currently
has seven full-service locations and three loan production offices ("LPOs"). The
acquisitions of Texas Bank, Baytown, Texas ("Texas Bank"), Texas National Bank
of Baytown ("TNB"), and First Bank of Deer Park ("First Bank") (collectively,
the "Acquisitions") will give the Company two branch locations in Baytown, one
in Deer Park and one in Mont Belvieu. At June 30, 1997, the Company had total
assets of $185.1 million, total loans of $115.2 million, total deposits of
$169.9 million and total stockholders' equity of $13.8 million. Assuming the
successful completion of the Acquisitions and the Offering as of June 30, 1997,
total assets, total loans, total deposits and total stockholders' equity on a
proforma basis would have been approximately $272.0 million, $153.4 million,
$246.9 million and $21.3 million, respectively.
The Company's strategic goal is to be the premier provider of financial
services to small and medium-sized businesses and individuals in the eastern
portion of the greater Houston metropolitan area. Management believes that this
can be achieved and maintained through the following:
- Superior Customer Service--Through technology and a focus on prompt,
personal service, the Company has successfully competed with much larger
institutions. For example, the Company has enhanced its relationship
banking capabilities by marketing individually to the top 15% of its
customer base. The top 5% of the Company's customers are provided with a
pass key which enables them to enter the Bank through a private entrance
before and after normal banking hours and are assigned a specific Bank
officer to service their banking needs. The Company has made significant
investments in technology which management believes will allow it to
compete with any super-regional or national banking organization with
respect to communications and electronic convenience to the customer.
- Motivated Employees--The Company continually trains its employees in the
areas of successful sales and service, long-term customer relationships,
teller excellence, business development and consumer lending. As part of
this process, virtually every employee is placed on incentive and merit
standards which award compensation based on the achievement of sales goals
and other business development-related goals.
- A Full Range of Products--The Company offers a wide variety of lending
products including term loans, lines of credit and fixed asset loans to
small and medium-sized businesses, and offers its consumer customers a
full range of products, including automobile loans, home improvement loans
and personal loans. In addition, the Company has established "niche"
products such as loans guaranteed by the United States Small Business
Administration ("SBA"), commercial loans to owner-operated manufacturing
and petrochemical service businesses, "indirect" installment lending and
factoring. To compliment its traditional banking products, the Company
endeavors to be a full
3
<PAGE>
financial services organization and has developed additional financial
services such as brokerage services and annuity vehicles and is in the
process of forming an independent insurance agency offering a full line of
commercial and consumer insurance products.
- Enhanced Delivery System--The Company plans to enhance its existing
delivery system by
expanding its branch network, either by acquisitions or de novo branches,
in the eastern portion of the Houston metropolitan area, and through the
establishment of additional LPOs outside of this area in order to market
the Company's niche products.
In addition to these strategic advantages, management believes the following
financial initiatives will help the Company increase profitability and maximize
stockholder value:
- Changing Loan Mix--In 1988, the Company initiated a program of purchasing
indirect loans, which are installment loans originated by automobile
dealers for the purpose of financing consumer purchases. The Company
purchases almost exclusively "A"- rated loans. Management believes that
the program has been successful both from the standpoint of growth and
credit quality. However, because of increasing competition and
accompanying pressure on net interest margins in the indirect market,
management has broadened its focus to expand its other niche lending
products, including SBA guaranteed credits via the Company's three LPOs,
commercial lending to local manufacturing and petrochemical service
companies and accounts receivable factoring. These are generally higher
yielding products which management views as having strong growth potential
in the Company's market area. If the Company is successful in growing
these niche products, its net interest margin should be positively
affected.
- Increasing Fee Income Sources--To supplement the noninterest income
produced from its niche lending and deposit products, the Company is
developing other sources of fee income. The Company currently has 12 Class
1 licensed insurance agents and four licensed brokers assisting customers
with fixed rate brokerage and annuity products. By the end of 1998,
management expects to have licensed agents offering alternative
investments at each branch location. The Bank has filed an application for
a license to operate a full service insurance agency from its Mont Belvieu
location and has received approval from the Office of the Comptroller of
the Currency ("OCC") to form an operating subsidiary to house the
insurance agency. The Company is also currently negotiating to purchase an
insurance agency which has operated with a historic record of
profitability.
- Improved Efficiency--Management believes that the Acquisitions will create
economies of scale and help to improve the Company's efficiency ratio.
Significant cost savings opportunities exist, including headcount
reductions, cuts in director fees and reduced administrative expenses.
Although conversion of the acquired banks' data processing operations onto
the Company's proprietary system will result in significant initial costs,
management believes that substantial cost savings will be achieved on an
ongoing basis.
- Core Deposit Base--The Company has a relatively low cost funding base made
up primarily of core deposits along with a relationship driven public
deposit network. At June 30, 1997, the Company's weighted average cost of
deposits was 3.24%, a slight decrease from the year end figure of 3.32%
and down significantly from the December 31, 1995 level of 3.55%. This low
cost of funds has allowed the Company to price its loan products
competitively while still maintaining an attractive net interest margin.
THE ACQUISITIONS
The Acquisitions will increase the Company's assets from $185.1 million to
$272.0 million as of June 30, 1997 on a proforma basis. In addition to the
immediate increase in asset size and the potential for improved future
profitability, the Acquisitions will allow the Company to expand its market area
into what it believes are desirable banking locations. Through the Acquisitions,
the Company will increase the
4
<PAGE>
number of its locations from seven to 11. The resulting market area of the
Company will extend from Seabrook, Texas in eastern Harris County to Cleveland,
Texas in western Liberty County. This expansion will increase the geographic
diversity of the Company's loan portfolio, which is expected to decrease the
Company's overall lending risks. See "The Acquisitions--Texas Bank" "--Texas
National Bank of Baytown" and "--First Bank of Deer Park."
The Acquisitions are expected to be completed in the fourth quarter of 1997.
The acquisition of Texas Bank is expected to occur prior to or simultaneously
with the closing of the Offering, and the other Acquisitions are expected to
close simultaneously with the closing of the Offering. The closing of the
acquisitions of TNB and First Bank is a condition to the closing of the
Offering.
Texas Bank's main office is in Baytown, and it has a branch in Mont Belvieu.
The acquisition of Texas Bank will give the Company a presence in Baytown and
will allow it to expand its existing operations in the Mont Belvieu area.
Baytown is a community of over 60,000 people located on the Houston Ship Channel
in eastern Harris County. Baytown is home to a number of petrochemical plants
and refineries. Texas Bank is located on the north end of a north-south corridor
that is the center of Baytown's residential and business growth. Texas Bank is
the only commercial bank located on the northern end of the city. Due to a lack
of commercial bank competition, management believes that Baytown is
under-banked. In addition to the Baytown presence, the acquisition of Texas Bank
will give the Company an additional facility in Mont Belvieu. The Mont Belvieu
location will serve as the basis for the Company's expansion into the sale of
insurance products. At June 30, 1997, Texas Bank had assets of approximately
$41.5 million and deposits of $37.7 million.
TNB, which is also located in Baytown, will, when combined with Texas Bank,
broaden the Company's expansion into the Baytown market. TNB is located on the
south end of the north-south corridor on which Texas Bank is located. The
acquisition of TNB will enhance the Company's presence in the Baytown market and
provide a link to LaPorte, located to the south of Baytown. The TNB location
will give the Company access to industrial and blue collar neighborhoods as well
as the industrial, petrochemical and services areas of Baytown. TNB had assets
of $14.1 million and deposits of $12.4 million at June 30, 1997.
First Bank is located in Deer Park, Texas. The acquisition of First Bank
will provide the Company its first presence in Deer Park, a community of 27,000
people located on the south side of the Houston Ship Channel. The Deer Park
economy is closely linked to the petrochemical industry. First Bank is the only
community bank in Deer Park. The positive name recognition of both First Bank
and the Bank should allow the Company to acquire a larger market share in Deer
Park and capture some of the growth that the area is experiencing. A director of
the Bank who previously served as chairman of the Deer Park branch of one of the
large national banking organizations is expected to be instrumental in expanding
the Company's business in this market. At June 30, 1997, First Bank had assets
of $32.9 million and deposits of $26.8 million.
Management of the Company believes that the Acquisitions present an
excellent opportunity for increased earnings and diversification of loan mix.
TNB and First Bank have traditionally maintained low loan to deposit ratios. The
Company believes that it can increase the amount of loans originated from these
locations by enhancing marketing efforts, expanding loan products and utilizing
the Company's approach to sales and service. Management of the Company also
believes that the opportunity exists for significant cost savings from the
Acquisitions, including data processing consolidations and other operational
efficiencies.
The table below presents certain unaudited condensed and consolidated
historical financial and operating data for the Company and certain unaudited
pro forma condensed financial and operating data for the Company after giving
effect to (i) the Offering, (ii) the Acquisitions as if they had each occurred
as of June 30, 1997 and (iii) the pro forma adjustments described in the Notes
to the Unaudited Pro Forma Condensed Financial Statements of the Company which
appear elsewhere in this Prospectus. The amount of pro forma combined net income
for the six-month period ended June 30, 1997, shown below reflect
5
<PAGE>
adjustments which give effect to factors attributable to the Offering and the
Acquisitions. The pro forma statements of earnings assume that the Acquisitions
and the Offering were consummated at January 1, of each period presented. The
pro forma financial statements should be read in conjunction with the financial
statements and footnotes thereto appearing elsewhere in this Prospectus. The pro
forma condensed balance sheet and statements of earnings are not necessarily
indicative of the combined financial position at consummation of the
Acquisitions or the results of operations following consummation of the
Acquisitions and the Offering.
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED
JUNE 30, 1997
------------------------
PRO FORMA
ACTUAL COMBINED
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Assets.................................................................................. $ 185,139 $ 272,038
Loans, net of unearned discount......................................................... 115,222 153,421
Deposits................................................................................ 169,874 246,867
Stockholders' equity.................................................................... 13,782 21,282
Net income.............................................................................. 855 1,427
Leverage ratio.......................................................................... 7.25% 5.60%
Tier 1 risk-based capital ratio......................................................... 10.16% 8.66%
Total risk-based capital ratio.......................................................... 11.24% 9.82%
</TABLE>
THE OFFERING
<TABLE>
<S> <C>
Securities offered by the
Company......................... 600,000 shares of Common Stock
Common Stock to be outstanding
after the Offering.............. 1,957,657 shares(1)
Use of Proceeds................... The estimated net proceeds of this Offering
(approximately $7.5 million assuming an offering price
of $14.00 per share, the mid-point of the estimated
offering range) will be used to fund a portion of the
purchase price for the acquisitions of TNB and First
Bank. See "Use of Proceeds."
Risk Factors...................... See "Risk Factors" and "Dilution" for a discussion of
certain factors that should be considered by each
prospective investor.
Nasdaq/National Market Symbol..... "BAYB"
</TABLE>
- ------------------------
(1) Excludes 33,300 options outstanding under the Company's stock option plans
and 66,630 shares of phantom stock which may be issued in the form of shares
of Common Stock under the Phantom Stock Plan. See "Management--Stock Option
and Incentive Plans." As of the date of this Prospectus, the Company had
outstanding 1,357,657 shares of Common Stock. See "Capitalization."
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data of the Company is derived
from the Selected Consolidated Financial Data appearing elsewhere in this
Prospectus, and should be read in conjunction with the Consolidated Financial
Statements of the Company and the Notes thereto and the information contained in
"Managements Discussion and Analysis of Financial Condition and Results of
Operations of the Company."
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED
JUNE 30, AS OF AND FOR THE YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income.......................... $ 6,537 $ 6,214 $ 12,666 $ 11,244 $ 9,627 $ 9,999 $ 10,896
Interest expense......................... 2,732 2,619 5,443 5,391 4,285 4,091 4,892
--------- --------- --------- --------- --------- --------- ---------
Net interest income.................... 3,805 3,595 7,223 5,853 5,342 5,908 6,004
Provision for loan losses................ 168 219 510 150 75 400 575
--------- --------- --------- --------- --------- --------- ---------
Net interest income after provision for
loan losses.......................... 3,637 3,376 6,713 5,703 5,267 5,508 5,429
Noninterest income....................... 1,197 1,193 2,347 2,095 2,104 1,990 1,578
Noninterest expenses..................... 3,615 3,269 7,067 6,024 5,869 5,794 5,452
--------- --------- --------- --------- --------- --------- ---------
Earnings before taxes and cumulative
effect of accounting change.......... 1,219 1,300 1,993 1,774 1,502 1,704 1,555
Provision for income tax expense......... 364 408 591 559 271 371 20
Cumulative effect of accounting change... -- -- -- -- -- 631 --
--------- --------- --------- --------- --------- --------- ---------
Net earnings............................. $ 855 $ 892 $ 1,402 $ 1,215 $ 1,231 $ 1,964 $ 1,535
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PER SHARE DATA:
Net earnings(1).......................... $ 0.59 $ 0.62 $ 0.97 $ 0.84 $ 0.86 $ 1.38 $ 1.43
Book value............................... 10.15 8.92 9.58 8.82 7.95 7.49 6.28
Tangible book value...................... 9.78 8.92 9.06 8.82 7.95 7.49 6.28
Cash dividends........................... 0.12 0.12 0.24 0.20 0.20 0.20 0.05
Dividend payout ratio.................... 19.05% 18.19% 23.11% 22.47% 22.18% 13.86% 3.41%
Weighted average common and common
equivalent shares outstanding (in
thousands)............................. 1,439 1,440 1,441 1,442 1,430 1,419 1,075
BALANCE SHEET DATA:
Total assets............................. $ 185,139 $ 178,399 $ 189,011 $ 167,091 $ 168,322 $ 147,161 $ 145,099
Securities............................... 44,255 43,893 43,745 38,588 42,618 40,862 35,833
Gross loans.............................. 115,222 113,350 119,880 105,796 106,830 94,919 94,084
Allowance for loan losses................ 1,425 1,360 1,430 1,185 1,230 1,344 1,280
Total deposits........................... 169,874 164,272 173,318 153,334 149,824 134,848 134,553
Total stockholders' equity............... 13,782 12,083 12,929 11,903 10,857 10,199 8,424
AVERAGE BALANCE SHEET DATA:
Total assets............................. $ 183,197 $ 171,176 $ 177,272 $ 164,596 $ 150,205 $ 143,261 $ 135,682
Average interest-earning assets.......... 170,688 159,164 164,905 152,781 140,187 133,119 125,343
Securities............................... 44,578 41,991 43,230 37,028 35,535 35,352 33,394
Loans.................................... 117,361 109,575 113,014 107,286 101,975 94,138 90,041
Allowance for loan losses................ 1,471 1,230 1,330 1,302 1,324 1,294 1,262
Total deposits........................... 167,990 157,410 162,522 151,013 135,329 131,809 126,006
Total stockholders' equity............... 13,355 11,783 12,416 11,354 10,502 9,311 6,907
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED
JUNE 30, AS OF AND FOR THE YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS(2):
Return on average assets................. 0.93% 1.04% 0.82% 0.75% 0.80% 1.37% 1.13%
Return on average stockholders' equity... 12.80 15.14 11.29 10.70 11.72 21.09 22.23
Net interest margin...................... 4.46 4.52 4.38 3.83 3.81 4.44 4.79
Efficiency ratio(3)...................... 72.27 68.27 73.85 75.79 78.82 73.36 71.91
ASSET QUALITY RATIOS(4):
Nonperforming assets to total loans and
other real estate...................... 0.47% 0.46% 0.47% 0.56% 0.67% 0.90% 2.28%
Nonperforming loans to gross loans....... 0.18 0.19 0.18 0.22 0.23 0.37 0.78
Net loan charge-offs to average total
loans(2)............................... 0.29 0.08 0.23 0.18 0.19 0.36 0.49
Allowance for loan losses to total
loans.................................. 1.24 1.20 1.19 1.12 1.15 1.42 1.36
Allowance for loan losses to
nonperforming loans(5)................. 678.57 615.38 662.04 519.74 510.37 361.29 174.62
CAPITAL RATIOS(4):
Leverage ratio........................... 7.25% 7.46% 6.67% 7.33% 6.98% 6.99% 5.81%
Average stockholders' equity to average
total assets........................... 7.29 7.00 6.88 6.90 6.99 6.50 5.09
Tier 1 risk-based capital ratio.......... 10.16 10.02 9.39 10.14 9.33 8.85 7.05
Total risk-based capital ratio........... 11.24 11.11 10.45 11.14 10.35 10.07 8.54
</TABLE>
- ------------------------------
(1) Net earnings per share is based upon the weighted average number of common
and common equivalent shares outstanding during the period.
(2) All interim periods have been annualized.
(3) Calculated by dividing total noninterest expense, excluding securities
losses, by net interest income plus noninterest income.
(4) At period end, except net loan charge-offs to average loans and average
stockholders' equity to average total assets.
(5) Nonperforming loans consist of nonaccrual loans and restructured loans.
8
<PAGE>
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements give effect
to the Acquisitions, the Offering and the pro forma adjustments described in the
notes to the Unaudited Pro Forma Condensed Financial Statements of the Company.
The Acquisitions will be accounted for using the purchase method of accounting.
The unaudited pro forma condensed balance sheet gives effect to the
Acquisitions and the Offering as if they had occurred on June 30, 1997. The
unaudited pro forma condensed statements of earnings give effect to the
Acquisitions and the Offering as if they had occurred on January 1 of each
period presented.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that management deems appropriate, but which
may be revised as additional information becomes available. The pro forma
financial information does not purport to represent what the Company's financial
position or results of operations would actually have been if such transactions
had in fact occurred on the dates assumed and are not necessarily representative
of the Company's financial position or results of operations for any future
period. The unaudited pro forma condensed financial statements should be read in
conjunction with the other financial statements and notes thereto included in
this Prospectus. See "Risk Factors" included in this Prospectus.
9
<PAGE>
PRO FORMA CONDENSED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
-------------------- PRO FORMA
COMPANY TNB FIRST BANK TEXAS BANK DEBITS CREDITS COMBINED
--------- --------- ----------- ----------- --------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks..................... $ 4,314 $ 2,153 $ 2,178 $ 3,297 $ 7,500(a) $ -- $ 19,442
Federal funds sold.......................... 14,500 1,300 3,075 2,102 -- 15,870(c) 5,107
--------- --------- ----------- ----------- --------- --------- -----------
Total cash and cash equivalents......... 18,814 3,453 5,253 5,399 7,500 15,870 24,549
Interest bearing deposits with banks........ 392 -- -- -- -- -- 392
Securities:
Available-for-sale........................ 44,255 3,144 6,951 14,920 -- -- 69,270
Held-to-maturity.......................... -- 2,675 5,939 -- -- -- 8,614
--------- --------- ----------- ----------- --------- --------- -----------
Total securities........................ 44,255 5,819 12,890 14,920 -- -- 77,884
Loans:
Total loans, net of unearned discount..... 115,222 4,428 14,216 19,555 -- -- 153,421
Allowance for possible loan losses........ (1,425) (88) (355) (174) -- -- (2,042)
--------- --------- ----------- ----------- --------- --------- -----------
Net loans............................... 113,797 4,340 13,861 19,381 -- -- 151,379
Intangibles................................. 500 -- -- -- 6,140(b) -- 6,640
Investment in subsidiary.................... -- -- -- -- 15,870(c) 15,870(d) --
Premises and equipment...................... 4,806 299 331 890 584(b) -- 6,910
Other real estate owned..................... 208 7 200 388 -- -- 803
Other assets................................ 2,367 193 352 569 -- -- 3,481
--------- --------- ----------- ----------- --------- --------- -----------
Total assets............................ $ 185,139 $ 14,111 $ 32,887 $ 41,547 $ 30,094 $ 31,740 $ 272,038
--------- --------- ----------- ----------- --------- --------- -----------
--------- --------- ----------- ----------- --------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits.................................. $ 169,874 $ 12,437 $ 26,820 $ 37,736 -- -- $ 246,867
Funds borrowed/customer repurchase........ 162 -- 2,000 -- -- -- 2,162
Other liabilities......................... 1,321 101 188 117 -- -- 1,727
--------- --------- ----------- ----------- --------- --------- -----------
Total liabilities....................... 171,357 12,538 29,008 37,853 -- -- 250,756
--------- --------- ----------- ----------- --------- --------- -----------
Stockholders' equity:
Common stock.............................. 1,400 389 577 291 1,257(d) 600(a) 2,000
Additional paid-in capital................ 8,393 390 1,623 1,709 3,722(d) 6,900(a) 15,293
Retained earnings......................... 4,352 813 1,711 1,706 4,230(d) -- 4,352
Treasury stock.............................. (274) -- -- -- -- -- (274 )
Unrealized gain (loss) on available-for-sale
securities................................ (89) (19) (32 ) (12 ) -- 63(b) (89 )
--------- --------- ----------- ----------- --------- --------- -----------
Total stockholders' equity.............. 13,782 1,573 3,879 3,694 9,209 7,563 21,282
--------- --------- ----------- ----------- --------- --------- -----------
Total liabilities and stockholders'
equity................................ $ 185,139 $ 14,111 $ 32,887 $ 41,547 $ 39,303 $ 39,303 $ 272,038
--------- --------- ----------- ----------- --------- --------- -----------
--------- --------- ----------- ----------- --------- --------- -----------
</TABLE>
- --------------------------
(a) This adjustment represents the sale of 600,000 shares of Common Stock with a
par value of $1.00 at a $14.00 per share public offering price, the
mid-point of the estimated offering range, with net proceeds to the Company
of $7.5 million.
(b) This adjustment represents the purchase price adjustments to adjust TNB,
First Bank, and Texas Bank assets and liabilities to fair value upon the
acquisition and results in recording of $6.1 million in intangibles.
(c) This adjustment represents the purchase of 100% of the outstanding shares of
stock of TNB ($2,400,000), First Bank ($7,970,000) and Texas Bank
($5,500,000) for $15.9 million in cash.
(d) This adjustment represents the elimination of the capital of the three banks
against the investment in subsidiary of the Company.
10
<PAGE>
PRO FORMA CONDENSED STATEMENT OF EARNINGS
SIX-MONTH PERIOD ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FIRST TEXAS ------------------------ PRO FORMA
COMPANY TNB BANK BANK DEBITS CREDITS COMBINED
------------ --------- --------- --------- ----------- ----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans............. $ 4,951 $ 192 $ 649 $ 978 $ -- $ -- $ 6,770
Interest on securities................. 1,344 167 452 499 -- -- 2,462
Interest on federal funds sold......... 242 65 83 121 231(a) -- 280
------------ --------- --------- --------- ----- ----- ------------
Total interest income.................. 6,537 424 1,184 1,598 231 -- 9,512
Interest expense:
Interest on deposits................... 2,718 137 279 656 -- -- 3,790
Interest on other borrowings........... 14 -- 79 -- -- -- 93
------------ --------- --------- --------- ----- ----- ------------
Total interest expense................. 2,732 137 358 656 231(a) -- 3,883
------------ --------- --------- --------- ----- ----- ------------
Net interest income...................... 3,805 287 826 942 231 -- 5,629
Provision for loan losses.............. 168 1 -- -- -- -- 169
------------ --------- --------- --------- ----- ----- ------------
Net interest income after provision for
loan losses............................ 3,637 286 826 942 231 -- 5,460
------------ --------- --------- --------- ----- ----- ------------
Noninterest income:
Service charges........................ 741 131 163 253 -- -- 1,288
Other noninterest income............... 456 25 93 109 -- -- 683
------------ --------- --------- --------- ----- ----- ------------
Total noninterest income............... 1,197 156 256 362 -- -- 1,971
Noninterest expense:
Salaries and employee benefits......... 1,843 148 247 482 -- 147(b) 2,573
Net occupancy expense.................. 583 37 57 132 7(c) 77(e) 739
Other noninterest expense.............. 1,189 127 242 442 154(d) 185(f) 1,969
------------ --------- --------- --------- ----- ----- ------------
Total noninterest expense.............. 3,615 312 546 1,056 161 409 5,281
------------ --------- --------- --------- ----- ----- ------------
Income before federal income taxes....... 1,219 130 536 248 392 409 2,150
Federal income taxes................... 364 42 177 82 58(g) -- 723
------------ --------- --------- --------- ----- ----- ------------
Net income........................... $ 855 $ 88 $ 359 $ 166 $ 450 $ 409 $ 1,427
------------ --------- --------- --------- ----- ----- ------------
------------ --------- --------- --------- ----- ----- ------------
Earnings per share:
Net income per share................... $0.59 $0.70
Average shares outstanding............. 1,439,272 2,039,272
</TABLE>
- ------------------------
(a) This adjustment represents interest income that would have been lost on the
estimated cash payments to be made to TNB, First Bank and Texas Bank
stockholders ($15.8 million) in excess of the total net funds raised ($7.5
million) at an average federal funds rate of 5.40% for the six-month period
ended June 30, 1997.
(b) This adjustment represents savings that would have been achieved by
elimination of duplication of job responsibilities.
(c) This adjustment represents additional depreciation on the acquired
buildings.
(d) This adjustment represents the amortization of $6.1 million in intangibles
over a blended 20 years.
(e) This adjustment represents savings that would have been achieved with
respect to director fees.
(f) This adjustment represents savings that would have been achieved with
respect to the cancellation of data processing and ATM processing contracts.
(g) This adjustment represents the tax effect of the above adjustments.
11
<PAGE>
PRO FORMA CONDENSED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FIRST TEXAS -------------------- PRO FORMA
COMPANY TNB BANK BANK DEBITS CREDITS COMBINED
----------- --------- --------- --------- --------- --------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans............. $ 9,594 $ 376 $ 1,199 $ 2,061 $ -- $ -- $ 13,230
Interest on securities................. 2,612 319 900 421 -- -- 4,262
Interest on federal funds sold......... 460 146 65 394 444(a) -- 621
----------- --------- --------- --------- --------- --------- -----------
Total interest income.................. 12,666 841 2,164 2,876 444 -- 18,103
Interest expense:
Interest on deposits................... 5,396 275 499 977 -- -- 7,147
Interest on other borrowings........... 47 -- 160 -- -- -- 207
----------- --------- --------- --------- --------- --------- -----------
Total interest expense................. 5,443 275 659 977 -- -- 7,354
----------- --------- --------- --------- --------- --------- -----------
Net interest income...................... 7,223 556 1,505 1,899 444 -- 10,749
Provision for loan losses.............. 510 16 -- -- -- -- 526
----------- --------- --------- --------- --------- --------- -----------
Net interest income after provision for
loan losses............................ 6,713 550 1,505 1,899 444 -- 10,223
----------- --------- --------- --------- --------- --------- -----------
Noninterest income:
Service charges........................ 1,379 230 350 529 -- -- 2,488
Other noninterest income............... 968 55 183 203 -- -- 1,409
----------- --------- --------- --------- --------- --------- -----------
Total noninterest income............... 2,347 285 533 732 -- -- 3,997
Noninterest expense:
Salaries and employee benefits......... 3,377 291 475 821 -- 293(b) 4,671
Net occupancy expense.................. 1,131 72 123 268 14 154(e) 1,454
Other noninterest expense.............. 2,559 260 424 831 307(d) 371(f) 4,010
----------- --------- --------- --------- --------- --------- -----------
Total noninterest expense.............. 7,067 623 1,022 1,920 321 -- 10,135
----------- --------- --------- --------- --------- --------- -----------
Income before federal income taxes....... 1,993 212 1,016 711 765 818 3,985
Federal income taxes................... 591 66 321 205 122(g) -- 1,305
----------- --------- --------- --------- --------- --------- -----------
Net income........................... $ 1,402 $ 146 $ 695 $ 506 $ 892 $ 818 $ 2,680
----------- --------- --------- --------- --------- --------- -----------
----------- --------- --------- --------- --------- --------- -----------
Earnings per share:
Net income per share................... $0.97 $1.34
Average shares outstanding............. 1,440,884 2,040,884
</TABLE>
- --------------------------
(a) This adjustment represents interest income that would have been lost on the
estimated cash payments to be made to TNB, First Bank and Texas Bank
stockholders ($15.8 million) in excess of the total net funds raised ($7.5
million)at an average federal funds rate of 5.15% for the year ended
December 31, 1997.
(b) This adjustment represents savings that would have been achieved by
elimination of duplication of job responsibilities.
(c) This adjustment represents additional depreciation on the acquired
buildings.
(d) This adjustment represents the amortization of $6.1 million in intangibles
over a blended 20 years.
(e) This adjustment represents savings that would have been achieved with
respect to director fees.
(f) This adjustment represents savings that would have been achieved with
respect to the cancellation of data processing and ATM processing contracts.
(g) This adjustment represents the tax effect of the above adjustments
12
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES CERTAIN RISKS. IN
ADDITION TO THE OTHER INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN,
THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY
BEFORE PURCHASING THE COMMON STOCK OFFERED HEREBY.
POTENTIAL NEGATIVE IMPACT ON EARNINGS FROM THE ACQUISITIONS
As a result of the Acquisitions, the Company's asset size will increase
substantially. The Company has not previously consummated an acquisition on the
same scale as the Acquisitions. The future prospects of the Company will depend,
in significant part, on a number of factors, including, without limitation, the
Company's ability to integrate the Acquisitions; its ability to compete
effectively in the new market areas of Baytown and Deer Park; its success in
retaining earning assets, including loans, acquired in the Acquisitions; its
ability to generate new earning assets; its ability to achieve significant cost
savings; and its ability to attract and retain qualified management and other
appropriate personnel. No assurance can be given with respect to the Company's
ability to accomplish any of the foregoing or that the Company will be able to
achieve results in the future similar to those achieved in the past or that the
Company will be able to manage effectively the growth resulting from the
Acquisitions. Certain officers and directors of the institutions to be acquired
in the Acquisitions will not be subject to non-competition agreements and may
compete against the Company. As a result of the Acquisitions, the Company's
leverage ratio will fall from 7.25% at June 30, 1997 to 5.60% on a pro forma
basis. Similarly, the Company's Tier 1 capital to risk-based assets ratio will
decline from 10.16% to 8.66%, and the Company's total capital to risk-based
assets ratio will drop from 11.24% to 9.82%. See "The Acquisitions."
In addition, as a result of the Acquisitions, the Company's management must
successfully integrate the operations of Texas Bank, TNB and First Bank with
those of the Company. The operational areas requiring significant integration
include the consolidation of data processing operations, the combination of
employee benefit plans, the creation of joint account and lending products, the
development of unified marketing plans and other related issues. Accomplishment
of these goals will require additional expenditures by the Company which could
negatively impact the Company's net income. Completion of these tasks could
divert management's attention from other important issues. In addition, the
process of combining Texas Bank, TNB and First Bank with the Bank could have a
material adverse effect on the operation of their businesses, which could have
an adverse effect on their combined operations. The Company may also incur
additional unexpected costs in connection with integration of the Acquisitions
that could negatively impact the Company's net income.
POTENTIAL CREDIT QUALITY ISSUES IN CONNECTION WITH THE ACQUISITIONS
In connection with the Acquisitions, the Company reviewed the loan
portfolios of Texas Bank, TNB and First Bank. The Company's examinations were
made using criteria, analyses and collateral evaluations that the Company has
traditionally used in the review of its existing business and other previous
acquisitions. Nonperforming assets at June 30, 1997 totaled approximately
$388,000 at Texas Bank (2.15% of total loans and other real estate), $7,000 at
TNB (0.16% of total loans and other real estate), and $200,000 at First Bank
(1.41% of total loans and other real estate). Nonperforming assets at December
31, 1996, totaled approximately $388,000 at Texas Bank (1.95% of total loans and
other real estate), $64,000 at TNB, (1.56% of total loans and other real estate)
and $278,000 at First Bank (2.06% of total loans and other real estate).
At June 30, 1997, the Company's allowance for loan losses was 1.24% of total
loans, while on a pro forma basis assuming consummation of the Acquisitions, the
Company's allowance for loan losses would have been 1.33% at June 30, 1997. At
December 31, 1996, the Company's allowance for loan losses was 1.19% of total
loans, while on a consolidated basis as if the Acquisitions had occurred as of
December 31, 1996, the Company's allowance for loan losses would have been
1.29%.
13
<PAGE>
BUSINESS CONCENTRATION
Approximately 69.46% of the Company's total loan portfolio as of June 30,
1997, was comprised of consumer loans, 88.72% of which consisted of "indirect
dealer paper" (61.63% of the Company's total loan portfolio consisted of such
indirect dealer paper). These are installment loans, with typical maturities of
three to five years, which are originated by automobile dealers for the purpose
of financing consumer automobile purchases and are collateralized by the
automobile purchased by the borrower. The Company purchases such installment
loans without recourse from various automobile dealers located in the Houston
area and is solely responsible for the collection of such loans. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Loan Portfolio." Reduction in the amount of indirect dealer paper
sold by dealerships to the Company could adversely affect the Company's
financial condition and results of operations. In addition, the Company competes
for such "indirect dealer paper" with credit unions, other banks, financial
institutions and captive finance companies, some of which may have greater
financial resources than the Company.
EXPOSURE TO LOCAL ECONOMIC CONDITIONS
The Company's success is dependent to a significant extent upon general
economic conditions in the greater Houston metropolitan area and Texas in
general. The banking industry in the greater Houston metropolitan area and in
Texas is affected by general economic conditions such as inflation, recession,
unemployment and other factors beyond the Company's control. During the mid
1980s, severely depressed oil and gas 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 and Houston economies have
improved in part due to their expansion into non-energy related industries.
Nevertheless, the economy in the market areas of the Company and the banks to be
acquired remain somewhat dependent on the petro-chemical industry. Any material
downturn in this industry could have an adverse effect on the results of
operations and financial condition of the Company. In addition, as the Texas and
Houston economies have diversified away from the energy industry, 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 and
Houston economies would not have a material adverse effect on the Company's
financial condition, resulting operations or cash flows.
INTEREST RATE RISK
The Company's earnings depend to a great extent on "rate differentials,"
which are the differences between interest income earned 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
governmental and regulatory authorities. Increases in the federal funds rate by
the Board of Governors of the Federal Reserve System ("Federal Reserve Board")
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--Interest Rate
Sensitivity and Liquidity."
14
<PAGE>
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
nonfinancial institutions, 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, 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 Bank Holding Company
Act of 1956, as amended (the "BHCA"), and to regulation and supervision by the
Federal Reserve Board. The Bank, as a national banking association, is subject
to regulation and supervision by the Office of the Comptroller of the Currency
(the "OCC") and, as a result of the insurance of its deposits, the Federal
Deposit Insurance Corporation (the "FDIC"). These regulations are intended
primarily for the protection of depositors and consumers, rather than for the
benefit of investors. The Company and the Bank are subject to changes in federal
and state law, as well as changes in regulation and governmental policies,
income tax laws and accounting principles. In the past, governmental funding for
SBA loans has been suspended, causing a disruption of the Company's SBA program.
There can be no guarantee that a disruption of the SBA program will not occur in
the future or that the SBA program will not be significantly reduced or
eliminated. The effects of any potential changes cannot be predicted but could
adversely affect the business and operations of the Company and the Bank in the
future. See "Supervision and Regulation."
The Federal Reserve Board has adopted a policy which requires a bank holding
company, such as the Company, to serve as a source of financial strength to its
banking subsidiaries. The Federal Reserve Board has ordered 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. Neither the Bank nor any of the banks to be
acquired are currently under capitalized, but there is no guarantee that they
will not become undercapitalized in the future. See "Supervision and
Regulation."
DIVIDEND HISTORY AND RESTRICTIONS ON ABILITY TO PAY DIVIDENDS
While the Company has paid cash dividends on the Common Stock since December
of 1992 and currently pays quarterly dividends aggregating $0.24 per share per
annum, there is no assurance that the Company will pay dividends on the Common
Stock in the future. In the future, the declaration and payment of dividends on
the 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
15
<PAGE>
ability to service any equity or debt obligations senior to the Common Stock and
other factors deemed relevant by the Company's Board of Directors. It is the
policy of the Federal Reserve Board 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. See "Dividend Policy."
The Company's principal source of funds to pay dividends on the shares of
Common Stock will be cash dividends that the Company receives from the Bank. The
payment of dividends by the Bank to the Company is subject to certain
restrictions imposed by federal banking laws, regulations and authorities. Prior
to declaring a dividend, a national bank must transfer to surplus 10% of its net
profits earned since its last dividend unless its surplus equals or exceeds
stated capital. As of June 30, 1997, the Bank's surplus exceeded its stated
capital. 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. As of June
30, 1997, an aggregate of approximately $3.7 million was available for payment
of dividends by the Bank to the Company under applicable restrictions, without
regulatory approval. In connection with the Acquisitions, the Bank intends to
pay a $8.3 million dividend to the Company and has requested regulatory approval
for this dividend. As a result of this dividend, the Bank will eliminate its net
profits for this year and retained profits for the two prior years and absent
prior regulatory approval, will be able to pay dividends only out of future
earnings. See "Supervision and Regulation--The 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 the Bank. Regulatory authorities could impose
administratively stricter limitations on the ability of the 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--Capital Resources" and
"Supervision and Regulation."
DEPENDENCE ON KEY PERSONNEL
The Company and the Bank are dependent on certain key personnel including L.
D. Wright and Albert D. Fields, who are considered to be important to the
success of the Company. The unexpected loss of such personnel or other members
of senior management could have an adverse effect on the Company and the Bank.
The Company has obtained "key man" life insurance on Mr. Wright in the amount of
$1.0 million and has entered into an employment agreement (which includes
certain non-competition covenants) with Mr. Wright in an effort to assure the
continued availability of his services to the Company.
CERTAIN CHARTER AND BYLAW 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 stockholders 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 stockholders may not be
effected by consent in writing, (iii) a provision establishing certain advance
notice procedures for nomination of candidates for
16
<PAGE>
election as directors and for stockholder proposals to be considered at an
annual or special meeting of stockholders and (iv) a provision that denies
stockholders 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 preferred
stock of the Company, $1.00 par value per share, without stockholder approval
and upon such terms as the Board of Directors may determine. The issuance of
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. 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."
MANAGEMENT'S OWNERSHIP INTEREST AND POSSIBLE EFFECTS
After the consummation of the Offering, the executive officers and directors
of the Company will beneficially own 44.16% of the outstanding shares of Common
Stock, and approximately 42.26% of such shares of Common Stock if the
Underwriters' over-allotment option is fully exercised. Accordingly, these
executive officers and directors will be able to influence, to a significant
extent, the outcome of all matters required to be submitted to the Company's
stockholders for approval, including decisions relating to the election of
directors of the Company, the determination of day-to-day corporate and
management policies of the Company and other significant corporate transactions.
See "Management," "Principal Stockholders" and "Description of Securities of the
Company."
NO PRIOR TRADING MARKET
Prior to the Offering, there has been no public market for the shares of
Common Stock. An application has been filed to have the Common Stock approved
for quotation on the Nasdaq/National Market under the symbol "BAYB." The
Underwriter has advised the Company that it intends to make a market in the
Common Stock as long as the volume of trading activity in the Common Stock and
certain other market making conditions justify doing so. Nonetheless, there can
be no assurance that an active public market will develop or be sustained after
the Offering or that if such a market develops, investors in the Common Stock
will be able to resell their shares at or above the initial public offering
price. Making a market involves maintaining bid and asked quotations for the
Common Stock and being available as principal to effect transactions in
reasonable quantities at those quoted prices, subject to various securities laws
and other regulatory requirements. A public trading market having the desired
characteristics of depth, liquidity and orderliness depends upon the presence in
the marketplace of willing buyers and sellers of the Common Stock at any given
time, which presence is dependent upon the individual decisions of investors
over which neither the Company, the Underwriter nor any other market maker has
any control. After the consummation of the Offering, approximately 44.16% of the
outstanding Common Stock will be held by the executive officers and directors of
the Company. The initial public offering price of the shares of Common Stock
will be determined by negotiations between the Company and the Underwriter and
will not necessarily bear any relationship to the Company's book value, past
operating results, financial condition or other established criteria of value
and may not be indicative of the market price of the Common Stock after the
Offering. See "Underwriting" for information relating to the method of
determining the initial public offering price.
SHARES ELIGIBLE FOR FUTURE SALE
The Company will have approximately 1,957,657 shares of Common Stock
outstanding after the Offering. The Company, its executive officers and
directors and certain stockholders (who collectively will own 44.16% of the
outstanding shares of Common Stock after the consummation of the Offering) have
agreed with the Underwriter not to offer, sell, contract to sell or otherwise
dispose of any of their shares of Common Stock for a period of 180 days after
the date of this Prospectus without the permission of the Underwriter. The
currently outstanding shares of Common Stock which are not subject to such
agreement
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are held by approximately 279 stockholders of record, and virtually all of such
shares will be freely tradable in accordance with Rule 144(k) under the
Securities Act. In addition, all of the shares of Common Stock sold in the
Offering will generally be freely tradable under the Securities Act. No
prediction can be made as to the effect, if any, that future sales of Common
Stock or the availability of Common Stock for future sale will have on the
market price of the Common Stock prevailing from time to time. Sales of a
substantial number of such shares in the future, or the perception that such
sales could occur, could adversely affect the market price of the Common Stock.
See "Management" and "Principal Shareholders."
REGULATION OF CONTROL
Individuals, alone or acting in concert with others, seeking to acquire more
than 10% 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 Board 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
obtain the prior approval of the Federal Reserve Board under the BHCA.
Accordingly, prospective investors need to be aware of and to comply with these
requirements, if applicable, in connection with any purchase of shares of the
Common Stock offered hereby.
THE COMPANY
STRATEGY
The Company is headquartered in LaPorte, Texas, located next to Galveston
Bay in eastern Harris County, the county that comprises most of the greater
Houston metropolitan area. The Company's strategic goal is to be the premier
provider of financial services to small and medium-sized businesses and
individuals in the eastern portion of the Houston metropolitan area. Management
believes that this can be achieved and maintained through the following:
- Superior Customer Service--Through technology and a focus on prompt,
personal service the Company has successfully competed with much larger
institutions. For example, the Company has enhanced its relationship
banking capabilities by marketing to the top 15% of its customer base. The
top 5% of the Company's customers are provided with a pass key which
enables them to enter the Bank through a private entrance before and after
normal banking hours and are assigned a specific Bank officer to service
their banking needs. The Company has made significant investments in
technology which management believes will allow it to compete with any
super-regional or national banking organization with respect to
communications and electronic convenience to the customer.
- Motivated Employees--The Company continually trains its employees in the
areas of successful sales and service, long-term customer relationships,
teller excellence, business development and consumer lending. As part of
this process, virtually every employee is placed on incentive and merit
standards which award compensation based on the achievement of sales
ratios and other business development-related goals.
- A Full Range of Products--The Company offers a wide variety of lending
products including term loans, lines of credit and fixed asset loans to
small and medium-sized businesses, and offers its consumer customers a
full range of products, including automobile loans, home improvement loans
and personal loans. In addition, the Company has established "niche"
products such as loans guaranteed by the SBA, commercial loans to
owner-operated manufacturing and petrochemical service businesses,
"indirect" installment lending and factoring. To complement its
traditional banking products, the Company endeavors to be a full financial
services organization and has developed additional financial services such
as a brokerage services and annuity vehicles and is in the process of
forming an independent insurance agency offering a full line of commercial
and consumer insurance products.
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- Enhanced Delivery System--The Company plans to enhance its existing
delivery system by expanding its branch network, either by acquisitions or
de novo branches, in the eastern portion of the Houston metropolitan area,
and through the establishment of additional LPOs outside of this area in
order to market the Company's niche products.
In addition to these strategic advantages, management believes the following
financial initiatives will help the Company increase profitability and maximize
stockholder value:
- Changing Loan Mix--In 1988, the Company initiated a program of purchasing
indirect loans, which are installment loans originated by automobile
dealers for the purpose of financing consumer purchases. The Company
purchases almost exclusively "A"-rated loans. Management believes that the
program has been successful both from the standpoint of growth and credit
quality. However, because of increasing competition and accompanying
pressure on net interest margins in the indirect market, management has
broadened its focus to expand its other niche lending products, including
SBA guaranteed credits via the Company's three LPOs, commercial lending to
local manufacturing and petrochemical service companies and accounts
receivable factoring. These are generally higher yielding products which
management views as having strong growth potential in the Company's market
area. If the Company is successful in growing these niche products, its
net interest margin should be positively affected.
- Increasing Fee Income Sources--To supplement the noninterest income
produced from its niche lending and deposit products, the Company is
developing other sources of fee income. The Company currently has 12 Class
1 licensed insurance agents and four licensed brokers assisting customers
with fixed rate brokerage and annuity products. By the end of 1998,
management expects to have licensed agents offering alternative
investments at each branch location. The Bank has filed an application for
a license to operate a full service insurance agency from its Mont Belvieu
location and has received approval from the OCC to form an operating
subsidiary to house the insurance agency. The Company is also currently
negotiating to purchase an insurance agency which has operated with a
historic record of profitability.
- Improved Efficiency--Management believes that the Acquisitions will create
economies of scale and help to improve the Company's efficiency ratio.
Significant cost savings opportunities exist, including headcount
reductions, cuts in director fees and reduced administrative expenses.
Although conversion of the acquired banks' data processing operations onto
the Company's proprietary system will result in significant initial costs,
management believes that substantial cost savings will be achieved on an
ongoing basis.
- Core Deposit Base--The Company has a relatively low cost funding base made
up primarily of core deposits along with a relationship driven public
deposit network. At June 30, 1997, the Company's weighted average cost of
deposits was 3.24%, a slight decrease from the year end figure of 3.32%
and down significantly from the December 31, 1995 level of 3.55%. This low
cost of funds has allowed the Company to price its loan products
competitively while still maintaining an attractive net interest margin.
BUSINESS
The Company's commitment to being the premier provider of financial services
in the eastern portion of the greater Houston metropolitan area is reflected in
the types of products and services that it makes available to its business
customers and consumers. The Company offers a wide variety of lending products,
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including term loans, lines of credit and fixed asset loans to small and
medium-sized businesses, and offers consumers automobile, home improvement and
personal loans. In addition, the Company has also established the following
niche products:
- Indirect Lending--In 1988, the Company initiated a program of purchasing
indirect loans from automobile dealers. The Company purchases almost
exclusively "A"-rated loans from a select list of dealers after performing
its own analysis of the loan package. At June 30, 1997, the Company's loan
portfolio held a total of $71.0 million in indirect loans with an
associated delinquency ratio of 0.56%. Senior management of the Company
has extensive experience in indirect automobile financing as well as
consumer lending in general.
Because of increasing competition and accompanying pressure on net interest
margins in the indirect market, management has shifted its focus to its other
niche lending products, as described below. The Company does not intend to exit
the indirect business, but rather to grow other niche products in order to
further diversity its lending risk.
- SBA Lending--The Bank is a Preferred Lender under the federally guaranteed
SBA lending program. Under this program, the Bank originates and funds SBA
7-A and 504 chapter loans qualifying for federal guarantees of 75% to 90%
of principal and accrued interest. The guaranteed portion of these loans
is generally sold into the secondary market with servicing retained.
Depending upon management's view of prepayment expectations, the
guaranteed portions are sold either at par, retaining a larger servicing
spread (generally 350-400 basis points), or at a premium (approximately
10% currently) with a small servicing spread retained. At June 30, 1997,
the Company's loan portfolio held a total of $5.1 million in the retained
portion of SBA commercial and real estate loans. The Company uses a
network of LPOs which are located around the City of Houston to generate
SBA loans. The LPO lenders are specially trained in SBA loan production.
Each LPO lender is paid a salary plus a commission based upon closed loans
produced. The LPO lenders generate the potential customer prospects and
produce the SBA loan package using packaging software loaded in notebook
computers. Following loan committee approval, the LPO lenders direct the
customers to closing and servicing specialtists located in the main
banking office. As additional markets are identified and skilled lenders
become available, the Company expects to continue to expand its generation
of SBA and other government guaranteed business loan products through
additional LPOs.
- Commercial Lending--The Company's primary market is located in the heart
of the eastern Harris County manufacturing and petrochemical district. The
Company has gained an expertise in fulfilling the banking needs of the
businesses that service this industry, many of which are owner-operated,
and believes that it will better be able to serve the needs of these
businesses utilizing the increased lending limit which will result from
the Acquisitions and the Offering. At June 30, 1997, the Company's loan
portfolio held a total of $13.2 million in commercial loans excluding
factored receivables and commercial SBA loans.
- Factoring--To better serve its commercial markets, in 1996 the Company
established a receivables factoring unit catering to service companies and
suppliers who deal with major corporations in the Houston area industrial
complex. The accounts receivable line of credit financing facility relies
heavily on the quality of the business customer's accounts receivable
which, if monitored and controlled properly, limits the financial risks to
the Company associated with this short-term business financing. The
Company plans to further develop its factoring capability and views this
business as a growth area. The Company's loan portfolio held a total of
$760,000 in factored receivables at June 30, 1997.
The Company funds its lending activities primarily from its core deposit
base. These deposits are gathered from the local market and no material portion
is dependent upon any one person, entity or industry. The Company also pursues
public deposits from entities such as schools, cities and colleges. At
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June 30, 1997, core deposits represented 93.1% and public deposits represented
3.0% of total deposits. The Company has developed an ability to compete with
regional banks for public deposits by competitive pricing and developing
continuing relationships based on service with the individuals responsible for
the administration or selection of financial institutions to hold these funds.
The Company actively and continually trains its employees to develop and
maintain long-term banking relationships. The Company contracts with Omega
Performance, a leading trainer of bank employees in the United States, to
provide training in the areas of successful sales and service, establishing
customer relationships, teller excellence, business development and consumer
lending. As part of this process, virtually every Company employee is placed on
incentive and merit standards which award compensation based on the achievement
of sales ratios and other business development-related indicia.
The Company has enhanced its relationship banking capabilities by marketing
individually to the top 5% of its customer base (Tier 1 accounts) and the next
10% of its customer base (Tier 2 accounts). The Tier 1 customers are provided
with a pass key which enables them to enter the Bank through a private entrance
before and after normal banking hours and are assigned a specific Bank officer
to service their banking needs. Each Tier 1 and Tier 2 customer is personally
contacted a minimum of eight times per year by an assigned officer. The Company
builds customer loyalty with responsive local decision making. Through Business
Development Board members, the Company monitors the financial service needs of
its customers.
The Company recently increased its commitment to technology by purchasing an
advanced line of software and installing new communication technology into its
branch network and communication systems. The Company believes that its new
technology will allow it to compete with any super-regional or national banking
organization with respect to communications and electronic convenience to the
customer. Among the products to be offered through this technology are cash
management, lockbox, home banking and Internet capabilities. The Company also
offers debit cards, direct deposit, ACH originations and direct debit services.
The communications network has enabled the Company to establish a call center
staffed by highly trained personnel which provides customers a one point
solution to information inquiries.
The Company's future strategy is to be able to compete effectively not just
with other commercial banks but with a variety of providers of financial
services by providing a responsive brand of relationship banking and a full line
of financial service products, including a full line of brokerage and insurance
products. The Company will be looking for additional acquisitions and branching
opportunities to enhance its retail delivery systems throughout the greater
Houston metropolitan area.
HISTORY
The Company was incorporated as a business corporation in 1982 under the
laws of the State of Texas to be a multi-bank holding company for the Bank,
which was chartered in 1965, and for Bay Port National Bank, which was chartered
in 1979. The two banks merged in 1985 in conjunction with a change in Texas
branching laws. In 1991, the Company began to expand its operations, diversify
its lending base and seek additional deposits by assuming the deposits of
Liberty County Federal Savings and Loan Association and Bayshore Federal Savings
and Loan, which added branch locations in the cities of Liberty, Cleveland and
Seabrook, Texas. In 1994, the Company established a new branch in Pasadena,
Texas. In 1996, the Company assumed the deposits of the Cleveland branch of a
commercial bank and in 1997 opened a grocery store branch in Mont Belvieu,
Texas. Additionally, the Company opened an LPO in the Clear Lake/NASA area in
1995 and two LPOs in Houston in 1996.
The Company currently serves its community from its headquarters in LaPorte
and six full-service branch locations in LaPorte, Liberty, Cleveland, Seabrook,
Pasadena and Mont Belvieu, Texas. The Company also has two LPOs in Houston and
another in the Clear Lake/NASA area. The Acquisitions will add two branch
offices in Baytown, Texas, one office in Mont Belvieu, Texas and one in Deer
Park, Texas.
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FACILITIES
The Company conducts business at seven full-service banking locations and
three LPOs. As a result of the Acquisitions, the Company will acquire four
additional full-service branches. The following table sets forth specific
information on each such location. The Company's headquarters are located at
1001 Highway 146 South in La Porte in a two story office building owned by the
Bank.
<TABLE>
<CAPTION>
LOCATION
- ------------------------------------------------------------------------------ DEPOSITS AT
JUNE 30, 1997
--------------
(IN THOUSANDS)
<S> <C>
Existing Offices:
La Porte--Main Office....................................................... $ 77,060
Liberty..................................................................... 23,296
Cleveland................................................................... 22,864
La Porte--Spencer Office.................................................... 20,511
Pasadena.................................................................... 17,722
Seabrook.................................................................... 8,421
Mont Belvieu(1)............................................................. --
Southeast LPO--Clear Lake/NASA(2)........................................... N/A
West LPO--Houston(2)........................................................ N/A
Northwest LPO--Houston(2)................................................... N/A
Offices to be Acquired:
Deer Park(3)................................................................ $ 26,820
Baytown--Texas Bank(4)...................................................... 23,738
Mont Belvieu(5)............................................................. 13,998
Baytown--TNB(6)............................................................. 12,437
</TABLE>
- ------------------------
(1) Opened for business in June of 1997.
(2) Indicates loan production office.
(3) Represents office of First Bank.
(4) Represents main office of Texas Bank.
(5) Represents Mont Belvieu branch of Texas Bank.
(6) Represents office of TNB.
EMPLOYEES
As of June 30, 1997, the Company had 116 full-time employees, 24 of whom
were officers. The Company provides medical and hospitalization insurance to its
full-time employees. The Company considers its relations with employees to be
excellent.
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, finance companies, mutual funds, insurance companies, brokerage and
investment banking firms, asset-based non-bank lenders and certain other
nonfinancial 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
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financial institutions by emphasizing customer service, technology, local office
decision-making on loans, 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."
THE ACQUISITIONS
GENERAL
The Acquisitions will increase the Company's assets from $185.1 million to
$272.0 million as of June 30, 1997 on a pro forma basis. In addition to the
immediate increase in asset size, the Acquisitions are expected to enhance
profitability with savings achieved through economies of scale as well as
increased loans through enhanced marketing efforts, expanded loan products and
additional employee training. Although there will be significant nonrecurring
costs incurred in connection with the Acquisitions, such as data processing
conversion operations, management believes that substantial cost savings will
result on an ongoing basis. Additionally, management of the Company views the
relatively low loan limits of each of the three banks to be acquired as a
hindrance to their lending efforts. After the Acquisitions, the Company's larger
loan limit of approximately $4.1 million will allow it to solicit customers
whose loan demands may have been too large for any of the banks individually.
The consolidation in the banking industry has left many communities with few
banks that have the ability and desire to address the needs of small businesses.
The larger regional and national banks are not allocating resources to address
the needs of small business in these markets, and many of the community banks do
not offer the technological and product opportunities that many small businesses
desire. The Company's enhanced technology and product development and delivery
system will allow it to offer services traditionally offered only by large
regional and national banks. Local office decision making as well as the
Company's sales and service culture will give each branch a community
identification. Another significant reason for the Acquisitions is the
opportunity for the Company to expand its market area to desirable banking
locations. Through the Acquisitions, the Company will increase its locations
from seven to 11, and the resulting market area will extend from Seabrook in
eastern Harris County to Cleveland in western Liberty County. Locations in both
residential and work communities will provide convenience to customers and
facilitate the Company's ability to capture both business and individual
relationships.
TEXAS BANK
BUSINESS
Texas Bank was organized as a Texas banking association in 1971, and its
main office is located in Baytown. Baytown is located in eastern Harris County,
approximately 25 miles east of downtown Houston across the Houston Ship Channel
from LaPorte. In addition to its main office, Texas Bank has a branch in Mont
Belvieu, which is located approximately 35 miles east of downtown Houston in
western Chambers County. See the map on page two of this Prospectus. At June 30,
1997, Texas Bank had total assets of approximately $41.5 million, total deposits
of approximately $37.7 million and total stockholders' equity of approximately
$3.7 million.
Texas Bank is a community bank that offers interest and noninterest-bearing
deposit accounts and makes consumer, commercial and real estate loans. As of
June 30, 1997, Texas Bank's loan portfolio in aggregate book value and as a
percentage of the total loan portfolio consisted of $11.1 million of real estate
loans (56.7% of total loans), $5.9 million of commercial loans (30.3% of total
loans) and $2.6 million of consumer loans (13.0% of total loans). Texas Bank
reported no nonaccrual loans at June 30, 1997, December 31, 1996 or December 31,
1995. The allowance for possible loan losses at June 30, 1997 was $174,000 or
0.89% of the gross loan portfolio. As of June 30, 1997, net charge-offs equaled
0.13% of average loans, annualized. For the years ended December 31, 1996 and
1995, net charge-offs were 0.10% and 0.71% of average loans, respectively. Other
real estate owned by Texas Bank had an aggregate value at June 30, 1997 of
$388,000, or 0.93% of total assets. Other real estate owned equaled 1.00% of
total assets at December 31, 1996 and 1.06% of total assets at December 31,
1995. For the six months ended June 30, 1997, Texas Bank's net income after
taxes was $166,000, or an annualized return on average assets
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(ROAA) of 0.78% and an annualized return on average equity (ROAE) of 9.04%. For
the years ended December 31, 1996 and December 31, 1995, Texas Bank's ROAA
equaled 1.31% and 1.21%, respectively, and its ROAE equaled 14.34% and 14.38%,
respectively.
The acquisition of Texas Bank will be the Company's first expansion into
Baytown. Baytown is a community of over 60,000 people located on the Houston
Ship Channel in eastern Harris County. Baytown is home to a number of
petrochemical plants and refineries. Texas Bank is located on the north end of a
north-south corridor that is the center of Baytown's residential and business
growth. Texas Bank is the only commercial bank located on the northern end of
the city. Due to a lack of commercial bank competition, management believes that
Baytown is under- banked. In addition to the Baytown presence, the acquisition
of Texas Bank will give the Company an additional facility in Mont Belvieu. Mont
Belvieu is a growing bedroom community located approximately 35 miles east of
downtown Houston. Under current law, banks have the ability to operate
full-service insurance agencies in towns of 5,000 or less. With its location in
a town of less than 5,000, the Mont Belvieu office will serve as the basis for
the Company's expansion into the sale of insurance products.
ACQUISITION BY THE COMPANY
On June 24, 1997, the Company entered into an Agreement and Plan of
Reorganization (the "Texas Bank Acquisition Agreement") with Texas Bank and
certain shareholders of Texas Bank ("Texas Bank Principals") pursuant to which
the Company agreed to acquire all of the issued and outstanding shares of Texas
Bank's common stock (the "Texas Bank Common Stock") through the consolidation of
Texas Bank with a subsidiary of the Company formed solely to facilitate the
acquisition of Texas Bank. Texas Bank's stockholders approved the Texas Bank
Acquisition Agreement and the transactions contemplated thereunder on July 29,
1997. Following the consummation of the acquisition of Texas Bank by the
Company, Texas Bank will be a wholly-owned subsidiary of the Company, and,
immediately thereafter, Texas Bank will be consolidated with the Bank with the
Bank surviving. The Company has filed the necessary regulatory applications
requesting approval from the Federal Reserve Board, OCC, FDIC, and the Texas
Department of Banking ("Banking Department").
CONSIDERATION FOR TEXAS BANK COMMON STOCK
The Texas Bank Acquisition Agreement provides that upon consummation of the
acquisition of Texas Bank, as aggregate consideration in exchange for their
shares of Texas Bank Common Stock, holders of Texas Bank Common Stock will
receive $5,500,000, subject to adjustment pursuant to the Texas Bank Acquisition
Agreement. If the stockholders' equity of Texas Bank is less than $3,690,000 on
the closing date of the acquisition of Texas Bank, the consideration for the
acquisition of Texas Bank will be reduced to an amount equal to the
stockholders' equity of Texas Bank multiplied by 1.50042.
NON-COMPETITION AGREEMENTS
At or prior to the consummation of the acquisition of Texas Bank, non-
competition agreements are to be executed by each of the Texas Bank Principals.
The non-competition agreements provide, among other things, that for two years
following the acquisition of Texas Bank none of the Texas Bank Principals will
(i) become affiliated with any business in Texas Bank's Community Reinvestment
Act assessment area that competes with the Company, (ii) solicit business from
the customers of Texas Bank or (iii) advise any customer of Texas Bank to cease
or diminish doing business with Texas Bank.
LITIGATION
Texas Bank is a defendant in LIGHTHOUSE CHURCH OF CLOVERLEAF, ET AL V. TEXAS
BANK; which is pending in the 133rd Judicial District Court of Harris County,
Texas. The plaintiff claims that Texas Bank wrongfully entered into possession
of the church and school, upon which Texas Bank held a lien, and that Texas Bank
is guilty of conversion of certain personal property located on the premises.
The trial court originally granted summary judgment for Texas Bank, but the
decision was overturned and the matter was sent back
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<PAGE>
to the trial court. While the amount of alleged damages is $2.1 million plus
$10.0 million in exemplary damages, counsel for Texas Bank, as well as the
Company's independent litigation counsel, believes that the exposure of Texas
Bank, if any, will be less than $250,000, however, there is no guarantee that
the actual liability will not be substantially greater. The Texas Bank
Acquisition Agreement does not provide for indemnification for losses incurred
in connection with this litigation.
CONDITIONS AT CLOSING
The obligations of the parties to complete the acquisition of Texas Bank are
subject to certain conditions, including the conditions that (i) all approvals
of any regulatory authority having jurisdiction over the transaction have been
received and all applicable statutory waiting periods have expired and (ii) at
the closing date, no action or litigation is pending or threatened, other than
the LIGHTHOUSE litigation, that would adversely affect certain aspects of the
acquisition of Texas Bank. In addition, the Company is not obligated to complete
the acquisition of Texas Bank unless certain conditions have been satisfied or
waived by the Company, including that (i) Texas Bank shall not have suffered a
material adverse change, (ii) Joseph D. Crook, the President and Chairman of
Texas Bank, shall have entered into an employment agreement regarding the
continuation of his employment , (iii) the Company receives releases from the
directors and officers of Texas Bank generally releasing Texas Bank from
virtually all claims by such individuals, (iv) the Company receives
noncompetition agreements from the Texas Bank Principals, (v) all accounting and
tax treatment entries and adjustments for the acquisition of Texas Bank are
satisfactory to the Company, and (vi) Texas Bank shall have been released from
all obligations under its data processing contract. There can be no assurance
that the foregoing conditions will be satisfied or waived or that the
acquisition of Texas Bank will be completed.
The closing date of the acquisition of Texas Bank will be selected by mutual
agreement of the parties to the Texas Bank Acquisition Agreement following the
satisfaction or waiver of all conditions to closing. The Company has adequate
capital to fund the acquisition of Texas Bank without proceeds from this
Offering. Accordingly, the acquisition of Texas Bank is not conditioned upon the
consummation of this Offering.
TEXAS NATIONAL BANK OF BAYTOWN
BUSINESS
TNB, a national banking association, was organized in 1969. The only office
of TNB is located in Baytown, Texas. See the map located on page 2 of this
Prospectus. At June 30, 1997, TNB had total assets of approximately $14.1
million, total deposits of approximately $12.4 million and total stockholders'
equity of approximately $1.6 million.
TNB is a community bank whose business includes conventional consumer and
commercial products and services, including interest and noninterest bearing
depository accounts, commercial, industrial, consumer and real estate lending.
At June 30, 1997, TNB's loan portfolio in aggregate book value and as a
percentage of the total loan portfolio consisted of $2.9 million in real estate
loans (64.4% of total loans), $1.1 million in commercial and industrial loans
(24.5% of total loans), and $500,000 in consumer loans (11.1% of total loans).
TNB reported no nonaccrual loans at June 30, 1997, December 31, 1996 or December
31, 1995. The allowance for possible loan losses at June 30, 1997 was $88,000,
or 1.98% of gross loans. As of June 30, 1997, there were no net charge-offs. For
the years ended December 31, 1996 and 1995, net charge-offs were 0.00% and 0.19%
of average loans, respectively. Other real estate owned by TNB had an aggregate
value at June 30, 1997 of $7,000, or .05% of total assets. Other real estate
owned equaled 0.46% of total assets at December 31, 1996 and 1.74% of total
assets at December 31, 1995. For the six months ended June 30, 1997, TNB's net
income after taxes was $88,000, or an annualized return on average assets (ROAA)
of 0.80% and an annualized return on average equity (ROAE) of 11.3%. For the
year ended December 31, 1996, net income after taxes was $146,000, or an ROAA of
1.06% and an ROAE of 9.46%. TNB's 1995 ROAA and ROAE were 0.96% and 7.78%,
respectively.
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The acquisition of TNB will enhance the Company's presence in Baytown after
the acquisition of Texas Bank. TNB is located on the south end of the
north-south corridor on which Texas Bank is located. The acquisition of TNB will
enhance the Company's presence in the Baytown market and provide a link to
LaPorte to the south of Baytown. The TNB location will give the Company access
to industrial and blue collar neighborhoods as well as the industrial,
petrochemical and service areas of Baytown.
ACQUISITION BY THE COMPANY
On August 7, 1997, the Company and the Bank entered into an Agreement and
Plan of Consolidation (the "TNB Acquisition Agreement") with TNB pursuant to
which the Company will acquire all of the issued and outstanding shares of TNB's
common stock (the "TNB Common Stock") through the consolidation of TNB with a
subsidiary of the Company formed solely to facilitate the acquisition of TNB.
Stockholders holding 69.8% of the TNB Common Stock have executed a Voting
Agreement and Irrevocable Proxy pursuant to which their shares will be voted in
favor of the TNB Acquisition Agreement. Following the consummation of the
acquisition of TNB by the Company, TNB will be a wholly-owned subsidiary of the
Company, and, immediately thereafter, TNB will be consolidated with the Bank
with the Bank surviving. The Company has filed the necessary regulatory
applications requesting approval from the Federal Reserve Board and the OCC in
connection with the acquisition of TNB.
CONSIDERATION FOR TNB STOCK
The TNB Acquisition Agreement provides that upon consummation of the
acquisition of TNB, holders of TNB Common Stock will receive $2.4 million in
cash as consideration in exchange for their shares of TNB Common Stock.
NON-COMPETITION AGREEMENTS
At or prior to the closing of the acquisition of TNB, non-competition
agreements are to be executed by each of the officers of TNB who is offered and
accepts employment with the Company or the Bank. These agreements provide, among
other things, that for one year following the acquisition of TNB such persons
will not (i) solicit the banking business (loan, deposit or otherwise) of any
then existing customer of TNB or (ii) engage or participate in any business that
is in competition in any manner whatsoever with the business of the Company or
the Bank within a five-mile radius of TNB's existing facility in Baytown, Texas.
CONDITIONS TO CLOSING
The obligations of the parties to complete the acquisition of TNB are
subject to certain conditions, including the conditions that (i) all approvals
of any regulatory authority having jurisdiction have been received and all
applicable statutory waiting periods have expired and (ii) that the stockholders
of TNB shall have approved the transactions contemplated by the TNB Acquisition
Agreement. In addition, the Company is not obligated to complete the acquisition
of TNB unless certain conditions have been satisfied or waived by the Company,
including that (i) TNB shall not have suffered any material adverse change in
its financial condition, business or operations (ii) the Company shall have
received at least $8.5 million in net proceeds from this Offering; (iii) no
action or litigation is pending or threatened against TNB that might prevent the
acquisition of TNB or result in a material adverse change in TNB; (iv) the Bank
shall have received a letter from the OCC that loans to a certain borrower and
his affiliated interests which have been deemed by the OCC to have been issued
in excess of TNB's lending limits, will not represent a violation to the Bank
and its directors ("OCC Letter"); (v) TNB's data processing and ATM agreements
shall have been terminated without any penalty or additional liability; (vi) a
certain loan shall be removed from the books of TNB; (vii) the directors and
officers of TNB execute releases generally releasing TNB from virtually all
claims by such individuals; and (viii) each of the officers of TNB who is
offered and accepts employment with the Company or the Bank shall have executed
the non-competition agreements
26
<PAGE>
referred to above. TNB is not obligated to complete the transactions if certain
conditions are not met, including the condition that the Company execute general
releases in favor of the directors and officers of TNB.
The closing date of the acquisition of TNB will be selected by mutual
agreement of the parties to the TNB Acquisition Agreement following satisfaction
or waiver of all conditions to closing but is expected to occur simultaneously
with the closing of this Offering. The Bank has received the OCC Letter with
regard to TNB. The closing of this Offering is contingent upon the closing of
the acquisitions of TNB and First Bank, and if for any reason both of those
acquisitions are not completed, this Offering will not be consummated. There can
be no assurance that the foregoing conditions will be satisfied or waived or
that the acquisition of TNB will be completed.
FIRST BANK OF DEER PARK
BUSINESS
First Bank, a Texas banking association, was organized in 1972. The only
office of First Bank is located in Deer Park which is located in eastern Harris
County. See the map located on page 2 of this Prospectus. At June 30, 1997,
First Bank had total assets of approximately $32.9 million, total deposits of
approximately $26.8 million and total stockholders' equity of approximately $3.9
million.
First Bank is a community bank whose business includes conventional consumer
and commercial products and services, including interest and noninterest bearing
depository accounts, commercial, industrial, consumer and real estate lending.
At June 30, 1997, First Bank's loan portfolio in aggregate book value and as a
percentage of the total loan portfolio consisted of $9.8 million in real estate
loans (69.2% of total loans), $3.5 million in commercial and industrial loans
(24.7% of total loans), and $864,000 in consumer loans (6.1% of total loans).
First Bank reported no nonaccrual loans at June 30, 1997, December 31, 1996 or
December 31, 1995. The allowance for possible loan losses at June 30, 1997
equaled $355,000, or 2.49% of gross loans. As of June 30, 1997, net charge-offs
equaled 0.01% of average loans, annualized. For the years ended December 31,
1996 and 1995, net charge-offs (recoveries) were (0.01)% and 0.04% of average
loans, respectively. Other real estate owned by First Bank had an aggregate
value at June 30, 1997 of $200,000, or 0.61% of total assets. Other real estate
owned equaled 0.83% of total assets at December 31, 1996 and 2.67% of total
assets at December 31, 1995. For the six months ended June 30, 1997, First
Bank's net income after taxes was $359,000, or an annualized return on average
assets (ROAA) of 2.26% and an annualized return on average equity (ROAE) of
18.51%. In 1996, First Bank reported an ROAA of 2.24% and an ROAE of 18.73% and
in 1995 First Bank reported an ROAA of 1.79% and an ROAE of 15.22%.
The acquisition of First Bank will provide the Company a presence in Deer
Park. Deer Park is a community of 27,000 people located on the south side of the
Houston Ship Channel. The Deer Park economy is closely linked to the
petrochemical industry. First Bank is the only community bank in Deer Park. The
positive name recognition of both First Bank and the Bank should allow the
Company to acquire a larger market share in Deer Park and capture some of the
growth the area is experiencing. A director of the Bank who previously served as
chairman of the Deer Park branch of one of the large national banking
organization is expected to be instrumental in expanding the Company's business
in this market.
ACQUISITION BY THE COMPANY
On August 7, 1997, the Company entered into an Agreement and Plan of
Consolidation (the "First Bank Acquisition Agreement") with First Bank pursuant
to which the Company will acquire all of the issued and outstanding shares of
First Bank's common stock (the "First Bank Common Stock") through the merger of
First Bank with a subsidiary of the Company formed solely to facilitate the
acquisition of First Bank. Stockholders holding 75.3% of the First Bank Common
Stock have executed a Voting Agreement and Irrevocable Proxy pursuant to which
their shares of stock will be voted in favor of the First
27
<PAGE>
Bank Acquisition Agreement. Following the consummation of the acquisition of
First Bank by the Company, First Bank will be a wholly-owned subsidiary of the
Company, and, immediately thereafter, First Bank will be consolidated with the
Bank with the Bank surviving. The Company has filed the necessary regulatory
applications requesting approval from the Federal Reserve Board, OCC, FDIC and
Banking Department.
CONSIDERATION FOR FIRST BANK STOCK
The First Bank Acquisition Agreement provides that upon consummation of the
acquisition of First Bank, holders of First Bank Common Stock will receive
$7,970,000 in cash as consideration in exchange for their shares of First Bank
Common Stock.
NON-COMPETITION AGREEMENTS
At or prior to the closing of the acquisition of First Bank, non-competition
agreements are to be executed by each of the officers of First Bank who is
offered and accepts employment with the Company or the Bank. These agreements
provide, among other things, that for one year following the acquisition of
First Bank such persons will not (i) solicit the banking business (loan, deposit
or otherwise) of any then existing customers of First Bank or (ii) engage or
participate in any business that is in competition in any manner whatsoever with
the business of the Company or the Bank within a five-mile radius of First
Bank's existing facility in Deer Park, Texas.
CONDITIONS TO CLOSING
The obligations of the parties to complete the acquisition of First Bank are
subject to certain conditions, including the conditions that (i) all approvals
of any regulatory authority having jurisdiction have been received and all
applicable statutory waiting periods have expired and (ii) that the stockholders
of First Bank shall have approved the transactions contemplated under the First
Bank Acquisition Agreement. In addition, the Company is not obligated to
complete the acquisition of First Bank unless certain conditions have been
satisfied or waived by the Company, including that (i) First Bank shall not have
suffered any material adverse change in its financial condition, business or
operations (ii) the Company shall have received at least $8,500,000 in net
proceeds from this Offering; (iii) no action or litigation is pending or
threatened against First Bank that might prevent the acquisition of First Bank
or result in a material adverse change in First Bank; (iv) the Bank shall have
received a letter from the OCC that loans to a certain borrower and his
affiliated interests which have been deemed by the OCC to have been issued in
excess of First Bank's lending limits, will not represent a violation to the
Bank and its directors; (v) that the directors and officers of First Bank
execute releases generally releasing First Bank from virtually all claims by
such individuals referred to above; and (vi) that each of the officers of First
Bank who is offered and accepts employment with the Company or the Bank shall
have executed the non-competition agreements referred to above. First Bank is
not obligated to complete the transactions if certain conditions are not met,
including the condition that the Company execute general releases in favor of
the directors and officers of First Bank.
The closing date of the acquisition of First Bank will be selected by mutual
agreement of the parties to the First Bank Acquisition Agreement following
satisfaction or waiver of all conditions to closing but is expected to occur
simultaneously with the closing of this Offering. The Bank has received the OCC
Letter with regard to First Bank. The closing of this Offering is contingent
upon the prior or simultaneous closing of the acquisitions of First Bank and
TNB, and if for any reason both of these acquisitions are not completed, this
Offering will not be consummated. There can be no assurance that the foregoing
conditions will be satisfied or waived or that the acquisition of First Bank
will be completed.
28
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the Offering (based on
an assumed initial public offering price of $14.00 per share, the mid-point of
the estimated offering range) after deducting underwriting discounts and
estimated offering expenses are estimated to be approximately $7.5 million, or
$8.4 million if the Underwriters' over-allotment option is fully exercised. The
Company will use all of the net proceeds from this Offering to fund a portion of
the $10,370,000 aggregate purchase price for the acquisitions of TNB and First
Bank. See "The Acquisitions."
Pending the application of the net proceeds, the Company intends to invest
such proceeds in short-term, interest-bearing securities, certificates of
deposit or guaranteed obligations of the United States of America.
DIVIDEND POLICY
Holders of 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
December of 1992 and currently pays quarterly dividends aggregating $0.24 per
share per annum, there is no assurance that the Company will continue to pay
dividends in the future.
For a foreseeable period of time, the principal source of cash revenues to
the Company will be dividends paid by the Bank with respect to the Bank's
capital stock. There are certain restrictions on the payment of such dividends
imposed by federal banking laws, regulations and authorities. Prior to declaring
a dividend, a national bank must transfer to surplus 10% of its net profits
earned since its last dividend unless its surplus equals or exceeds stated
capital. As of June 30, 1997, the Bank's surplus exceeded its stated capital.
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. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Capital Resources" and "Supervision and Regulation--The Bank."
In the future, the declaration and payment of dividends on the 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 Common
Stock and other factors deemed relevant by the Company's Board of Directors. See
"Supervision and Regulation" and "Description of Securities of the Company." As
of June 30, 1997, an aggregate of approximately $3.7 million was available for
payment of dividends by the Bank to the Company under applicable restrictions,
without regulatory approval. In connection with the Acquisitions, the Bank
intends to pay an $8.3 million dividend to the Company and has requested
regulatory approval for this dividend. As a result of this dividend, the Bank
will eliminate its net profits for the year and retained profits for the two
prior years and absent prior regulatory approval, will be able to pay dividends
only out of future earnings. Regulatory authorities could impose
administratively stricter limitations on the ability of the 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--Capital Resources" and
"Supervision and Regulation."
29
<PAGE>
DILUTION
At June 30, 1997, the per share stockholders' equity, or net book value per
share, of the Company was $10.15 per share, and tangible book value was $9.78
per share. Net book value per share represents the Company's total assets less
total liabilities divided by the total number of shares of Common Stock
outstanding, exclusive of shares subject to currently exercisable options. Net
tangible book value reflects book value under generally accepted accounting
principles reduced by intangible assets such as goodwill and core deposit
intangible.
Net book value dilution per share represents the difference between the
amount per share paid by the purchasers of Common Stock in the Offering and the
pro forma net book value per share of Common Stock immediately after the
completion of the Offering and the Acquisitions. After giving effect to the
Acquisitions, the sale by the Bank of 600,000 shares of Common Stock offered
hereby at the public offering price of $14.00 per share (the midpoint of the
estimated offering range), and receipt by the Company of the net proceeds
therefrom, the pro forma net book value per share and net tangible book value
per share of the Company at June 30, 1997, would have been $10.87 per share and
$7.47 per share, respectively. This represents an immediate decrease in book
value per share of $3.13 per share and an immediate decrease in net tangible
book value per share of $6.53 per share to purchasers of shares in the Offering,
as illustrated by the following tables:
DILUTION IN NET BOOK VALUE PER SHARE TO NEW INVESTORS
<TABLE>
<S> <C> <C>
Public offering price per share............................................. $ 14.00
Net book value per share at June 30, 1997................................... $ 10.15
Increase in pro forma net book value per share attributable to new investors
in the Offering........................................................... 0.73
---------
Pro forma net book value per share after the Offering....................... 10.87
---------
Dilution in net book value per share to new investors....................... $ 3.13
---------
</TABLE>
DILUTION IN NET TANGIBLE BOOK VALUE PER SHARE TO NEW INVESTORS
<TABLE>
<S> <C> <C>
Public offering price per share............................................. $ 14.00
Net tangible book value per share at June 30, 1997.......................... $ 9.78
Decrease in net tangible book value per share attributable to the
Acquisitions.............................................................. (3.14)
Increase in pro forma net tangible book value per share attributable to new
investors in the Offering................................................. 0.83
---------
Pro forma net tangible book value per share after the Offering.............. 7.47
---------
Dilution in net tangible book value per share to new investors.............. $ 6.53
---------
---------
</TABLE>
The foregoing computations do not take into account the possible exercise of
outstanding stock options granted under the Company's stock option plans, the
Phantom Stock Plan or the possible issuance of up to an additional 90,000 shares
of Common Stock to new investors pursuant to the exercise of an option granted
by the Company to the Underwriter solely to cover over-allotments, if any, in
connection with the Offering. See "Underwriting." Options to purchase a total of
33,300 shares of Common Stock were outstanding under the Bank's stock option
plans at June 30, 1997, of which 6,660 were currently exercisable at a price of
$7.05 per share. Pursuant to the Phantom Stock Plan, 66,630 shares of Common
Stock may be issued. See "Management--Stock Option and Incentive Plans." If the
shares subject to such outstanding options under the Company's stock option
plans were included in the foregoing calculations, further dilution to the new
stockholders would be incurred.
30
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of June 30, 1997, and as adjusted to give effect to (i) the
Acquisitions and (ii) the sale by the Company of 600,000 shares of Common Stock
offered hereby, at an assumed per share price of $14.00 (which is the mid-point
of the estimated offering range), less underwriting discounts and other
estimated offering expenses. See "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1997,
---------------------------------------
AS ADJUSTED FOR
THE
AS ADJUSTED ACQUISITIONS
FOR THE AND THE
ACTUAL ACQUISITIONS OFFERING
--------- ----------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Stockholders' Equity:
Common Stock, $1 par value; 50,000,000 shares authorized; 1,357,657
shares issued and outstanding; 1,957,657 shares issued and
outstanding, as adjusted for the Offering(1).......................... $ 1,400 $ 1,400 $ 2,000
Additional capital.................................................... 8,393 8,393 15,293
Retained earnings..................................................... 4,352 4,352 4,352
Net unrealized appreciation (loss) on available-for-sale securities... (89) (89) (89)
Less Common Stock held in treasury-at cost............................ (274) (274) (274)
--------- ----------- -------
Total stockholders' equity............................................ $ 13,782 $ 13,782 $ 21,282
--------- ----------- -------
--------- ----------- -------
</TABLE>
- ------------------------
(1) Does not include 33,300 shares of Common Stock reserved for issuance upon
exercise of options granted under the Company's stock option plans, 66,630
shares of Common Stock that may be issued pursuant to the Phantom Stock Plan
or the 90,000 shares Common Stock that may be issued to cover
over-allotments.
NATURE OF THE TRADING MARKET AND MARKET PRICES
Prior to the Offering, there has been no public market for the shares of
Common Stock and there can be no assurance that an active public market will
develop or be sustained after the Offering or that if such a market develops,
investors in the Common Stock will be able to resell their shares at or above
the initial public offering price. See "Risk Factors--No Prior Trading Market."
The initial public offering price of the shares of Common Stock will be
determined by negotiations between the Company and the Underwriter and will not
necessarily bear any relationship to the Company's book value, past operating
results, financial condition or other established criteria of value and may not
be indicative of the market price of the Common Stock after the Offering. Among
the factors considered in such negotiations are prevailing market and general
economic conditions, the market capitalizations, trading histories and stages of
development of other traded companies that the Company and the Underwriter
believed to be comparable to the Company, the results of operations of the
Company in recent periods, the current financial position of the Company,
estimates of the business potential of the Company and the present state of the
Company's development and the availability for sale in the market of a
significant number of shares of Common Stock. Additionally, consideration has
been given to the general status of the securities market, the market conditions
for new issues of securities and the demand for securities of comparable
companies at the time the Offering was made. See "Underwriting" for information
relating to the method of determining the initial public offering price.
Application has been made for quotation of the shares of Common Stock on the
Nasdaq/National Market under the symbol "BAYB."
31
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
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 Prospectus, and the information
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The selected historical consolidated financial data as
of and for the five years ended December 31, 1996 are derived from the Company's
Consolidated Financial Statements which have been audited by independent public
accountants. The selected historical consolidated financial data as of and for
the six months ended June 30, 1997 and June 30, 1996 have not been audited but,
in the opinion of management, contain all adjustments (consisting of normal
recurring adjustments) necessary to present fairly the financial position and
results of operations of the Company as of such dates and for such periods. The
results of operations for the six months ended June 30, 1997, are not
necessarily indicative of the results of operations that may be expected for the
year ended December 31, 1997, or for any future periods.
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED AS OF AND FOR THE
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income.......................... $ 6,537 $ 6,214 $ 12,666 $ 11,244 $ 9,627 $ 9,999 $ 10,896
Interest expense......................... 2,732 2,619 5,443 5,391 4,285 4,091 4,892
--------- --------- --------- --------- --------- --------- ---------
Net interest income.................... 3,805 3,595 7,223 5,853 5,342 5,908 6,004
Provision for loan losses................ 168 219 510 150 75 400 575
--------- --------- --------- --------- --------- --------- ---------
Net interest income after provision for
loan losses.......................... 3,637 3,376 6,713 5,703 5,267 5,508 5,429
Noninterest income....................... 1,197 1,193 2,347 2,095 2,104 1,990 1,578
Noninterest expenses..................... 3,615 3,269 7,067 6,024 5,869 5,794 5,452
--------- --------- --------- --------- --------- --------- ---------
Earnings before taxes and cumulative
effect of accounting change.......... 1,219 1,300 1,993 1,774 1,502 1,704 1,555
Provision for income tax expense......... 364 408 591 559 271 371 20
Cumulative effect of accounting change... -- -- -- -- -- 631 --
--------- --------- --------- --------- --------- --------- ---------
Net earnings............................. $ 855 $ 892 $ 1,402 $ 1,215 $ 1,231 $ 1,964 $ 1,535
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PER SHARE DATA:
Net earnings(1).......................... $ 0.59 $ 0.62 $ 0.97 $ 0.84 $ 0.86 $ 1.38 $ 1.43
Book value............................... 10.15 8.92 9.58 8.82 7.95 7.49 6.28
Tangible book value...................... 9.78 8.92 9.06 8.82 7.95 7.49 6.28
Cash dividends........................... 0.12 0.12 0.24 0.20 0.20 0.20 0.05
Dividend payout ratio.................... 19.05% 18.19% 23.11% 22.47% 22.18% 13.86% 3.41%
Weighted average common and common
equivalent shares outstanding (in
thousands)............................. 1,439 1,440 1,441 1,442 1,430 1,419 1,075
BALANCE SHEET DATA:
Total assets............................. $ 185,139 $ 178,399 $ 189,011 $ 167,091 $ 168,322 $ 147,161 $ 145,099
Securities............................... 44,255 43,893 43,745 38,588 42,618 40,862 35,833
Gross loans.............................. 115,222 113,350 119,880 105,796 106,830 94,919 94,084
Allowance for loan losses................ 1,425 1,360 1,430 1,185 1,230 1,344 1,280
Total deposits........................... 169,874 164,272 173,318 153,334 149,824 134,848 134,553
Total stockholders' equity............... 13,782 12,083 12,929 11,903 10,857 10,199 8,424
AVERAGE BALANCE SHEET DATA:..............
Total assets............................. $ 183,197 $ 171,176 $ 177,272 $ 164,596 $ 150,205 $ 143,261 $ 135,682
Total interest-earning assets............ 170,688 159,164 164,905 152,781 140,187 133,119 125,343
Securities............................... 44,578 41,991 43,230 37,028 35,535 35,352 33,394
Loans.................................... 117,361 109,575 113,014 107,286 101,975 94,138 90,041
Allowance for loan losses................ 1,471 1,230 1,330 1,302 1,324 1,294 1,262
Total deposits........................... 167,990 157,410 162,522 151,013 135,329 131,809 126,006
Total stockholders' equity............... 13,355 11,783 12,416 11,354 10,502 9,311 6,907
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED AS OF AND FOR THE
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PERFORMANCE RATIOS(2):
<S> <C> <C> <C> <C> <C> <C> <C>
Return on average assets................. 0.93% 1.04% 0.82% 0.75% 0.80% 1.37% 1.13%
Return on average stockholders' equity... 12.80 15.14 11.29 10.70 11.72 21.09 22.23
Net interest margin...................... 4.46 4.52 4.38 3.83 3.81 4.44 4.79
Efficiency ratio(3)...................... 72.27 68.27 73.85 75.79 78.82 73.36 71.91
ASSET QUALITY RATIOS(4):
Nonperforming assets to total loans and
other real estate...................... 0.47% 0.46% 0.47% 0.56% 0.67% 0.90% 2.28%
Nonperforming loans to gross loans....... 0.18 0.19 0.18 0.22 0.23 0.37 0.78
Net loan charge-offs to average total
loans(2)............................... 0.29 0.08 0.23 0.18 0.19 0.36 0.49
Allowance for loan losses to total
loans.................................. 1.24 1.20 1.19 1.12 1.15 1.42 1.36
Allowance for loan losses to
nonperforming loans(5)................. 678.57 615.38 662.04 519.74 510.37 361.29 174.62
CAPITAL RATIOS(4):
Leverage ratio........................... 7.25% 7.46% 6.67% 7.33% 6.98% 6.99% 5.81%
Average stockholders' equity to average
total assets........................... 7.29 7.00 6.88 6.90 6.99 6.50 5.09
Tier 1 risk-based capital ratio.......... 10.16 10.02 9.39 10.14 9.33 8.85 7.05
Total risk-based capital ratio........... 11.24 11.11 10.45 11.14 10.35 10.07 8.54
</TABLE>
- ------------------------------
(1) Net earnings per share is based upon the weighted average number of common
and common equivalent shares outstanding during the period.
(2) All interim periods have been annualized.
(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 to average loans and average
stockholders' equity to average total assets.
(5) Nonperforming loans consist of nonaccrual loans and loans restructured.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 Prospectus.
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
OVERVIEW
The six month period ended June 30, 1997, as compared to the six month
period ended June 30, 1996, was marked by several significant events. The
Company assumed approximately $12.0 million in deposits related to a branch
location in Cleveland, Texas acquired from a commercial bank on August 22, 1996
(the "Cleveland Acquisition"). The Company relocated its existing Cleveland
office to the newly acquired facility. In January 1996, the Company sold land
adjacent to its Spencer banking office located in LaPorte (the "Spencer Office")
recognizing a gain on the sale of $68,000. During the first half of 1996, the
Company opened two additional LPOs in Houston and received its designation as a
Preferred SBA Lender. Also during the first half of 1996, the Company initiated
an accounts receivable factoring program for small to medium size businesses
called Cash Flow Manager. At year end 1996, outstanding balances for the
factoring program totaled in excess of $1.6 million. Balance sheet growth from
June 30, 1996 to June 30, 1997 was primarily due to the Cleveland Acquisition.
The Company's average deposits increased 6.8% and average gross loans increased
7.1% as a result of both the Cleveland Acquisition and internally generated
growth. Internal growth is a direct reflection of the Company's commitment to
its sales and service culture and to the success of the Company's three LPOs.
The Company's earnings, however, were affected by certain incremental expenses
(salary, occupancy, communication and technological changes, advertising and
other items) related to the Cleveland Acquisition along with costs relating to
the Company's SBA program and the operation of the LPOs. Additionally, the
Company has incurred increased personnel costs related to its commitment to the
development of its sales and service culture and incentive based compensation.
Net earnings available to common stockholders for the six months ended June
30, 1997 were $855,000, which was $37,000 or 4.1% less than net earnings for the
six months ended June 30, 1996. During January, 1996, the Company recognized a
$68,000 gain on the sale of land adjacent to the Spencer Office. Excluding this
transaction, earnings for the six months ended June 30, 1997 would have been
approximately $7,500 or 1.0% greater than net earnings for the six months ended
June 30, 1996. Net earnings per share were $0.59 for the six months ended June
30, 1997 and $0.62 for the six months ended June 30, 1996. Although net interest
income was higher for the six months ended June 30, 1997 than in the comparable
1996 period, this was offset by higher operating expenses which included
expenses related to the Cleveland Acquisition, increased salary and related
other personnel costs and increased advertising costs. The Company's commitment
to its sales and service culture and incentive based employee compensation,
along with maintaining its three LPOs during 1997, were the primary factors
increasing salary and advertising expenses. Annualized return on average assets
and an annualized return on average common equity were 0.93% and 12.80%,
respectively, for the six months ended June 30, 1997 compared to 1.04% and
15.14% respectively, for the same period in 1996.
Total assets at June 30, 1997 increased to $185.1 million from $178.4
million at June 30, 1996, an increase of $6.7 million or 3.8%. Period-end
deposits rose to $169.9 million at June 30, 1997 from $164.3 million at June 30,
1996, an increase of $5.6 million or 3.4%. While the Cleveland Acquisition
created an approximate deposit increase of $12.0 million, the Company
experienced an internal $6.4 million decrease in deposits. This reduction in
deposits is primarily attributable to several large commercial and public funds
customers whose demand and time balances fluctuate with operational needs. Total
34
<PAGE>
stockholders' equity was $13.8 million at June 30, 1997, representing an
increase of $1.8 million or 14.05% over total stockholders' equity of $12.1
million at June 30, 1996. This increase is primarily attributable to the
retention of earnings.
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
income. Interest rate fluctuations, as well as changes in the amount and type of
earning assets and liabilities, combine to affect net interest income.
Net interest income for the six months ended June 30, 1997 was $3.8 million
compared to $3.6 million for the six months ended June 30, 1996, an increase of
$200,000 or 5.6%. Net interest income increased as a result of a higher dollar
amount of interest-earning assets derived from the Cleveland Acquisition and
internal loan growth over this period. Average interest-earning assets increased
from 92.98% of total average assets at June 30, 1996 to 93.17% of total average
assets at June 30, 1997. Average gross loans increased to $117.4 million for the
six months ended June 30, 1997 from $109.6 million for the six months ended June
30, 1996, an increase of $7.8 million or 7.1%. Internal loan growth accounted
for $7.0 million of this increase, and the Cleveland Acquisition accounted for
the remaining $800,000 of the increase. Additionally, net interest income
increased as a result of the Company's decision to restructure its loan mix from
lower yielding indirect automobile loans into higher yielding direct commercial
and real estate loans. See "--Loan Portfolio."
Net interest income was improved by a decrease on the cost of
interest-bearing liabilities from 4.03% to 3.95% through a non-material change
in the Company's overall costs on interest-bearing deposits. Average
interest-bearing deposits increased to $138.4 million for the six months ended
June 30, 1997 from $129.9 million for the six months ended June 30, 1996, an
increase of $8.5 million or 6.5%. This growth was primarily attributable to the
Cleveland Acquisition.
The Company posted net interest margins of 4.46% and 4.52% and net interest
spreads of 3.71% and 3.78% for the periods ended June 30, 1997 and June 30,
1996, respectively. The slight decrease in the net interest margin from the
first half of 1996 to the first half of 1997 reflects a 15 basis point decrease
in the yield on average earning assets and an eight basis point reduction in the
cost of interest-bearing liabilities. The decrease in the yield on average
earning assets to 7.66% for the six months ended June 30, 1997 from 7.81% for
the six months ended June 30, 1996, was primarily attributable to a large
recovery of interest on a charged-off loan. The cost of interest-bearing
liabilities decreased slightly to 3.95% for the six months ended June 30, 1997
from 4.03% for the six months ended June 30, 1996. Net interest margin decreased
slightly from 4.52% at June 30, 1996 to 4.46% at June 30, 1997.
The following table presents for the periods indicated the total dollar
amount of average balances, 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 daily average
balances. There were no nonaccruing loans during the periods covered.
35
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------------------
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......................................... $ 117,361 $ 4,951 8.44% $ 109,575 $ 4,741 8.65%
Securities.................................... 44,578 1,344 6.03 41,991 1,252 5.96
Federal funds sold and other temporary
investments................................. 8,749 242 5.53 7,598 221 5.81
----------- --------- --- ----------- --------- ---
Total interest-earning assets............... 170,688 6,537 7.66% 159,164 6,214 7.81%
----------- --------- --- ----------- --------- ---
Less allowance for loan losses................ (1,471) (1,230)
----------- -----------
Total interest-earning assets, net of
allowance................................... 169,217 157,934
Nonearning assets............................. 13,980 13,241
----------- -----------
Total assets................................ $ 183,197 $ 171,175
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits.............. $ 19,332 112 1.16% $ 16,481 100 1.21%
Public fund deposits.......................... 5,551 48 1.73 6,236 55 1.76
Savings and money market accounts............. 41,691 697 3.34 40,875 660 3.23
Certificates of deposit....................... 71,263 1,861 5.22 66,023 1,795 5.44
Federal funds purchased, FHLB line of credit
and other borrowings........................ 548 14 5.10 329 9 5.48
----------- --------- --- ----------- --------- ---
Total interest-bearing liabilities.......... 138,385 2,732 3.95% 129,944 2,619 4.03%
----------- --------- --- ----------- --------- ---
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits........... 30,153 27,795
Other liabilities............................. 1,773 1,985
----------- -----------
Total liabilities........................... 170,311 159,724
----------- -----------
Stockholders' equity............................ 12,886 11,451
----------- -----------
Total liabilities and stockholders'
equity.................................... $ 183,197 $ 171,175
----------- -----------
----------- -----------
Net interest income........................... $ 3,805 $ 3,595
--------- ---------
--------- ---------
Net interest spread........................... 3.71% 3.78%
--- ---
--- ---
Net interest margin........................... 4.46% 4.52%
--- ---
--- ---
</TABLE>
36
<PAGE>
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>
SIX MONTHS ENDED JUNE 30,
1997 VS. 1996
---------------------------------
INCREASE (DECREASE)
DUE TO
----------------------
VOLUME RATE TOTAL
----------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans............................................................................. $ 345 $ (135) $ 210
Securities........................................................................ 77 15 92
Federal funds sold and other temporary investments................................ 33 (12) 21
----- --------- ---------
Total increase (decrease) in interest income.................................... 455 (132) 323
----- --------- ---------
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits.................................................. 15 (10) 5
Savings and money market accounts................................................. 13 24 37
Certificates of deposit........................................................... 142 (76) 66
Other borrowings.................................................................. 6 (1) 5
----- --------- ---------
Total increase (decrease) in interest expense................................... 176 (63) 113
----- --------- ---------
Increase (decrease) in net interest income........................................ $ 279 $ (69) $ 210
----- --------- ---------
----- --------- ---------
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses decreased slightly to $168,000 for the six
months ended June 30, 1997 from $219,000 for the same time period in 1996, a
decrease of $51,000 or 23.3%. See "--Allowance for Loan Losses."
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 six months ended June 30, 1997
was $1.2 million, virtually no change from the same period in 1996.
The following table presents for the periods indicated the major categories
of noninterest income:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997 1996
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Service charges on deposit accounts........................................ $ 741 $ 701
Gain on sale of SBA loans.................................................. 141 120
ATM fee income............................................................. 105 89
Alternative investments.................................................... 89 85
Other noninterest income................................................... 121 198
--------- ---------
Total noninterest income............................................... $ 1,197 $ 1,193
--------- ---------
--------- ---------
</TABLE>
37
<PAGE>
Service charges on deposit accounts is the largest component of noninterest
income and a significant source of revenue to the Company. Additionally, the
Company recognized increased gains on the sale of SBA loans generated by the
LPOs. The decrease in other noninterest income is attributable to the
nonrecurring gain on the sale of land adjacent to the Spencer Office totaling
$68,000 in January of 1996. ATM fee income increased as an additional ATM
facility was installed at the Liberty banking office and the ATM at the Spencer
Office was relocated to a new, more visible location.
NONINTEREST EXPENSE
In the six month period ended June 30, 1997, noninterest expenses increased
$300,000 or 9.1% to $3.6 million from $3.3 million for the period ended June 30,
1996. The increase reflects the additional expenses resulting from the Cleveland
Acquisition consummated in the third quarter of 1996, the additional salary and
related expenses associated with the commencement of the operation of two
additional LPOs opened in mid 1996 and increased salary costs, a result of the
Company's commitment to rewarding individual merit in its sales and service
culture.
The following table presents for the periods indicated the major categories
of noninterest expense:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997 1996
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Employee compensation and benefits......................................... $ 1,843 $ 1,600
Non-staff expenses:
Net bank premises expense................................................ 274 252
Equipment rentals, depreciation and maintenance.......................... 309 320
Data processing.......................................................... 71 92
Professional fees........................................................ 159 111
Regulatory assessments/FDIC insurance.................................... 51 88
Ad valorem and franchise taxes........................................... 91 96
Other.................................................................... 817 710
--------- ---------
Total non-staff expenses............................................... 1,772 1,669
--------- ---------
Total noninterest expense.............................................. $ 3,615 $ 3,269
--------- ---------
--------- ---------
</TABLE>
Employee compensation and benefit expense for the six months ended June 30,
1997 was $1.8 million, an increase of $200,000 or 12.5% from $1.6 million in the
same period of 1996. The increase was principally due to additional staff
associated with the Cleveland Acquisition, the two new LPOs and additional
general staffing hired. Total full-time equivalent employees at June 30, 1997
increased to 116 from 101 at June 30, 1996.
Non-staff expenses increased to $1.8 million for the six month period ended
June 30, 1997 from $1.7 million for the same period in 1996, an increase of
$100,000 or 5.9%. This increase was largely due to additional expenses
associated with the Cleveland Acquisition, increased advertising costs related
to the Company's SBA program and increased professional fees related to the
sales and service culture, offset by lower data processing costs and ordinary
FDIC-assesssments.
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
38
<PAGE>
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 on federal securities. The
income tax component of the Texas franchise tax was zero in the first six months
of 1997 and 1996. During the six months ended June 30, 1997, income tax expense
was $364,000 for an effective tax rate of 29.9%, compared to $408,000, for an
effective tax rate of 31.4% for the six months ended June 30, 1996.
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 average gross loans, net of unearned interest, were $117.4 million at
June 30, 1997, an increase of $7.8 million or 7.1% from $109.6 million at June
30, 1996. The Cleveland Acquisition accounted for $800,000 of this growth, while
internally generated loans grew by $7.0 million or 6.4%.
The following table summarizes for the periods indicated the loan portfolio
of the Company by type of loan:
<TABLE>
<CAPTION>
JUNE 30, 1997 JUNE 30, 1996
----------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial and industrial........................................ $ 15,420 13.38% $ 12,461 10.99%
Real estate:
Construction and land development.............................. 2,290 1.99 2,613 2.31
1-4 family residential......................................... 2,977 2.58 2,815 2.48
Multi-family residential....................................... 618 0.54 60 0.05
Non-farm/non-residential....................................... 13,889 12.05 13,213 11.66
Consumer:
Indirect....................................................... 71,008 61.63 74,318 65.57
Direct......................................................... 9,020 7.83 7,870 6.94
---------- ----------- ---------- -----------
Total loans.................................................... $ 115,222 100.00% $ 113,350 100.00%
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
The lending focus of the Company is on small and medium-sized business loans
on a direct and SBA supported basis and on consumer direct and indirect loans.
The Company initiated an indirect auto paper lending program in 1988. Marketing
is directed to new car dealers with a niche in class "A" credit quality loans.
The Company offers a variety of commercial lending products including term
loans, lines of credit 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.
39
<PAGE>
Although its legal lending limit is substantially higher, the Company
generally has not made loans larger than $1.2 million. Loans up to $300,000 are
evaluated and acted upon by an Officers' Loan Committee, which meets twice per
week. Loans above that amount must be approved by the Directors' Loan Committee,
which meets bi-weekly.
Generally, the Company's commercial loans are underwritten in the Company's
market area on the basis of the borrower's ability to service such debt from
identified cash flow. 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 of the business principals. 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 or will be completed and occupied by the borrower. The Company offers
a variety of mortgage loan products which generally are amortized over five to
20 years.
Loans collateralized by single-family residential real estate generally have
been originated in amounts of no more than 80% of appraised value. The Company
requires mortgage title insurance, hazard insurance and flood insurance when
applicable, in the amount of the loan. The Company generally retains and
services all of the originated mortgages. Customers requiring fixed rate full
term loans are accommodated via an automated interactive application process
direct from the Bank's premises to the acquiring mortgage company. As a result,
the Company is able to meet all of the mortgage needs of its present and
potential customer base.
The Company's commercial mortgage loans are secured by first liens on real
estate, typically have both fixed and variable interest rates and amortize over
a 10 to 20 year period with balloon payments due at the end of three to five
years. As a Preferred SBA lender, the Company also issues full term variable
rate real estate loan commitments when the facility is enhanced by the
underlying SBA guaranty. 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, environmental
assessments and a review of the financial condition of the borrower.
The Company makes loans to finance the construction of residential and
nonresidential properties. Construction loans generally are secured by first
liens on real estate and have floating rates. 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.
The Company is an active SBA lender having achieved the "Preferred Lender"
status, the highest status awarded to a lender by the SBA. The Company uses a
system of satellite LPOs staffed by SBA loan specialists and located in the
Houston market. The LPO lenders generate the potential customer prospects and
produce the SBA loan package using packaging software loaded on note book
computers. Following loan committee approval, the LPO lender passes the
customers to closing and servicing specialists located in the main banking
office.
The Company provides a factoring product known as "Cash Flow Manager" to
address the working capital needs of businesses which do not meet the loan
guidelines of the Company for commercial lines of credit but are deemed
creditworthy.
Consumer loans made by the Company 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 84 months and vary based
upon the nature of collateral and size of loan.
40
<PAGE>
Approximately 88.72% of the Company's consumer loan portfolio as of June 30,
1997, was comprised of "indirect loans" (representing 61.63% of the Company's
total loan portfolio). These are installment loans, with typical maturities of
three to five years, which are originated 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 indirect lending program at the Company has successfully been in place
since 1988. The program, which forms the majority of outstanding loan balances
at the Company, provides for a predictable source of cash flow, liquidity, and
revenue stream which has been beneficial to the Company since its inception.
The Company's indirect loan programs are administered by an experienced
staff specially trained in evaluating and servicing this particular type of
loan. The Company uses three loan buyers with indirect loan experience ranging
from nine to 26 years. Mr. Wright, the Chief Executive Officer of the Company,
has managed an indirect product line in banks for over 30 years and holds
substantial expertise in the area, having lectured on indirect lending at the
American Bankers Association National Consumer Lending Schools. More recently
the Company's indirect lending staff was requested by the OCC to conduct a
seminar for its Houston area examiners on the "how to and risks of" indirect
lending.
The Company competes for indirect 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 purchases primarily "A"-rated credit quality
loans from new car dealers. To obtain dealer response in this area the Company
must timely provide superior service while purchasing contracts on a consistent
basis. Additionally, the market requires that the Company price products below
the buy rates of the captive finance companies. However, because the niche is
quality driven, the performance of the portfolio warrants more aggressive
pricing.
The Company generally receives credit applications on a daily basis from one
or more of the 20 automobile dealerships from which it actively purchases
indirect auto 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 and
obtain payment promises. 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 0.56% as of June 30,
1997.
In addition to the underwriting of the individual loan contracts, the
Company requires the automobile dealerships to provide annual financial
information to the Company for financial analysis and review. The Company
believes that it represents a higher risk to do business with dealerships which
have demonstrated financial weakness and which would possibly be unable to
facilitate the return of any rebates due to the Company on payoffs and
repossessions.
41
<PAGE>
The following table summarizes with respect to the Company's indirect loans
information regarding the amounts of loans outstanding, the amounts of loans
charged off and the delinquency ratios for the periods indicated:
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS
AS OF AND FOR THE ENDED DECEMBER 31,
SIX MONTHS ENDED -------------------------------
JUNE 30, 1997 1996 1995 1994
----------------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Loans outstanding at end of period............................ $ 71,008 $ 74,883 $ 69,971 $ 77,875
Net loan charge-offs for the period........................... 143 259 227 238
Net loan charge-off ratio..................................... 0.20% 0.35% 0.34% 0.30%
Delinquency ratio at end of period............................ 0.56% 0.57% 0.52% 0.39%
</TABLE>
The contractual maturity ranges of the commercial and industrial and real
estate portfolio and the amount of loans with predetermined interest rates and
floating rates in each maturity range as of June 30, 1997 are summarized in the
following table:
<TABLE>
<CAPTION>
JUNE 30, 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............................................ $ 10,042 $ 4,118 $ 1,260 $ 15,420
Real estate.......................................................... 5,405 7,179 7,190 19,774
--------- ----------- ----------- ---------
Total............................................................ $ 15,447 $ 11,297 $ 8,450 $ 35,194
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
Loans with a predetermined interest rate............................. $ 5,025 $ 6,520 $ 3,674 $ 15,219
Loans with a floating interest rate.................................. 10,422 4,777 4,776 19,975
--------- ----------- ----------- ---------
Total............................................................ $ 15,447 $ 11,297 $ 8,450 $ 35,194
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
</TABLE>
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 has historically had strong asset quality. Nonperforming assets
(nonaccrual loans, repossessed assets, restructured loans, and other real
estate) at June 30, 1997 were $537,000 compared to $520,000 at June 30, 1996.
The Company's ratio of nonperforming assets to capital remains low at 3.9% at
June 30, 1997 compared to 4.3% at June 30, 1996. The Company records real estate
acquired by foreclosure at the lesser of the outstanding loan balance or the
fair value at the time of foreclosure, less specifically allocated reserves.
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 performing restructured loans at June 30, 1997 of
$210,000 and $221,000 at June 30, 1996. The Company's internal loan review
department evaluates
42
<PAGE>
additional loans which are potential problem loans as to risk exposure in
determining the adequacy of the allowance for loan losses.
The Company reviews collateral value on loans secured by real estate during
the internal review process. New appraisals are acquired when loans are
categorized as nonperforming loans or 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 write downs or appropriate additions to the allowance for loan
losses.
The following table presents information regarding nonperforming assets at
June 30, 1997 and June 30, 1996:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1997 1996
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Repossessions................................................................. $ 119 $ 65
Nonaccrual loans.............................................................. -- --
Restructured loans............................................................ 210 221
Other real estate............................................................. 208 234
--------- ---------
Total nonperforming assets................................................ $ 537 $ 520
--------- ---------
--------- ---------
Nonperforming assets to total loans and other real estate..................... 0.47% 0.46%
</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 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 the
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 watch 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.
Loans classified as "doubtful/potential loss" 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 "potential loss" are those loans which are identified as having a
high probability of being liquidated with loss within the next twelve months.
43
<PAGE>
In addition to the loans on the watch list classified as substandard or
doubtful/potential loss, the Company maintains additional classifications on the
watch list which further aid the Company in monitoring loan portfolios. These
additional loan classifications reflect 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/potential loss)
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.
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. Additionally, the Company uses three approaches for the
analysis of the performing portfolio: migration, historical and examiner rule of
thumb. These methods are further broken down to identified loan pools within the
Company's portfolio. Using these methodologies, the Company allocates reserves
to each identified loan classification and to performing loan pools. 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 six months ended June 30, 1997, net charge-offs totaled $173,000 or
0.29% of average loans outstanding for the period, compared to $44,000 in net
charge-offs or 0.08% of average loans for the six months ended June 30, 1996.
The Company experienced a $75,000 recovery in the first six months of 1996.
During the six months ended June 30, 1997, the Company recorded a provision for
loan losses of $168,000 compared to $219,000 for the six months ended June 30,
1996. At June 30, 1997, the allowance totaled $1.4 million, or 1.24% of total
loans. Unallocated reserves at June 30, 1997 were $1.2 million.
The following table presents, for the periods indicated, an analysis of the
allowance for loan losses and other related data:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
----------------------
1997 1996
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Average loans outstanding............................................. $ 117,361 $ 109,575
---------- ----------
Gross loans outstanding at end of period.............................. $ 115,222 $ 113,350
---------- ----------
Allowance for loan losses at beginning of period...................... $ 1,430 $ 1,185
Provision for loan losses............................................. 168 219
Charge-offs:
Commercial and industrial........................................... (6) (0)
Real estate......................................................... (0) (0)
Consumer............................................................ (225) (177)
Recoveries:
Commercial and industrial........................................... 11 7
Real estate......................................................... -- 93
Consumer............................................................ 47 33
---------- ----------
Net (charge-offs) recoveries.......................................... (173) (44)
---------- ----------
Allowance for loan losses at end of period............................ $ 1,425 $ 1,360
---------- ----------
---------- ----------
Ratio of allowance to end of period loans............................. 1.24% 1.20%
Ratio of net charge-offs to average loans (annualized)................ 0.29 0.08
Ratio of allowance to end of period nonperforming loans............... 678.57 615.38
</TABLE>
44
<PAGE>
The following table describes 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>
JUNE 30, 1997 JUNE 30, 1996
---------------------- -----------------------
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......................................... $ 97 13.38% $ 8 10.99%
Real estate:
Construction and land development............................... 12 1.99 30 2.31
1-4 family residential.......................................... 6 2.58 1 2.48
Non-farm/non-residential........................................ 21 12.05 27 11.66
Multi-Family.................................................... -- 0.54 -- 0.05
Consumer.......................................................... 118 69.46 65 72.51
Unallocated....................................................... 1,171 1,229
--------- ----------- --------- ------
Total allowance for loan losses................................. $ 1,425 100.00% $ 1,360 100.00%
--------- ----------- --------- ------
--------- ----------- --------- ------
</TABLE>
The Company believes that the allowance for loan losses at June 30, 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
June 30, 1997.
SECURITIES PORTFOLIO
The Company uses its securities portfolio to ensure liquidity for cash flow
requirements, to manage interest rate risk, to provide a source of income, to
ensure collateral is available for municipal pledging requirements and to manage
asset quality diversification. At June 30, 1997, investment securities totaled
$44.3 million, an increase of $400,000 from $43.9 million at June 30, 1996. The
increase was primarily attributable to the investment of additional funds
acquired in the Cleveland Acquisition. At June 30, 1997, investment securities
represented 24.0% of total assets, compared to 24.6% of total assets at June 30,
1996. The yield on the investment portfolio for the six months ended June 30,
1997 was 6.03% compared to a yield of 5.96% for the six months ended June 30,
1996.
To provide flexibility and to actively manage investments held in the
securities portfolio, the Company currently classifies 100% of all securities as
available-for-sale. The following table presents the amount of these securities
and their approximate values at June 30, 1997:
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
----------- ------------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities........................................... $ 7,030 $ 8 $ (41) $ 6,997
U. S. Government agency securities................................. 10,547 12 (59) 10,500
Mortgage-backed securities......................................... 22,632 112 (227) 22,517
Other securities................................................... 4,180 61 -- 4,241
----------- ----- ----- ---------
Total.......................................................... $ 44,389 $ 193 ($ 327) $ 44,255
----------- ----- ----- ---------
----------- ----- ----- ---------
</TABLE>
45
<PAGE>
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 June 30, 1997 were $17.9 million in agency-issued collateralized
mortgage obligations.
At June 30, 1997, 7.8% 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. Therefore, the average life, or the average amount of time until the
Company receives the total amount invested, of the mortgage backed security will
be shorter than the contractual maturity. The Company estimates the remaining
average life of the fixed-rate mortgage backed security portfolio to be less
than two years. 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 $5.7 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.
The following table summarizes the contractual maturity of investment
securities (including federal funds sold) and their weighted average yields:
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------------------------------------------------------------
AFTER ONE YEAR BUT AFTER FIVE YEARS BUT
WITHIN ONE YEAR AFTER TEN
WITHIN FIVE YEARS WITHIN TEN YEARS YEARS
----------------------- ----------------------- ----------------------- -----------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
----------- ---------- ----------- ---------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities.............. $ -- --% $ 7,030 5.60% $ -- --% $ --
U. S. Government agency securities.... 1,000 5.25 8,055 6.34 1,492 7.34 --
Mortgage-backed and other
securities.......................... 4,206 4.51 13,844 6.14 2,335 6.74 2,247
Other securities...................... 711 5.75 510 5.16 1,591 5.89 1,368
Federal funds sold and other temporary
investments......................... 14,500 5.52 -- -- -- -- --
----------- ----- ----------- ----- ----------- ----- -----------
Totals................................ $ 20,417 4.52% $ 29,439 5.90% $ 5,418 6.71% $ 3,615
----------- ----- ----------- ----- ----------- ----- -----------
----------- ----- ----------- ----- ----------- ----- -----------
<CAPTION>
TOTAL
-----------------------
YIELD TOTAL YIELD
---------- ----------- ----------
<S> <C> <C> <C>
U.S. Treasury securities.............. --% $ 7,030 5.60%
U. S. Government agency securities.... -- 10,547 6.38
Mortgage-backed and other
securities.......................... 7.76 22,632 6.23
Other securities...................... 5.32 4,180 5.71
Federal funds sold and other temporary
investments......................... -- 14,500 5.69
----- ----------- -----
Totals................................ 6.81% $ 58,889 6.12%
----- ----------- -----
----- ----------- -----
</TABLE>
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES (Statement 115). 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 stockholders' equity until realized. In order
to
46
<PAGE>
pro-actively manage the investment portfolio and asset/liability position and to
respond to changes in the fixed income market, the Company maintains 100% of
securities owned as available-for-sale.
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, customer service, and employee goals and referrals to attract
and retain these deposits. The Company does not have any brokered deposits.
The Company's average total deposits for the six months ended June 30, 1997
were $167.9 million or 6.7% over average total deposits during the same period
in 1996. The Company's total deposits at June 30, 1997, were $169.9 million, up
$5.6 million or 3.3% over total deposits at June 30, 1996.
The Company's lending and investing activities are funded principally by
deposits, approximately 56.8% of which are demand and savings deposits. Average
noninterest-bearing demand deposits at June 30, 1997 were $30.2 million as
compared to $27.8 million for the first six months of 1996, an increase of $2.4
million or 8.6% over 1996. Approximately 17.9% of average deposits for the six
months ended June 30, 1997 were noninterest-bearing, including demand deposits.
The amount of deposits grew due to the Cleveland Acquisition and internally
generated growth, both commercial and retail, at all other locations.
The daily average balances and weighted average rates paid on
interest-bearing deposits for the six months ended June 30, 1997 are presented
below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30, 1997
-----------------------
AMOUNT RATE
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
NOW..................................................................... $ 19,332 1.15%
Public funds............................................................ 5,551 1.73
Regular savings......................................................... 8,838 2.23
Money market............................................................ 12,207 2.58
Investor's savings...................................................... 20,646 4.28
Time deposits less than $100,000........................................ 64,335 5.19
Time deposits $100,000 and over......................................... 6,928 5.49
---------- ---
Total interest-bearing deposits..................................... 137,837 3.94
Noninterest-bearing deposits............................................ 30,153 --
---------- ---
Total deposits...................................................... $ 167,990 3.24%
---------- ---
---------- ---
</TABLE>
The following table sets forth the amount of the Company's time deposits
that are $100,000 or greater by time remaining until maturity.
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
3 months or less........................................................ $ 680
Between 3 months and 6 months........................................... 2,246
Between 6 months and 1 year............................................. 1,300
Over 1 year............................................................. 2,515
------
Total............................................................... $ 6,741
------
------
</TABLE>
47
<PAGE>
INTEREST RATE SENSITIVITY AND LIQUIDITY
The Company's Asset/Liability Management and Interest Rate Risk Policy,
along with the Company's Investment Policy, provides management with the
necessary guidelines for effective funds management. The Company has established
a measurement system for monitoring its net interest rate sensitivity position.
The Company 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. However, it is management's intent to achieve a proper balance
so that incorrect rate forecasts should not have a significant impact on
earnings.
The following table sets forth an interest rate sensitivity analysis for the
Company at June 30, 1997:
<TABLE>
<CAPTION>
VOLUMES SUBJECT TO REPRICING WITHIN
-------------------------------------------------------------------
0-90 91-180 181-365 AFTER
DAYS DAYS DAYS ONE YEAR TOTAL
------------- ------------- ------------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Securities................................ $ 1,394 $ 996 $ 4,823 $ 37,042 $ 44,255
Loans..................................... 15,607 10,697 17,368 71,550 115,222
Federal funds sold and other temporary
investments............................. 14,500 -- -- -- 14,500
------------- ------------- ------------- ---------- ----------
Total interest-earning assets........... 31,501 11,693 22,191 108,592 173,977
------------- ------------- ------------- ---------- ----------
Interest-bearing liabilities:
Demand, money market and savings
deposits................................ 65,619 -- -- -- 65,619
Certificates of deposit and other time
deposits................................ 6,964 11,780 19,092 35,566 73,402
------------- ------------- ------------- ---------- ----------
Total interest-bearing liabilities...... 72,583 11,780 19,092 35,566 139,021
------------- ------------- ------------- ---------- ----------
Period GAP................................ $ (41,082) $ (87) $ 3,099 $ 73,026 $ 34,956
Cumulative GAP............................ $ (41,082) $ (41,169) $ (38,070) $ 34,956
Period GAP to total assets................ (22.19)% (0.50)% 1.63 % 39.44%
Cumulative GAP to total assets............ (22.19)% (22.23)% (20.50)% 18.88%
</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,
48
<PAGE>
respectively. Contractual maturities and repricing opportunities of loans are
incorporated in the model as are prepayment assumptions, maturity data and call
options within the investment portfolio. Assumptions based on past experience
are incorporated into the model for non-maturity deposit accounts. The Company
has found that historically, interest rates on these deposits change more slowly
in a rising rate environment than in a declining rate environment. Based on the
Company's June 30, 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 4.0% on its net interest income for the same period.
The change is relatively small as the Company's goal is to achieve a proper
balance between rate sensitive assets and rate sensitive liabilities to limit
exposure to changes in interest rates. At June 30, 1997, the Company had a
liability sensitive GAP position in the short term (one year and under) and
therefore, would be expected to experience a moderate upward movement in net
interest margin in a declining rate environment and a moderate downward movement
in a rising rate environment. However, as indicated previously, deposit rates
tend to lag the movement in earning assets and this can be incorporated into the
simulation model and is generally not fully reflected in a GAP analysis. The
Company maintains a Senior Management Investment Committee and both a Director
and Senior Officer Asset and Liability Management Committee which reviews the
Company's interest rate risk position on a weekly or monthly basis,
respectively.
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. The Company's liquidity needs are primarily met by
growth in core deposits. 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 rely on these external funding
sources. The cash and federal funds sold position, supplemented by amortizing
investment along with payments and maturities within the loan portfolio, have
historically created an adequate liquidity position.
Federal Home Loan Bank ("FHLB") advances may be utilized from time to time
as either a short term funding source or a longer-term funding source. FHLB
advances can be particularly attractive as a longer-term funding source to
balance interest rate sensitivity and reduce interest rate risk. The Company is
eligible for two borrowing programs through the FHLB. The first, called "Short
Term Fixed," requires delivery of eligible securities for collateral. Maturities
under this program range from 1-35 days. The Company does not currently have any
borrowings under this program. The Company currently maintains the majority of
its investment securities in safekeeping at the FHLB. At June 30, 1997, the
Company had approximately $21.3 million available for pledging.
The second borrowing program, the "Blanket Borrowing Program," is under a
borrowing agreement which does not require the delivery of specific collateral.
Borrowings are limited to a maximum of 65% of the Company's 1-4 family mortgage
loans. At June 30, 1997, the Company had approximately $1.9 million in potential
borrowings available under this program.
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 Board and the Bank is subject to capital adequacy
requirements imposed by the OCC. Both the Federal Reserve Board and the OCC 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.
49
<PAGE>
Bank regulatory authorities in the United States have issued risk-based
capital standards by which all bank holding companies and banks are evaluated in
terms of capital adequacy. The risk-based capital standards issued by the
Federal Reserve Board 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
stockholders' equity and qualifying perpetual preferred stock together with
related surpluses and retained earnings, less deductions for goodwill and
various other intangibles. "Tier 2 capital" is limited to the amount of Tier 1
capital and 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 Board 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. The Bank is subject to capital adequacy guidelines of the OCC that
are substantially similar to the Federal Reserve Board's guidelines. Also
pursuant to FDICIA, the OCC has promulgated regulations setting the levels at
which an insured institution such as the Bank would be considered "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." Under the OCC's
regulations, the Bank is classified "well capitalized" for purposes of prompt
corrective action. See "Supervision and Regulation--The Company" and "--The
Bank."
Stockholders' equity increased from $12.1 million at June 30 , 1996 to $13.8
million at June 30, 1997, an increase of $1.7 million or 14.0%. This increase
was primarily the result of net income of $1.3 million, less the payment of cash
dividends of $325,000, a decrease in net unrealized loss on available for sale
securities net of taxes of $101,000, additional Common Stock issued totaling
approximately $56,000, less stock purchased from stockholders by the Company
during this period totaling approximately $3,000.
50
<PAGE>
The following table provides a comparison of the Company's and the Bank's
leverage and risk-weighted capital ratios as of June 30, 1997 to the minimum and
well-capitalized regulatory standards:
<TABLE>
<CAPTION>
ACTUAL RATIO
MINIMUM REQUIRED WELL-CAPITALIZED AT JUNE 30, 1997
--------------------- ----------------- -----------------
<S> <C> <C> <C>
THE COMPANY
Leverage ratio.............................................. 3.00% (1) N/A 7.25%
Tier 1 risk-based capital ratio............................. 4.00% N/A 10.16%
Risk-based capital ratio.................................... 8.00% N/A 11.24%
THE BANK
Leverage ratio.............................................. 3.00% (2) 5.00% 7.28%
Tier 1 risk-based capital ratio............................. 4.00% 8.00% 10.19%
Risk-based capital ratio.................................... 8.00% 10.00% 11.29%
</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 OCC may require the Bank to maintain a leverage ratio of up to 200 basis
points above the required minimum.
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
OVERVIEW
The Company engaged in several transactions in 1994, 1995 and 1996 which had
a significant impact on the Company's performance in each of those years. In
February 1994, the Company engaged consultants and began developing its sales
and service culture. In May 1994, the Company opened a de novo banking office
location in Pasadena, Texas. Deposits and customer repurchase agreements at this
location totaled $21.0 million at December 31, 1996. In December 1994, the
Company sold a grocery store branch located in Kingwood, Texas recognizing a
$145,000 gain on the sale (the "Kingwood Sale"). In January 1995, the Company
opened its first LPO. In January 1996, the Company sold land adjacent to the
Spencer Office recognizing a gain on the sale of $68,000. During the first half
of 1996, the Company opened two additional LPOs in Houston and received
designation as a Preferred SBA Lender. Also during the first half of 1996, the
Company initiated an accounts receivable factoring program for small to medium
size businesses called Cash Flow Manager. At year end 1996, outstanding balances
for the factoring program totaled in excess of $1.6 million. In August 1996, the
Company completed the Cleveland Acquisition. In 1996, the Company paid a
one-time FDIC assessment of $287,000 with respect to the Company's deposits
insured by the Savings Association Insurance Fund ("SAIF") of the FDIC which
were acquired from failed savings and loan associations in June and September
1991.
Net earnings available to stockholders were $1.4 million, $1.2 million and
$1.2 million for the years ended December 31, 1996, 1995 and 1994, respectively,
and net earnings per share were $0.97, $0.84 and $0.86 for these same periods.
Earnings growth from 1995 to 1996 resulted principally from strong internal loan
growth, growth of the Pasadena banking office, a higher net interest margin,
gains on the sale of SBA loans generated by the LPOs, the gain on the sale of
the Spencer Office land and income generated through the Cash Flow Manager
program. During 1994, the Company fully utilized its net operating loss
carryforwards, reducing the tax expense for the year. Earnings before tax
adjustments increased from $1.5 million to $1.8 million, an increase of 13.3%.
The increase in earnings before tax adjustments from 1994 to 1995 was due
primarily to higher earning assets, gains on sale of SBA loans and the gain on
the Kingwood Sale. The Company posted returns on average assets of 0.82%, 0.75%
and 0.80% and returns on average common equity of 11.29%, 10.70% and 11.72% for
the years ended 1996, 1995 and 1994, 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 0.89% and 12.81%.
51
<PAGE>
Total assets at December 31, 1996, 1995 and 1994 were $189.0 million, $167.1
million and $168.3 million, respectively. Total deposits at December 31, 1996,
1995 and 1994 were $173.3 million, $153.3 million and $149.8 million,
respectively. The Company retained the majority of the deposits acquired in the
Cleveland Acquisition and continues to reprice maturing deposits into a lower
price structure. Additionally, the de novo Pasadena banking office has developed
a strong core commercial and retail deposit and lending base. The result was an
improved net interest margin and increasing deposit levels from 1995 to 1996.
Loans, net of allowance for loan losses, were $119.9 million at December 31,
1996, an increase of $14.1 million or 13.32% from $105.8 million at the end of
1995. Loans were $105.6 million at year end 1994. Common stockholders' equity
was $12.9 million, $11.9 million and $10.9 million at December 31, 1996, 1995
and 1994, respectively.
RESULTS OF OPERATIONS
NET INTEREST INCOME
1996 VERSUS 1995. Net interest income totaled $7.2 million in 1996 compared
to $5.9 million in 1995, an increase of $1.3 million or 22.0%. The increase is
mainly a result of higher interest income on loans and the interest income
generated on Cash Flow Manager outstanding balances. Interest expense increased
$52,000 but was totally offset by the increase of $1.5 million in interest
income. This resulted in net interest margins of 4.38% and 3.83% and net
interest spreads of 3.64% and 3.07% for 1996 and 1995, respectively.
The volume increase in interest expense from 1995 to 1996 was offset by
decreases in rate as the Company repriced maturing deposits from the Cleveland
Acquisition into a lower price structure and successfully priced deposit
products to remain competitive but minimize costs. Additionally, noninterest-
bearing deposits, as a percent of total deposits, increased from 18.5% of total
deposits in 1995 to 19.9% of total deposits in 1996. Interest income on loans
increased to $9.6 million in 1996 from $8.5 million in 1995. The increase was
driven by growth in the average loan portfolio of $5.7 million or 5.3% and an
increase in the yield on average loans to 8.49% in 1996 from 7.93% in 1995 as
the Company continued to generate higher yielding SBA, commercial and real
estate loans. Meanwhile, the average securities portfolio increased 16.7% as a
direct result of funds acquired in the Cleveland Acquisition and its yield rose
9 basis points.
1995 VERSUS 1994. Net interest income increased $600,000 in 1995 from $5.3
million in 1994 to $5.9 million in 1995, primarily due to growth in interest
income of $1.7 million due to increases in both volumes and yields. This
increase was partially offset by an increase in interest expense of $1.1 million
resulting primarily from higher rates paid on interest-bearing liabilities as
well as increases in volumes. This resulted in a net interest margin increase to
3.83% in 1995 from 3.81% in 1994 and a net interest spread decrease to 3.07% in
1995 from 3.19% in 1994.
The yield on average loans increased to 7.93% in 1995 from 7.40% in 1994 and
the yield on average securities increased to 5.95% in 1995 from 5.47% in 1994.
The increase in the yield on average loans is a result of volume changes within
the loan categories with an increased emphasis on higher yielding SBA,
commercial and real estate loans. The increase in the securities yield resulted
mainly from higher yielding U.S. Treasury securities. The increase in interest
expense was driven primarily by growth in investor savings balances, a more
market sensitive product but one that is competitive with other financial
service businesses.
52
<PAGE>
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,
-----------------------------------------------------------------------------------------
1996 1995 1994
------------------------------------- ------------------------------------- -----------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE AVERAGE
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/ OUTSTANDING
BALANCE PAID RATE BALANCE PAID RATE BALANCE
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans......................... $ 113,014 $ 9,594 8.49% $ 107,286 $ 8,505 7.93% $ 101,975
Securities.................... 43,230 2,612 6.04 37,028 2,203 5.95 35,535
Fed funds sold and other
temporary investments....... 8,661 460 5.31 8,467 536 6.33 2,677
----------- ----------- --- ----------- ----------- ----- -----------
Total interest-earning
assets.................... 164,905 12,666 7.68% 152,781 11,244 7.36% 140,187
----------- ----------- --- ----------- ----------- ----- -----------
Less allowance for loan
losses...................... (1,330) (1,302) (1,324)
----------- ----------- -----------
Total interest-earning assets,
net of allowance............ 163,575 151,479 138,863
Nonearning assets............. 13,697 13,117 11,342
----------- ----------- -----------
Total assets................ $ 177,272 $ 164,596 $ 150,205
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS'
EQUITY........................
Interest-bearing liabilities:
Interest-bearing demand
deposits.................... $ 17,232 206 1.20% $ 15,374 232 1.50% $ 15,910
Public fund deposits.......... 5,696 104 1.83 9,105 332 365 5,179
Savings and money market
accounts.................... 42,289 1,388 3.28 33,636 1,167 3.47 27,183
Certificates of deposit....... 68,588 3,698 5.39 66,933 3,630 5.42 65,012
Federal funds purchased, FHLB
line of credit and other
borrowings.................. 889 47 5.29 541 30 5.55 3,285
----------- ----------- --- ----------- ----------- ----- -----------
Total interest-bearing
liabilities............... 134,694 5,443 4.04% 125,589 5,391 4.29% 116,569
----------- ----------- --- ----------- ----------- ----- -----------
Noninterest-bearing liabilities:
Noninterest-bearing demand
deposits.................... 28,717 25,965 22,045
Other liabilities............. 1,445 1,688 1,089
----------- ----------- -----------
Total liabilities........... 164,856 153,242 139,703
----------- ----------- -----------
Stockholders' equity............ 12,416 11,354 10,502
----------- ----------- -----------
Total liabilities and
stockholders' equity...... $ 177,272 $ 164,596 $ 150,205
----------- ----------- -----------
----------- ----------- -----------
Net interest income........... $ 7,223 $ 5,853
----------- -----------
----------- -----------
Net interest rate spread...... 3.64% 3.07%
--- -----
--- -----
Net interest margin........... 4.38% 3.83%
--- -----
--- -----
<CAPTION>
INTEREST AVERAGE
EARNED/ YIELD/
PAID RATE
----------- -----------
<S> <C> <C>
ASSETS
Interest-earning assets:
Loans......................... $ 7,550 7.40%
Securities.................... 1,944 5.47
Fed funds sold and other
temporary investments....... 133 4.97
----------- -----
Total interest-earning
assets.................... 9,627 6.87%
----------- -----
Less allowance for loan
losses......................
Total interest-earning assets,
net of allowance............
Nonearning assets.............
Total assets................
LIABILITIES AND STOCKHOLDERS'
EQUITY........................
Interest-bearing liabilities:
Interest-bearing demand
deposits.................... 304 1.91%
Public fund deposits.......... 57 1.10
Savings and money market
accounts.................... 709 2.61
Certificates of deposit....... 3,067 4.72
Federal funds purchased, FHLB
line of credit and other
borrowings.................. 148 4.51
----------- -----
Total interest-bearing
liabilities............... 4,285 3.68%
----------- -----
Noninterest-bearing liabilities:
Noninterest-bearing demand
deposits....................
Other liabilities.............
Total liabilities...........
Stockholders' equity............
Total liabilities and
stockholders' equity......
Net interest income........... $ 5,342
-----------
-----------
Net interest rate spread...... 3.19%
-----
-----
Net interest margin........... 3.81%
-----
-----
</TABLE>
53
<PAGE>
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,
--------------------------------------------------------------------
1996 VS. 1995 1995 VS. 1994
--------------------------------- ---------------------------------
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..................................................... $ 463 $ 626 $ 1,089 $ 398 $ 557 $ 955
Securities................................................ 369 40 409 82 177 259
Fed funds sold and other temporary investments............ 12 (88) (76) 288 115 403
----- --------- --------- ----- --------- ---------
Total increase (decrease) in interest income............ 844 578 1,422 768 849 1,617
----- --------- --------- ----- --------- ---------
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits.......................... (36) (218) (254) 58 145 203
Savings and money market accounts......................... 300 (79) 221 168 290 458
Certificates of deposit................................... 90 (22) 68 91 472 563
Other borrowings.......................................... 20 (3) 17 (123) 5 (118)
----- --------- --------- ----- --------- ---------
Total increase (decrease) in interest expense........... 374 (322) 52 194 912 1,106
----- --------- --------- ----- --------- ---------
Increase (decrease) in net interest income................ $ 470 $ 900 $ 1,370 $ 574 $ (63) $ 511
----- --------- --------- ----- --------- ---------
----- --------- --------- ----- --------- ---------
</TABLE>
PROVISION FOR LOAN LOSSES
The 1996 provision for loan losses increased to $510,000 from $150,000 in
1995, an increase of $360,000, or 240%. The increased provision is a direct
reflection of the volume increase within the loan portfolio and the Company's
conservative nature and methodology for determining an appropriate provision
amount which includes an analysis of the loan portfolio, economic trends and
other portfolio risks. The provision for the year 1995 increased by $75,000 or
100% for the year ended 1994.
NONINTEREST INCOME
Noninterest income for the year ended December 31, 1996 was $2.3 million, up
from $2.1 million in 1995, and noninterest income in 1994 was $2.1 million. The
year ended December 31, 1994 included a gain of $145,000 resulting from the
Kingwood Sale. The year ended 1996 included a gain of $68,000 on the sale of
land adjacent to the Spencer Office. Excluding these gains, noninterest income
was $87,000 greater in 1995 than in 1994 and $207,000 greater in 1996 than in
1995. The Company consistently performs in the
54
<PAGE>
top 25th percentile of its national peer group in the generation of noninterest
income. The following table presents for the periods indicated the major
categories of noninterest income:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service charges on deposit accounts.............................. $ 1,379 $ 1,375 $ 1,249
Gain on sale of SBA loans........................................ 263 162 99
ATM fee income................................................... 201 142 100
Alternative investments.......................................... 136 98 124
Land sale gain................................................... 68 -- --
Branch sale premium.............................................. -- -- 145
Other noninterest income......................................... 300 318 387
--------- --------- ---------
Total noninterest income..................................... $ 2,347 $ 2,095 $ 2,104
--------- --------- ---------
--------- --------- ---------
</TABLE>
After excluding the gain from the sale of land adjacent to the Spencer
Office in 1996, noninterest income from 1995 to 1996 increased $207,000
primarily as a result of increased gains on the sale of SBA loans, increased
revenue generated through the ATMs and the increased emphasis on fee based
services, such as the sale of alternative investments. Excluding the Kingwood
Sale in 1994, noninterest income increased $87,000 or 4.33% from 1994 to 1995.
This increase is primarily a result of increased service charge income with the
opening of the Pasadena office and ATM fee income.
NONINTEREST EXPENSE
For the years ended 1996, 1995 and 1994, noninterest expenses totaled $7.1
million, $6.0 million and $5.8 million, respectively. The increase in 1996
reflects several major factors: the $287,000 FDIC assessment on SAIF deposits,
increased expenses, both operational and staffing, expanded operation of the
branch network, the Cleveland Acquisition, and expenses related to the Company's
commitment to developing its sales and service culture. The increase in 1995 was
$155,000, or 2.6%, primarily due to higher employee compensation and benefits,
reflecting a full year of operation of the Pasadena banking office. The
following table presents for the periods indicated the major categories of
noninterest expense:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Employee compensation and benefits........................... $ 3,377 $ 2,823 $ 2,636
Non-staff expenses:
Net bank premises expense.................................. 526 471 468
Equipment rentals, depreciation and maintenance............ 605 557 540
Data processing............................................ 181 150 140
Professional fees.......................................... 280 250 252
Special FDIC assessment.................................... 287 -- --
Regulatory assessments/FDIC insurance...................... 148 329 367
Ad valorem and franchise taxes............................. 192 180 116
Other...................................................... 1,471 1,264 1,350
--------- --------- ---------
Total non-staff expenses................................. 3,690 3,201 3,233
--------- --------- ---------
Total noninterest expense................................ $ 7,067 $ 6,024 $ 5,869
--------- --------- ---------
--------- --------- ---------
</TABLE>
Employee compensation and benefit expense for the year ended December 31,
1996 was $3.3 million, an increase of $500,000 or 17.9% from $2.8 million for
1995. Employee compensation and benefit expense
55
<PAGE>
for the year 1995 was up $200,000 or 7.7% from 1994. This increase is primarily
due to staff acquired in the Cleveland Acquisition in the third quarter of 1996,
full operation of three LPOs, and additional operational and lending staff
hired. The increase in 1995 resulted mainly from additional staff hired to
reflect a full year of operating the Pasadena office location. Additionally, the
Company makes an entry to provide for stock to be issued under the Phantom Stock
Plan. See "Management--Stock Option and Incentive Plans." These amounts were
$144,000, $96,000 and $114,000 in 1996, 1995 and 1994, respectively. The amounts
are based on the market value of the Common Stock along with the vesting period
of each grant. Full time equivalent employees for 1996, 1995 and 1994 were 101,
95 and 92, respectively.
Non-staff expenses were $3.7 million in 1996, an increase of $500,000 from
$3.2 million in 1995. The increase is primarily due to a special assessment from
the FDIC on SAIF deposits totaling $287,000. The effect of this special
assessment was partially offset by lower FDIC insurance fees on all deposits.
Additionally, data processing expenses increased as the Company networked all
banking office locations to establish increased efficiencies and effective
product delivery. Professional fees increased as the Company expanded training
and emphasis on its sales and service culture. The 1995 non-staff expenses
decreased $32,000 primarily due to the effects of lower FDIC premiums through
the Bank's reclassification by the FDIC as a well capitalized institution.
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 1996, 1995 and 1994. In 1996
income tax expense was $591,000, $559,000 in 1995 and $271,000 in 1994. During
1994, the Company had regular and alternative minimum tax net operating loss
carryforwards of approximately $2.4 million and $1.3 million, respectively.
During 1995 and 1994, the Company utilized regular tax net operating loss
carryforwards of approximately $1.0 million and $1.4 million, respectively. No
loss carryforwards were available at December 31, 1995. The effective tax rates
in 1996, 1995 and 1994, respectively, were 29.65%, 31.51% and 18.04%. Income
taxes for financial purposes in the consolidated statements of earnings differ
from the amount computed by applying the statutory income tax rate of 34% to
earnings before income taxes. The difference in the statutory rate is primarily
due to tax exempt interest, utilization of tax credits and loss carryforwards,
and alternative minimum tax.
FINANCIAL CONDITION
LOAN PORTFOLIO
Total gross loans increased by $14.1 million, or 13.3%, to $119.9 million at
December 31, 1996, from $105.8 million at December 31, 1995 due primarily to
growth in the indirect loan portfolio and direct loan growth from the Pasadena
branch and the main office in La Porte. During 1995, total loans decreased
slightly, $1.03 million, or 0.94% from $106.8 million at December 31, 1994 due
to a lower volume of indirect installment loans offset in part by growth in
commercial loans. The changes in loan balances from 1995 to 1996 reflected both
the Cleveland Acquisition and the Kingwood Sale along with the Company's
investment in loan production capability.
At December 31, 1996, total gross loans represented 69.2% of deposits and
63.42% of total assets. Total loans as a percentage of deposits were 69.00% at
December 31, 1995, compared to 71.3% at December 31, 1994.
56
<PAGE>
The following table summarizes the loan portfolio of the Company by type of
loan as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------------------------------
1996 1995 1994 1993
---------------------- ---------------------- ---------------------- ------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------- ----------- --------- ----------- --------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
industrial........... $ 17,407 14.52% $ 11,378 10.76% $ 10,477 9.81% $ 8,498 8.95%
Real estate:
Construction and land
development........ 3,306 2.76 3,390 3.20 2,114 1.98 1,116 1.18
1-4 family
residential........ 3,115 2.60 2,879 2.72 2,470 2.31 3,500 3.68
Multi-family
residential........ 625 0.52 62 0.06 933 0.87 188 0.20
Non-farm/non-
residential........ 11,834 9.87 11,388 10.76 8,513 7.97 7,498 7.90
Consumer:
Indirect............. 74,657 62.28 69,087 65.30 75,069 70.27 71,084 74.89
Direct............... 8,936 7.45 7,612 7.20 7,254 6.79 3,035 3.20
--------- ----------- --------- ----------- --------- ----------- ----------- -----------
Total loans........ $ 119,880 100.00% $ 105,796 100.00% $ 106,830 100.00% $ 94,919 100.00%
--------- ----------- --------- ----------- --------- ----------- ----------- -----------
--------- ----------- --------- ----------- --------- ----------- ----------- -----------
<CAPTION>
1992
------------------------
AMOUNT PERCENT
----------- -----------
<S> <C> <C>
Commercial and
industrial........... $ 10,209 10.85%
Real estate:
Construction and land
development........ 988 1.05
1-4 family
residential........ 3,531 3.75
Multi-family
residential........ 174 0.19
Non-farm/non-
residential........ 7,335 7.80
Consumer:
Indirect............. 66,245 70.41
Direct............... 5,602 5.95
----------- -----------
Total loans........ $ 94,084 100.00%
----------- -----------
----------- -----------
</TABLE>
The contractual maturity ranges of the commercial and industrial and real
estate loan portfolio and the amount of such loans with fixed interest rates and
floating rates in each maturity range as of December 31, 1996 are summarized in
the following table.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------
AFTER ONE
ONE YEAR THROUGH AFTER FIVE
OR LESS FIVE YEARS YEARS TOTAL
--------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial and industrial............................................ $ 12,323 $ 2,095 $ 2,989 $ 17,407
Real estate.......................................................... 4,319 7,285 7,276 18,800
--------- ----------- ----------- ---------
Total............................................................ $ 16,642 $ 9,380 $ 10,265 $ 36,287
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
Loans with a predetermined interest rate............................. $ 3,635 $ 6,080 $ 3,328 $ 13,043
Loans with a floating interest rate.................................. 13,007 3,300 6,937 23,244
--------- ----------- ----------- ---------
Total............................................................ $ 16,642 $ 9,380 $ 10,265 $ 36,287
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
</TABLE>
Effective January 1, 1995, the Company 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 AND DISCLOSURES. Under
SFAS No. 114, as amended, 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's conservative lending approach, as well as a healthy local
economy, has resulted in strong asset quality. Nonperforming assets at December
31, 1996 were $567,000, compared to $598,000 at December 31, 1995 and $719,000
at December 31, 1994. This resulted in a ratio of nonperforming assets to
57
<PAGE>
total loans plus other real estate of 0.47%, 0.56% and 0.67% for the years ended
1996, 1995 and 1994, respectively.
The following table presents information regarding nonperforming assets at
the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Repossessions.......................................... $ 143 $ 136 $ 66 $ 49 $ 51
Nonaccrual loans....................................... -- -- -- 121 317
Restructured loans..................................... 216 228 241 251 416
Other real estate...................................... 208 234 413 427 1,394
--------- --------- --------- --------- ---------
Total nonperforming assets........................... $ 567 $ 598 $ 720 $ 848 $ 2,178
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Nonperforming assets to total loans and other real
estate............................................... 0.47% 0.56% 0.67% 0.90% 2.28%
</TABLE>
ALLOWANCE FOR LOAN LOSSES
For the year ended 1996, net charge-offs totaled $265,000 or 0.23% of
average loans outstanding for the period, compared to $195,000 or 0.18% in net
charge-offs during 1995. During 1996, the Company recorded a provision for loan
losses of $510,000 compared with $150,000 for 1995. At December 31, 1996, the
allowance totaled $1.4 million, or 1.19% of total loans. The Company made a
provision for loan losses of $150,000 during 1995 as compared with a provision
of $75,000 for 1994. At December 31, 1995, the allowance aggregated $1.2
million, or 1.12% 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,
--------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average loans outstanding.............................. $ 113,014 $ 107,286 $ 101,975 $ 94,138 $ 90,041
---------- ---------- ---------- --------- ---------
Gross loans outstanding at end of period............... $ 119,880 $ 105,796 $ 106,830 $ 94,919 $ 94,084
---------- ---------- ---------- --------- ---------
Allowance for loan losses at beginning of period....... $ 1,185 $ 1,230 $ 1,344 $ 1,280 $ 1,142
Provision for loan losses.............................. 510 150 75 400 575
Charge-offs:
Commercial and industrial............................ -- (2) (50) (75) (2)
Real estate.......................................... -- (29) -- (172) (92)
Consumer............................................. (483) (349) (328) (466) (518)
Recoveries:
Commercial and industrial............................ 29 14 19 36 24
Real estate.......................................... 103 82 93 228 48
Consumer............................................. 86 89 77 113 103
---------- ---------- ---------- --------- ---------
Net (charge-offs) recoveries........................... (265) (195) (189) (336) (437)
---------- ---------- ---------- --------- ---------
Allowance for loan losses at end of period............. $ 1,430 $ 1,185 $ 1,230 $ 1,344 $ 1,280
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------
Ratio of allowance to end of period loans.............. 1.19% 1.12% 1.15% 1.42% 1.36%
Ratio of net charge-offs to average loans.............. 0.23 0.18 0.19 0.36 0.49
Ratio of allowance to end of period nonperforming
loans................................................ 662.04 519.74 510.37 361.29 174.62
</TABLE>
58
<PAGE>
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,
----------------------------------------------
1996 1995
---------------------- ----------------------
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......................................... $ 105 14.52% $ 8 10.76%
Real estate:
Construction and land development............................... 7 2.76 -- 3.20
1-4 family residential.......................................... 19 2.60 1 2.72
Commercial mortgage............................................. 11 9.87 61 10.76
Farmland........................................................ -- -- -- --
Multi-family.................................................... -- 0.52 -- 0.06
Consumer.......................................................... 89 69.73 53 72.50
Unallocated....................................................... 1,199 1,062
--------- ----------- --------- -----------
Total allowance for loan losses................................... $ 1,430 100.00% $ 1,185 100.00%
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------
1994 1993 1992
---------------------- ---------------------- ----------------------
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.................. $ 11 9.81% $ 16 8.95% $ 22 10.85%
Real estate:
Construction and land development........ -- 1.98 -- 1.18 -- 1.05
1-4 family residential................... -- 2.31 3 3.68 76 3.75
Commercial mortgage...................... 47 7.97 67 7.90 83 7.80
Farmland................................. -- -- -- --
Multi-family............................. -- 0.87 -- 0.20 -- 0.19
Consumer................................... 57 77.06 83 78.09 63 76.36
Unallocated................................ 1,115 1,175 1,036
--------- ----------- --------- ----------- --------- -----------
Total allowance for loan losses............ $ 1,230 100.00% $ 1,344 100.00% $ 1,280 100.00%
--------- ----------- --------- ----------- --------- -----------
--------- ----------- --------- ----------- --------- -----------
</TABLE>
59
<PAGE>
SECURITIES PORTFOLIO
The following table presents the amount of securities classified as
available-for-sale, and their approximate values at December 31, 1996, December
31, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------------------------------------- ---------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED
COST GAIN LOSS VALUE COST GAIN LOSS
----------- ------------- ----------- --------- ----------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities......... $ 6,024 $ -- $ (47) $ 5,977 $ 6,974 $ 15 $ (83)
U. S. Government agency
securities..................... 9,557 30 (62) 9,525 7,751 64 (23)
Mortgage-backed securities....... 25,844 61 (321) 25,584 22,835 42 (260)
Other securities................. 2,606 56 (3) 2,659 1,266 8 --
----------- ----- ----- --------- ----------- ----- -----
Total.......................... $ 44,031 $ 147 $ (433) $ 43,745 $ 38,826 $ 129 $ (366)
----------- ----- ----- --------- ----------- ----- -----
----------- ----- ----- --------- ----------- ----- -----
<CAPTION>
FAIR
VALUE
---------
<S> <C>
U.S. Treasury securities......... $ 6,906
U. S. Government agency
securities..................... 7,792
Mortgage-backed securities....... 22,617
Other securities................. 1,274
---------
Total.......................... $ 38,589
---------
---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
--------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
----------- ------------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities........................................... $ 1,996 $ -- $ (53) $ 1,943
U. S. Government agency securities................................. 11,998 -- (186) 11,812
Mortgage-backed securities......................................... 5,559 -- (301) 5,258
Other securities................................................... 585 -- -- 585
----------- ----- ----- ---------
Total............................................................ $ 20,138 $ -- $ (540) $ 19,598
----------- ----- ----- ---------
----------- ----- ----- ---------
</TABLE>
In December 1995, the Company classified all of its securities as
available-for-sale, and the Company has continued to classify all of its
securities as available-for-sale. The following table presents the amount of
securities classified as held-to-maturity and their approximate values at
December 31, 1994:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
--------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
----------- ------------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities........................................... $ 5,992 $ -- $ (561) $ 5,431
Mortgage-backed securities......................................... 17,028 -- (1,550) 15,478
----------- ----- ----------- ---------
Total............................................................ $ 23,020 $ -- $ (2,111) $ 20,909
----------- ----- ----------- ---------
----------- ----- ----------- ---------
</TABLE>
60
<PAGE>
The following table summarizes the contractual maturity of investment
securities and their weighted average yields:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------------------------------------------------------
AFTER ONE AFTER FIVE
WITHIN YEAR BUT WITHIN YEARS BUT WITHIN
ONE YEAR FIVE YEARS TEN YEARS AFTER TEN YEARS
---------------------- ---------------------- ---------------------- ----------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD TOTAL
--------- ----- --------- ----- --------- ----- --------- ----- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Treasury
securities............ $ -- --% $ 6,024 5.51% $ -- --% $ -- --% $ 6,024
U.S. Government agency
securities............ -- -- $ 5,725 6.14% 3,832 6.63 -- -- 9,557
Mortgage-backed and
other securities...... 7,061 6.28 -- -- 12,192 5.92 $ 9,197 5.64 28,450
--------- --- --------- --- --------- --- --------- --- ---------
Totals.................. $ 7,061 6.28% $ 11,749 5.79% $ 16,024 6.09% $ 9,197 5.64% $ 44,031
--------- --- --------- --- --------- --- --------- --- ---------
--------- --- --------- --- --------- --- --------- --- ---------
<CAPTION>
YIELD
-----
<S> <C>
U. S. Treasury
securities............ 5.51%
U.S. Government agency
securities............ 6.33
Mortgage-backed and
other securities...... 5.93
---
Totals.................. 5.96%
---
---
</TABLE>
At December 31, 1996, securities totaled $44.0 million, a increase of $5.2
million from $38.8 million at December 31, 1995. The increase occurred in U. S.
government agency securities, Mortgage-backed securities and tax free municipal
security investments. The funds invested were a direct result of excess funds
received following the Cleveland Acquisition. During 1995, securities decreased
$4.3 million from $43.1 million at December 31, 1994, representing primarily
maturities within the treasury and government agency portfolios and was
reflective of the Kingwood Sale.
DEPOSITS
Total deposits at December 31, 1996 increased to $173.3 million from $153.3
million at December 31, 1995, an increase of $20.0 million or 13.1%. The
increase resulted primarily from the Cleveland Acquisition in the third quarter
of 1996. The bulk of this growth was in Investor's Savings Accounts. This
account is a market rate sensitive account, with a ten day withdrawal
notification period, designed to compete against brokerage house accounts. While
the balances represent primarily core deposits, customers' deposits money in
this investment vehicle which may fluctuate from time to time pending other
alternative investments or cash needs. Deposits in 1995 rose to $153.3 million
from $149.8 million in 1994, an increase of $3.5 million or 2.3%. The Company's
ratio of average noninterest-bearing demand deposits to average total deposits
for years ended December 31, 1996, 1995 and 1994 were 17.67%, 17.19% and 16.29%,
respectively.
61
<PAGE>
The daily average balances and weighted average rates paid on interest
bearing deposits for each of the years ended December 31, 1996, 1995 and 1994
are presented below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------
1996 1995 1994
----------------------- ----------------------- -----------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
---------- ----------- ---------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
NOW............................................. $ 17,232 1.20% $ 15,374 1.51% $ 15,910 1.91%
Public funds.................................... 5,696 1.83 9,105 3.65 5,179 1.10
Regular savings................................. 8,414 2.17 8,867 2.38 8,858 2.18
Money market.................................... 10,735 2.34 10,058 2.38 12,749 2.35
Investor's savings.............................. 23,140 4.12 14,711 4.87 5,575 3.89
Time deposits less than $100,000................ 60,897 5.37 57,574 5.41 56,586 4.77
Time deposits $100,000 and over................. 7,691 5.57 9,359 5.42 8,427 4.38
---------- --- ---------- --- ---------- ---
Total interest-bearing deposits............... 133,805 4.03 125,048 4.29 113,284 3.65
Noninterest-bearing deposits.................... 28,717 -- 25,965 -- 22,045 --
---------- --- ---------- --- ---------- ---
Total deposits................................ $ 162,522 3.32% $ 151,013 3.55% $ 135,329 3.06%
---------- --- ---------- --- ---------- ---
---------- --- ---------- --- ---------- ---
</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, 1996
---------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
3 months or less........................................................ $ 700
Between 3 months and 6 months........................................... 1,617
Between 6 months and 1 year............................................. 2,475
Over 1 year............................................................. 2,151
------
Total................................................................. $ 6,943
------
------
</TABLE>
62
<PAGE>
INTEREST RATE SENSITIVITY AND LIQUIDITY
The following table sets forth an interest rate sensitivity analysis for the
Company at December 31, 1996:
<TABLE>
<CAPTION>
VOLUMES SUBJECT TO REPRICING WITHIN
--------------------------------------------------------------------
AFTER ONE
0-90 DAYS 91-180 DAYS 181-365 DAYS YEAR TOTAL
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Securities.............................. $ 267 $ 257 $ 2,232 $ 40,989 $ 43,745
Loans................................... 20,080 10,468 17,182 72,150 119,880
Federal funds sold and other temporary
investments........................... 10,378 -- -- -- 10,378
------------ ------------ ------------ ------------ ------------
Total interest-earning assets......... 30,725 10,725 19,414 113,139 174,003
------------ ------------ ------------ ------------ ------------
Interest-bearing liabilities:
Demand, money market and savings
deposits.............................. 66,410 -- -- -- 66,410
Certificates of deposit and other time
deposits.............................. 12,689 13,545 16,404 29,829 72,467
Fed funds purchased and securities sold
under repurchase agreements........... 1,000 -- -- -- 1,000
------------ ------------ ------------ ------------ ------------
Total interest-bearing liabilities.... 80,099 13,545 16,404 29,829 139,877
------------ ------------ ------------ ------------ ------------
Period GAP.............................. $ (49,374) $ (2,820) $ 3,010 $ 83,310 $ 34,126
Cumulative GAP.......................... $ (49,374) $ (52,194) $ (49,184) $ 34,126
Period GAP to total assets.............. (26.12)% (0.15)% 1.59% 44.08%
Cumulative GAP to total assets.......... (26.12)% (27.61)% (26.02)% 18.06%
</TABLE>
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Interest Rate Sensitivity and Liquidity" for the six months ended
June 30, 1997 and June 30, 1996 for a discussion of the Company's policies
regarding asset and liability risk management.
CAPITAL RESOURCES
Stockholders' equity increased to $12.9 million at December 31, 1996 from
$11.9 million at December 31, 1995, an increase of $1.0 million, or 8.4%. This
increase was primarily the result of net income of $1.4 million offset by cash
dividends of $324,000, treasury stock purchases totaling $48,000, the issuance
of additional stock totaling $30,000, and an increase in the net unrealized loss
on available-for-sale securities, net of tax, of $34,000. During 1995,
stockholders' equity increased by $1.1 million, or 10.2%, from $10.8 million at
December 31, 1994. In addition to net income of $1.2 million, the increase was
offset primarily by cash dividends of $273,000, treasury stock purchases
totaling $130,000, the issuance of additional Common Stock totaling $30,000 and
a reduction in the net unrealized loss on available-for-sale securities of
$201,375.
63
<PAGE>
The following table provides a comparison of the Company's and the Bank's
leverage and risk-weighted capital ratios as of December 31, 1996 to the minimum
and well-capitalized regulatory standards:
<TABLE>
<CAPTION>
ACTUAL RATIO AT
MINIMUM REQUIRED WELL-CAPITALIZED DECEMBER 31, 1996
--------------------- ----------------- -------------------
<S> <C> <C> <C>
THE COMPANY
Leverage ratio........................................... 3.00%(1) N/A 6.67%
Tier 1 risk-based capital ratio.......................... 4.00% N/A 9.39%
Risk-based capital ratio................................. 8.00% N/A 10.45%
THE BANK
Leverage ratio........................................... 3.00%(2) 5.00% 6.67%
Tier 1 risk-based capital ratio.......................... 4.00% 6.00% 9.36%
Risk-based capital ratio................................. 8.00% 10.00% 10.43%
</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 OCC may require the Bank to maintain a leverage ratio of up to 200 basis
points above the required minimum.
64
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AND THE BANK
The following is a list of all of the directors, advisory directors and
executive officers of the Company and the Bank, their respective positions with
the Company and the Bank and their ages.
<TABLE>
<CAPTION>
NAME POSITION AGE
- ---------------------------------------------- ------------------------------------------------------------ ---
<S> <C> <C>
Knox W. Askins................................ Director of the Company and the Bank 60
Jerry Cornelius............................... Director of the Bank 66
Emery Farkas.................................. Director of the Company and the Bank 73
Albert D. Fields.............................. Treasurer of the Company, President of the Bank and Director 47
of the Company and the Bank
Eddie V. Gray................................. Director of the Company and the Bank 62
W. E. Gwaltney, Jr............................ Director of the Company and the Bank 70
Doug Latimer.................................. Chairman of the Board of the Company and the Bank 54
Kim E. Love................................... Controller of the Company and Chief Financial Officer of the 37
Bank
Jay Marks..................................... Director of the Company and the Bank 73
Lester A. Marks............................... Advisory Director of the Bank 44
L. H. McKey................................... Director of the Company and the Bank 71
Harold P. Pfeiffer............................ Senior Advisory Director of the Company and the Bank 75
Lindsay R. Pfeiffer........................... Vice Chairman of the Board of the Company and the Bank 47
Wayne Slovacek................................ Director of the Bank 74
Ken Strum..................................... Director of the Company and the Bank 63
James N. Wallace.............................. Director of the Company and the Bank 56
Ruede M. Wheeler, D.D.S....................... Director of the Company and the Bank 62
Alice W. Worthington.......................... Executive Vice President and Secretary of the Company, Chief 44
Operating Officer of the Bank and Director of the Company
and the Bank
L. D. Wright.................................. Chief Executive Officer, President and Director of the 50
Company and the Chief Executive Officer and Director of
the Bank
</TABLE>
KNOX W. ASKINS. Mr. Askins has been a director of the Bank since 1967. He
became a director of the Company when it was formed in 1982. He serves as a
member of the Audit Committee, Asset and Liability Committee and the Watch List
Committee. Mr. Askins also serves on the Audit Committee of the Company. Mr.
Askins is the President of Askins & Armstrong, P.C., where he has been
practicing law since 1965. He received a B.A. in General Studies from the
University of Houston and his Juris Doctorate from the University of Houston Law
Center.
JERRY L. CORNELIUS. Mr. Cornelius has served as a director of the Bank
since 1986. He has been a member of the Directors' Loan Committee for seven
years, and also serves on the Internal Credit Review Committee. Mr. Cornelius is
the President and owner of Cornelius Construction Co., which he formed in
65
<PAGE>
1973. He is very active in the Deer Park area, where he is a member of the
Chamber of Commerce, Rotary, Shriner's Lodge, and Masonic Lodge. In addition,
Mr. Cornelius is a Director of the Southeast Texas Housing Board.
EMERY FARKAS. Mr. Farkas has been a director of the Bank since 1967. He
became a director of the Company when it was formed in 1982. Mr. Farkas serves
as the Chairman of the Audit Committee of the Company and the Bank. He also
serves on the Asset and Liability Committee, the Watchlist Committee and the
Company's Compliance Committee. Mr. Farkas owned and operated a local pharmacy
in the La Porte area from 1955 until 1983. From 1983 to 1990, he was an
independent pharmaceutical consultant. Since 1990, he has served as the Chief
Pharmacist in Charge/Consultant for Surgicare of Pasadena, Texas, the Texas
Institute of Surgery, and San Jacinto Methodist Hospital. He received a B. S. in
Pharmacy from the University of Houston, and attended medical school at the
University of Masaryk in Brno, Czechoslovakia.
ALBERT D. FIELDS. Mr. Fields has been employed by the Bank since 1978. He
became a director of the Company in 1982, a director of the Bank in 1984 and was
promoted to President of the Bank in 1985. Mr. Fields began his banking career
at American Bank in Odessa, Texas in 1972. Next, he worked for Allied Merchants
Bank in Port Arthur, Texas from 1976 to 1978, serving as Assistant Comptroller,
and was then promoted to Vice President in 1977. He has B.B.A. from Southwest
Texas State University. In addition, he is a graduate of the School of Banking
of the South at Louisiana State University, as well as the National Commercial
Lending School at the University of Oklahoma.
EDDIE V. GRAY. Mr. Gray became a director of both the Company and the Bank
in 1991. He has been a member of the Directors' Loan Committee for five years.
Mr. Gray is the owner of Gray Enterprises, a real estate development company. He
received a B.S. in Geology and a M.S. in Geology from Texas A&M University. He
is very active in the Baytown area, where he is a member of Rotary and the Goose
Creek Stream Greenbelt Development Committee. Mr. Gray was honored in 1996 as
the Citizen of the Year by the Baytown Sun and as the Exxon Refiner of the Year.
W. E. GWALTNEY, JR.. Mr. Gwaltney has been a director of the Bank since
1973. He became a director of the Company when it was formed in 1982. He serves
as Chairman of the Asset and Liability Committee, and also serves on the Bank's
Executive Committee, the Company's Audit Committee and the Company's
Compensation Committee. Mr. Gwaltney retired as President and 50% owner of
Tex-A-Mation Engineering, Inc. in 1987. He currently serves as the managing
partner of GMS Enterprises. Mr. Gwaltney received a B.S. in Mechanical
Engineering from the University of Houston, and is a Registered Professional
Engineer.
DOUG LATIMER. Mr. Latimer became a director of both the Company and the
Bank in 1989. In June of 1997, he was elected Chairman of the Board of both the
Company and the Bank. He also serves on the Loan Committee, Internal Credit
Review Committee, the Watchlist Committee and the Company's Compensation
Committee. In addition, he is the Chairman of the Bank's Executive Committee.
Mr. Latimer is the President and owner of Mechanical Repair & Engineering, Inc.,
a specialty machine shop which he formed in 1974. He received a B.S. in
Mechanical Engineering from Louisiana State University, and a M.B.A. from the
University of Houston.
KIM E. LOVE, CPA. Mrs. Love joined the Bank in 1989 as Cashier. She was
promoted to Chief Financial Officer of the Bank in 1992. In addition, she serves
as Controller of the Company. Mrs. Love began her banking career in 1977 at
First City Bank - Bellaire. She was promoted to Vice President and Cashier in
1984. Next, Mrs. Love was the Cashier at Charter National Bank - Westheimer from
1984 through 1986. She has a B.S. in Accounting from Virginia Commonwealth
University, where she graduated Magna Cum Laude.
JAY MARKS. Mr. Marks is one of the original founders of the Bank. He has
been a director of the Bank since 1965. He became a director of the Company when
it was formed in 1982. Mr. Marks is a
66
<PAGE>
member of the Bank's Executive Committee and the Company's Compensation
Committee. He is the President and owner of Jay Marks Investment Co., which owns
and operates several car dealerships.
LESTER A. MARKS. Mr. Marks has been an advisory director of the Company and
the Bank since 1990. He is the son of Jay Marks, one of the original founders of
the Bank. Mr. Marks owns and operates automobile dealerships within the Houston
area, serving as Chief Executive Officer of Marks Automotive Group. He is a Phi
Beta Kappa graduate of Tulane University, and is an active volunteer for the
arts, serving on numerous executive boards of local art museums.
L. H. MCKEY. Mr. McKey has been a director of the Bank since 1979. He
became a director of the Company when it was formed in 1982. Mr. McKey owns a
working ranch in Liberty, Texas and is owner of McKey Enterprises, a heavy
equipment and commercial property business. He is also a member of the Trinity
Valley Expedition Board in Liberty.
HAROLD P. PFEIFFER. Mr. Pfeiffer is one of the original founders of the
Bank. He served as a director of the Bank from 1965 until 1997. He became a
director of the Company when it was formed in 1982. In June of 1997, Mr.
Pfeiffer stepped down as Chairman of the Board after 23 years as Chairman, and
became a Senior Advisory Director. He currently serves on the Audit Committee,
Asset/Liability Committee and the Director's Watchlist Committee, as well as the
Bank's Executive Committee. Mr. Pfeiffer is a native resident of La Porte, and
served on the city council from 1954 to 1958, and as mayor of La Porte from 1958
to 1970. He is retired from Pfeiffer & Son, an electrical contracting company
which his father started in 1921.
LINDSAY R. PFEIFFER. Mr. Pfeiffer has been an Advisory Director of the Bank
since 1990. He was elected Vice Chairman of the Board of both the Company and
the Bank in June, 1997, when his father, Harold Pfeiffer, retired as Chairman of
the Board. Mr. Pfeiffer serves on the Loan Committee, Watch List Committee,
Internal Credit Review Committee, Asset and Liability Committee and the
Compensation Committee of the Company. In addition, he is Vice Chairman of the
Bank's Executive Committee. He is the President of Pfeiffer & Son, an electrical
contractor, where he as worked since 1973. Mr. Pfeiffer received a B.A. in
Business Administration from the University of Texas, and an A.S. in Electrical
Technology from San Jacinto College.
WAYNE SLOVACEK. Mr. Slovacek has been a director of the Bank since 1994. He
serves on the Bank's Audit Committee, Asset Liability Committee, and the
Watchlist Committee. Although Mr. Slovacek retired as an executive in the
petrochemical industry in 1988, he is very active in the Deer Park area, where
he is a member of the Rotary, Chamber of Commerce, Deer Park ISD Education
Foundation, and the San Jacinto Education Foundation. In addition, he serves on
the Board of Trustees of the San Jacinto College in Pasadena, Texas, and is a
Director of the Southeast Economic Development Board. He received a B.S. in
Business Administration from Phillips University in Enid, Oklahoma, and was a
commissioned officer in World War II.
KEN STRUM. Mr. Strum became a director of the Bank in 1980 and a director
of the Company in 1988. He is the Chairman of the Directors' Loan Committee, and
also serves on the Internal Loan Committee. Mr. Strum is the President and owner
of Ken Strum Insurance Agency, Inc., which he founded in 1972. He received a
B.B.A. from the University of Mississippi.
JAMES N. WALLACE. Mr. Wallace became a director of both the Company and the
Bank in 1990. He is the Co-Chairman of the Internal Credit Review Committee, and
also serves on the Directors' Loan Committee, the Internal Credit Review
Committee, the Watchlist Committee and the Compensation Committee of the
Company. In addition, he is a member of the Bank's Executive Committee. Mr.
Wallace is the Chairman of Bayou Properties Co, a commercial real estate
development firm, where he has worked since 1976. He received a B.S. in
Education from Southwest Texas State University and a M. A. from Southwest Texas
State University.
67
<PAGE>
RUEDE M. WHEELER, D.D.S.. Dr. Wheeler has been a director of the Bank since
1977. He became a director of the Company when it was formed in 1982. He is the
Co-Chairman of the Internal Credit Review Committee, and also serves on the
Directors' Loan Committee. He has been practicing general dentistry since 1962.
Dr. Wheeler received a B.S. from Texas A&M University, and a Doctor of Dental
Sciences from the University of Texas.
ALICE W. WORTHINGTON. Mrs. Worthington joined the Bank in 1992 as Executive
Vice President and Chief Operating Officer, and director of both the Company and
the Bank. In addition, she serves as the Executive Vice President and Secretary
for the Company. In banking since 1974, Mrs. Worthington worked for First City
Bank from 1975 through June, 1992. She was promoted to Vice President and
Cashier, First City Bank - Almeda Genoa in 1981, and then to Senior Vice
President and Chief Financial Officer in 1986. Next, Mrs. Worthington was the
Senior Vice President and Cashier of First City Bank - Windsor Park in San
Antonio, Texas for a brief period until transferring to First City Bank -
Highland Village, Houston, Texas as Senior Vice President and Chief Financial
Officer in 1987.
L. D. WRIGHT. Mr. Wright joined the Bank in 1987 as the Chief Executive
Officer and as a director of both the Company and the Bank. His banking career
began in 1966 at Irwin Union Bank and Trust Company in Columbus, Indiana, where
he served as the Credit Card Manager. Next, Mr. Wright served as Vice President
and Manager of Retail Banking at First Galesburg National Bank, Galesburg,
Illinois, in 1972, and was promoted to Senior Vice President and Manager of the
Lending Division in 1977. Next, Mr. Wright served as President and Chief
Executive Officer of First City Bank - Almeda Genoa in 1982, and was promoted to
Cluster Manager/ President and Chief Executive Officer of First City Bank -
Almeda Genoa in 1987, where he was responsible for the supervision of six banks
with total assets of $350 million. He attended Vincennes University and
graduated from the Stonier Graduate School of Banking at Rutgers University.
Directors are elected for three year terms, classified into Classes I, II
and III. Messrs. Askins, Fields, Strum and Wright are Class I directors with
terms of office expiring on the date of the Company's annual meeting of
stockholders in 1998; Messrs. Farkas and McKey, Dr. Wheeler and Mrs. Worthington
are Class II directors with terms of office expiring on the date of the
Company's annual meeting in 1999; and Messrs. Gray, Gwaltney, Latimer, Marks,
Pfeiffer and Wallace are Class III directors with terms of office expiring on
the date of the Company's annual meeting of stockholders 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.
Farkas (Chairman), Askins and Gwaltney, 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. Latimer, Jay Marks,
Gwaltney, Wallace and Lindsay Pfeiffer, 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 Executive Committee of the Bank, which included Messrs.
Latimer, Jay Marks, Gwaltney, Wallace, Lindsay Pfeiffer, Wright and Harold
Pfeiffer. As a member of this committee, Mr. Wright participated in
determinations as to compensation and grants of stock options to executive
officers, including himself. Final determination regarding compensation and
stock options was made by the Board of Directors of the Bank.
DIRECTOR COMPENSATION
Directors of the Company do not receive any fees for attending Company Board
meetings. Directors of the Bank receive a fee of $500 for each meeting of the
Bank's Board of Directors attended. Fees are not paid for committee meetings.
68
<PAGE>
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
Chief Executive Officer and the other executive officer of the Company whose
compensation exceeded $100,000 (determined as of the end of the last fiscal
year) for the fiscal year ended December 31, 1996:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
VALUE OF SECURITIES
OTHER ANNUAL OPTIONS UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION GRANTED OPTIONS(#) COMPENSATION(1)
- -------------------------------- --------- ---------- --------- ------------- ---------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
L. D. Wright, Chief Executive 1996 $ 156,000 $ 52,500 $ 51,583(2) $ 110,868(3) 18,478 $ 3,120
Officer of the Company and the
Bank
Albert D. Fields, Treasurer of 1996 $ 97,500 $ 11,375 $ 850 -- -- $ 1,950
the Company and President of
the Bank
</TABLE>
- ------------------------
(1) Consists of contributions by the Company to the 401(k) Plan.
(2) Includes $36,000 as the fair market value of Common Stock issued to Mr.
Wright pursuant to the Phantom Stock Plan and $7,937 received by Mr. Wright
as dividends on the shares of phantom stock granted under the Phantom Stock
Plan.
(3) Consists of shares of phantom stock granted under the Phantom Stock Plan. As
of December 31, 1996, Mr. Wright held options for 37,219 shares of phantom
stock under the Phantom Stock Plan, and the estimated value of these shares
was $262,394. At December 31, 1996, 19,447 of these shares were vested with
each grant vesting over a three year period. Mr. Wright receives dividends
on the shares of phantom stock granted to him under the Phantom Stock Plan.
STOCK OPTION AND INCENTIVE PLANS
The Company has a Phantom Stock Plan ("Phantom Plan") whereby the Company
may issue shares of phantom stock to certain officers and key employees. The
aggregate number of shares of phantom stock that may be issued under the Phantom
Plan is limited to 135,000 shares. The number of shares issued is determined
based on a financial performance test for the Bank. The phantom stock is
nonvoting, accrues dividends equal to those declared on the Common Stock, and is
granted subject to a vesting schedule.
The shares of phantom stock may be redeemed when vested. Such redemption is
payable, at the Company's discretion, in shares of Common Stock or cash at the
then fair market value of the Common Stock. In 1996 and 1995, 18,478 and 16,357
shares of phantom stock were granted and 6,000 shares of phantom stock were
redeemed for 6,000 shares of the Common Stock each year. The compensation cost
charged against income for the Phantom Plan was approximately $114,000 and
$66,000 for 1996 and 1995, respectively. As of August 31, 1997, 66,630 shares of
phantom stock were granted but unexercised pursuant to the Phantom Plan, 39,538
of which are fully vested. No additional shares of phantom stock will be granted
pursuant to the Phantom Plan.
The Company has outstanding options to purchase 33,300 shares of Common
Stock issued pursuant to an incentive stock option plan approved by stockholders
in 1997 (the "1997 Stock Plan"). The 1997 Stock Plan authorizes the issuance of
options for up to 150,000 shares of Common Stock. Under the 1997 Stock Plan, the
vesting of options is governed by individual option agreements. Each of the
option agreements currently outstanding provides that 20% of the options granted
vest immediately following the date of
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grant and an additional 20% each year thereafter. Options granted under the 1997
Stock Plan generally must be exercised within 10 years following the date of
grant. The fair market value of stock options is based on trades in the Common
Stock and on an appraisal from an independent investment banking firm.
The Company's Board of Directors and stockholders 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" stock options to directors who
are not employees. Generally, under the 1997 Incentive 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 of grant if necessary to maximize the "incentive"
tax treatment to the optionee for the particular option being granted. Options
under the 1997 Incentive 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 Incentive Plan.
The Company has a cash incentive plan which provides guidelines pursuant to
which key executive employees can earn bonus compensation based on the
profitability of the Bank. The bonus amounts are determined based on achievement
by the Bank of certain targeted percentages of return on equity. At December 31,
1996 and 1995, a bonus pool of approximately $78,000 and $72,000 had been
accrued for distribution in the following year.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION ("SFAS 123"). This statement established fair value based
accounting and reporting standards for all transactions in which a company
acquires goods or services by issuing its equity investments, which includes
stock-based compensation plans. Under SFAS 123, compensation cost is measured at
the grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. Fair value of stock options
is determined using an option-pricing model. This statement encourages companies
to adopt as prescribed the fair value based method of accounting to recognize
compensation expense for employee stock compensation plans. However, it does not
require the fair value based method to be adopted but a company must comply with
the disclosure requirements set forth in the statement. The Company has
continued to apply accounting in Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, ("APB 25") and related
Interpretations, and, accordingly, will in its annual reporting provide the pro
forma disclosures of net income and earnings per share.
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OPTION GRANTS DURING 1996
The following table sets forth certain information concerning the number and
value of stock options granted in fiscal 1996 to the named executive officers:
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
NUMBER OF RATES
SECURITIES OF STOCK PRICE
UNDERLYING % OF TOTAL FAIR MARKET APPRECIATION
OPTIONS OPTIONS GRANTED EXERCISE OR VALUE AT FOR OPTION TERM
NAME AND PRINCIPAL POSITION WITH GRANTED TO EMPLOYEES IN BASE PRICE DATE OF EXPIRATION --------------------
THE COMPANY (#)(1) FISCAL YEAR ($/SH) GRANT DATE 5% ($) 10% ($)
- --------------------------------- ------------- --------------- ----------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
L.D. Wright, 18,478 100% $ 0.00 $ 6.00 10 years $ 180,592 $ 287,563
Chief Executive Officer of the
Company and the Bank
Albert D. Fields, -- -- -- -- -- -- --
Treasurer of the Company and
President of the Bank
<CAPTION>
NAME AND PRINCIPAL POSITION WITH
THE COMPANY 0% ($)
- --------------------------------- ---------
<S> <C>
L.D. Wright, $ 110,868
Chief Executive Officer of the
Company and the Bank
Albert D. Fields, --
Treasurer of the Company and
President of the Bank
</TABLE>
- ------------------------------
(1) Represents options granted under the Phantom Plan. Options vest at a rate of
33% per year on or about each anniversary of the date of grant.
STOCK OPTION EXERCISES AND FISCAL YEAR END VALUES
The following table sets forth certain information concerning stock options
exercised during fiscal 1996 and the number and value of unexercised options
held by each of the named executive officers at December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
NUMBER OF SHARES DOLLAR DECEMBER 31, 1996 DECEMBER 31, 1996(2)
ACQUIRED UPON VALUE -------------------------- --------------------------
NAME OPTION EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- ----------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
L.D. Wright.................. 6,000 $ 36,000 19,447 17,772 $ 137,101 $ 125,293
Albert D. Fields............. -- -- -- -- -- --
</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, 1996, 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
"Benefit Plan"). The Company has hired the Hand Group to serve as the Benefit
Plan administrator and investment advisor. Each year the Company determines, in
its discretion, the amount of matching contributions. The Company has elected to
match 50% of employee contributions not to exceed 3% of the employee's annual
compensation. Total Benefit Plan expense charged to the Company's operations for
1996, 1995 and 1994 were approximately $27,000, $24,000 and $24,000,
respectively. The Company has budgeted $60,000 for 1997 contributions. In
addition, the Company elected to allow employees to invest the matching portion
in shares of Common Stock.
INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Many of the directors, executive officers and principal stockholders 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
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have at least a 5% interest, are customers of the Company. During 1996 the
Company made loans in the ordinary course of business to many of the directors,
executive officers and principal stockholders 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 stockholders 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 stockholders satisfy the foregoing
standards. On June 30, 1997, all of such loans aggregated $2.9 million, which
was approximately 18.9% of the Company's Tier 1 capital at such date.
Approximately 69.5% of the Company's total loan portfolio as of June 30, 1997
was comprised of consumer installment loans, 88.7% of which consisted of
indirect dealer loans. As of such date, approximately $8.5 million (12.0%) of
the Company's installment loan portfolio consisted of indirect loans purchased
from automobile dealerships controlled by Director Jay Marks and Bank Advisory
Director Lester Marks. All of these transactions were made in the ordinary
course of business 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 normal risk
of collectibility or present unfavorable features. The Company expects to have
such transactions or transactions on a similar basis with its directors,
executive officers and principal stockholders and their associates in the
future.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of August 31, 1997, and as adjusted
to reflect the sale of the Common Stock offered 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 stockholder is the same as the address of the Company.
<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY OWNED
NUMBER OF ----------------------------------
NAME SHARES BEFORE OFFERING AFTER OFFERING(1)
- --------------------------------------------------------------------- ----------- --------------- -----------------
<S> <C> <C> <C>
Knox Askins.......................................................... 8,402 * *
Emery Farkas......................................................... 28,203 2.08% 1.44%
Albert D. Fields..................................................... 11,428(2) * *
Eddie V. Gray........................................................ 29,321(3) 2.16% 1.50%
W. E. Gwaltney, Jr................................................... 143,343 10.56% 7.32%
Doug Latimer......................................................... 83,563 6.16% 4.27%
Kim E. Love.......................................................... 1,850(4) * *
Jay Marks............................................................ 87,283 6.43% 4.46%
L. H. McKey.......................................................... 65,620 4.83% 3.35%
Harold Pfeiffer...................................................... 149,615 11.02% 7.64%
Lindsay R. Pfeiffer.................................................. 39,470(5) 2.91% 2.02%
Ken Strum............................................................ 25,051(6) 1.85% 1.28%
James N. Wallace..................................................... 36,667 2.70% 1.87%
Ruede M. Wheeler, D.D.S.............................................. 43,713(7) 3.22% 2.23%
Alice F. Worthington................................................. 1,250(8) * *
L. D. Wright......................................................... 128,571(9) 9.20% 6.44%
Directors and Executive Officers as a Group(16)...................... 883,350 63.09% 44.16%
</TABLE>
- ------------------------
* Indicates ownership which does not exceed 1.0%
(1) Assumes the issuance of 600,000 shares in the Offering.
(2) Includes 1,000 shares which may be acquired pursuant to options granted
under the 1997 Stock Plan and 299 shares held by record by Albert D. Fields
(custodian for Brad Fields, Minor).
(3) Includes 26,797 shares held of record of Grayco Development Co.
(4) Includes 1,000 shares which may be acquired pursuant to options granted
under the 1997 Stock Plan.
(5) Includes 17,525 shares held by Pfeiffer & Sons, Inc., of which Lindsay
Pfeiffer is President, 1,203 shares held of record by the Katy Knox
Education Trust, 1,203 shares held of record by the Nicholas Riley Education
Trust, 1,203 shares held of record by the Noah Riley Education Trust, 1,203
shares held of record by the Jessica Bullock Education Trust, 1,203 shares
held of record by the Christopher Bullock Education Trust, 1,203 shares held
of record by the Charles Pfeiffer Education Trust, 1,203 shares held of
record by the Joseph Pfeiffer Education Trust, 1,203 shares held of record
by the Jonathan Pfeiffer Education Trust, 1,203 shares held of record by the
Philip Shane Paschal Education Trust, 1,203 shares held of record by the
Charles Wayne Paschal Education Trust, 703 shares held of record by the
Philip Pfeiffer, Jr. Education Trust and 703 shares held of record by the
Shannon Pfeiffer Education Trust. Lindsay Pfeiffer is the co-trustee of each
of these education trusts and has shared voting and investment power with
respect to the shares of Common Stock held by these trusts.
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<PAGE>
(6) Includes 2,245 shares held of record by Ken Strum Insurance Agency, Inc.
(7) Includes 11,044 shares held of record by the Ruede Wheeler, DDS, Inc. Profit
Sharing Trust, 2,000 shares held of record by Ruede Wheeler, DDS, Inc., 450
shares held of record by Ruede Wheeler, IRA and 450 shares held of record by
Charlcya Wheeler IRA.
(8) Includes 1,000 shares which may be acquired pursuant to options granted
under the 1997 Stock Plan.
(9) Includes 39,538 shares which may be acquired pursuant to the Phantom Plan.
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 stockholders 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
and the Bank 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 BHCA, and it is
subject to supervision, regulation and examination by the Federal Reserve Board.
The BHCA 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 Board 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 Board 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 Board 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 BHCA 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 Board, by order or regulation, to be so closely
related to
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<PAGE>
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 Board 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 Board 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 banking practices). The Federal Reserve Board is also
empowered to differentiate between activities commenced de novo and activities
commenced through acquisition of a going concern.
SECURITIES ACTIVITIES. The Federal Reserve Board 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 Board's
Regulation Y, for example, generally requires a holding company to give the
Federal Reserve Board 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 Board 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 Board could
take the position that paying a dividend would constitute an unsafe or unsound
banking practice.
The Federal Reserve Board 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 Board 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 June 30, 1997, the Company's ratio of Tier 1 capital to total
risk-weighted assets was 10.16% and its ratio of total capital to total
risk-weighted assets was 11.24%. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Capital Resources."
In addition to the risk-based capital guidelines, the Federal Reserve Board
uses a leverage ratio as an additional tool to evaluate the capital adequacy of
bank holding companies. The leverage ratio is a
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<PAGE>
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
June 30, 1997, the Company's leverage ratio was 7.25%.
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 Board 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 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
Board 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 BHCA requires every bank
holding company to obtain the prior approval of the Federal Reserve Board 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 Board 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 Board has been notified and has not objected to the transaction.
Under a rebuttable presumption established by the Federal Reserve Board, 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 Board under the BHCA 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.
THE BANK
The Bank is a national banking association, the deposits of which are
insured by the Bank Insurance Fund ("BIF") and the SAIF of the FDIC. The Bank is
subject to supervision and regulation by the OCC.
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Such supervision and regulation subjects the Bank to special restrictions,
requirements, potential enforcement actions and periodic examination by the OCC.
Because the Federal Reserve Board regulates the bank holding company parent of
the Bank, the Federal Reserve Board also has supervisory authority which
directly affects the Bank.
RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES AND INSIDERS. Transactions
between the 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 the Bank
and its affiliates be on terms substantially the same, or at least as favorable
to the 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
stockholders 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.
RESTRICTIONS ON DISTRIBUTION OF SUBSIDIARY BANK DIVIDENDS AND
ASSETS. Dividends paid by the Bank have provided a substantial part of the
Company's operating funds and for the foreseeable future it is anticipated that
dividends paid by the 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 the Bank. Until a national
bank's capital surplus equals or exceeds its capital stock, the bank must
transfer ten percent of its net income to capital surplus prior to paying a
dividend. Without the prior approval of the OCC, a national bank may not pay
dividends in excess of the 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. Under federal law,
the Bank cannot pay a dividend if, after paying the dividend, the Bank will be
"undercapitalized." The OCC may declare a dividend payment to be unsafe and
unsound even though the 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 stockholders, including any depository institution holding
company (such as the Company) or any stockholder or creditor thereof.
EXAMINATIONS. The OCC periodically examines and evaluates national 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.
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
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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.
CAPITAL ADEQUACY REQUIREMENTS. The OCC has adopted regulations establishing
minimum requirements for the capital adequacy of insured institutions. 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.
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%. The capital
categories have the same definitions for the Bank as for the Company. As of June
30, 1997, the Bank's ratio of Tier 1 capital to total risk-weighted assets was
10.19% and its ratio of total capital to total risk-weighted assets was 11.29%.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operation of the Company--Capital Resources."
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 June 30, 1997, the Bank's ratio of Tier 1 capital to average total
assets (leverage ratio) was 7.28%. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation of the Company--Capital Resources."
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," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." 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 "undercapitalized" 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.
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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. The 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.
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 do, however, still have to 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 recapitalizing the SAIF and to 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, such
as the OCC, 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.
BROKERED DEPOSIT RESTRICTIONS. Adequately capitalized institutions cannot
accept, renew or roll over brokered deposits except with a waiver from the OCC,
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
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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.
CONSUMER LAWS AND REGULATIONS. In addition to the laws and regulations
discussed herein, the 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. The Bank must comply with the applicable provisions of these
consumer protection laws and regulations as part of their ongoing customer
relations.
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 and its banking
subsidiaries in substantial and unpredictable ways. The Company cannot 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 or its subsidiaries.
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 Board,
OCC 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 Board, have a significant effect on the operating results of
bank holding companies and their subsidiaries. Among
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the means available to the Federal Reserve Board 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 Board 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 and its subsidiaries
cannot be predicted.
DESCRIPTION OF SECURITIES OF THE COMPANY
AUTHORIZED CAPITAL STOCK
The authorized capital stock of the Company consists of (i) 10,000,000
shares of preferred stock, $1.00 per share par value ("Preferred Stock"),
issuable in series, none of which are issued and outstanding and (ii) 50,000,000
shares of Common Stock, $1.00 per share par value, of which 1,399,583 shares
were issued and 1,357,657 were outstanding as of August 31, 1997. The terms of
any new series of 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 August 31, 1997, an additional 33,300 shares of Common Stock were issuable
upon exercise of the Company's outstanding employee and director incentive stock
options, and 66,630 shares of Common Stock were issuable under the Phantom Plan.
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, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of Preferred Stock. The
Preferred Stock (or other securities convertible in whole or in part into
Preferred Stock) is available 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 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 Preferred
Stock and any series thereof without stockholder approval. The Company's
Articles of Incorporation require all shares of Preferred Stock to be identical,
except as to the following characteristics, which may vary between different
series of 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;
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(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 Board of Directors does not intend to seek stockholder approval prior to
any issuance of Preferred Stock or any series thereof, unless otherwise required
by law. Under the Texas Business Corporation Act ("TBCA"), stockholder approval
prior to the issuance of shares of Common Stock or 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 stockholder approval of a specific issuance could be to
the detriment of the Company and its stockholders. The Board of Directors does
not intend to issue any shares of Common Stock or Preferred Stock except on
terms which the Board of Directors deems to be in the best interests of the
Company and its then existing stockholders.
Although the 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 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 Preferred Stock on the holders of Common
Stock could include, among other things, (i) reduction of the amount otherwise
available for payments of dividends on Common Stock if dividends are payable on
the series of Preferred Stock; (ii) restrictions on dividends on Common Stock if
dividends on the series of Preferred Stock are in arrears; (iii) dilution of the
voting power of Common Stock if the series of Preferred Stock has voting rights,
including a possible "veto" power if the series of Preferred Stock has class
voting rights; (iv) dilution of the equity interest of holders of Common Stock
if the series of Preferred Stock is convertible, and is converted, into Common
Stock; and (v) restrictions on the rights of holders of 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 Preferred Stock. Holders of
Common Stock have no preemptive rights to purchase or otherwise acquire any
Preferred Stock that may be issued.
COMMON STOCK
The holders of the Common Stock are entitled to one vote for each share of
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
Preferred Stock issued, all voting power is in the Common Stock. Holders of
Common Stock may not cumulate their votes for the election of directors. Holders
of 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 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 Common Stock, and no Common Stock may be purchased by the Company, unless
full dividends on outstanding Preferred Stock are paid for the current dividend
period, and with respect to any outstanding cumulative Preferred Stock, all past
dividend periods. See "Risk Factors-- Dividend History and Restrictions on
Ability to Pay Dividends" and "Supervision and Regulation."
On the liquidation of the Company, the holders of Common Stock are entitled
to share pro rata in any distribution of the assets of the Company, after the
holders of shares of Preferred Stock have received the
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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. A recently enacted Texas law, which became effective September
1, 1997, generally prohibits certain mergers, sales of assets, reclassifications
and other transactions between a publicly-held Texas corporation and any of its
stockholders who beneficially own 20% or more of the outstanding stock of such
corporation ("affiliated stockholders") for a period of three years following
the date on which the stockholder acquired shares representing 20% or more of
the corporation's voting power unless two-thirds of the unaffiliated
stockholders approve the transaction at a meeting held no earlier than six
months after such date.
The following discussion is a summary of certain material provisions of the
Company's Articles of Incorporation and the Company's Bylaws, copies of which
are filed as exhibits to the Registration Statement of which this Prospectus is
a part.
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 stockholders 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 stockholders only for cause and that vacancies on the Board of
Directors may be filled by the remaining directors.
ADVANCE NOTICE OF STOCKHOLDER PROPOSALS AND NOMINATIONS. The Company's
Bylaws establish an advance notice procedure for stockholders to make
nominations of candidates for election as directors or bring other business
before an annual meeting of stockholders of the Company (the "Stockholder Notice
Procedure"). The Stockholder Notice Procedure provides that only persons who are
nominated by, or at the direction of, the Board, or by a stockholder 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 the direction of, the
Board of Directors or by a stockholder who has given timely written notice to
the Secretary of the Company of such stockholder's intention to bring such
business before such meeting.
Under the Stockholder Notice Procedure, for notice of stockholder
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 stockholder'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 alter than the tenth day after such public announcement is first
made by the Company. The Bylaws further provide that, for notice of a
stockholder 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.
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Under the Stockholder Notice Procedure, a stockholder'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 stockholder, the class and
number of shares of stock of the Company owned by such stockholder, 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 stockholder proposes to bring before the
meeting, the reasons for conducting such business at such meeting and any
material interest of such stockholder in the business so proposed.
The Stockholder Notice Procedure may have the effect of precluding a contest
for the election of directors or the consideration of stockholder 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 stockholders.
SPECIAL MEETINGS OF STOCKHOLDERS. The Articles of Incorporation provide
that special meetings of stockholders can be called by stockholders 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 STOCKHOLDER VOTE REQUIRED FOR CERTAIN ACTIONS. The Company's
Articles of Incorporation provide that, notwithstanding any provision of the
Texas Business Corporation Act 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 stockholder 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 stockholder 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 stockholders may be
taken by written consent in lieu of a meeting of stockholders.
AMENDMENT OF BYLAWS. The Company's Articles of Incorporation and Bylaws
provide that the Bylaws may be amended only by the Board of Directors.
Stockholders do not have the power to amend the Company Bylaws.
UNDERWRITING
Subject to the terms and conditions of the Purchase Agreement between the
Company and the Underwriter, the Underwriter has agreed to purchase from the
Company 600,000 shares of Common Stock at the initial public offering price less
the underwriting discounts and commissions set forth on the cover page of this
Prospectus.
The Purchase Agreement provides that the obligation of the Underwriter is
subject to certain conditions precedent and that the Underwriter will purchase
all such shares of the Common Stock if any of such shares are purchased. The
Underwriter is obligated to take and pay for all of the shares of Common Stock
offered hereby (other than those covered by the over-allotment option described
below) if any are taken.
The Company has been advised by the Underwriter that the Underwriter
proposes to offer such shares of Common Stock to the public at the public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per share. The
Underwriter may allow, and such dealers may re-allow, a concession not in excess
of $ per share to
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certain other dealers. After the initial pubic offering, the offering price and
other selling terms may be changed by the Underwriter.
Pursuant to the Purchase Agreement, the Company has granted to the
Underwriter an option, exercisable not later than 30 days after the date of this
Prospectus, to purchase up to 90,000 additional shares of Common Stock at the
public offering price, less the underwriting discounts and commissions set forth
on the cover page of this Prospectus, solely to cover over-allotments. To the
extent that the Underwriter exercises such option, the Underwriter will become
obligated, subject to certain conditions, to purchase such shares, and the
Company will be obligated, pursuant to the option, to sell such shares to the
Underwriter.
The Company and each of its directors and executive officers have agreed not
to sell or otherwise dispose of any shares of Common Stock for a period of 180
days after the date of this Prospectus without the prior written consent of the
Underwriter, except that the Company may issue shares of Common Stock upon the
exercise of currently outstanding options. See "Risk Factors--Shares Eligible
for Future Sale."
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act.
Until the distribution of the Common Stock is completed, rules of the
Commission (as defined herein) may limit the ability of the Underwriter and
certain selling group members to bid for and purchase the Common Stock. As an
exception to these rules, the Underwriter is permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Common Stock.
If the Underwriter creates a short position in the Common Stock in
connection with the Offering, i.e., if it sells a greater aggregate number of
shares of Common Stock than is set forth on the cover page of this Prospectus,
the Underwriter may reduce the short position by purchasing shares of Common
Stock in the open market. The Underwriter may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.
The Underwriter may also impose a penalty bid on certain selling group
members. This means that if the Underwriter purchases Common Stock in the open
market to reduce the selling group members' short position or to stabilize the
price of the Common Stock, they may reclaim the amount of the selling concession
from the selling group members who sold those shares of Common Stock as part of
the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor the Underwriter makes any representation that the Underwriter
will engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price for the Common Stock has been
determined by negotiations between the Company and the Underwriter. Among the
factors considered in such negotiations were prevailing market and general
economic conditions, the market capitalizations, trading histories and stages of
development of other traded companies that the Company and the Underwriter
believed to be comparable to the Company, the results of operations of the
Company in recent periods, the current financial position of the Company,
estimates of the business potential of the Company and the present state of the
Company's
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development and the availability for sale in the market of a significant number
of shares of Common Stock. Additionally, consideration has been given to the
general status of the securities market, the market conditions for new issues of
securities and the demand for securities of comparable companies at the time the
Offering was made.
Application has been made for quotation of the Common Stock on the
Nasdaq/National Market.
LEGAL MATTERS
The validity of the shares of Common Stock to be issued by the Company will
be passed upon by Bracewell & Patterson, L.L.P., Houston, Texas. Certain legal
matters with respect to the Common Stock offered hereby have been passed upon
for the Underwriter by Rothgerber, Appel, Powers & Johnson, LLP, Denver,
Colorado.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1996 and
1995 and the related consolidated Statements of Earnings, Stockholders' Equity,
and Cash Flows for each of the three years in the period ended December 31,
1996, have been included in this 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 audited financial statements of Texas Bank included in this Prospectus
have been audited by McClelland, Samuel & Fehnel, L.L.P., independent certified
public accountants, for the periods set forth in their report thereupon
appearing elsewhere herein and are included in reliance upon such report given
upon authority of such firm as experts in accounting and auditing.
The audited financial statements of TNB included in this Prospectus have
been audited by Killingsworth & Company, independent certified public
accountants, for the periods set forth in their report thereupon appearing
elsewhere herein and are included in reliance upon such report given upon
authority of such firm as experts in accounting and auditing.
The audited financial statements of First Bank included in this Prospectus
have been audited by Killingsworth & Company, independent certified public
accountants, for the periods set forth in their report thereupon appearing
elsewhere herein and are included in reliance upon such report given upon
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has not previously been subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended. The Company has filed with the
Securities and Exchange Commission (the "Commission") a Registration Statement
on Form S-1 (the "Registration Statement") under the Securities Act, with
respect to the offer and sale of Common Stock pursuant to this Prospectus. This
Prospectus, filed as a part of the Registration Statement, does not contain all
of the information set forth in the Registration Statement or the exhibits and
schedules thereto in accordance with the rules and regulations of the Commission
and reference is hereby made to such omitted information. Statements made in
this Prospectus concerning the contents of any contract, agreement or other
document filed as an exhibit to the Registration Statement are summaries of the
terms of such contracts, agreements or documents and are not necessarily
complete. Reference is made to each such exhibit for a more complete description
of the matters involved and such statements shall be deemed qualified in their
entirety by such reference. The Registration Statement and the exhibits and
schedules thereto filed with the Commission may be inspected, without charge,
and copies may be obtained at prescribed rates, at the public reference facility
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
7 World Trade Center, 13th Floor, New York,
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New York 10048 and CitiCorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60621-2511. For further information pertaining to the Common
Stock offered by this Prospectus and the Company, reference is made to the
Registration Statement. The Registration Statement and other information filed
by the Company with the Commission are also available at the Commission's World
Wide Web site on the Internet at http:/www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements certified by independent auditors and
make available quarterly reports containing unaudited financial statements for
the first three quarters of each fiscal year.
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TABLE OF CONTENTS TO FINANCIAL STATEMENTS
<TABLE>
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<S> <C>
BAY BANCSHARES, INC.
Report of Independent Certified Public Accountants......................................................... F-3
Consolidated Balance Sheets as of June 30, 1997 (Unaudited) and
December 31, 1996 and 1995............................................................................... F-4
Consolidated Statements of Earnings for the Six Months Ended June 30, 1997 (Unaudited) and June 30, 1996
(Unaudited) and for the Years Ended December 31, 1996, 1995 and 1994..................................... F-5
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1994, 1995 and 1996 and
for the Six Months Ended June 30, 1997 (Unaudited)....................................................... F-6
Consolidated Statement of Cash Flows for the Six Months Ended June 30, 1997 (Unaudited) and June 30, 1996
(Unaudited) and for the Years Ended December 31, 1996,
1995 and 1994............................................................................................ F-7
Notes to Consolidated Financial Statements................................................................. F-9
TEXAS BANK
Report of Independent Certified Public Accountants......................................................... F-26
Balance Sheets as of June 30, 1997 (Unaudited) and December 31, 1996 and 1995.............................. F-27
Statements of Income for the Six Months Ended June 30, 1997 (Unaudited) and June 30, 1996 (Unaudited) and
for the Years Ended December 31, 1996 and 1995........................................................... F-28
Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1996 and 1995 and for the
Six Months Ended June 30, 1997 (Unaudited)............................................................... F-29
Statements of Cash Flows for the Six Months Ended June 30, 1997 (Unaudited) and June 30, 1996 (Unaudited)
and for the Years Ended December 31, 1996 and 1995....................................................... F-30
Notes to Financial Statements.............................................................................. F-31
TEXAS NATIONAL BANK OF BAYTOWN
Report of Independent Certified Public Accountants......................................................... F-39
Balance Sheets as of June 30, 1997 (Unaudited) and December 31, 1996 and 1995.............................. F-40
Statements of Earnings for the Six Months Ended June 30, 1997 (Unaudited) and June 30, 1996 (Unaudited) and
for the Years Ended December 31, 1996, 1995 and 1994..................................................... F-41
Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1996, 1995 and 1994 and for
the Six Months Ended June 30, 1997 (Unaudited)........................................................... F-42
Statements of Cash Flows for the Six Months Ended June 30, 1997 (Unaudited) and June 30, 1996 (Unaudited)
and for the Years Ended December 31, 1996 and 1995....................................................... F-43
Notes to Financial Statements.............................................................................. F-44
FIRST BANK OF DEER PARK
Report of Independent Certified Public Accountants......................................................... F-53
Balance Sheets as of June 30, 1997 (Unaudited) and December 31, 1996 and 1995.............................. F-54
Statements of Income for the Six Months Ended June 30, 1997 (Unaudited) and June 30, 1996 (Unaudited) and
for the Years Ended December 31, 1996, 1995 and 1994..................................................... F-55
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1996, 1995 and 1994 and for
the Six Months Ended June 30, 1997 (Unaudited)........................................................... F-56
Statements of Cash Flows for the Six Months Ended June 30, 1997 (Unaudited) and June 30, 1996 (Unaudited)
and for the Years Ended December 31, 1996 and 1995....................................................... F-57
Notes to Financial Statements.............................................................................. F-58
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Bay Bancshares, Inc.
We have audited the accompanying consolidated balance sheets of Bay
Bancshares, Inc. and Subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. 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 Bay Bancshares, Inc. and
Subsidiary as of December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
Effective January 1, 1994, Bay Bancshares, Inc. and Subsidiary adopted
Statement of Accounting Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES.
GRANT THORNTON LLP
Houston, Texas
January 24, 1997 (except for last sentence of
the penultimate paragraph of Note I, as to
which the date is August 26, 1997 and
the third sentence of the second paragraph
of Note K, as to which the date is June 24, 1997)
F-3
<PAGE>
BAY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
JUNE 30, ----------- -----------
1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents
Cash and due from banks................................................. $ 4,314 $ 8,094 $ 6,118
Federal funds sold...................................................... 14,500 10,378 10,138
----------- ----------- -----------
Total cash and cash equivalents....................................... 18,814 18,472 16,256
Interest-bearing deposits with banks...................................... 392 392 490
Securities................................................................ 44,255 43,745 38,588
Loans, net of allowance for credit losses of $1,425, $1,430 and $1,185.... 113,797 118,450 104,611
Bank premises and equipment, net.......................................... 4,806 4,883 4,831
Other real estate......................................................... 208 208 234
Accrued interest receivable............................................... 1,090 974 909
Other assets.............................................................. 1,777 1,887 1,172
----------- ----------- -----------
$ 185,139 $ 189,011 $ 167,091
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing................................................... $ 30,853 $ 34,441 $ 28,316
Interest-bearing deposits............................................. 139,021 138,877 125,018
----------- ----------- -----------
Total deposits........................................................ 169,874 173,318 153,334
Accrued interest payable................................................ 437 467 416
Securities sold under agreements to repurchase.......................... -- 1,000 --
Borrowings.............................................................. 162 162 329
Other liabilities....................................................... 884 1,135 1,109
----------- ----------- -----------
Total liabilities..................................................... 171,357 176,082 155,188
Commitments and contingencies............................................. -- -- --
Stockholders' equity
Common stock, $1 par value, 5,000,000 shares authorized; 1,399,583,
1,391,441 and 1,385,441 shares issued 1,400 1,391 1,385
Additional paid-in capital.............................................. 8,393 8,344 8,320
Retained earnings....................................................... 4,352 3,660 2,582
Net unrealized loss on available-for-sale securities, net of taxes of
$45, $97 and $80...................................................... (89) (189) (155)
----------- ----------- -----------
14,056 13,206 12,132
Less 41,926, 42,445 and 35,199 shares of common stock in treasury--at
cost.................................................................. 274 277 229
----------- ----------- -----------
Total stockholders' equity............................................ 13,782 12,929 11,903
----------- ----------- -----------
$ 185,139 $ 189,011 $ 167,091
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
BAY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Interest income
Loans, including fees........................................ $ 4,951 $ 4,741 $ 9,594 $ 8,505 $ 7,550
Securities................................................... 1,344 1,252 2,612 2,203 1,944
Federal funds sold........................................... 242 221 460 536 133
--------- --------- --------- --------- ---------
Total interest income...................................... 6,537 6,214 12,666 11,244 9,627
Interest expense
Deposits..................................................... 2,718 2,610 5,396 5,361 4,137
Other........................................................ 14 9 47 30 148
--------- --------- --------- --------- ---------
Total interest expense..................................... 2,732 2,619 5,443 5,391 4,285
--------- --------- --------- --------- ---------
Net interest income........................................ 3,805 3,595 7,223 5,853 5,342
Provision for credit losses.................................... 168 219 510 150 75
--------- --------- --------- --------- ---------
Net interest income after provision for
credit losses............................................ 3,637 3,376 6,713 5,703 5,267
Noninterest income
Service charges.............................................. 741 701 1,379 1,375 1,249
Other........................................................ 456 492 968 720 855
--------- --------- --------- --------- ---------
Total noninterest income................................... 1,197 1,193 2,347 2,095 2,104
Noninterest expense
Salaries and employee benefits............................... 1,843 1,600 3,377 2,823 2,636
Occupancy expenses, net...................................... 583 572 1,131 1,028 1,008
Other operating expenses..................................... 1,189 1,097 2,559 2,173 2,225
--------- --------- --------- --------- ---------
Total noninterest expenses................................. 3,615 3,269 7,067 6,024 5,869
--------- --------- --------- --------- ---------
Earnings before income taxes............................... 1,219 1,300 1,993 1,774 1,502
Provision for income taxes
Current...................................................... (19) 243 766 427 34
Deferred..................................................... 383 165 (175) 132 237
--------- --------- --------- --------- ---------
364 408 591 559 271
--------- --------- --------- --------- ---------
NET EARNINGS............................................... $ 855 $ 892 $ 1,402 $ 1,215 $ 1,231
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings per common and common equivalent share................ $ .59 $ .62 $ .97 $ .84 $ .86
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
BAY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET UNREALIZED
GAIN (LOSS)
ON AVAILABLE- COMMON
ADDITIONAL RETAINED FOR-SALE STOCK IN
SHARES AMOUNT CAPITAL EARNINGS SECURITIES TREASURY
----------- --------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994................ 1,373 $ 1,373 $ 8,272 $ 682 $ -- $ (93)
Unrealized gain at January 1, 1994 on
available-for-sale securities from the
initial adoption of Financial Accounting
Standard 115, net of taxes of $17....... -- -- -- -- 33 --
Net earnings for the year................. -- -- -- 1,231 -- --
Issuance of stock......................... 6 6 24 -- -- --
Treasury stock purchases.................. -- -- -- -- -- (14)
Treasury stock sold....................... -- -- -- -- -- 5
Dividends paid............................ -- -- -- (273) -- --
Unrealized loss on available-for-sale
securities, net of taxes of $200........ -- -- -- -- (389) --
----- --------- ----------- ----------- ----- -----
Balance at December 31, 1994.............. 1,379 1,379 8,296 1,640 (356) (102)
Net earnings for the year................. -- -- -- 1,215 -- --
Issuance of stock......................... 6 6 24 -- -- --
Treasury stock purchased.................. -- -- -- -- -- (130)
Treasury stock sold....................... -- -- -- -- -- 3
Dividends paid............................ -- -- -- (273) -- --
Unrealized gain on available-for-sale
securities, net of taxes of $103........ -- -- -- -- 201 --
----- --------- ----------- ----------- ----- -----
Balance at December 31, 1995.............. 1,385 1,385 8,320 2,582 (155) (229)
Net earnings for the year................. -- -- -- 1,402 -- --
Issuance of stock......................... 6 6 24 -- -- --
Treasury stock purchased.................. -- -- -- -- -- (48)
Dividends paid............................ -- -- -- (324) -- --
Unrealized loss on available-for-sale
securities, net of taxes of $17......... -- -- -- -- (34) --
----- --------- ----------- ----------- ----- -----
Balance at December 31, 1996.............. 1,391 1,391 8,344 3,660 (189) (277)
Issuance of stock (unaudited)............. 9 9 49 -- -- --
Dividends (unaudited)..................... -- -- -- (163) -- --
Treasury stock sold (unaudited)........... -- -- -- -- -- 3
Unrealized gain on available-for-sale
securities, net ot taxes of $52
(unaudited)............................. -- -- -- -- 100 --
Net earnings (unaudited).................. -- -- -- 855 -- --
----- --------- ----------- ----------- ----- -----
Balance at June 30, 1997
(unaudited)............................. 1,400 $ 1,400 $ 8,393 $ 4,352 $ (89) $ (274)
----- --------- ----------- ----------- ----- -----
----- --------- ----------- ----------- ----- -----
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
------------
<S> <C>
Balance at January 1, 1994................ $ 10,234
Unrealized gain at January 1, 1994 on
available-for-sale securities from the
initial adoption of Financial Accounting
Standard 115, net of taxes of $17....... 33
Net earnings for the year................. 1,231
Issuance of stock......................... 30
Treasury stock purchases.................. (14)
Treasury stock sold....................... 5
Dividends paid............................ (273)
Unrealized loss on available-for-sale
securities, net of taxes of $200........ (389)
------------
Balance at December 31, 1994.............. 10,857
Net earnings for the year................. 1,215
Issuance of stock......................... 30
Treasury stock purchased.................. (130)
Treasury stock sold....................... 3
Dividends paid............................ (273)
Unrealized gain on available-for-sale
securities, net of taxes of $103........ 201
------------
Balance at December 31, 1995.............. 11,903
Net earnings for the year................. 1,402
Issuance of stock......................... 30
Treasury stock purchased.................. (48)
Dividends paid............................ (324)
Unrealized loss on available-for-sale
securities, net of taxes of $17......... (34)
------------
Balance at December 31, 1996.............. 12,929
Issuance of stock (unaudited)............. 58
Dividends (unaudited)..................... (163)
Treasury stock sold (unaudited)........... 3
Unrealized gain on available-for-sale
securities, net ot taxes of $52
(unaudited)............................. 100
Net earnings (unaudited).................. 855
------------
Balance at June 30, 1997
(unaudited)............................. $ 13,782
------------
------------
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
BAY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net earnings........................................ $ 855 $ 892 $ 1,402 $ 1,215 $ 1,231
Adjustments to reconcile net earnings to net cash
provided by operating activities
Provision for credit losses....................... 168 219 510 150 75
Depreciation...................................... 290 323 619 546 508
Amortization of premiums, net of (accretion) of
discounts on securities......................... 32 40 51 (16) 81
Gain on sale of other real estate................. -- -- -- -- (67)
Loss (gain) on sale of bank premises and
equipment....................................... 4 104 (69) (1) (158)
(Gain) loss on sale of available-for-sale
securities...................................... (12) (20) 19 5 14
Write-down of other real estate................... -- -- 5 -- 24
Effect of phantom stock plan...................... 72 83 144 96 114
Change in assets and liabilities, net of effects
resulting from the purchase and sale of certain
branch assets and liabilities
Increase in accrued interest receivable and
other assets.................................. (57) (179) (227) (611) (64)
(Decrease) increase in accrued interest
payable....................................... (30) 122 15 (41) 81
Decrease in other liabilities................... (264) (39) (108) (4,895) (69)
---------- ---------- ---------- ---------- ----------
Net cash provided (used) by operating
activities.................................... 1,058 1,545 2,361 (3,552) 1,770
Cash flows from investing activities
Maturities of interest-bearing deposits with
banks............................................. -- -- 98 -- 294
Purchase of interest-bearing deposits with banks.... -- -- -- (98) --
Proceeds from maturities and principal repayments of
available-for-sale securities..................... 1,218 1,970 4,238 19,092 2,152
Proceeds from principal repayments of held-
to-maturity securities............................ -- -- -- 215 2,478
Proceeds from sale of available-for-sale
securities........................................ 1,012 1,989 3,954 5,250 9,037
Purchase of available-for-sale securities........... (2,609) (10,080) (13,468) (20,214) (11,978)
Purchase of held-to-maturity securities............. -- -- -- -- (4,080)
Decrease (increase) in loans, net of the effects
resulting from the purchase and sale of certain
branch assets and liabilities..................... 4,485 (7,598) (13,544) 839 (12,491)
</TABLE>
F-7
<PAGE>
BAY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Proceeds from sale of other assets.................. $ -- $ -- $ 21 $ 179 $ 229
Purchases of bank premises and equipment............ (240) (491) (606) (554) (1,232)
Proceeds from sale of bank premises and equipment... 22 103 198 3 --
Net increase in cash resulting from the acquisition
of certain branch assets and the assumption of
certain liabilities............................... -- -- 10,354 -- --
Cash of branch contracted for sale.................. (50)
---------- ---------- ---------- ---------- ----------
Net cash provided (used) by investing
activities...................................... 3,888 (14,107) (8,755) 4,712 (15,641)
Cash flows from financing activities
Net increase in securities and under agreements to
repurchase........................................ (1,000) -- 1,000 -- 20,291
Change in deposits, net of the effects resulting
from the purchase and sale of certain branch
assets and liabilities............................ (3,444) 10,938 8,136 3,510 750
Repayment of borrowings............................. -- -- (167) (917) (167)
Purchase of treasury stock.......................... -- (42) (48) (130) (14)
Sale of treasury stock.............................. 3 -- -- 3 5
Dividends paid...................................... (163) (162) (311) (273) (273)
---------- ---------- ---------- ---------- ----------
Net cash provided (used) by financing
activities...................................... (4,604) 10,734 8,610 2,193 20,592
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents..................................... 342 (1,828) 2,216 3,353 6,721
Cash and cash equivalents at beginning of period...... 18,472 16,256 16,256 12,903 6,182
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents at end of period............ $ 18,814 $ 14,428 $ 18,472 $ 16,256 $ 12,903
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
BAY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
IS UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed
in the preparation of the consolidated financial statements. The policies
conform to generally accepted accounting principles and to general practices
within the banking industry.
1. PRINCIPLES OF CONSOLIDATION AND INVESTMENT IN SUBSIDIARY
The consolidated financial statements include the accounts of Bay
Bancshares, Inc. (BBI) and its wholly-owned subsidiary, Bayshore National Bank
of La Porte (BNB), collectively (the Company). All significant intercompany
accounts and transactions have been eliminated in consolidation.
2. CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks with a maturity at date of purchase of three
months or less, and federal funds sold.
3. SECURITIES
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT
AND EQUITY SECURITIES (Statement 115). At the date of purchase, the Company
classifies 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 are measured at fair value in the financial statements with
unrealized gains and losses included in earnings. Investments not classified as
held-to-maturity or trading are classified as available-for-sale and are
measured at fair value in the financial statements with unrealized gains and
losses reported, net of tax, in a separate component of stockholders' equity
until realized. The Company has classified all investment securities as
available-for-sale.
Gains or losses on disposition are recorded in other income on the trade
date, based on the net proceeds and the adjusted carrying amount of the
securities sold using the specific identification method.
Declines in the fair values 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.
4. LOANS
The Company grants loans to customers primarily in Harris County, Texas and
surrounding counties. Although the Company has a diversified loan portfolio, a
substantial portion of its debtors' ability to honor their contracts is
dependent upon the economy in this area.
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal, adjusted for unearned discounts, any chargeoffs and the
allowance for credit losses. Accretion of unearned discount on certain
installment loans
F-9
<PAGE>
BAY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
IS UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
is recognized principally using the sum-of-the-periodic balance method which
approximates the level yield method. For other loans, interest income is
recognized using the simple interest method.
In 1995, the Company adopted SFAS No. 114, ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN and SFAS No. 118, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF
A LOAN-INCOME RECOGNITION AND DISCLOSURES. 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. All loans past due 90 days are placed on nonaccrual status unless the loan
is both well-secured and in the process of collection. 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.
5. ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is considered adequate to provide for credit
losses based on past loan loss experience and management's evaluation of the
loan portfolio under current economic conditions. While management uses
available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions. Recognized
losses, net of recoveries, are charged to the allowance for loan losses.
Additions to the allowance are included in the consolidated statements of
earnings as provision for credit losses.
6. BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost, less accumulated
depreciation. Depreciation is computed on the straight-line method over the
estimated useful lives of the related assets. Maintenance, repairs and minor
improvements are charged to noninterest expense as incurred.
7. OTHER REAL ESTATE
Real estate properties acquired by foreclosure are recorded at fair value at
the date of foreclosure, establishing a new cost basis. After foreclosure,
valuations are periodically performed by management and the real estate is
carried at the lower of carrying amount or fair value less cost to sell. Revenue
and expenses from operations and changes in the valuation allowance are included
in other non-interest expenses.
8. INCOME TAXES
The Company files a consolidated federal income tax return. By agreement
with BBI, BNB records a provision or benefit for federal income taxes on the
same basis as if it filed a separate federal income tax return.
Deferred income tax assets and liabilities are reported for temporary
differences between items of income or expense reported in the financial
statements and those reported for income tax purposes. For
F-10
<PAGE>
BAY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
IS UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
income tax purposes, BNB deducts the statutory provision for possible loan
losses and depreciates bank premises and equipment using accelerated methods. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes.
9. 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.
Related fees are recognized when they are incurred or received.
10. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
11. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARES
Earnings per common and common equivalent share is calculated by dividing
net income available for common stockholders by the weighted average number of
common stock and common stock equivalents. Stock options are regarded as common
stock equivalents and are therefore considered in earnings per stock
calculations, if dilutive. Options granted within one year of the initial public
offering have been treated as outstanding for all periods as a component of
weighted average common share equivalents. The number of common stock
equivalents is determined using the treasury stock method.
12. INTERIM FINANCIAL INFORMATION
Financial information as of June 30, 1997 and for the six months ended June
30, 1997 and June 30, 1996, included herein, is unaudited. Such information
includes all adjustments (consisting only of normal recurring adjustments),
which are, in the opinion of management, necessary for a fair statement of the
financial information in the interim periods. The results of operations for the
six months ended June 30, 1997 and June 30, 1996 are not necessarily indicative
of the results for the full fiscal year.
NOTE B--RESERVE REQUIREMENTS
Cash and balances maintained at the Federal Reserve of approximately $1,551,
$1,469 and $1,135 satisfy regulatory reserve requirements at June 30, 1997,
December 31, 1996 and December 31, 1995.
F-11
<PAGE>
BAY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
IS UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE C--SECURITIES
The Company has classified all securities as available-for-sale, which are
carried at fair value. The carrying amounts of securities and their approximate
fair value are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Available-for-sale securities:
June 30, 1997 (unaudited):
U. S. Treasury securities............................ $ 7,030 $ 8 $ (41) $ 6,997
Obligations of U.S. government agencies.............. 10,547 12 (59) 10,500
Mortgage-backed securities........................... 22,632 112 (227) 22,517
Other................................................ 4,180 61 -- 4,241
----------- ----- ----- ---------
$ 44,389 $ 193 $ (327) $ 44,255
----------- ----- ----- ---------
----------- ----- ----- ---------
December 31, 1996
U. S. Treasury securities............................ $ 6,024 $ -- $ (47) $ 5,977
Obligations of U.S. government agencies.............. 9,557 30 (62) 9,525
Mortgage-backed securities........................... 25,844 61 (321) 25,584
Other................................................ 2,606 56 (3) 2,659
----------- ----- ----- ---------
$ 44,031 $ 147 $ (433) $ 43,745
----------- ----- ----- ---------
----------- ----- ----- ---------
December 31, 1995
U. S. Treasury securities............................ $ 6,974 $ 15 $ (83) $ 6,906
Obligations of U.S. government agencies.............. 7,750 64 (23) 7,791
Mortgage-backed securities........................... 22,835 42 (260) 22,617
Other................................................ 1,266 8 -- 1,274
----------- ----- ----- ---------
$ 38,825 $ 129 $ (366) $ 38,588
----------- ----- ----- ---------
----------- ----- ----- ---------
</TABLE>
Gross realized gains and gross realized losses on sales of
available-for-sale securities for the periods ended are as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross realized gains
U. S. Treasury securities..................................... $ -- $ 20 $ 20 $ -- $ 24
Mortgage-backed securities.................................... 12 -- -- 9 6
--------- --------- --------- --------- ---------
$ 12 $ 20 $ 20 $ 9 $ 30
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Gross realized losses
Mortgage-backed securities.................................... $ -- $ -- $ -- $ 3 $ 44
U.S. Treasury securities...................................... -- -- 39 8 --
U.S. Government securities.................................... -- -- -- 3 --
--------- --------- --------- --------- ---------
$ -- $ -- $ 39 $ 14 $ 44
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
F-12
<PAGE>
BAY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
IS UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE C--SECURITIES (CONTINUED)
The scheduled maturities of available-for-sale securities at December 31,
1996 are as follows.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
----------- -----------
<S> <C> <C>
Due in one year or less.......................................................... $ -- $ --
Due after one through five years................................................. 11,750 11,693
Due after five through ten years................................................. 3,831 3,810
Mortgage-backed securities and other............................................. 28,450 28,242
----------- -----------
$ 44,031 $ 43,745
----------- -----------
----------- -----------
</TABLE>
Contractual maturities will differ from expected maturities because
borrowers may call or prepay obligations with or without call or prepayment
penalties.
The carrying value of securities pledged to secure public deposits, as
required or permitted by law, is approximately $22,000, $32,000 and $26,300 at
June 30, 1997, December 31, 1996 and 1995.
Securities with an amortized cost of $20,968 and an estimated market value
of $20,653 classified as held-to-maturity were transferred to the
available-for-sale category in December 1995.
NOTE D--LOANS AND ALLOWANCE FOR CREDIT LOSSES
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
JUNE 30, ------------ ------------
1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
Commercial................................................... $ 15,420 $ 17,407 $ 11,378
Real estate
Construction and land development.......................... 2,290 3,306 3,390
1-4 family residential..................................... 2,977 3,115 2,879
Multi-family residential................................... 618 625 62
Non-farm/non-residential................................... 13,889 11,834 11,388
Consumer................................................... 80,138 83,820 77,583
----------- ------------ ------------
115,332 120,107 106,680
Less unearned interest..................................... (110) (227) (884)
Allowance for credit losses................................ (1,425) (1,430) (1,185)
----------- ------------ ------------
$ 113,797 $ 118,450 $ 104,611
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
As of June 30, 1997, December 31, 1996 and December 31, 1995, the Company
has no significant loans which meet the impairment definition; therefore, no
valuation for credit losses related to impaired loans has been established.
The Company has loans, deposits and other transactions with its principal
stockholders, officers, directors and organizations with which such persons are
associated which were made in the ordinary course
F-13
<PAGE>
BAY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
IS UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE D--LOANS AND ALLOWANCE FOR CREDIT LOSSES (CONTINUED)
of business. The aggregate amount of loans outstanding to related parties at
June 30, 1997, December 31, 1996 and December 31, 1995 is approximately $2,859,
$2,517 and $2,597. In addition, the Company makes consumer loans through several
automobile dealerships which are controlled by two members of the board of
directors. Loans obtained through these dealerships totaled approximately
$8,533, $9,475 and $8,718 at June 30, 1997, December 31, 1996 and December 31,
1995.
Changes in the allowance for credit losses were as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance at January 1................................... $ 1,430 $ 1,185 $ 1,185 $ 1,230 $ 1,344
Provision.............................................. 168 219 510 150 75
Charge-offs............................................ (231) (177) (483) (380) (378)
Recoveries............................................. 58 133 218 185 189
--------- --------- --------- --------- ---------
Balance at end of period............................... $ 1,425 $ 1,360 $ 1,430 $ 1,185 $ 1,230
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
NOTE E--BANK PREMISES AND EQUIPMENT
Bank premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
JUNE 30, ------------- -------------
1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
Land......................................................... $ 1,426 $ 1,426 $ 1,496
Building and improvements.................................... 4,497 4,466 4,118
Furniture and fixtures....................................... 3,230 3,113 3,195
Automobiles.................................................. 47 19 19
----------- ------ ------
9,200 9,024 8,828
Less accumulated depreciation................................ 4,394 4,141 3,997
----------- ------ ------
$ 4,806 $ 4,883 $ 4,831
----------- ------ ------
----------- ------ ------
</TABLE>
NOTE F--INTEREST BEARING DEPOSITS
The types of accounts and their respective balances included in
interest-bearing deposits are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
JUNE 30, ------------ ------------
1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
NOW accounts................................................. $ 23,214 $ 23,131 $ 19,892
Money market accounts........................................ 13,990 12,243 9,659
Savings accounts............................................. 28,415 31,036 31,825
Other time deposits.......................................... 73,402 72,467 63,642
----------- ------------ ------------
$ 139,021 $ 138,877 $ 125,018
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
F-14
<PAGE>
BAY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
IS UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE F--INTEREST BEARING DEPOSITS (CONTINUED)
Included in time accounts at June 30, 1997, December 31, 1996 and December
31, 1995 are approximately $6,741, $6,943 and $8,189, in certificates of deposit
in denominations of $100,000 or more.
As of December 31, 1996, the scheduled maturities of other time deposits are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, AMOUNT
- --------------------------------------------------------------------------------------------- ---------
<S> <C>
1997......................................................................................... $ 42,623
1998......................................................................................... 17,002
1999......................................................................................... 3,398
2000......................................................................................... 2,189
2001 and Thereafter.......................................................................... 7,255
---------
$ 72,467
---------
---------
</TABLE>
NOTE G--BORROWINGS
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Borrowings at December 31, are as follows:
Note payable to the City of LaPorte Industrial Development Corporation; principal due
in annual installments of $167,000 through November 1996, with a final principal
payment of $162,000 due in November 1997; interest due quarterly at 65% of prime;
collateralized by deed of trust on bank premises and equipment of BNB............... $ 162 $ 162 $ 329
----- --------- ---------
----- --------- ---------
</TABLE>
NOTE H--INCOME TAXES
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,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for credit losses........................................................... $ 182 $ 9 $ --
Net operating losses.................................................................. -- -- 342
Unrealized loss on available for sale securities...................................... 97 83 184
Stock grant expense................................................................... 133 84 51
Difference in basis of other real estate.............................................. 22 72 111
Tax credits........................................................................... -- -- 181
Other................................................................................. -- 137 54
Valuation allowance................................................................... (126) (228) (272)
--------- --------- ---------
$ 308 $ 157 $ 651
--------- --------- ---------
--------- --------- ---------
Deferred tax liabilities:
Depreciation and amortization differences............................................. $ (208) $ (248) $ (277)
Allowance for credit loss............................................................. -- -- (42)
Other................................................................................. (4) -- (97)
--------- --------- ---------
$ (212) $ (248) $ (416)
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-15
<PAGE>
BAY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
IS UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE H--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,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal income tax rate...................................... 34.00% 34.00% 34.00%
Decrease in valuation allowance........................................ (5.07)% (2.53)% (10.25)%
Tax exempt income...................................................... (0.95)% (0.37)% (0.73)%
Effect of utilization of tax credits................................... -- -- (4.98)%
Other.................................................................. 1.67% .41% --
----- ----- -----------
Effective income tax rate.............................................. 29.65% 31.51% 18.04%
----- ----- -----------
----- ----- -----------
</TABLE>
The valuation allowance on the deferred tax asset was decreased by
approximately $102,000, $44,000 and $154,000 during 1996, 1995 and 1994 based on
management's reevaluation of the likelihood of realization.
NOTE I--COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company enters into various
transactions which, in accordance with generally accepted accounting principles,
are not included in the consolidated balance sheets. These transactions are
referred to as "off-balance sheet commitments". The Company enters into these
transactions to meet the financing needs of its customers. These transactions
include commitments to extend credit and letters of credit which involve
elements of credit risk in excess of the amounts recognized in the consolidated
balance sheets. The Company minimizes its exposure to loss under these
commitments by subjecting them to credit approval and monitoring procedures.
The Company enters into contractual commitments to extend credit, normally
with fixed expiration dates or termination clauses, at specified rates and for
specific purposes. Customers use credit commitments to ensure that funds will be
available for working capital purposes, for capital expenditures and to ensure
access to funds at specified terms and conditions. Substantially all of the
Company's commitments to extend credit are contingent upon customers maintaining
specific credit standards at the time of loan funding. Management assesses the
credit risk associated with certain commitments to extend credit in determining
the level of the allowance for credit losses.
Letters of credit are written conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. The Company's
policies generally require that letters of credit arrangements contain security
and debt covenants similar to those contained in loan agreements.
F-16
<PAGE>
BAY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
IS UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE I--COMMITMENTS AND CONTINGENCIES (CONTINUED)
Outstanding commitments and letters of credit are approximately as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
Commitments to extend credit.......................................... $ 11,592 $ 11,537 $ 8,293
----------- --------- ---------
----------- --------- ---------
Letters of credit..................................................... $ 107 $ 161 $ 76
----------- --------- ---------
----------- --------- ---------
</TABLE>
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.
BNB implemented a 401(k) plan covering substantially all employees in 1993.
BNB matches 33% of each employee's contribution up to 6% of annual salary. Total
contributions accrued or paid for the period ended June 30, 1997, December 31,
1996 and December 31, 1995 are approximately $30, $28 and $24. Beginning January
1, 1997, the Company began matching 50% of each employee's contribution up to 6%
of the annual salary.
During 1997, the Company created the 1997 Stock Plan (the "1997 Stock
Plan"). This plan authorizes the issuance of up to 150,000 shares of common
stock. Under the 1997 Stock Plan, the vesting of options is governed by
individual option agreements. Each of the option agreements currently
outstanding provides that 20% of the options granted vest immediately following
the date of grant and an additional 20% each year thereafter. Options granted
under the 1997 Stock Plan generally must be exercised within 10 years following
the date of grant. At June 30, 1997, the Company had outstanding 20,000 shares
under this plan with an exercise price of $7.05 a share and 6,660 of these
shares are exercisable at June 30, 1997. On August 26, 1997, the Company granted
an additional 13,300 shares with an exercise price of $7.05 a share.
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.
NOTE J--ACQUISITIONS
On August 22, 1996, the Company acquired in a purchase and assumption
transaction, certain assets and liabilities of First Bank of Texas. The
acquisition has been accounted for as a purchase and resulted in the Company
acquiring approximately $800 in loans, $200 in fixed assets and $12,000 in
deposits. The excess of the cost over the fair value of the net assets acquired
in the amount of $533 is being amortized over fifteen years.
F-17
<PAGE>
BAY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
IS UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE J--ACQUISITIONS (CONTINUED)
During June 1997, the Company entered into agreements whereby the Company
would purchase three banks for approximately $15,870 in cash. As of June 30,
1997, these banks totaled approximately $38,000 in loans and $77,000 in
deposits.
NOTE K--EXECUTIVE COMPENSATION
The Company has a phantom stock grant plan whereby the Company may issue
shares of phantom stock to certain officers and key employees. The aggregate
number of shares that may be issued under the Plan is limited to 135,000. The
number of shares issued is determined based on a financial performance test for
BNB. The phantom stock is nonvoting, accrues dividends declared on the Company's
common stock, and is granted subject to a vesting schedule.
The shares of phantom stock may be redeemed, as vested, at a maximum rate of
6,000 shares per year. Such redemption is payable, at the Company's discretion,
in shares of the Company's common stock or cash at the then fair market value of
the Company's common stock. In 1996, 1995 and 1994, 18,478, 16,357 and 20,384
shares of phantom stock were granted and 6,000 shares of phantom stock were
redeemed for 6,000 shares of the Company's common stock each year. Effective
June 24, 1997, the plan was amended and 35,411 shares were granted. Total
compensation expense charged to the Company's operations for the six months
ended June 30, 1997 and 1996 was $72 and $83, respectively, and for the years
ended December 31, 1996, 1995 and 1994 was $114, $66 and $114, respectively.
The Bank has a cash incentive plan which provides guidelines whereby key
executive employees can earn bonus compensation based on the profitability of
BNB. The bonus amounts are determined based on achievement by BNB of certain
percentages of return on equity targets. Total expense under this plan for the
six months ended June 30, 1997 and 1996 was $69 and $39, respectively, and for
the years ended December 31, 1996, 1995 and 1994 was $78, $72 and $67,
respectively.
NOTE L--REPURCHASE AGREEMENT
During 1996, the Company signed a repurchase agreement with a customer.
Securities sold under agreements to repurchase generally mature within one to
four days from the transaction date.
Information concerning securities sold under agreements to repurchase is
summarized as follows:
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Average balance during the year...................................................... $ 1,000
Average interest rate during the year................................................ 5%
Maximum month-end balance during the year............................................ 1,000
Mortgage-backed securities underlying the agreements at year-end:
Carrying value..................................................................... $ 1,000
Estimated fair value............................................................... $ 1,000
</TABLE>
F-18
<PAGE>
BAY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
IS UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE M--FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, DISCLOSURE ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS (Statement 107) and Statement of Financial
Accounting Standards No. 119, DISCLOSURES ABOUT DERIVATIVE FINANCIAL INSTRUMENTS
AND FAIR VALUE OF FINANCIAL INSTRUMENTS (Statement 119) requires that the
Company disclose estimated fair values for its financial instruments. Such
information, which pertains to financial instrument assets and liabilities, is
based on the requirements in Statements 107 and 119 and does 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 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.
DEPOSITS
Under Statement 107, 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, 1996 (i.e., their carrying amounts).
Statement 107 defines the fair value of demand deposits 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 above fair
value amounts nor recorded as an intangible asset in the balance sheet.
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.
F-19
<PAGE>
BAY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
IS UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE M--FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
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 estimated fair values
of the Company's financial instruments at December 31.
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents............................ $ 18,472 $ 18,472 $ 16,256 $ 16,256
Securities........................................... 43,745 43,745 38,588 38,588
Loans, net........................................... 118,450 118,521 104,611 106,957
Financial liabilities:
Deposits
Noninterest-bearing................................ 34,441 34,441 28,316 28,316
Interest-bearing transaction accounts.............. 66,410 66,410 61,376 61,370
Certificates of deposits........................... 72,467 72,803 63,642 64,179
</TABLE>
The total fair value of the Company's commitments to extend credit and
stand-by letters of credit was immaterial at December 31, 1996 and 1995.
NOTE N--REGULATORY MATTERS
BBI and BNB are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on their financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, BBI and BNB must meet
specific capital guidelines that involve quantitative measures of the assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The 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 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) be
maintained. Management believes, as of December 31, 1996, that BBI and BNB meet
all capital adequacy requirements to which they are subject.
The most recent notification the Office of the Comptroller of the Currency
categorized BNB 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 1 risk-based, and Tier 1 leverage ratios
F-20
<PAGE>
BAY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
IS UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE N--REGULATORY MATTERS (CONTINUED)
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.
BBI and BNB's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL ADEQUACY PROMPT CORRECTIVE
ACTUAL: PURPOSES: ACTION PROVISIONS:
-------------------------- ---------------------------- --------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1997
(unaudited):
TOTAL CAPITAL (TO RISK
WEIGHTED ASSETS)
Bay Bancshares, Inc....... $ 14,707 11.24% $10,463 8.00% N/A
Bayshore National Bank.... $ 14,745 11.29% $10,453 8.00% $13,066 >=10.0%
TIER 1 CAPITAL (TO RISK
WEIGHTED ASSETS)
Bay Bancshares, Inc....... $ 13,282 10.16% $ 5,232 4.00% N/A
Bayshore National Bank.... $ 13,320 10.19% $ 5,226 4.00% $ 7,839 >=6.0%
TIER 1 CAPITAL (TO AVERAGE
ASSETS)
Bay Bancshares, Inc....... $ 13,282 7.25% $ 7,328 3.00% N/A
Bayshore National Bank.... $ 13,320 7.28% $ 7,323 3.00% $ 6,533 >=5.0%
As of December 31, 1996
TOTAL CAPITAL (TO RISK
WEIGHTED ASSETS)
Bay Bancshares, Inc....... $ 14,031 10.45% >=$ 10,741 >=8.0% N/A
Bayshore National Bank.... $ 13,980 10.43% >=$ 10,723 >=8.0% >=$ 13,404 >=10.0%
TIER 1 CAPITAL (TO RISK
WEIGHTED ASSETS)
Bay Bancshares, Inc....... $ 12,601 9.39% >=$ 5,368 >=4.0% N/A
Bayshore National Bank.... $ 12,550 9.36% >=$ 5,363 >=4.0% >=$ 8,045 >=6.0%
TIER 1 CAPITAL (TO AVERAGE
ASSETS)
Bay Bancshares, Inc....... $ 12,601 6.67% >=$ 7,557 >=3.0% N/A
Bayshore National Bank.... $ 12,550 6.67% >=$ 7,526 >=3.0% >=$ 9,408 >=5.0%
As of December 31, 1995
TOTAL CAPITAL (TO RISK
WEIGHTED ASSETS)
Bay Bancshares, Inc....... $ 13,243 11.14% >=$ 9,510 >=8.0% N/A
Bayshore National Bank.... $ 12,981 10.92% >=$ 9,444 >=8.0% >=$ 9,444 >=10.0%
TIER 1 CAPITAL (TO RISK
WEIGHTED ASSETS)
Bay Bancshares, Inc....... $ 12,058 10.14% >=$ 4,757 >=4.0% N/A
Bayshore National Bank.... $ 11,706 9.92% >=$ 4,720 >=4.0% >=$ 4,720 >=6.0%
TIER 1 CAPITAL (TO AVERAGE
ASSETS)
Bay Bancshares, Inc....... $ 12,058 7.33% >=$ 6,580 >=3.0% N/A
Bayshore National Bank.... $ 11,706 7.01% >=$ 6,680 >=3.0% >=$ 6,680 >=5.0%
</TABLE>
F-21
<PAGE>
BAY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND JUNE 30, 1996 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE O--SUPPLEMENTAL STATEMENT OF CASH FLOW INFORMATION
Cash paid during the period for:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Interest....................................................... $ 2,761 $ 2,496 $ 5,392 $ 5,432 $ 4,220
Income taxes................................................... $ 323 $ 363 $ 811 $ 393 $ 15
Noncash transactions during the period:
Dividends payable.............................................. $ 81 $ 81 $ 81 $ 68 $ 68
</TABLE>
NOTE P--EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
YEAR ENDED DECEMBER 31,
-------------------------- ----------------------------------------
1997 1996 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Net earnings....................................... $ 855 $ 892 $ 1,402 $ 1,215 $ 1,231
Divided by average common shares and common share
equivalents
Weighted average common shares................... 1,356,260 1,350,867 1,351,872 1,365,741 1,364,201
Weighted average common share equivalents........ 83,012 89,012 89,012 76,534 66,177
------------ ------------ ------------ ------------ ------------
Total weighted average common and common equivalent
shares........................................... 1,439,272 1,439,879 1,440,884 1,442,275 1,430,378
------------ ------------ ------------ ------------ ------------
Earnings per common and common equivalent share.... $ .59 $ .62 $ .97 $ .84 $ .86
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
NOTE Q--NEW PRONOUNCEMENTS
The FASB has issued Financial Accounting Standards No. 125 Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities.
This statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities. The statement
is effective for transfers and servicing of financial assets and extinguishment
of liabilities occurring after December 31, 1996. The Company does not expect
this pronouncement to have a material effect on its financial statements.
The FASB has issued Financial Accounting Standards No. 128, EARNINGS PER
SHARE, which is effective for financial statements issued after December 15,
1997. The new standard eliminates primary and fully diluted earnings per share
and requires the presentation of basic and diluted earnings per share together
with disclosure of how the per share amounts were computed. The pro forma effect
of adopting the new standard would be basic earnings per share of $.63 and $.66
and diluted earnings per share of $.59 and $.64 for the six months ended June
30, 1997 and 1996.
F-22
<PAGE>
BAY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND JUNE 30, 1996 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE Q--NEW PRONOUNCEMENTS (CONTINUED)
The FASB has issued Financial Accounting Standards No. 130, REPORTING
COMPREHENSIVE INCOME, which is effective for financial statements issued after
December 15, 1997. The new standard requires an entity to report and display
comprehensive income and its components. Comprehensive income will include net
income plus net unrealized gain or loss on securities.
NOTE R--PARENT-ONLY FINANCIAL STATEMENTS
BAY BANCSHARES, INC.
(PARENT ONLY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash and cash equivalents......................................................... $ 58 $ 367
Interest bearing deposits with banks.............................................. -- 98
Investment in subsidiary.......................................................... 13,029 11,552
Other assets...................................................................... 188 113
--------- ---------
$ 13,275 $ 12,130
--------- ---------
--------- ---------
LIABILITIES
Other liabilities................................................................. $ 346 $ 227
--------- ---------
Total liabilities............................................................... 346 227
Commitments and contingencies..................................................... -- --
Stockholders' equity
Common stock.................................................................... 1,391 1,385
Additional paid-in capital...................................................... 8,344 8,320
Net unrealized loss on available-for-sale securities, net of taxes of $97 in
1996 and $80 in 1995.......................................................... (189) (155)
Retained earnings............................................................... 3,660 2,582
--------- ---------
13,206 12,132
Less common stock in treasury--at cost.......................................... (277) (229)
--------- ---------
12,929 11,903
--------- ---------
$ 13,275 $ 12,130
--------- ---------
--------- ---------
</TABLE>
F-23
<PAGE>
BAY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND JUNE 30, 1996 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE R--PARENT-ONLY FINANCIAL STATEMENTS (CONTINUED)
BAY BANCSHARES, INC.
(PARENT ONLY)
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Interest income
Securities......................................................................... $ 4 $ 4 $ 4
--------- --------- ---------
4 4 4
Costs and expenses
General and administrative......................................................... 152 102 102
--------- --------- ---------
Loss before income taxes and equity in net earnings of subsidiary.................. (148) (98) (98)
Income taxes (benefit)
Current............................................................................ 52 (343) (497)
Deferred........................................................................... (92) 317 274
--------- --------- ---------
(Loss) earnings before equity in net earnings of subsidiary........................ (108) (72) 125
Equity in net earnings of subsidiary................................................. 1,510 1,287 1,106
--------- --------- ---------
NET EARNINGS..................................................................... $ 1,402 $ 1,215 $ 1,231
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-24
<PAGE>
BAY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND JUNE 30, 1996 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE R--PARENT-ONLY FINANCIAL STATEMENTS (CONTINUED)
BAY BANCSHARES, INC.
(PARENT ONLY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings
Net earnings for the year....................................................... $ 1,402 $ 1,215 $ 1,231
Adjustments to reconcile net earnings to net cash used in operating activities:
Earnings of subsidiary........................................................ (1,510) (1,287) (1,106)
Phantom stock plan............................................................ 144 96 114
Change in assets and liabilities
Decrease (increase) in other assets......................................... (75) 230 273
Increase (decrease) in other liabilities.................................... (77) (14) 23
--------- --------- ---------
Net cash (used) provided in operating activities.......................... (116) 240 535
Cash flows from investing activities:
Maturities of interest-bearing deposits with banks............................ 98 -- 294
Purchases of interest-bearing deposits with banks............................. -- (98) --
--------- --------- ---------
Net cash provided (used) by investing activities.......................... 98 (98) 294
Cash flows from financing activities:
Purchase of treasury stock.................................................... (48) (130) (14)
Sale of treasury stock........................................................ -- 3 5
Dividend payment.............................................................. (243) (273) (273)
--------- --------- ---------
Net cash used in financing activities..................................... (291) (400) (282)
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents.............................. (309) (258) 547
Cash and cash equivalents at beginning of year.................................... 367 625 78
--------- --------- ---------
Cash and cash equivalents at end of year.......................................... $ 58 $ 367 $ 625
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-25
<PAGE>
INDEPENDENT AUDITOR'S REPORT
September 10, 1997
To the Board of Directors and Stockholders
Texas Bank
Baytown, Texas
We have audited the accompanying balance sheets of Texas Bank as of December
31, 1996 and 1995, and the related statements of income, changes in
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit 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 Texas Bank as of December
31, 1996 and 1995, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
We have not performed any auditing procedures since April 24, 1997, the date
of our report
We have compiled the balance sheet of Texas Bank as of June 30, 1997, and
the related statements of income, changes in stockholders' equity, and cash
flows for the six months then ended, and for the six months ended June 30, 1996,
in accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the financial statements as of June 30, 1997 and 1996, and for the six
months then ended, and, accordingly, do not express an opinion or any other form
of assurance on them.
McClelland, Samuel, & Fehnel, L.L.P.
F-26
<PAGE>
TEXAS BANK
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
JUNE 30, ------------- -------------
1997
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and due from banks............................................. $ 2,796,455 $ 2,912,551 $ 1,933,741
Interest bearing deposits with banks................................ 500,000 1,000,000
Federal funds sold.................................................. 2,102,000 5,905,000 9,660,000
Securities available for sale (Note 2).............................. 14,919,880 7,600,746 6,353,166
Loans, net (Note 3)................................................. 19,381,418 19,622,010 18,803,271
Properties and equipment, net (Note 4).............................. 890,213 911,167 988,312
Accrued income...................................................... 439,026 249,638 243,738
Other real estate................................................... 388,057 388,057 406,557
Other assets........................................................ 129,987 314,642 107,695
------------- ------------- -------------
$ 41,547,036 $ 38,903,811 $ 38,496,480
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand.......................................................... $ 12,244,582 $ 11,625,391 $ 11,649,293
NOW............................................................. 2,958,484 3,163,457 3,084,129
Savings......................................................... 2,830,861 2,922,624 2,366,271
Money Market.................................................... 5,139,369 2,980,220 3,730,593
Time, $100,000 and over......................................... 2,942,389 2,852,209 2,115,179
Other time...................................................... 11,620,723 11,664,803 11,982,059
------------- ------------- -------------
37,736,408 35,208,704 34,927,524
Accrued interest and other liabilities 116,624 21,585 163,780
------------- ------------- -------------
37,853,032 35,230,289 35,091,304
------------- ------------- -------------
Commitments and Contingent Liabilities (Note 8)
STOCKHOLDERS' EQUITY
Common stock, par value $3.75; 77,616 shares authorized, issued,
and outstanding................................................. 291,060 291,060 291,060
Surplus........................................................... 1,708,940 1,708,940 1,708,940
Retained earnings................................................. 1,705,974 1,662,941 1,362,989
Net unrealized appreciation (depreciation) on securities available
for sale, net of tax of $6,166, $5,451 and $0................... (11,970) 10,581 42,187
------------- ------------- -------------
3,694,004 3,673,522 3,405,176
------------- ------------- -------------
$ 41,547,036 $ 38,903,811 $ 38,496,480
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See Accountant's Compilation Report for June 30, 1997.
The accompanying notes are an integral part of the financial statements.
F-27
<PAGE>
TEXAS BANK
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------- --------------------------
1997 1996 1996 1995
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans............................. $ 977,680 $ 1,028,111 $ 2,060,907 $ 2,126,686
Interest on investment securities...................... 499,146 212,450 420,710 563,578
Interest on federal funds sold......................... 121,258 216,898 394,554 219,911
------------ ------------ ------------ ------------
1,598,084 1,457,459 2,876,171 2,910,175
------------ ------------ ------------ ------------
INTEREST EXPENSE
Interest on deposits................................... 656,462 492,614 977,460 933,221
------------ ------------ ------------ ------------
NET INTEREST INCOME.................................. 941,622 964,845 1,898,711 1,976,954
PROVISION FOR LOAN LOSSES (Note 3)....................... -0- -0- -0- 150,000
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES............................................. 941,622 964,845 1,898,711 1,826,954
------------ ------------ ------------ ------------
OTHER INCOME (LOSS)
Service charges on deposit accounts.................... 252,788 251,292 529,048 513,305
Other service charges and fees......................... 70,919 77,482 149,936 101,819
Other income........................................... 41,352 27,180 53,352 53,462
Gain (loss) on the sale of assets...................... (3,328) 357 431 (17,076)
------------ ------------ ------------ ------------
361,731 356,311 732,767 651,510
------------ ------------ ------------ ------------
OTHER EXPENSE
Salaries and employee benefits......................... 482,020 391,526 820,745 736,779
Occupancy and equipment expense........................ 132,367 128,497 267,899 282,534
Other expenses......................................... 441,408 456,742 831,457 853,381
------------ ------------ ------------ ------------
1,055,795 976,765 1,920,101 1,872,694
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES........................... 247,558 344,391 711,377 605,770
PROVISIONS FOR INCOME TAXES (Note 6)..................... 81,555 92,680 204,986 195,788
------------ ------------ ------------ ------------
NET INCOME........................................... $ 166,003 $ 251,711 $ 506,391 $ 409,982
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
EARNINGS PER SHARE....................................... $ 2.14 $ 3.24 $ 6.52 $ 5.28
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See Accountant's Compilation Report for June 30, 1997 and 1996.
The accompanying notes are an integral part of the financial statements.
F-28
<PAGE>
TEXAS BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
NET
UNREALIZED
APPRECIATION
(DEPRECIATION)
COMMON STOCK ON AVAILABLE- TOTAL
--------------------- RETAINED FOR-SALE STOCKHOLDER'S
SHARES PAR VALUE SURPLUS EARNINGS SECURITIES EQUITY
--------- ---------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994............ 77,616 $ 291,060 $ 1,708,940 $ 1,051,580 $ (170,283) $2,881,297
Dividends paid.......................... (98,573) (98,573)
Net income.............................. 409,982 409,982
Net change in unrealized appreciation
(depreciation) on securities available
for sale.............................. 212,470 212,470
--------- ---------- ------------ ------------ ------------- ------------
Balance at December 31, 1995............ 77,616 291,060 1,708,940 1,362,989 42,187 3,405,176
Dividends paid.......................... (206,439) (206,439)
Net income.............................. 506,391 506,391
Net change in unrealized appreciation
(depreciation) on securities available
for sale.............................. (31,606) (31,606)
--------- ---------- ------------ ------------ ------------- ------------
Balance at December 31, 1996............ 77,616 291,060 1,708,940 1,662,941 10,581 3,673,522
--------- ---------- ------------ ------------ ------------- ------------
Dividends paid (unaudited).............. (122,970) (122,970)
Net income (unaudited).................. 166,003 166,003
Net change in unrealized appreciation
(depreciation) on securities available
for sale (unaudited).................. (22,551) (22,551)
--------- ---------- ------------ ------------ ------------- ------------
Balance at June 30, 1997 (unaudited).... 77,616 $ 291,060 $ 1,708,940 $ 1,705,974 $ (11,970) $3,694,004
--------- ---------- ------------ ------------ ------------- ------------
--------- ---------- ------------ ------------ ------------- ------------
</TABLE>
See Accountant's Compilation Report for June 30, 1997.
The accompanying notes are an integral part of the financial statements.
F-29
<PAGE>
TEXAS BANK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------- --------------------------
1997 1996 1996 1995
------------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.......................................... $ 166,003 $ 251,711 $ 506,391 $ 409,982
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 46,984 50,031 86,939 160,070
Provision for loan losses......................... 150,000
Loss on sale of securities available for sale..... 4,393
Deferred income taxes............................. (242) 30,482
Gain on sale of properties and equipment.......... (1,065) (357) (1,315)
(Increase) decrease in accrued income............. (189,388) (12,978) (5,900) 23,488
(Increase) decrease in other assets............... 184,655 22,711 (206,705) 85,750
Increase (decrease) in accrued interest and other
liabilities..................................... 95,039 (4,068) (147,646) 95,875
------------- ------------ ------------ ------------
306,621 307,050 231,522 955,647
------------- ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest bearing deposits
with banks........................................ 500,000 (1,000,000)
Net (increase) decrease in federal funds sold....... 3,803,000 2,255,000 3,755,000 (6,625,000)
Proceeds from maturities of securities available for
sale.............................................. 2,630,000 417,924 2,310,000 4,044,454
Proceeds from sales of securities available for
sale.............................................. 6,389,879
Purchases of securities available for sale.......... (16,367,314) (2,048,783) (3,548,783)
Net (increase) decrease in loans.................... 240,592 (1,114,552) (818,739) (160,669)
Proceeds from other real estate..................... 18,500 18,500
Proceeds from disposition of properties and
equipment......................................... 16,000
Purchases of properties and equipment............... (23,608) (59,431) (43,746)
------------- ------------ ------------ ------------
(2,827,451) (471,911) 672,547 (2,784,961)
------------- ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in demand deposits, NOW,
money market, and savings accounts................ 2,481,604 223,677 (138,594) 23,376
Net increase in time deposits....................... 46,100 85,118 419,774 1,460,058
Dividends paid...................................... (122,970) (49,674) (206,439) (98,573)
------------- ------------ ------------ ------------
2,404,734 259,121 74,741 1,384,861
------------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... (116,096) 94,260 978,810 (444,453)
CASH AND CASH EQUIVALENTS
Beginning of the period............................. 2,912,551 1,933,741 1,933,741 2,378,194
------------- ------------ ------------ ------------
End of the period................................... $ 2,796,455 $ 2,028,001 $ 2,912,551 $ 1,933,741
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
SUPPLEMENTARY DISCLOSURE
Interest paid....................................... $ 487,196 $ 485,277 $ 965,251 $ 906,671
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
Income taxes paid................................... $ 81,048 $ 145,500 $ 315,500 $ 129,474
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
</TABLE>
See Accountant's Compilation Report for June 30, 1997 and 1996.
The accompanying notes are an integral part of the financial statements.
F-30
<PAGE>
TEXAS BANK
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996 IS UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS: The Bank provides a variety of financial services for
its customers, through its two locations in Baytown and Mont Belvieu, Texas. The
Bank's primary deposit products are checking and certificate of deposit
accounts, and its primary lending products are real estate and commercial loans.
USE OF 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 reported 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 losses on loans and the
valuation of real estate acquired in connection with foreclosures of loans. In
connection with the determination of the valuation of other real estate,
management obtains independent appraisals for significant properties.
INVESTMENTS IN SECURITIES: The Bank's investments in securities are all
classified as Securities Available for Sale. Securities available for sale
consist of bonds and notes not classified as securities to be held to maturity.
The Bank does not consider any of its securities as "securities to be held to
maturity," which are securities for which the Bank has the positive intent and
ability to hold to maturity or "trading securities," which would be any
securities held principally for resale in the near term.
Unrealized holding gains and losses, net of tax, on securities available for
sale are reported as a net amount in a separate component of shareholders'
equity until realized.
Gains and losses on the sale of securities available for sale are determined
using the specific-identification method.
If declines in the fair value below cost of individual held to maturity
securities and available for sale securities are other than temporary, the
individual security would be written down to its fair value. The related write
down would be included in earnings as realized losses.
ALLOWANCE FOR LOAN LOSSES: The allowance is maintained at a level adequate
to absorb probable losses. Management determines the adequacy of the allowance
based upon review of individual loans, recent loss experience, current economic
conditions, the risk characteristics of the various categories of loans, and
other pertinent factors. Loans deemed uncollectible are charged to the
allowance. Provisions for loan losses, which are charged to expense, and
recoveries on loans previously charged off are added to the allowance. Because
of uncertainties inherent in the estimation process, management's estimate of
credit losses inherent in the loan portfolio and the related allowance may
change in the near term.
PROPERTIES AND EQUIPMENT: Properties and equipment are stated at cost, less
accumulated depreciation. The provision for depreciation is computed on the
straight-line method over the expected asset life.
INTEREST INCOME ON LOANS: Unearned discount on installment loans is
recognized as income over the terms of the loans by the sum of the periodic
balances method. Interest on other loans is accrued and credited to income based
on the principal amount outstanding. The accrual of interest on loans is
F-31
<PAGE>
TEXAS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996 IS UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
discontinued when, in the opinion of management, there is an indication that the
borrower may be unable to meet payments as they become due. Upon such
discontinuance, all unpaid accrued interest is reversed.
OTHER REAL ESTATE: Other real estate, acquired through partial or total
satisfaction of loans, is initially carried at the lower of the fair market
value of the other real estate or the balance of the loan which was secured by
the other real estate. At the date of acquisition, losses are charged to the
allowance for loan losses. If the fair market value of the other real estate
subsequently decreases, the carrying amount is adjusted and write downs are
charged to the current period operations. Gains or losses on disposition of
other real estate are also recorded under current period operations.
OFF BALANCE SHEET FINANCIAL INSTRUMENTS: In the ordinary course of business
the Bank has entered into off balance sheet financial instruments consisting of
commitments to extend credit and standby letters of credit. Such financial
instruments are recorded in the financial statements when they become payable.
CASH AND CASH EQUIVALENTS: For purposes of presentation in the Statements
of Cash Flows, cash and cash equivalents are defined as those amounts included
in the balance sheet caption "Cash and Due from Banks."
INCOME TAXES: Provisions for income taxes are based on taxes payable or
refundable for the current year (after exclusion of non-taxable income such as
interest on state and municipal securities) and deferred taxes on temporary
differences between the amount of taxable income and pretax financial income and
between the tax bases of assets and liabilities and their reported amounts in
the financial statements. Deferred tax assets and liabilities are included in
the financial statements at currently enacted income tax rates applicable to the
period in which the deferred tax assets and liabilities are expected to be
realized or settled as prescribed in FASB Statement No. 109, Accounting for
Income Taxes. As change in tax laws or rates are enacted, deferred tax assets
and liabilities are adjusted through the provision for income taxes.
INTERIM FINANCIAL INFORMATION: Financial information as of June 30, 1997,
and for the six months ended June 30, 1997 and 1996, included herein, is
unaudited. Such information includes all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair statement of the financial information in the interim periods. The results
of operations for the six months ended June 30, 1997 and 1996 are not
necessarily indicative of the results for the full fiscal year.
F-32
<PAGE>
TEXAS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996 IS UNAUDITED)
NOTE 2--INVESTMENT SECURITIES
The carrying amounts of investment securities as shown in the balance sheet
of the Bank and their approximate fair values were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Securities available for sale--
June 30, 1997 (unaudited):
U.S. Treasury securities....................... $ 2,700,573 $ 330 $ 5,377 $ 2,695,526
Municipals..................................... 1,844,872 7,490 640 1,851,722
U.S. Government and agency securities.......... 10,392,571 1,841 21,780 10,372,632
------------- ----------- ----------- -------------
$ 14,938,016 $ 9,661 $ 27,797 $ 14,919,880
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
December 31, 1996:
Municipals..................................... $ 2,378,729 $ 11,341 $ 954 $ 2,389,116
U.S. Government and agency securities.......... 5,202,602 12,168 6,514 5,208,256
Other mortgage-backed securities............... 3,383 9 3,374
------------- ----------- ----------- -------------
$ 7,584,714 $ 23,509 $ 7,477 $ 7,600,746
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
December 31, 1995:
Municipals..................................... $ 2,898,181 $ 10,087 $ 14,704 $ 2,893,564
U.S. Government and agency securities.......... 3,304,415 46,280 156 3,350,539
Other mortgage-backed securities............... 108,383 680 109,063
------------- ----------- ----------- -------------
$ 6,310,979 $ 57,047 $ 14,860 $ 6,353,166
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
Securities with an aggregate book value of $10,461,802; $3,631,922; and
$3,638,065 at June 30, 1997; December 31, 1996; and December 31, 1995;
respectively, were pledged as collateral to secure public deposits.
The scheduled maturities of securities available for sale at December 31,
1996, were as follows:
<TABLE>
<CAPTION>
COST FAIR VALUE
------------ ------------
<S> <C> <C>
Due in one year or less..................................................... $ 3,953,328 $ 3,966,386
Due from one year to five years............................................. 3,628,003 3,630,986
Due from five to ten years..................................................
Due after ten years.........................................................
------------ ------------
7,581,331 7,597,372
Variable rate debt securities............................................... 3,383 3,374
------------ ------------
$ 7,584,714 $ 7,600,746
------------ ------------
------------ ------------
</TABLE>
F-33
<PAGE>
TEXAS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996 IS UNAUDITED)
NOTE 3--LOANS AND ALLOWANCE FOR LOAN LOSSES
The components of loans in the balance sheets were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
JUNE 30, 1997 ------------- -------------
-------------
(UNAUDITED)
<S> <C> <C> <C>
Construction.............................................. $ 1,157,977 $ 1,592,846 $ 1,020,407
Commercial................................................ 5,943,812 5,467,064 6,041,346
Real estate............................................... 9,932,051 10,059,149 8,986,192
Agricultural.............................................. 10,804 20,860 40,250
Personal and other........................................ 2,600,788 2,822,961 3,134,269
------------- ------------- -------------
19,645,432 19,962,880 19,222,464
Unearned discount......................................... (90,277) (153,598) (223,653)
------------- ------------- -------------
19,555,155 19,809,282 18,998,811
Allowance for loan losses................................. (173,737) (187,272) (195,540)
------------- ------------- -------------
$ 19,381,418 $ 19,622,010 $ 18,803,271
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
An analysis of the change in the allowance for loan losses follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
---------------------- ----------------------
1997 1996 1996 1995
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance January 1...................................... $ 187,272 $ 195,540 $ 195,540 $ 179,554
---------- ---------- ---------- ----------
Loans charged off...................................... (19,759) (14,472) (27,724) (166,824)
Recoveries............................................. 6,224 1,337 19,456 32,810
---------- ---------- ---------- ----------
Net loans charged off................................ (13,535) (13,135) (8,268) (134,014)
Provision for loan losses.............................. -0- -0- -0- 150,000
---------- ---------- ---------- ----------
Balance at end of period............................... $ 173,737 $ 182,405 $ 187,272 $ 195,540
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The maturities of fixed rate loans at December 31, 1996, were as follows:
<TABLE>
<S> <C>
Due in one year of less................................................ $3,578,589
Due from one to five years............................................. 5,590,259
Due from five to ten years............................................. 2,761,541
----------
11,930,389
Variable rate loans.................................................... 8,032,491
----------
$19,962,880
----------
----------
</TABLE>
F-34
<PAGE>
TEXAS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996 IS UNAUDITED)
NOTE 4--PROPERTIES AND EQUIPMENT
Components of properties and equipment included in the balance sheets were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
JUNE 30, ------------ ------------
1997
------------
(UNAUDITED)
<S> <C> <C> <C>
Cost:
Land........................................................ $ 178,132 $ 178,132 $ 178,132
Buildings and improvements.................................. 723,872 712,718 712,718
Furniture and equipment..................................... 545,837 533,384 473,953
Automobiles................................................. 41,997 41,997 69,821
------------ ------------ ------------
1,489,838 1,466,231 1,434,624
Less accumulated depreciation............................... 599,625 555,064 446,312
------------ ------------ ------------
$ 890,213 $ 911,167 $ 988,312
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Depreciation expense of $121,891 for 1996 and $142,468 for 1995 is included
as part of occupancy and equipment expense.
NOTE 5--DEPOSITS
The scheduled maturities of time deposits at December 31, 1996 are as
follows:
<TABLE>
<S> <C>
1997................................................................... $8,916,916
1998................................................................... 4,872,681
1999................................................................... 289,820
2000................................................................... 220,510
2001................................................................... 217,085
----------
$14,517,012
----------
----------
</TABLE>
NOTE 6--INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Currently payable............................................................... $ 205,224 $ 165,306
Deferred federal income taxes................................................... (242) 30,482
---------- ----------
$ 204,986 $ 195,788
---------- ----------
---------- ----------
</TABLE>
F-35
<PAGE>
TEXAS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996 IS UNAUDITED)
NOTE 6--INCOME TAXES (CONTINUED)
The provision for federal income taxes is less than that computed by
applying the federal statutory rate of 34 percent as shown below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Tax based on statutory rate..................................................... $ 241,868 $ 205,962
Effect of tax-exempt income..................................................... (37,928) (42,572)
Depreciation.................................................................... 4,225 1,904
Interest and other nondeductible expenses....................................... 9,528 32,399
Recognized tax benefits on losses from the sale of assets....................... (12,707) (23,661)
Unrecognized tax benefits on loan loss provision................................ 36,804
Other (net)..................................................................... (15,048)
---------- ----------
$ 204,986 $ 195,788
---------- ----------
---------- ----------
</TABLE>
The components of the deferred income tax asset included in other assets on
the balance sheets are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax asset................................................................ $ 49,150 $ 48,908
Deferred tax liability............................................................ 3,795 3,795
--------- ---------
Net deferred tax asset.......................................................... $ 45,355 $ 45,113
--------- ---------
--------- ---------
</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,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses....................................................... $ 24,246 $ 24,246
Difference in basis of other real estate........................................ 1,965 1,965
Other........................................................................... 22,939 22,697
--------- ---------
$ 49,150 $ 48,908
--------- ---------
--------- ---------
Deferred tax liability:
Depreciation and amortization differences....................................... $ 3,795 $ 3,795
--------- ---------
--------- ---------
</TABLE>
NOTE 7--RELATED PARTIES
The Bank has entered into transactions with its executive officers,
directors, significant shareholders, and their affiliates (Related Parties).
Such transactions were made in the ordinary course of business on substantially
the same terms and conditions, including interest rates and collateral, as those
prevailing at
F-36
<PAGE>
TEXAS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996 IS UNAUDITED)
NOTE 7--RELATED PARTIES (CONTINUED)
the same time for comparable transactions with other customers. In the opinion
of management, loans to related parties do not involve more than normal credit
risk or present other unfavorable features. Following is a summary of
transactions and balances with related parties.
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------------
1997 1996 1995
------------ ---------- ----------
<S> <C> <C> <C>
Loans............................................................ $ 797,921 $ 749,962 $ 539,100
------------ ---------- ----------
------------ ---------- ----------
Commitments to fund additional loans............................. $ -0- $ 203,516 $ 25,657
------------ ---------- ----------
------------ ---------- ----------
Deposits......................................................... $ 1,998,529 $ 598,054 $ 117,808
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
SIX MONTHS 31,
ENDED JUNE --------------------
30, 1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Consulting fees paid to director...................................... $ -0- $ -0- $ 64,633
----------- --------- ---------
----------- --------- ---------
Payments for legal services paid to director.......................... $ 1,308 $ 3,133 $ 5,316
----------- --------- ---------
----------- --------- ---------
</TABLE>
In addition, a director and principal stockholder of the Bank had use of a
bank owned vehicle for most of 1995.
NOTE 8--COMMITMENTS AND CONTINGENT LIABILITIES
The Bank has various commitments and contingent liabilities which arise in
the normal course of business and which involve elements of credit risk,
interest rate risk, and liquidity risk. These commitments and contingent
liabilities are commitments to extend credit and standby letters of credit. A
summary of the Bank's commitments and contingent liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Commitments to extend credit.................................. $ 2,033,331 $ 2,668,157 $ 2,318,558
Standby letters of credit..................................... $ 148,480 $ 148,480 $ 172,980
</TABLE>
Commitments to extend credit and standby letters of credit all include
exposure to some credit loss in the event of nonperformance of the customer. The
Bank's credit policies and procedures for credit commitments and financial
guarantees are the same as those for extensions of credit that are recorded in
the balance sheets. Because these instruments have fixed maturity dates, and
because many of them expire without being drawn upon, they do not generally
present any significant liquidity risk to the Bank.
In addition, the Bank is a defendant on various legal proceedings arising in
connection with its business. It is the opinion of the Bank's legal counsel that
neither the financial position nor results of operations of the Bank will be
materially affected by the final outcome of these legal proceedings, and the
Bank's management concurs with that opinion.
Employees of the Bank are entitled to paid vacation, paid sick days, and
personal days off, depending on job classification, length of service, and other
factors. It is impracticable to estimate the amount of compensation for future
absences, and, accordingly, no liability has been recorded in the accompanying
F-37
<PAGE>
TEXAS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996 IS UNAUDITED)
NOTE 8--COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
financial statements. The Bank's policy is to recognize the cost of compensated
absences when actually paid to employees.
On June 24, 1997, the Bank signed an agreement with Bay Bancshares, Inc.,
whereby Bay Bancshares, Inc., would purchase all of the outstanding stock of
Texas Bank and immediately thereafter merge Texas Bank with Bayshore National
Bank. The transaction is awaiting regulatory approval with closure anticipated
to occur in October 1997.
The Bank has an employment agreement with its president which provides a
minimum salary of $87,666 plus bonus and certain other benefits. The Bank and
president have agreed to a settlement for termination of the contract upon
completion of the above referenced merger and accruals for the settlement were
made to the books after June 30, 1997.
Upon completion of the pending merger, Texas Bank will terminate its current
data processing contract. The agreement provides for payment to the data
processing provider for at least 180 days after notification of termination. At
this time it is not possible to determine the amount which will need to be paid
after ceasing use of the current data processor.
NOTE 9--CONCENTRATIONS OF CREDIT
All of the Bank's loans, commitments, and standby letters of credit have
been granted to customers in the Bank's market area. Most customers are
depositors of the Bank. The concentrations of credit by type of loan are set
forth in Note 3. The Bank, as a matter of policy, does not extend credit to any
single borrower or group of related borrowers in excess of $500,000.
NOTE 10--RETIREMENT PLAN
The Bank has a profit sharing plan that covers the employees of the Bank.
Contributions to the plan are at the discretion of the Board of Directors.
Contributions to the plan charged to operations were $30,458 in 1996 and $28,121
in 1995. The Bank has accrued for anticipated 1997 contributions to the plan of
approximately $32,000.
NOTE 11--REGULATORY MATTERS
The Bank is required to maintain minimum amounts of capital to total "risk
weighted" assets, as defined by the banking regulator. At June 30, 1997, and
December 31, 1996 and 1995, the Bank was required to have minimum Tier 1 and
total capital ratios of 4 percent and 8 percent, respectively. The Bank's actual
ratios at June 30, 1997, were 17.11 and 8.77 percent, respectively, at December
31, 1996, the actual ratios were 17.01 percent and 9.98 percent, respectively,
and at December 31, 1995, the actual ratios were 14.28 percent and 15.11
percent, respectively. The Bank's leverage ratios at June 30, 1997, and December
31, 1996 and 1995, were 9.54 percent, 8.41 percent, and 9.30 percent,
respectively.
NOTE 12--SUBSEQUENT EVENTS
On July 24, 1997, the Bank paid a cash dividend totaling $25,613 to its
shareholders.
F-38
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Texas National Bank of Baytown:
We have audited the accompanying balance sheets of Texas National Bank of
Baytown as of December 31, 1996 and 1995, and the related statements of
earnings, changes in stockholders' equity, and cash flows for each of the three
years ended December 31, 1996. These financial statements are the responsibility
of the Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Texas National Bank of
Baytown as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years ended December 31, 1996, in
conformity with generally accepted accounting principles.
KILLINGSWORTH & COMPANY, P.C.
Houston, Texas
May 28, 1997
F-39
<PAGE>
TEXAS NATIONAL BANK OF BAYTOWN
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
JUNE 30, 1997 ------------- -------------
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and due from banks............................................. $ 2,153,033 $ 2,000,901 $ 1,693,431
Federal funds sold.................................................. 1,300,000 2,700,000 2,400,000
Investment securities (notes 1 and 2):
Held to maturity.................................................. 2,675,297 1,673,826 4,762,566
Available for sale................................................ 3,143,930 3,163,259 --
Loans, net (note 3)................................................. 4,340,342 4,037,074 3,478,432
Bank premises and equipment, net (notes 1 and 4) 299,163 278,147 295,132
Other real estate (note 1).......................................... 7,200 63,575 226,427
Other assets........................................................ 192,260 152,778 100,099
------------- ------------- -------------
$ 14,111,225 $ 14,069,560 $ 12,956,087
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (note 5):
Demand............................................................ $ 3,875,815 $ 3,738,456 $ 3,655,911
NOW accounts...................................................... 2,324,485 2,498,363 1,899,602
Savings........................................................... 1,481,331 1,519,278 1,464,970
Time ($100,000 and over).......................................... 927,559 705,264 780,000
Other time........................................................ 3,827,784 3,921,119 3,409,994
------------- ------------- -------------
Total deposits................................................ 12,436,974 12,382,480 11,210,477
Dividends payable................................................... 38,962 38,962 116,886
Accrued interest and other liabilities.............................. 62,444 72,958 58,439
Commitments and contingent liabilities (note 7)..................... -- -- --
Stockholders' equity (note 9):
Common stock of $10 par value per share.
Authorized, issued and outstanding 38,962 shares................ 389,620 389,620 389,620
Surplus........................................................... 389,620 389,620 389,620
Retained earnings................................................. 812,784 802,256 791,045
Unrealized loss on securities available for sale.................. (19,179) (6,336) --
------------- ------------- -------------
Total stockholders' equity.................................... 1,572,845 1,575,160 1,570,285
------------- ------------- -------------
$ 14,111,225 $ 14,069,560 $ 12,956,087
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-40
<PAGE>
TEXAS NATIONAL BANK OF BAYTOWN
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans (note 1)................ $ 192,116 $ 188,286 $ 375,844 $ 382,880 $ 676,892
U. S. Treasury securities.......................... 63,644 52,240 116,611 111,284 30,190
Other securities................................... 7,452 17,564 25,718 49,172 48,767
Interest on Federal funds sold..................... 65,230 66,802 146,258 173,039 58,722
U. S. agency securities............................ 95,566 82,385 176,842 78,069 --
---------- ---------- ---------- ---------- ----------
Total interest income............................ 424,008 407,277 841,273 794,444 814,571
Interest expense on deposits......................... 136,724 134,286 275,033 244,695 193,795
---------- ---------- ---------- ---------- ----------
Net interest income.............................. 287,284 272,991 566,240 549,749 620,776
Provision for loan losses (notes 1 and 3)............ 750 9,000 16,500 10,000 (100,000)
---------- ---------- ---------- ---------- ----------
Net interest income after provision for loan
losses......................................... 286,534 263,991 549,740 539,749 720,776
---------- ---------- ---------- ---------- ----------
Other income:
Service fees on deposit accounts................... 130,904 109,511 230,218 216,974 200,142
Commissions, fees and other........................ 12,471 8,877 16,115 8,264 7,981
Gain on sale of assets............................. 12,476 38,531 38,531 1,668 --
---------- ---------- ---------- ---------- ----------
Total other income............................... 155,851 156,919 284,864 226,906 208,123
---------- ---------- ---------- ---------- ----------
Other expenses:
Salaries and employee benefits..................... 148,005 142,694 291,149 260,920 222,697
Occupancy expenses, net............................ 36,932 38,333 72,061 69,007 70,902
Other operating expenses (note 7).................. 127,396 127,521 259,639 262,052 450,600
---------- ---------- ---------- ---------- ----------
Total other expenses............................. 312,333 308,548 622,849 591,979 744,199
---------- ---------- ---------- ---------- ----------
Net income before Federal income tax............. 130,052 112,362 211,755 174,676 184,700
Federal income tax (note 6)........................ 41,600 33,923 66,125 52,485 51,500
---------- ---------- ---------- ---------- ----------
Net income....................................... $ 88,452 $ 78,439 $ 145,630 $ 122,191 $ 133,200
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net income per common share (note 1)............... 2.27 2.01 3.73 3.13 3.41
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Weighted Average shares outstanding................ 38,962 38,962 38,962 38,962 38,962
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-41
<PAGE>
TEXAS NATIONAL BANK OF BAYTOWN
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
UNREALIZED
HOLDING
GAINS RETAINED
SHARES PAR VALUE SURPLUS (LOSSES) EARNINGS TOTAL
--------- ---------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993............. 38,962 $ 389,620 $ 389,620 $ -- $ 788,907 $ 1,568,147
Net income, 1994....................... -- -- -- -- 133,200 133,200
Cash dividends declared
$3.50 per share...................... -- -- -- -- (136,367) (136,367)
--------- ---------- ---------- ----------- ----------- ------------
Balance, December 31, 1994............. 38,962 $ 389,620 389,620 -- 785,740 1,564,980
Net income, 1995....................... -- -- -- -- 122,191 122,191
Cash dividends declared
$3.00 per share...................... -- -- -- -- (116,886) (116,886)
--------- ---------- ---------- ----------- ----------- ------------
Balance, December 31, 1995............. 38,962 389,620 389,620 -- 791,045 1,570,285
Net income, 1996....................... -- -- -- -- 145,630 145,630
Cash dividends declared
$3.45 per share...................... -- -- -- -- (134,419) (134,419)
Unrealized loss on securities available
for sale............................. -- -- -- (6,336) -- (6,336)
--------- ---------- ---------- ----------- ----------- ------------
Balance, December 31, 1996............. 38,962 389,620 389,620 (6,336) 802,256 1,575,160
Net income, 1997 (unaudited)........... -- -- -- -- 88,452 88,452
Cash dividends declared
$2.00/share (unaudited).............. -- -- -- -- (77,924) (77,924)
Unrealized loss on securities available
for sale (unaudited)................. -- -- -- (12,843) -- (12,843)
--------- ---------- ---------- ----------- ----------- ------------
Balance, June 30, 1997 (unaudited)..... $ 38,962 $ 389,620 $ 389,620 $ (19,179) $ 812,784 $ 1,572,845
--------- ---------- ---------- ----------- ----------- ------------
--------- ---------- ---------- ----------- ----------- ------------
</TABLE>
See accompanying notes to financial statements.
F-42
<PAGE>
TEXAS NATIONAL BANK OF BAYTOWN
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------------------- ------------------------------------------
1997 1996 1996 1995 1994
------------- ------------- ------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................... $ 88,452 $ 78,439 $ 145,630 $ 122,191 $ 133,200
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, accretion and amortization... 11,469 9,832 27,174 19,007 19,059
Loan recoveries (charge-off), net.......... (294) 253 253 (7,297) 254
Provision for loan losses.................. 750 9,000 16,500 10,000 (100,000)
Loss on sale of loans...................... -- -- -- -- 160,268
Decrease (increase) in accrued interest and
other assets............................. (45,341) (15,851) (76,079) 30,963 (60,791)
Increase (decrease) in accrued interest and
other liabilities........................ (10,514) 45,178 14,519 (7,359) 32,132
------------- ------------- ------------- ------------- ------------
Net cash provided by operating
activities............................... 44,522 126,851 127,997 167,505 184,122
------------- ------------- ------------- ------------- ------------
Cash flows from investing activities:
Proceeds from investment securities.......... -- 2,750,000 4,550,000 -- --
Purchase of investment securities............ (1,001,602) (2,615,342) (4,647,208) (3,015,001) (888,937)
Net decrease (increase) in loans............. (303,724) (458,506) (575,395) 3,509,245 144,594
Purchase of premises and equipment........... (32,485) -- (2,822) (8,130) (25,845)
Net expenditures on foreclosed real estate... -- -- -- (94,478) --
Proceeds from sale of other real estate...... 68,851 183,574 195,237 -- --
------------- ------------- ------------- ------------- ------------
Net cash provided by (used in) investing
activities............................... (1,268,960) (140,274) (480,188) 391,636 (770,188)
------------- ------------- ------------- ------------- ------------
Cash flow from financing activities:
Cash dividends paid.......................... (77,924) (144,159) (212,342) (136,367) (155,848)
Net increase in deposits..................... 54,494 1,386,602 1,172,003 574,370 660,403
------------- ------------- ------------- ------------- ------------
Net cash provided by financing
activities............................... (23,430) 1,242,443 959,661 438,003 504,555
------------- ------------- ------------- ------------- ------------
Net increase (decrease) in cash and cash
equivalents.............................. (1,247,868) 1,229,020 607,470 997,144 (81,511)
Cash and cash equivalents at beginning of
year......................................... 4,700,901 4,093,431 4,093,431 3,096,287 3,177,798
------------- ------------- ------------- ------------- ------------
Cash and cash equivalents at end of year....... $ 3,453,033 $ 5,322,451 $ 4,700,901 $ 4,093,431 $ 3,096,287
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
Supplemental information:
Taxes paid................................... $ 36,236 $ 29,604 $ 84,131 $ 13,441 $ 48,000
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
Interest paid................................ $ 133,880 $ 123,185 $ 275,033 $ 244,695 $ 193,795
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
</TABLE>
See accompanying notes to financial statements.
F-43
<PAGE>
TEXAS NATIONAL BANK OF BAYTOWN
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF/AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND JUNE 30, 1996 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation
of the accompanying financial statements follow:
Texas National Bank of Baytown is operates a single location in Baytown,
Texas, offering full service banking to its customers primarily in the
Baytown area.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
a) STATEMENT OF CASH FLOWS--The real estate owned was acquired in a
non-cash transaction. For purpose of reporting cash flows, cash and cash
equivalents include cash on hand, amounts due from banks, and Federal
funds sold.
b) INVESTMENT SECURITIES--Management determines the appropriate
classification of securities at the time of purchase. If management has
the intent and the Bank has the ability at the time of purchase to hold
securities until maturity or on a long-term basis, they are classified as
held to maturity and carried at amortized historical cost. Securities to
be held for indefinite periods of time and not intended to be held to
maturity or on a long-term basis are classified as available for sale and
carried at market value. Securities held for indefinite periods of time
include securities that management intends to use as part of its asset
and liabilities management strategy and that may be sold in response to
changes in interest rate, resultant prepayment risk and other factors,
related to interest rate and resultant prepayment risk changes.
Realized gains and losses on dispositions are based on the net
proceeds and the adjusted book value of the securities sold, using the
specific identification method. Unrealized gains and losses on investment
securities classified as available for sale are based on difference
between book value and market value of each security. These gains and
losses are credited or charged to stockholders' equity, whereas realized
gains and losses flow through the Bank's yearly operations.
c) LOANS AND ALLOWANCE FOR LOAN LOSSES--Loans are stated at the
amount of unpaid principal, reduced by unearned discount and an allowance
for loan losses. Unearned discount on installment loans is recognized as
income over the terms of the loans by the interest method. Interest on
other loans is calculated by using the simple interest method on daily
balances of the principle amount outstanding. The allowance for loan
losses is established through a provision for loan losses charged to
expense. Loans are charged against the allowance for loan losses when
management believes the collectibility of the principal is unlikely. The
allowance is an amount that management believes will be adequate to
absorb possible losses on existing loans that may become uncollectible,
based on evaluations of the collectibility of loans and prior loan loss
experience. The evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic
conditions that may affect the borrowers' ability to pay. Accrual of
interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that
the borrowers' financial condition is such that collection of interest is
doubtful.
F-44
<PAGE>
TEXAS NATIONAL BANK OF BAYTOWN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF/AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND JUNE 30, 1996 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
d) DEPRECIATION--Office equipment and buildings are stated at cost
less accumulated depreciation computed principally on the straight-line
method over the estimated useful lives of the assets.
e) INCOME TAXES--Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related to differences between the
basis of accumulated depreciation and allowance for loan losses for
financial and income tax reporting. The deferred tax assets and
liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled.
f) EARNINGS PER COMMON SHARE--Earnings per common share equivalent
is calculated by dividing net income by the weighted average number of
common shares outstanding during the period.
g) INTERIM FINANCIAL INFORMATION--Financial information as of June
30, 1997 and the six months ended June 30, 1997 and June 30, 1996,
included herein, is unaudited. Such information includes all adjustments
(consisting only of normal recurring adjustments), which are, in the
opinion of management, necessary for a fair statement of the financial
information in the interim periods. The results of operations for the six
months ended June 30, 1997 and June 30, 1996 are not necessarily
indicative of the results for the full fiscal year.
(2) INVESTMENT SECURITIES
The amortized cost and market values of investment securities available for
sale at June 30, 1997 are summarized as follows: Carrying Unrealized Unrealized
Market Amount Gains Losses Value
<TABLE>
<CAPTION>
CARRYING UNREALIZED UNREALIZED
AMOUNT GAINS LOSSES MARKET VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
U. S. Government Agencies.......................... $ 3,149,588 $ -- $ 29,058 $ 3,120,530
Other.............................................. 23,400 -- -- 23,400
------------ ----------- ----------- ------------
$ 3,172,988 $ -- $ 29,058 $ 3,143,930
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
The amortized cost and market values of investment securities held to
maturity at June 30, 1997 are summarized as follows:
<TABLE>
<CAPTION>
CARRYING UNREALIZED UNREALIZED
AMOUNT GAINS LOSSES MARKET VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
U. S. Treasury securities.......................... $ 2,495,297 $ -- $ 297 $ 2,495,000
Foreign government debt securities................. 180,000 -- -- 180,000
------------ ----------- ----------- ------------
$ 2,675,297 $ -- $ 297 $ 2,675,000
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
F-45
<PAGE>
TEXAS NATIONAL BANK OF BAYTOWN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF/AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND JUNE 30, 1996 IS UNAUDITED)
(2) INVESTMENT SECURITIES (CONTINUED)
The amortized cost and market values of investment securities available for
sale at December 31, 1996 are summarized as follows: Carrying Unrealized
Unrealized Market Amount Gains Losses Value
<TABLE>
<CAPTION>
CARRYING UNREALIZED UNREALIZED
AMOUNT GAINS LOSSES MARKET VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
U. S. Government Agencies.......................... $ 3,149,457 $ 8,203 $ 17,801 $ 3,139,859
Other.............................................. 23,400 -- -- 23,400
------------ ----------- ----------- ------------
$ 3,172,857 $ 8,203 $ 17,801 $ 3,163,259
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
The amortized cost and market values of investment securities held to
maturity at December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
CARRYING UNREALIZED UNREALIZED
AMOUNT GAINS LOSSES MARKET VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
U. S. Treasury securities.......................... $ 1,493,826 $ 6,950 $ -- $ 1,500,776
Foreign government debt securities................. 180,000 -- -- 180,000
------------ ----------- ----------- ------------
$ 1,673,826 $ 6,950 $ -- $ 1,680,776
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
The amortized cost and market values of investment securities held to
maturity at December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
CARRYING UNREALIZED UNREALIZED
AMOUNT GAINS LOSSES MARKET VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
U. S. Treasury securities.......................... $ 1,809,437 $ 13,438 $ -- $ 1,822,875
Corporate debt securities.......................... 449,729 2,634 -- 452,363
Foreign government debt securities................. 180,000 -- -- 180,000
U. S. agency securities............................ 2,300,000 3,750 -- 2,303,750
Other securities................................... 23,400 -- -- 23,400
------------ ----------- ----------- ------------
$ 4,762,566 $ 19,822 $ -- $ 4,782,388
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
The following schedule presents the maturity distribution of the investment
portfolio at December 31, 1996:
<TABLE>
<CAPTION>
CARRYING
AMOUNT MARKET VALUE
------------ ------------
<S> <C> <C>
Due in one year or less..................................................... $ 999,781 $ 1,003,120
Due after one year through five years....................................... 3,643,503 3,637,515
Due after five years through ten years...................................... 180,000 180,000
------------ ------------
$ 4,823,284 $ 4,820,635
------------ ------------
------------ ------------
</TABLE>
There were no realized gains or losses during the six months ended June 30,
1997 or years ended December 31, 1996, 1995 or 1994.
Investment securities with a carrying amount and market value of $23,400 and
$23,400, respectively, are pledged to secure deposits in 1995.
F-46
<PAGE>
TEXAS NATIONAL BANK OF BAYTOWN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF/AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND JUNE 30, 1996 IS UNAUDITED)
(3) LOANS
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
JUNE 30, ------------ ------------
1997
------------
(UNAUDITED)
<S> <C> <C> <C>
Commercial.................................................... $ 1,073,981 $ 703,635 $ 884,169
Real estate................................................... 2,904,869 3,051,520 2,440,612
Installment................................................... 506,547 419,388 249,377
------------ ------------ ------------
4,485,397 4,174,543 3,574,158
Unearned discount............................................. (56,954) (49,824) (24,834)
------------ ------------ ------------
4,428,443 4,124,719 3,549,324
Allowance for loan losses..................................... (88,101) (87,645) (70,892)
------------ ------------ ------------
$ 4,340,342 $ 4,037,074 $ 3,478,432
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1996 1995 1994
JUNE 30, ----------- ----------- -----------
1997
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance, beginning of year........................ $ 87,645 $ 70,892 $ 68,189 $ 167,935
Provision charged (credited) to operations........ 750 16,500 10,000 (100,000)
Loans charged off................................. (294) -- (7,670) (550)
Recoveries........................................ -- 253 373 804
----------- ----------- ----------- -----------
Balance, end of year.............................. $ 88,101 $ 87,645 $ 70,892 $ 68,189
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
(4) BANK PREMISES AND EQUIPMENT
Major classifications of these assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
JUNE 30, ----------- -----------
1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
Land............................................................ $ 145,917 $ 145,917 $ 145,917
Building........................................................ 291,656 291,656 291,656
Equipment....................................................... 350,014 317,529 314,707
----------- ----------- -----------
787,587 755,102 752,280
Accumulated depreciation........................................ 488,424 476,955 457,148
----------- ----------- -----------
$ 299,163 $ 278,147 $ 295,132
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Depreciation expense amounted to $11,469, $19,807 and $21,064 for the six
months ended June 30, 1997 and years ended December 31, 1996 and 1995,
respectively.
F-47
<PAGE>
TEXAS NATIONAL BANK OF BAYTOWN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF/AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND JUNE 30, 1996 IS UNAUDITED)
(5) TIME DEPOSITS
The time deposits greater than or equal to $100,000 and their maturities are
shown below:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
JUNE 30, 1997 ---------- ----------
-------------
(UNAUDITED)
<S> <C> <C> <C>
One to three months.............................................. $ 105,264 $ 200,000 $ 480,000
Three to six months.............................................. 200,000 200,000 200,000
Six months to one year........................................... 622,295 305,264 100,000
------------- ---------- ----------
$ 927,559 $ 705,264 $ 780,000
------------- ---------- ----------
------------- ---------- ----------
</TABLE>
(6) FEDERAL INCOME TAX
Income tax at the Federal statutory rate of 34% is reconciled to the Bank's
actual provision as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Tax at statutory rate.................................................. $ 71,997 $ 59,400 $ 62,800
Non-deductible expenses................................................ 252 314 490
Surtax exclusion....................................................... (6,124) (8,026) (7,390)
Other.................................................................. -- 797 (4,400)
--------- --------- ---------
$ 66,125 $ 52,485 $ 51,500
--------- --------- ---------
--------- --------- ---------
</TABLE>
The components of Federal income tax are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current expense........................................................ $ 73,302 $ 64,630 $ 15,200
Deferred (benefit)..................................................... (7,177) (12,145) 36,300
--------- --------- ---------
$ 66,125 $ 52,485 $ 51,500
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred Federal income taxes, according to the timing differences which
caused them, were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
--------- ---------- ---------
<S> <C> <C> <C>
Depreciation expense.................................................. $ (3,981) $ (1,332) $ 2,300
Book bad debt deduction over tax deduction............................ (5,610) (3,400) 34,000
Reserve for other real estate owned................................... 2,414 (7,413) --
--------- ---------- ---------
$ (7,177) $ (12,145) $ 36,300
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
F-48
<PAGE>
TEXAS NATIONAL BANK OF BAYTOWN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF/AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND JUNE 30, 1996 IS UNAUDITED)
(6) FEDERAL INCOME TAX (CONTINUED)
The components of deferred income taxes are principally related to the
allowance for loan losses, depreciation, and the write-down of Other Real Estate
Owned. The total deferred tax assets and deferred tax liabilities at December
31, 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Deferred tax assets--
Reserve for loss on other real estate................................ $ 5,634 $ 7,413 $ --
--------- --------- ---------
--------- --------- ---------
Deferred tax liabilities:
Allowance for loan losses............................................ $ 25,524 $ 34,076 $ 37,476
Depreciation differences............................................. 2,942 4,169 4,634
--------- --------- ---------
$ 28,466 $ 38,245 $ 42,110
--------- --------- ---------
--------- --------- ---------
</TABLE>
(7) COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business the Bank makes various commitments and
incurs certain contingent liabilities that are not presented in the accompanying
financial statements. The commitments and contingent liabilities include various
guarantees, commitments to extend credit, and standby letters of credit. At June
30, 1997 and December 31, 1996 and 1995, commitments to extend credit and
commitments under standby letters of credit aggregated $18,000, $-0-and $72,000,
respectively. The Bank does not anticipate any material losses as a result of
the commitments and contingent liabilities.
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31
- ---------------------------------------------------------------
<S> <C>
1997........................................................... $ 49,500
---------
---------
</TABLE>
Since 1992 the Bank has been party to administrative and judicial
proceedings with its regulatory agency. The regulatory agency alleged that the
Bank violated certain laws relating to loan concentration and loan limit by
originating certain loan participations. From inception management has
vigorously opposed the allegations. Solely in an effort to placate the
regulatory agency and without admitting any wrongdoing the Bank initiated
efforts in 1994 to dispose of the certain loans. The Bank currently has an
extension until December 31, 1997 to reduce the remaining loans below the Bank's
legal lending limit.
The Bank contracts for data-processing services under a contract which
expires in 1997. Total contract expense for June 30, 1997, and December 31, 1996
and 1995 was $38,044, $69,920 and $63,793, respectively. The following is a
schedule of the related future minimum contract payments:
(8) RELATED PARTY TRANSACTIONS
At June 30, 1997, and December 31, 1996 and 1995, certain officers and
directors, and companies in which they had 10 percent or more beneficial
ownership, were indebted to the Bank in the aggregate amount of $36,880, $86,628
and $377,149, respectively.
F-49
<PAGE>
TEXAS NATIONAL BANK OF BAYTOWN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF/AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND JUNE 30, 1996 IS UNAUDITED)
(8) RELATED PARTY TRANSACTIONS (CONTINUED)
At June 30, 1997, the Bank maintained deposits at the following banks which
are owned 10 percent or more by directors and officers of the Bank:
<TABLE>
<CAPTION>
PARTICIPATIONS PARTICIPATIONS DUE FROM
PURCHASED SOLD (TO)
------------- ------------- -----------
<S> <C> <C> <C>
Mayde Creek Bank............................................... $ 135,141 $ 33,999 $ --
First Bank of Deer Park........................................ 309,244 416,298 4,245
First National Bank of Bellaire................................ 1,938,592 -- 2,498
</TABLE>
At December 31, 1996, the Bank maintained deposits at the following banks
which are owned 10 percent or more by the directors and officers of the Bank:
<TABLE>
<CAPTION>
PARTICIPATIONS PARTICIPATIONS DUE FROM
PURCHASED SOLD (TO)
------------- ------------- -----------
<S> <C> <C> <C>
Mayde Creek Bank............................................... $ 141,442 $ 40,000 $ --
First Bank of Deer Park........................................ 70,879 -- 1,595
First National Bank of Bellaire................................ 1,969,171 -- 13,746
</TABLE>
(9) RETAINED EARNINGS
Banking regulations limit the amount of dividends that may be paid without
prior approval of the Bank's regulatory agency.
(10) REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory--and possibly additional discretionary--actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I risk-
F-50
<PAGE>
TEXAS NATIONAL BANK OF BAYTOWN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF/AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND JUNE 30, 1996 IS UNAUDITED)
(10) REGULATORY MATTERS (CONTINUED)
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.
<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 June 30, 1997 (Unaudited):
Total Capital
(To Risk Weighted Assets)........ $ 1,680,125 31.478% >=426,992 >=8.00% >=533,740 >=10.00%
Tier I Capital*
(To Risk Weighted Assets)........ $ 1,592,024 29.820% >=213,496 >=4.00% >=320,244 >=6.00%
Tier I Capital
(To Average Assets).............. $ 1,592,024 11.116% >=572,840 >=4.00% >=716,051 >=5.00%
As of December 31, 1996:
Total Capital
(To Risk Weighted Assets)........ $ 1,669,139 29.794% >=448,176 >=8.00% >=560,220 >=10.00%
Tier I Capital*
(To Risk Weighted Assets)........ $ 1,581,495 28.229% >=224,088 >=4.00% >=336,132 >=6.00%
Tier I Capital
(To Average Assets)............ $ 1,581,495 11.262% >=561,675 >=4.00% >=702,094 >=5.00%
As of December 31, 1995:
Total Capital
(To Risk Weighted Assets)........ $ 1,641,175 30.080% >=436,478 >=8.00% >=545,597 >=10.00%
Tier I Capital*
(To Risk Weighted Assets)...... $ 1,570,284 28.780% >=218,239 >=4.00% >=327,358 >=6.00%
Tier I Capital
(To Average Assets)............ $ 1,570,284 12.408% >=506,182 >=4.00% >=632,727 >=5.00%
</TABLE>
- ------------------------
* Ratio must equal or exceed 13% to be in compliance with cease and desist
order issued by Office of the Comptroller of the Currency. (Note 7)
F-51
<PAGE>
TEXAS NATIONAL BANK OF BAYTOWN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF/AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND JUNE 30, 1996 IS UNAUDITED)
(11) FINANCIAL INSTRUMENTS WITH OFF-BALANCE RISK
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments 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 amount recognized in the
consolidated balance sheets.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instruments for commitments to extend credit and
standby letters of credit is represented by the contractual notational amount of
those instruments (See note 7). The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount and type of collateral obtained,
if deemed necessary by the Bank upon extension of credit, varies and is based on
management's credit evaluation of the counterparty.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Standby letters of
credit generally have fixed expiration dates or other termination clauses and
may require payment of a fee. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to
customers. The Bank's policy for obtaining collateral and the nature of such
collateral is essentially the same as that involved in making commitments to
extend credit.
(12) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 requires management to
estimate the fair value of financial instruments as of the balance sheet date.
Management is unable to estimate the fair value of financial instruments
included in the statements other than investment securities which are disclosed
in footnote 2. However, management is of the opinion that the fair value does
not differ significantly from the recorded value of those financial instruments.
F-52
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
First Bank of Deer Park:
We have audited the accompanying balance sheets of First Bank of Deer Park
as of December 31, 1996 and 1995, and the related statements of income, changes
in stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of First Bank of Deer Park as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years ended December 31, 1996, in conformity with
generally accepted accounting principles.
KILLINGSWORTH & COMPANY, P.C.
Houston, Texas
June 2, 1997
F-53
<PAGE>
FIRST BANK OF DEER PARK
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
JUNE 30, 1997 ------------ -------------
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 2,177,878 $ 2,732,356 $ 1,752,908
Investment securities (notes 1 and 2):
Available for sale................................................ 6,951,000 6,931,213 6,012,862
Held to maturity.................................................. 5,939,453 5,907,013 9,339,254
Federal funds sold.................................................. 3,075,000 3,800,000 200,000
Loans, net (notes 1 and 3).......................................... 13,860 421 13,126,550 11,183,268
Bank premises and equipment (notes 1 and 4)......................... 331,042 348,346 354,867
Accrued interest receivable and other assets........................ 351,897 325,506 317,463
Other real estate owned............................................. 200,378 277,530 799,295
------------- ------------ -------------
$ 32,887,069 $ 33,448,514 $ 29,959,917
------------- ------------ -------------
------------- ------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (notes 2 and 5):
Demand............................................................ $ 11,622,030 $ 10,707,024 $ 8,569,292
Savings and other time............................................ 13,362,188 13,324,946 12,316,196
Public funds--time................................................ 1,835,643 2,191,069 3,782,862
------------- ------------ -------------
Total deposits.................................................. 26,819,861 26,223,039 24,668,350
Dividends payable................................................... 57,750 485,100 265,650
Accrued interest and other liabilities.............................. 130,574 117,825 86,548
Repurchase agreements............................................... 2,000,000 3,000,000 1,300,000
------------- ------------ -------------
Total liabilities............................................... 29,008,185 29,825,964 26,320,548
Commitments and contingent liabilities (notes 8 and 10)............. -- -- --
Stockholders' equity:
Common stock of $5 par value.
Authorized, issued and outstanding
115,500 shares................................................ 577,500 577,500 577,500
Surplus........................................................... 1,622,500 1,622,500 1,622,500
Unrealized holding gains (losses) (notes 1 and 2)................. (32,340) (45,400) 8,489
Retained earnings................................................. 1,711,224 1,467,950 1,430,880
------------- ------------ -------------
Total stockholders' equity...................................... 3,878,884 3,622,550 3,639,369
------------- ------------ -------------
$ 32,887,069 $ 33,448,514 $ 29,959,917
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
See accompanying notes to financial statements.
F-54
<PAGE>
FIRST BANK OF DEER PARK
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------- ----------------------------------------
1997 1996 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans (note 1)...... $ 649,261 $ 584,740 $ 1,198,877 $ 1,084,991 $ 1,571,455
U. S. Treasury securities (note 1)....... 168,431 236,114 419,836 837,238 272,071
Obligations of state and political
subdivisions........................... -- 23,110 30,186 18,677 22,940
U. S. government agencies................ 283,116 208,400 450,098 45,823 --
Interest on Federal funds sold........... 82,919 25,622 65,327 111,136 76,501
------------ ------------ ------------ ------------ ------------
Total interest income.................. 1,183,727 1,077,986 2,164,324 2,097,865 1,942,967
Interest expense on deposits............... 357,241 329,388 659,044 619,743 445,119
------------ ------------ ------------ ------------ ------------
Net interest income.................... 826,486 748,598 1,505,280 1,478,122 1,497,848
Provision for loan losses (notes 1 and
3)....................................... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net interest income after provisions
for loan losses...................... 826,486 748,598 1,505,280 1,478,122 1,497,848
Other income:
Service fees on deposit accounts......... 163,133 176,561 350,102 374,814 433,253
Commissions, fees and other.............. 92,234 60,458 182,932 65,003 30,162
------------ ------------ ------------ ------------ ------------
255,367 237,019 533,034 439,817 463,415
------------ ------------ ------------ ------------ ------------
Other expenses:
Salaries................................. 246,614 218,391 474,526 415,026 421,325
Occupancy expenses....................... 36,278 43,197 88,817 66,446 58,497
Equipment expense........................ 20,673 22,093 33,694 25,384 33,421
Other operating expenses
(note 8)............................... 242,964 190,443 424,699 611,551 908,086
------------ ------------ ------------ ------------ ------------
546,529 474,124 1,021,736 1,118,407 1,421,329
------------ ------------ ------------ ------------ ------------
Income before Federal income tax....... 535,324 511,493 1,016,578 799,532 539,934
Federal income tax (notes 1 and 7)......... 176,550 159,950 321,158 253,250 170,195
------------ ------------ ------------ ------------ ------------
Net income............................. $ 358,774 $ 351,543 $ 695,420 $ 546,282 $ 369,739
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net income per common share (note 1)....... $ 3.10 $ 3.05 $ 6.02 $ 4.72 $ 3.20
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Weighted average shares outstanding........ 115,500 115,500 115,500 115,500 115,500
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-55
<PAGE>
FIRST BANK OF DEER PARK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
UNREALIZED
HOLDING
RETAINED GAINS
SHARES PAR VALUE SURPLUS EARNINGS (LOSSES) TOTAL
--------- ---------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993................... 115,500 $ 577,500 $ 1,622,500 $ 1,427,309 $ -- $ 3,627,309
Net income................................... -- -- -- 369,739 -- 369,739
Cash dividends $1.40 per share............... -- -- -- (473,550) -- (473,550)
--------- ---------- ------------ ------------ ----------- ------------
Balance, December 31, 1994................... 115,500 577,500 1,622,500 1,323,498 -- 3,523,498
Net income................................... -- -- -- 546,282 -- 546,282
Unrealized change in investment securities
available for sale (notes 1 and 2)......... -- -- -- -- 8,489 8,489
Cash dividends $3.80 per share............... -- -- -- (438,900) -- (438,900)
--------- ---------- ------------ ------------ ----------- ------------
Balance, December 31, 1995................... 115,500 577,500 1,622,500 1,430,880 8,489 3,639,369
Net income................................... -- -- -- 695,420 -- 695,420
Unrealized change in investment securities
available for sale (notes 1 and 2)......... -- -- -- -- (53,889) (53,889)
Cash dividends $5.70 per share............... -- -- -- (658,350) -- (658,350)
--------- ---------- ------------ ------------ ----------- ------------
Balance, December 31, 1996................... 115,500 577,500 1,622,500 1,467,950 (45,400) 3,622,550
Net income (unaudited)....................... -- -- -- 358,774 -- 358,774
Unrealized change in investment securities
available for sale (notes 1 and
2)(unaudited).............................. -- -- -- -- 13,060 13,060
Cash dividends $1.00 per share (Unaudited)... -- -- -- (115,500) -- (115,500)
--------- ---------- ------------ ------------ ----------- ------------
Balance, June 30, 1997 (unaudited)........... 115,500 $ 577,500 $ 1,622,500 $ 1,711,224 $ (32,340) $ 3,878,884
--------- ---------- ------------ ------------ ----------- ------------
--------- ---------- ------------ ------------ ----------- ------------
</TABLE>
See accompanying notes to financial statements.
F-56
<PAGE>
FIRST BANK OF DEER PARK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------------------- --------------------------------------------
1997 1996 1996 1995 1994
------------- ------------- ------------- -------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................... $ 358,774 $ 351,543 $ 695,420 $ 546,282 $ 369,739
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization and accretion... 17,304 13,794 (55,640) (150,843) 33,036
Other real estate adjustment............... (55,240) -- 56,000 27,505 19,899
Loss on sale of loans...................... -- -- -- -- 305,500
Loan recoveries............................ -- 807 807 1,501 6,732
Gain on sale of other real estate.......... (26,391) (60,802) (82,725) -- --
Decrease (increase) in accrued interest and
other assets............................. 12,749 142,636 18,272 119 680 (179,211)
(Decrease) increase in accrued interest and
other liabilities........................ 31,276 (12,262) (15,575)
Other...................................... -- -- -- -- (4,081)
------------- ------------- ------------- -------------- -------------
Net cash provided by operating
activities............................. 307,196 447,978 663,410 531,863 536,039
------------- ------------- ------------- -------------- -------------
Cash flows from investing activities:
Proceeds from investment securities.......... 2,000,000 2,500,000 6,500,000 8,900,876 --
Purchase of investment securities............ (2,039,167) (1,000,000) (3,984,531) (12,346,250) (7,311,328)
Net decrease (increase) in loans............. (733,871) (1,482,066) (1,944,090) 4,428,906 752,959
Purchase of equipment........................ -- -- (21,066) (33,362) --
Proceeds from sale of other real estate...... 132,392 492,506 549,936 -- 22,938
------------- ------------- ------------- -------------- -------------
Net cash provided by (used in) investing
activities............................. (640,646) 510,440 1,100,249 950,170 (6,535,431)
------------- ------------- ------------- -------------- -------------
Cash flows from financing activities:
Net increase (decrease) in deposits.......... 596,822 (1,106,348) 1,554,689 (1,000,312) 4,350,129
Dividends paid............................... (542,850) (323,400) (438,900) (473,550) (606,375)
Net increase (decrease) in repurchase
agreements................................. (1,000,000) 2,000,000 1,700,000 (200,000) (288,000)
------------- ------------- ------------- -------------- -------------
Net cash provided by (used in) financing
activities............................. (946,028) 570,252 2,815,789 (1,673,862) 3,455,754
------------- ------------- ------------- -------------- -------------
Net increase (decrease) in cash and cash
equivalents............................ (1,279,478) 1,528,670 4,579,448 (191,829) (2,543,638)
Cash and cash equivalents at beginning of
year......................................... 6,532,356 1,952,908 1,952,908 2,144,737 4,688,375
------------- ------------- ------------- -------------- -------------
Cash and cash equivalents at end of year....... $ 5,252,878 3,481,578 6,532,356 1,952,908 2,144,737
------------- ------------- ------------- -------------- -------------
------------- ------------- ------------- -------------- -------------
Supplemental information:
Taxes paid................................... $ 206,626 $ 32,300 $ 259,525 $ 148,291 $ 266,292
------------- ------------- ------------- -------------- -------------
------------- ------------- ------------- -------------- -------------
Interest paid................................ $ 352,664 $ 322,221 $ 657,021 $ 604,081 $ 444,942
------------- ------------- ------------- -------------- -------------
------------- ------------- ------------- -------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-57
<PAGE>
FIRST BANK OF DEER PARK
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF/AND FOR
SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Bank is a state chartered institution offering full banking services in
the Deer Park area.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
The accounting and reporting policies of First Bank of Deer Park (Bank)
conform to generally accepted accounting principles. A description of the more
significant accounting policies follows:
(a) STATEMENT OF CASH FLOWS--The real estate owned was acquired in a
non-cash transaction. For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, amounts due from banks and Federal funds
sold.
(b) INVESTMENT SECURITIES--Management determines the appropriate
classification of securities at the time of purchase. If management has the
intent and the Bank has the ability at the time of purchase to hold
securities until maturity or on a long-term basis, they are classified as
held to maturity and carried at amortized historical cost. Securities to be
held for indefinite periods of time and not intended to be held to maturity
or on a long-term basis are classified as available for sale and carried at
fair value. Securities held for indefinite periods of time include
securities that management intends to use as part of its asset and
liabilities management strategy and that may be sold in response to changes
in interest rate, resultant prepayment risk and other factors, related to
interest rate and resultant prepayment risk changes.
Realized gains and losses on dispositions are based on the net proceeds
and the adjusted book value of the securities sold, using the specific
identification method. Unrealized gains and losses on investment securities
available for sale are based on the difference between book value and fair
value of each security. These gains and losses, net of any income tax
effect, are reported as a separate component of stockholders' equity.
Realized gains and losses flow through the Bank's yearly statements of
income.
(c) LOANS AND ALLOWANCE FOR LOAN LOSSES--Loans are stated at the amount
of unpaid principal, reduced by unearned discount and an allowance for loan
losses. Unearned discount on installment loans is recognized as income over
the terms of the loans by the interest method. Interest on other loans is
calculated by using the simple interest method on daily balances of the
principal amount outstanding. The allowance for loan losses is established
through a provision for loan losses charged to expenses. Loans are charged
against the allowance for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance is an amount that
management believes will be adequate to absorb possible losses on existing
loans that may become uncollectible, based on evaluations of the
collectibility of loans and prior loan loss experience. The evaluations take
into consideration such factors as changes in the nature and volume of the
loan portfolio, overall portfolio quality, review of specific problem loans,
and current economic conditions that may affect the borrowers' ability to
pay. Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection efforts,
that the borrowers' financial condition is such that collection of interest
is doubtful.
F-58
<PAGE>
FIRST BANK OF DEER PARK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF/AND FOR
SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(d) DEPRECIATION--Office equipment and buildings are stated at cost less
accumulated depreciation computed principally on the straight-line method
over the estimated useful lives of the assets.
(e) REAL ESTATE OWNED--Real estate owned represents real estate acquired
through foreclosure or deed in lieu of foreclosure and is stated at the
lower of the outstanding loan balance at the time of foreclosure or
appraised value. Gains on the sale of real estate owned are generally
deferred and recognized on the installment method as the sale proceeds are
received. Losses and write-downs resulting from periodic re-evaluations of
the property are charged to other expenses.
(f) INCOME TAXES--Income taxes are provided for the tax effects of
transactions reported in the financial statement, regardless of the period
in which such items are recognized for tax purposes. Deferred income tax
assets and liabilities are computed annually for differences between the
financial statement and tax bases of assets and liabilities that will result
in taxable or deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be realized. Income
tax expense is the tax payable or refundable for the period plus or minus
the change during the period in deferred tax assets and liabilities.
(g) DEFERRED LOAN FEES--Loan commitment and origination fees and the
direct costs of loan origination are deferred. The net deferred loan fees
are amortized into income over the life of the related loans.
(h) OFF BALANCE SHEET FINANCIAL INSTRUMENTS--In the ordinary course of
business, the Bank has entered into off balance sheet financial instruments
consisting of commitments to extend credit and commercial letters of credit.
Such financial instruments are recorded in the financial statements when
they become payable.
(i) EARNINGS PER COMMON SHARE--Earnings per common share is calculated
by dividing net income by the weighted average number of common shares
outstanding during the period.
(j) INTERIM FINANCIAL INFORMATION--Financial information as of June 30,
1997 and for the six months ended June 30, 1997 and 1996, included herein,
is unaudited. Such information includes all adjustments (consisting only of
normal recurring adjustments), which are, in the opinion of management,
necessary for a fair statement of the financial information in the interim
periods. The results of operations for the six months ended June 30, 1997
and 1996 are not necessarily indicative of the results for the full fiscal
year.
F-59
<PAGE>
FIRST BANK OF DEER PARK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF/AND FOR
SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 IS UNAUDITED)
(2) INVESTMENT SECURITIES
The amortized cost and fair value of investment securities available for
sale at June 30, 1997 are summarized as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
U. S. government agencies.......................... $ 7,000,000 $ 8,075 $ (57,075) $ 6,951,000
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
The amortized cost and fair values of investment securities held to maturity
at June 30, 1997 are summarized as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
U. S. Treasury securities.......................... $ 3,939,453 $ 42,423 $ -- $ 3,981,876
U. S. government agencies.......................... 2,000,000 938 -- 2,000,938
------------ ----------- ----------- ------------
$ 5,939,453 $ 43,361 $ -- $ 5,982,814
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
There were no gross realized gains or losses on sales or maturities of
available for sale securities for the period ended June 30, 1997.
The amortized cost and fair values of investment securities available for
sale at December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
U. S. government agencies.......................... $ 7,000,000 $ -- $ (68,787) $ 6,931,213
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
The amortized cost and fair values of investment securities held to maturity
at December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
U. S. Treasury securities.......................... $ 4,907,013 $ 87,987 $ -- $ 4,995,000
U. S. government agencies.......................... 1,000,000 -- (7,500) 992,500
------------ ----------- ----------- ------------
$ 5,907,013 $ 87,987 $ (7,500) $ 5,987,500
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
The amortized cost and fair values of investment securities available for
sale at December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
U. S. government agencies.......................... $ 6,000,000 $ 12,862 $ -- $ 6,012,862
------------ ----------- ----- ------------
------------ ----------- ----- ------------
</TABLE>
F-60
<PAGE>
FIRST BANK OF DEER PARK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF/AND FOR
SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 IS UNAUDITED)
(2) INVESTMENT SECURITIES (CONTINUED)
The amortized cost and fair values of investment securities held to maturity
at December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
U. S. Treasury securities.......................... $ 8,339,254 $ 180,606 $ (6,735) $ 8,513,125
Obligations of state and political subdivisions.... 1,000,000 -- -- 1,000,000
------------ ----------- ----------- ------------
$ 9,339,254 $ 180,606 $ (6,735) $ 9,513,125
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
Proceeds from maturities of investment securities held to maturity during
1996 and 1995 were $5,500,000 and $8,900,876, respectively. There were no sales
and maturities of investment securities available for sale during 1995. During
1996 securities available for sale in the amount of $1,000,000 matured. There
were no realized gains or realized losses during the six months ended June 30,
1997 or the years ended December 31, 1996 and 1995.
The following table shows the maturity distribution of the investment
portfolio at December 31, 1996:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
-------------------------- --------------------------
AMORTIZED AMORTIZED
COST FAIR VALUE COST FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Due in one year or less........................ $ -- $ -- $ 996,132 $ 1,004,687
Due after one year through five years.......... 7,000,000 6,931,213 4,910,881 4,982,813
------------ ------------ ------------ ------------
$ 7,000,000 $ 6,931,213 $ 5,907,013 $ 5,987,500
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
Investment securities with a carrying amount of $11,902,000, $10,921,331 and
$13,353,659 at June 30, 1997, and December 31, 1996 and 1995, respectively, were
pledged to secure public deposits and for other purposes required or permitted
by law.
F-61
<PAGE>
FIRST BANK OF DEER PARK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF/AND FOR
SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 IS UNAUDITED)
(3) LOANS
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
JUNE 30, 1997 ------------- -------------
-------------
(UNAUDITED)
<S> <C> <C> <C>
Commercial................................................ $ 3,513,111 $ 3,609,688 $ 3,855,282
Real estate............................................... 9,838,575 9,230,248 7,317,712
Installment............................................... 1,019,180 723,140 401,785
------------- ------------- -------------
14,370,866 13,563,076 11,574,779
Less unearned discount.................................... 155,134 79,231 35,023
------------- ------------- -------------
14,215,732 13,483,845 11,539,756
Less allowance for loan losses............................ 355,311 357,295 356,488
------------- ------------- -------------
$ 13,860,421 $ 13,126,550 $ 11,183,268
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
There were no non-accrual impaired loans as of June 30, 1997, and December
31, 1996 and 1995.
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
---------------------- ----------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance, beginning of year................. $ 357,295 $ 356,488 $ 356,488 $ 362,057 $ 361,893
Provision charged to operations:........... -- -- -- -- --
Loans charged off.......................... (2,184) -- -- (7,070) (6,568)
Recoveries................................. 200 807 807 1,501 6,732
---------- ---------- ---------- ---------- ----------
Balance, end of year....................... $ 355,311 $ 357,295 $ 357,295 $ 356,488 $ 362,057
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
(4) BANK PREMISES AND EQUIPMENT
Major classifications of these assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
JUNE 30, 1997 ------------ ------------
-------------
(UNAUDITED)
<S> <C> <C> <C>
Land......................................................... $ 207,849 $ 207,849 $ 207,849
Building..................................................... 500,527 500,527 500,527
Equipment.................................................... 390,896 390,896 369,830
------------- ------------ ------------
1,099,272 1,099,272 1,078,206
Accumulated depreciation and amortization.................... 768,230 750,926 723,339
------------- ------------ ------------
$ 331,042 $ 348,346 $ 354,867
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
F-62
<PAGE>
FIRST BANK OF DEER PARK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF/AND FOR
SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 IS UNAUDITED)
(4) BANK PREMISES AND EQUIPMENT (CONTINUED)
Depreciation and amortization expense for the period ended June 30, 1997 was
$17,304. Depreciation and amortization expense amounted to $27,588 and $20,916
in the years ended December 31, 1996 and 1995, respectively.
(5) DEPOSITS
Included in interest-bearing time deposits are certificates of deposit in
amounts of $100,000 or more. These certificates and their remaining maturities
at June 30, 1997, December 31, 1996 and 1995, respectively, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
JUNE 30, ------------ ------------
1997
------------
(UNAUDITED)
<S> <C> <C> <C>
Three months or less.......................................... $ 2,328,833 $ 3,458,334 $ 4,930,000
Four months to six months..................................... 304,015 549,636 429,000
Seven months to one year...................................... 1,285,954 300,000 462,000
Two years to four years....................................... 473,036 573,036 100,000
------------ ------------ ------------
$ 4,391,838 $ 4,881,006 $ 5,921,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Also included in time deposits are NOW accounts totalling $2,736,993,
$3,148,006 and $2,688,817 at June 30, 1997, and December 31, 1996 and 1995,
respectively.
(6) SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
The Bank entered into the sale of $2,000,000 government securities under an
agreement o repurchase substantially the identical security on July 31, 1997.
F-63
<PAGE>
FIRST BANK OF DEER PARK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF/AND FOR
SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 IS UNAUDITED)
(7) INCOME TAX
The total income taxes (benefits) in the statements of income are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Current............................................................ $ 334,331 $ 135,155 $ 245,000
Deferred (benefit)................................................. (13,173) 118,095 (74,805)
---------- ---------- ----------
Federal income tax expense......................................... $ 321,158 $ 253,250 $ 170,195
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Deferred income taxes (benefit), according to the timing differences which
caused them, were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
Use of cash basis for Federal income tax purposes.................. $ (934) $ 7,209 $ 35,005
Book valuation of other real estate................................ (17,646) -- (6,766)
Book valuation of loan sale........................................ -- 103,870 (103,870)
Accelerated depreciation........................................... 5,407 7,008 (20)
Other.............................................................. -- 8 846
---------- ---------- -----------
$ (13,173) $ 118,095 $ (74,805)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
Income tax expense at the Federal statutory rate of 34% is reconciled to the
Bank's actual provision as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Tax at statutory rate.............................................. $ 345,636 $ 271,841 $ 183,578
Tax exempt interest income......................................... (24,674) (18,768) (14,256)
Non-deductible expense............................................. 196 177 873
---------- ---------- ----------
$ 321,158 $ 253,250 $ 170,195
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-64
<PAGE>
FIRST BANK OF DEER PARK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF/AND FOR
SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 IS UNAUDITED)
(7) INCOME TAX (CONTINUED)
Deferred tax assets and deferred tax liabilities at December 31, 1996, 1995
and 1994 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
--------- --------- ----------
<S> <C> <C> <C>
Deferred tax assets:
Reserve for bad debts............................................... $ 62,255 $ 62,255 $ 62,310
Reserve for loss on other real estate............................... 19,618 6,766 6,765
Depreciation differences............................................ -- -- 2,840
Loss on loans paid off.............................................. -- -- 103,870
Other............................................................... -- -- 1,480
--------- --------- ----------
$ 81,873 $ 69,021 $ 177,265
--------- --------- ----------
--------- --------- ----------
Total deferred tax liabilities:
Use of cash basis for Federal income tax purpose.................... $ 36,265 $ 40,565 $ 39,160
Depreciation differences............................................ 9,473 4,168 --
Other............................................................... -- 4,278 --
--------- --------- ----------
$ 45,738 $ 49,011 $ 39,160
--------- --------- ----------
--------- --------- ----------
</TABLE>
(8) COMMITMENTS AND CONTINGENT LIABILITIES
The Bank is a defendant in legal actions arising from normal business
activities. Management believes that those actions are without merit or that the
ultimate liability, if any, resulting from them will not materially affect the
Bank"s financial position.
Since 1992, the Bank has been party to administrative and judicial
proceedings with its regulatory agency. The regulatory agency alleged that the
Bank violated certain laws relating to loan concentration and loan limit by
originating certain loan participations. From inception management has
vigorously opposed the allegations. In April 1995, an appellate court upheld the
ruling of the lower court to affirm the cease and desist orders originally
issued in 1992. Because the probability of reversal was remote, management
decided to take no further appellant action.
In an effort to fully comply and cooperate with the regulatory agency and
without admitting any wrongdoing the Bank initiated efforts in 1995 to dispose
of the certain loans. On January 27, 1995, the Bank received payoff of twelve
loans in which its participation totalled approximately $6,113,000. The
consideration received totalled approximately $5,807,000. The $306,000
difference was reserved at December 31, 1994 and charged to other expenses.
In an effort to fully comply and cooperate with the regulatory agency the
Bank is actively attempting to market the remaining nine loans in order to
reduce the loan concentration at least to the Bank's legal lending limit of
$550,000. These efforts are fully and timely communicated to the regulatory
agency to obtain approved time extensions for full compliance. The Bank
currently has an extension until December 31, 1997 to reduce the loan
concentration. The balance of the related loans at December 31, 1996 is
approximately $3,050,000. The regulatory agency has required the Bank to include
approximately $155,000 of specific reserves on these loans in the allowance for
loan losses.
F-65
<PAGE>
FIRST BANK OF DEER PARK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF/AND FOR
SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 IS UNAUDITED)
(8) COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
The Bank contracts for data-processing services under a contract which
expires in October 1997. The total contract expense for 1997, 1996 and 1995 was
$64,068, $140,044 and $146,398, respectively. The following is a schedule of the
estimated future contract payments:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ----------------------------------------------------
<S> <C>
1997................................................ $ 108,000
----------
----------
</TABLE>
In the normal course of business the Bank makes various commitments and
incurs certain contingent liabilities that are not presented in the accompanying
financial statements. The commitments and contingent liabilities include various
guarantees, commitments to extend credit, and standby letters of credit. Such
commitments and standby letters of credit aggregated approximately $679,000,
$136,000 and $310,000 at June 30, 1997, December 31, 1996 and 1995,
respectively. The Bank does not anticipate any material losses as a result of
the commitments and contingent liabilities.
(9) RELATED PARTY TRANSACTIONS
Certain officers and directors, and companies in which they had 10 percent
or more beneficial ownership, were indebted to the Bank in the amount of
$307,000, $404,385 and $895,456 at June 30, 1997, and December 31, 1996 and
1995, respectively.
At June 30, 1997, the Bank maintained deposits or participated in loans at
the following banks which are owned 10 percent or more by certain directors and
officers of the Bank:
<TABLE>
<CAPTION>
PARTICIPATION PARTICIPATION
DUE FROM DUE TO SOLD PURCHASED
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
First National Bank of Bellaire........................ $ 15,013 $ -- $ 414,471 $3,241,299
Texas Coastal Bank..................................... 17,244 -- 1,885 169,432
Mayde Creek Bank....................................... 13,039 -- -- 82,663
Texas National Bank of Baytown......................... -- 5,105 309,711 416,958
Alief Alamo Bank....................................... -- -- 36,715 --
--------- --------- ------------ ------------
$ 45,296 $ 5,105 $ 762,782 $3,910,352
--------- --------- ------------ ------------
--------- --------- ------------ ------------
</TABLE>
(10) REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory--and possibly additional discretionary--actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
F-66
<PAGE>
FIRST BANK OF DEER PARK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF/AND FOR
SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 IS UNAUDITED)
(10) REGULATORY MATTERS (CONTINUED)
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the 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.
<TABLE>
<CAPTION>
FOR CAPITAL ADEQUACY PURPOSES:
ACTUAL:
-------------------- ---------------------------
AMOUNT RATIO AMOUNT RATIO
----------- ------- ------------ ------------
<S> <C> <C> <C> <C>
As of June 30, 1997
(Unaudited):
Total Capital
greater than or equal to greater than or equal to
(To Risk Weighted Assets)... $ 4,160,000 23.23% 1,438,000 8.00%
Tier I Capital*
greater than or equal to greater than or equal to
(To Risk Weighted Assets)... $ 3,911,000 21.84% 716,000 4.00%
Tier I Capital
greater than or equal to greater than or equal to
(To Average Assets)......... $ 3,911,000 11.24% 1,391,000 4.00%
As of December 31, 1996:
Total Capital
greater than or equal to greater than or equal to
(To Risk Weighted Assets)... $ 3,881,000 22.88% 1,356,000 8.00%
Tier I Capital*
greater than or equal to greater than or equal to
(To Risk Weighted Assets)... $ 3,668,000 21.62% 678,000 4.00%
Tier I Capital
greater than or equal to greater than or equal to
(To Average Assets)......... $ 3,668,000 11.67% 1,257,000 4.00%
As of December 31, 1995:
Total Capital
greater than or equal to greater than or equal to
(To Risk Weighted Assets)... $ 3,814,000 26.25% 1,162,000 8.00%
Tier I Capital*
greater than or equal to greater than or equal to
(To Risk Weighted Assets)... $ 3,631,000 24.98% 581,000 4.00%
Tier I Capital
greater than or equal to greater than or equal to
(To Average Assets)......... $ 3,631,000 12.35% 1,213,000 4.00%
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
PROMPT CORRECTIVE
ACTION PROVISIONS:
---------------------------
AMOUNT RATIO
------------ ------------
<S> <C> <C>
As of June 30, 1997
(Unaudited):
Total Capital
greater than or equal to greater than or equal to
(To Risk Weighted Assets)... 1,791,000 10.00%
Tier I Capital*
greater than or equal to greater than or equal to
(To Risk Weighted Assets)... 1,074,000 6.00%
Tier I Capital
greater than or equal to greater than or equal to
(To Average Assets)......... 1,739,000 5.00%
As of December 31, 1996:
Total Capital
greater than or equal to greater than or equal to
(To Risk Weighted Assets)... 1,696,000 10.00%
Tier I Capital*
greater than or equal to greater than or equal to
(To Risk Weighted Assets)... 1,017,000 6.00%
Tier I Capital
greater than or equal to greater than or equal to
(To Average Assets)......... 1,571,000 5.00%
As of December 31, 1995:
Total Capital
greater than or equal to greater than or equal to
(To Risk Weighted Assets)... 1,453,000 10.00%
Tier I Capital*
greater than or equal to greater than or equal to
(To Risk Weighted Assets)... 872,000 6.00%
Tier I Capital
greater than or equal to greater than or equal to
(To Average Assets)......... 1,517,000 5.00%
</TABLE>
- ------------------------
* Ratio must equal or exceed 13% to be in compliance with cease and desist
order issued by Office of the Comptroller of the Currency.
F-67
<PAGE>
FIRST BANK OF DEER PARK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF/AND FOR
SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 IS UNAUDITED)
(11) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments 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 amount recognized in the
consolidated balance sheets.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instruments for commitments to extend credit and
standby letters of credit is represented by the contractual notational amount of
those instruments (See note 7). The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount and type of collateral obtained,
if deemed necessary by the Bank upon extension of credit, varies and is based on
management's credit evaluation of the counterparty.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Standby letters of
credit generally have fixed expiration dates or other termination clauses and
may require payment of a fee. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to
customers. The Bank's policy for obtaining collateral and the nature of such
collateral is essentially the same as that involved in making commitments to
extend credit.
(12) CONCENTRATIONS OF CREDIT
Most of the Bank's loans, commitments, and commercial and standby letters of
credit have been granted to customers in the Bank's market area. Most such
customers are depositors of the Bank. The concentrations of credit by type of
loan are set forth in Note 3. Commercial and standby letters of credit were
granted primarily to commercial borrowers.
(13) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 requires management to
estimate the fair value of financial instruments as of the balance sheet date.
Management is unable to estimate the fair value of financial instruments
included in the statements other than investment securities which are disclosed
in footnote 2. However, management is of the opinion that the fair value does
not differ significantly from the recorded value of those financial instruments.
F-68
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES OF COMMON STOCK OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
SOLICITATION OR OFFER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Summary Consolidated Financial Data....................................... 7
Risk Factors.............................................................. 13
The Company............................................................... 18
The Acquisitions.......................................................... 23
Use of Proceeds........................................................... 29
Dividend Policy........................................................... 29
Dilution.................................................................. 30
Capitalization............................................................ 31
Nature of the Trading Market and Market Prices............................ 31
Selected Consolidated Financial Data...................................... 32
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 34
Management................................................................ 65
Principal Stockholders.................................................... 73
Supervision and Regulation................................................ 74
Description of Securities of Company...................................... 81
Underwriting.............................................................. 84
Legal Matters............................................................. 86
Experts................................................................... 86
Available Information..................................................... 86
Table of Contents to Financial Statements................................. F-1
</TABLE>
UNTIL (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY
BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO
THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
600,000 SHARES
[LOGO]
BAY BANCSHARES, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
HOEFER & ARNETT
INCORPORATED
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated fees and expenses incurred by the Registrant in connection
with this Offering are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................. $ 3,136
National Association of Securities Dealers, Inc. filing fee......... $ *
Printing and engraving expenses..................................... $ *
Legal fees and expenses of counsel for the Registrant............... $ *
Accounting fees and expenses........................................ $ *
Blue sky filing fees and expenses (including legal fees and
expenses).......................................................... $ *
Transfer Agent fees................................................. $ *
Miscellaneous....................................................... $ *
---------
Total............................................................. $ *
---------
---------
</TABLE>
- ------------------------
*To be supplied by Amendment.
ITEM 14. 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 filed 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 interests, 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 successfully 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 on 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.
Pursuant to the Purchase Agreement, a form of which is filed as Exhibit 1.1
to this Registration Statement, the Underwriters have agreed to indemnify the
directors, officers and controlling persons of the Registrant against certain
civil liabilities that may be incurred in connection with this Offering,
including certain liabilities under the Securities Act.
The Registrant may provide liability insurance for each director and officer
for certain losses arising from claims or changes made against them while action
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.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On September 27, 1994, the Registrant sold 1,000 shares of Common Stock to a
director of the Bank at a price of $5.00 per share.
On January 23, 1995, the Registrant sold 110 shares of Common Stock to four
members of the advisory board of the Pasadena branch at a price of $5.00 per
share.
On February 27, 1995, the Registrant sold 6,000 shares of Common Stock to an
executive officer of the Bank pursuant to the Phantom Plan.
On December 31, 1995, the Registrant sold 360 shares of Common Stock to
three members of the advisory board of the Pasadena branch at a price of $6.00
per share.
On January 3, 1996, the Registrant sold 6,000 shares of Common Stock to an
executive officer of the Bank pursuant to the Phantom Plan.
On January 3, 1997, the Registrant sold 6,000 shares of Common Stock to an
executive officer of the Bank pursuant to the Phantom Plan.
On January 30, 1997, the Registrant sold 750 shares of Common Stock to seven
members of the advisory board of the Pasadena branch at a price of $7.05 per
share.
On March 31, 1997, the Registrant sold 1,026 shares of Common Stock to Jaw
Co. Trustees for the Registrant's 401K Plan at a price of $7.05 per share.
On June 30, 1997, the Registrant sold 1,117 shares of Common Stock to Jaw
Co. Trustees for the Registrant's 401K Plan at a price of $7.05 per share.
Except for the shares issued pursuant to the Phantom Plan for which no
consideration was received, the consideration for each sale was cash. Each sale
was made pursuant to the registration exemption provided by Section 3(a)(11) of
the Securities Act of 1933.
ITEM 16. 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> <C> <S>
*1 -- Form of Purchase Agreement by and between the Underwriter and the Company.
3.1 -- Amended and Restated Articles of Incorporation of the Company.
3.2 -- Amended and Restated Bylaws of the Company
*4 -- Form of Certificate representing shares of Common Stock.
*5 -- Opinion of Bracewell & Patterson, L.L.P. as to the legality of the securities being
registered.
10.1 -- Bay Bancshares, Inc. 1997 Stock Incentive Plan.
10.2 -- Amended and Restated Bay Bancshares, Inc. 1997 Stock Option Plan.
10.3 -- Agreement and Plan of Reorganization dated as of June 24, 1997 among Bay Bancshares, Inc.,
Texas Bank and certain shareholders of Texas Bank.
10.4 -- Agreement and Plan of Consolidation dated as of August 7, 1997 among Bay Bancshares, Inc.,
Bayshore National Bank and Texas National Bank of Baytown.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- ---------------------------------------------------------------------------------------------
<C> <C> <S>
10.5 -- Agreement and Plan of Reorganization dated as of August 7, 1997 among Bay Bancshares, Inc.,
Bayshore National Bank and First Bank of Deer Park.
10.6 -- Bay Bancshares, Inc. 1993 Phantom Stock Plan.
21. -- List of Subsidiaries.
23.1 -- Consent of Grant Thornton LLP.
23.2 -- Consent of McClelland, Samuel & Fehnel, L.L.P.
23.3 -- Consent of Killingsworth & Company.
23.4 -- Consent of Killingsworth & Company.
*23.5 -- Consent of Bracewell & Patterson, L.L.P. (included in the opinion to be filed as Exhibit 5 to
this Registration Statement).
24 -- Power of Attorney (included on the signature pages to this Registration Statement).
27 -- Financial Data Schedule.
</TABLE>
- ------------------------
*To be supplied by Amendment.
(b) Financial Statement Schedules
None.
All other schedules for which provision is made in Regulation S-X of the
Commission are not required under the related instructions or are inapplicable
and, therefore, have been omitted.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officer and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, Bay
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 September 23, 1997.
<TABLE>
<S> <C> <C>
BAY BANCSHARES, INC.
By: /s/ L. D. WRIGHT
-----------------------------------------
L. D. Wright
PRESIDENT
</TABLE>
II-4
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
each of L. D. Wright and Albert Fields, with full power to act without the
other, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (until revoked in writing) to sign this Registration
Statement and any and all amendments (including post-effective amendments) to
this Registration Statement, to file the same, together with all exhibits
thereto and documents in connection therewith, with the Securities and Exchange
Commission, to sign any and all applications, registration statements, notices
and other documents necessary or advisable to comply with the applicable state
securities authorities, granting unto said attorneys-in-fact and agents or any
of them, or their or his substitutes or substitute, full power and authority to
perform and do each and every act necessary and advisable as fully to all
intents and purposes as he might or could perform and do in person, thereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitutes or substitute, may lawfully do or cause to be
done by virtue hereof.
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 September 23, 1997.
<TABLE>
<CAPTION>
SIGNATURE POSITIONS
- ------------------------------------------------------ ---------------------------------------------------------
<C> <S>
/s/ L.D. WRIGHT
------------------------------------------- President and Chief Executive Officer (principal
L. D. Wright executive officer)
/s/ KIM LOVE
------------------------------------------- Comptroller (principal financial officer and principal
Kim Love accounting officer)
/s/ KNOX W. ASKINS
------------------------------------------- Director
Knox W. Askins
/s/ EMERY FARKAS
------------------------------------------- Director
Emery Farkas
/s/ ALBERT D. FIELDS
------------------------------------------- Director
Albert D. Fields
/s/ EDDIE V. GRAY
------------------------------------------- Director
Eddie V. Gray
/s/ W.E. GWALTNEY, JR.
------------------------------------------- Director
W.E. Gwaltney, Jr.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE POSITIONS
- ------------------------------------------------------ ---------------------------------------------------------
<C> <S>
/s/ DOUG LATIMER
------------------------------------------- Director
Doug Latimer
/s/ JAY MARKS
------------------------------------------- Director
Jay Marks
/s/ L.H. MCKEY
------------------------------------------- Director
L.H. McKey
/s/ LINDSAY R. PFEIFFER
------------------------------------------- Director
Lindsay R. Pfeiffer
/s/ KEN STRUM
------------------------------------------- Director
Ken Strum
/s/ JAMES N. WALLACE
------------------------------------------- Director
James N. Wallace
/s/ RUEDE M. WHEELER, D.D.S.
------------------------------------------- Director
Ruede M. Wheeler, D.D.S.
/s/ ALICE W. WORTHINGTON
------------------------------------------- Director
Alice W. Worthington
</TABLE>
II-6
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
BAY BANCSHARES, INC.
ARTICLE ONE: NAME
The name of the Corporation is Bay Bancshares, Inc.
ARTICLE TWO: DURATION
The Corporation's period of duration is perpetual.
ARTICLE THREE: PURPOSE
The purpose of purposes for which the Corporation is organized are:
(a) To act as a bank holding company;
(b) To transact any and all lawful business for which corporations may be
incorporated under the Texas Business Corporation Act;
(c) To buy, sell, lease, and deal in services, personal property, and real
property subject to Part IV of the Texas Miscellaneous Corporation
Laws Act;
(d) To do each and every thing necessary, suitable, or proper for the
accomplishment of any of the purposes or for the attainment of any one
or more of the objects herein enumerated or which at any time appear
conducive to or expedient for the protection or benefit of the
Corporation.
The foregoing clauses shall be construed as powers as well as objects and
purposes, and the matter expressed in each clause shall, unless herein otherwise
expressly provided, be in nowise limited by reference to or inference from the
terms of any other clause, but shall be regarded as independent objects,
purposes and powers, and shall not be construed to limit or restrict in any
manner the meaning of the general terms or the general powers of the
Corporation.
<PAGE>
ARTICLE FOUR: STOCK
Section 4.1. AUTHORIZED SHARES. The aggregate number of all classes of
stock which the Corporation has authority to issue is 60,000,000 shares divided
into (A) one class of 50,000,000 shares of Common Stock with a par value of
$1.00 per share, and (B) one class of 10,000,000 shares of Preferred Stock with
a par value of $1.00 per share, which may be divided into and issued in series
as set forth in this Article Four.
Section 4.2. AUTHORIZATION OF DIRECTORS TO DETERMINE CERTAIN RIGHTS OF
PREFERRED STOCK. The shares of Preferred Stock may be divided into and issued
in series. The Board of Directors shall have the authority to establish series
of unissued shares of Preferred Stock by fixing and determining the relative
rights and preferences of the shares of any series so established, and to
increase or decrease the number of shares within each such series; provided,
however, that the Board of Directors may not decrease the number of shares
within a series of Preferred Stock to less than the number of shares within such
series that are then issued. The Preferred Stock of each such series shall have
such designations, preferences, limitations, or relative rights, including
voting rights, as shall be set forth in the resolution or resolutions
establishing such series adopted by the Board of Directors, including, but
without limiting the generality of the foregoing, the following:
(A) The distinctive designation of, and the number of shares of
Preferred Stock that shall constitute, such series, which number (except
where otherwise provided by the Board of Directors in the resolution
establishing such series) may be increased or decreased (but not below the
number of shares of such series then outstanding) from time to time by like
action of the Board of Directors;
(B) The rights in respect of dividends, if any, of such series of
Preferred Stock, the extent of the preference or relation, if any, of such
dividends to the dividends payable on any other class or classes or any
other series of the same or other class or classes of capital stock of the
Corporation and whether such dividends shall be cumulative or
noncumulative;
(C) The right, if any, of the holders of such series of Preferred
Stock to convert the same into, or exchange the same for, shares of any
other class or classes or of any other series of the same or any other
class or classes of capital stock, obligations, indebtedness, rights to
purchase securities or other securities of the Corporation or other
entities, domestic or foreign, or for other property or for any combination
of the foregoing, and the terms and conditions of such conversion or
exchange;
(D) Whether or not shares of such series of Preferred Stock shall be
subject to redemption, and the redemption price or prices and the time or
times at which, and the terms and conditions on which, shares of such
series of Preferred Stock may be redeemed;
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(E) The rights, if any, of the holders of such series of Preferred
Stock upon the voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation or in the event of any merger or
consolidation of or sale of assets by the Corporation;
(F) The terms of any sinking fund or redemption or repurchase or
purchase account, if any, to be provided for shares of such series of
Preferred Stock;
(G) The voting powers, if any, of the holders of any series of
Preferred Stock generally or with respect to any particular matter, which
may be less than, equal to or greater than one vote per share, and which
may, without limiting the generality of the foregoing, include the right,
voting as a series of Preferred Stock as a class, to elect one or more
directors of the Corporation generally or under such specific circumstances
and on such conditions, as shall be provided in the resolution or
resolutions of the Board of Directors adopted pursuant hereto, including,
without limitation, in the event there shall have been a default in the
payment of dividends on or redemption of any one or more series of
Preferred Stock; and
(H) Such other powers, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations and
restrictions thereof, as the Board of Directors shall determine.
Section 4.3. PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF ALL CLASSES
OF CAPITAL STOCK.
(A) GENERAL. All shares of Common Stock shall have rights identical
to those of all other such shares. Except as they may vary among series
established pursuant to Section 4.2 of this Article Four, all shares of
Preferred Stock shall have preferences, limitations, and relative rights
identical to those of all other such shares.
(B) LIQUIDATION PREFERENCE. In the event of dissolution,
liquidation, or winding up of the Corporation (whether voluntary or
involuntary), after payment or provision for payment of debts but before
any distribution to the holders of Common Stock, the holders of each series
of Preferred Stock then outstanding shall be entitled to receive the amount
fixed by the Board of Directors pursuant to Section 4.2 of this Article
Four and no more. All remaining assets shall be distributed pro rata among
the holders of Common Stock. If the assets distributable among the holders
of Preferred Stock are insufficient to permit full payment to them, the
entire assets shall be distributed among the holders of the Preferred Stock
in proportion to their respective liquidation preferences unless otherwise
provided by the Board of Directors pursuant to Section 4.2 of this Article
Four. Neither the consolidation, merger, or reorganization of the
Corporation with any other corporation or corporations, nor the sale of all
or substantially all the assets of the Corporation, nor the purchase or
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redemption by the Corporation of any of its outstanding shares shall be
deemed to be a dissolution, liquidation, or winding up within the meaning
of this paragraph.
(C) REDEMPTION.
(1) RIGHT; METHOD. All or any part of any one or more series of
Preferred Stock may be redeemed at any time or times at the option of the
Corporation, by resolution of the Board of Directors, in accordance with
the terms and conditions of this Article Four and those fixed by the Board
of Directors pursuant to Section 4.2 of this Article Four. The Corporation
may redeem shares of any one or more series without redeeming shares of any
other series. If less than all the shares of any series are to be
redeemed, the shares of the series to be redeemed shall be selected ratably
or by lot or by any other equitable method determined by the Board of
Directors.
(2) NOTICE. Notice shall be given to the holders of shares to
be redeemed, either personally or by mail, not less than twenty nor more
than fifty days before the date fixed for redemption.
(3) PAYMENT. Holders of redeemed shares shall be paid in cash
the amount fixed by the Board of Directors pursuant to Section 4.2 of this
Article Four.
(4) PROVISION FOR PAYMENT. On or before the date fixed for
redemption, the Corporation may provide for payment of a sum sufficient to
redeem the shares called for redemption either (a) by setting aside the
sum, separate from its other funds, in trust for the benefit of the holders
of the shares to be redeemed, or (b) by depositing such sum in a bank or
trust company (either one in Texas having capital and surplus of at least
$10,000,000 according to its latest statement of condition, or one anywhere
in the United States duly appointed and acting as transfer agent of the
Corporation) as a trust fund, with irrevocable instructions and authority
to the bank or trust company to give or complete the notice of redemption
and to pay to the holders of the shares to be redeemed, on or after the
date fixed for redemption, the redemption price on surrender of their
respective share certificates. The holders of shares to be redeemed may be
evidenced by a list certified by the Corporation (by its president or a
vice president and by its secretary or an assistant secretary) or by its
transfer agent. If the Corporation so provides for payment, then from and
after the date fixed for redemption (a) the shares shall be deemed to be
redeemed, (b) dividends thereon shall cease to accrue, (c) such setting
aside or deposit shall be deemed to constitute full payment for the shares,
(d) the shares shall no longer be deemed to be outstanding, (e) the holders
thereof shall cease to be shareholders with respect to such shares, and
(f) the holders shall have no rights with respect thereto except the right
to receive (without interest) their proportionate shares of the funds so
set aside or deposited upon surrender of their respective certificates,
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and any right to convert such shares which may exist. Any interest accrued
on funds so set aside or deposited shall belong to the Corporation. If the
holders of the shares do not, within six years after such deposit, claim
any amount so deposited for redemption thereof, the bank or trust company
shall upon demand pay over to the Corporation the balance of the funds so
deposited, and the bank or trust company shall thereupon be relieved of all
responsibility to such holders.
(5) STATUS OF REDEEMED SHARES. Shares of Preferred Stock which
are redeemed shall be canceled and shall be restored to the status of
authorized but unissued shares.
(D) PURCHASE. Except as fixed by the Board of Directors pursuant to
Section 4.2 of this Article Four or as otherwise expressly provided by law,
nothing herein shall limit the right of the Corporation to purchase any of
its outstanding shares in accordance with law, by public or private
transaction.
ARTICLE FIVE: PREEMPTIVE RIGHTS DENIED
The holders of such shares of Common Stock shall have no preemptive rights
to purchase or subscribe to (a) any unissued shares of any Common Stock of the
Corporation or (b) any right of subscription to or to receive, or any warrant or
option for the purchase of, any of the foregoing securities that may be sold by
the Corporation.
ARTICLE SIX: COMMENCING BUSINESS
The Corporation will not commence business until it has received
consideration for the issuance of its shares amounting to One Thousand Dollars
($1,000.00) in value and consisting of money, labor done, or property actually
received.
ARTICLE SEVEN: CUMULATIVE VOTING
Cumulative voting for the election of directors is prohibited.
ARTICLE EIGHT: VOTING
Except where otherwise provided in these Articles of Incorporation or the
bylaws of the Corporation, the holders of the common shares shall have the
exclusive voting rights and powers, including the exclusive rights to notice of
shareholders' meetings.
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ARTICLE NINE: AMENDMENT OF BYLAWS
The Board of Directors shall have the power to adopt, amend and repeal from
time to time the Bylaws of the Corporation. The shareholders of the Corporation
shall not have the power to adopt, amend or repeal the Bylaws of the
Corporation.
ARTICLE TEN: INTERESTED PARTIES
A contract or transaction between the Corporation and any other Person (as
used herein the term "Person" means an individual, firm, trust, partnership,
joint venture, association, corporation, political subdivision or
instrumentality, or other entity) shall not be affected or invalidated by the
fact that (a) any director, officer, or security holder of the Corporation is
also a party to, or has a direct or indirect interest in, such contract or
transaction; or (b) any director, officer, or security holder of the Corporation
is in any way connected with such other Person or with any of its officers or
directors.
Every person who may become a director of the Corporation is hereby
relieved from any liability that might otherwise exist from contracting with the
Corporation for the benefit of himself or of any Person in which he has any
interest, whether or not the interested director's presence at a meeting or his
vote or votes were necessary to obligate the Corporation in such transaction, if
such interest shall have been disclosed to, or known to, the Corporation's
directors or shareholders who shall have approved such transaction.
ARTICLE ELEVEN: INDEMNIFICATION
SECTION 11.1. INDEMNIFICATION. As permitted by Section G of Article
2.02-1 of the Texas Business Corporation Act or any successor statute (the
"Indemnification Article"), the Corporation hereby:
(a) makes mandatory the indemnification permitted under Section B of
the Indemnification Article as contemplated by Section G thereof;
(b) makes mandatory its payment or reimbursement of the reasonable
expenses incurred by a former or present director who was, is, or is threatened
to be made a named defendant or respondent in a proceeding upon such director's
compliance with the requirements of Section K of the Indemnification Article;
and
(c) extends the mandatory indemnification referred to in Section
11.1(a) above and the mandatory payment or reimbursement of expenses referred to
in Section 11.1(b) above (i) to all former or present officers of the
Corporation and (ii) to all persons who are or were serving at
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the request of the Corporation as a director, officer, partner or trustee of
another foreign or domestic corporation, partnership, joint venture, trust or
employee benefit plan, to the same extent that the Corporation is obligated
to indemnify and pay or reimburse expenses to directors.
SECTION 11.2. NONEXCLUSIVITY. The indemnification provided by this
Article shall not be deemed exclusive of any other rights to which the person
indemnified may be entitled under any bylaw, agreement, authorization of
shareholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall enure to the benefit of such person's heirs
and legal representatives.
SECTION 11.3. INSURANCE. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee, or agent of the Corporation or who is or was serving at the request of
the Corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another business, foreign, domestic or
non-profit corporation, partnership, joint venture, sole proprietorship, trust
or other enterprise or employee benefit plan, against any liability asserted
against such person and incurred by such person in such a capacity or arising
out of such person's status as such a person, whether or not the Corporation
would have the power to indemnify such person against that liability under the
provisions of this Article or the Texas Business Corporation Act.
SECTION 11.4. WITNESSES. Notwithstanding any other provision of this
Article, the Corporation shall pay or reimburse expenses incurred by any
director, officer, employee or agent in connection with such person's appearance
as a witness or other participation in a proceeding at a time when such person
is not a named defendant or respondent in such proceeding.
ARTICLE TWELVE: REPURCHASE OF STOCK
The Corporation is authorized to purchase, directly or indirectly, its own
shares to the extent of the aggregate of the unrestricted capital surplus and
unrestricted reduction surplus available therefor, without submitting such
purchase to a vote of the shareholders of the Corporation.
ARTICLE THIRTEEN: AUTHORITY TO BORROW
The Board of Directors is expressly authorized, without the consent of the
stockholders, except so far as such consent is herein or by law provided, to
issue and sell or otherwise dispose of, for any purpose, the Corporation's
bonds, debentures, notes or other securities or obligations, upon such terms and
for such consideration as the Board of Directors shall deem advisable and to
authorize and cause to be executed mortgages, pledges, charges and liens upon
all or part of the real
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and personal property rights, interests and franchise of the Corporation,
including contract rights, whether at the time owned or thereafter acquired.
ARTICLE FOURTEEN: VOTING PERCENTAGES
Any action of the Corporation which, under the provisions of the Texas
Business Corporation Act, is required to be authorized or approved by the holder
of 2/3, or any other specified fraction which is in excess of 1/2, or any
specified percentage which is in excess of 50%, of the outstanding shares of the
Corporation shall, notwithstanding any such provisions of the Texas Business
Corporation Act, be deemed effectively and properly authorized or approved if
authorized or approved by the vote of the holders of more than 50% of the
outstanding shares entitled to vote thereon. Nothing contained in this Article
is intended to require shareholder authorization or approval of any action of
the Corporation whatsoever unless such authorization or approval is specifically
required by the other provisions of these Articles of Incorporation, the bylaws
of the Corporation, or by the Texas Business Corporation Act.
ARTICLE FIFTEEN: OFFICE AND AGENT
The address of the registered office of the Corporation is 1001 Highway 146
South, La Porte, Texas, and the name of its registered agent at that address is
L.D. Wright.
ARTICLE SIXTEEN: DIRECTORS
The number of directors constituting the Board of Directors of the
Corporation is fourteen and the names and addresses of the persons who are to
serve as directors until the next annual meeting of shareholders, or until their
respective successors are elected and qualified, are:
NAME ADDRESS
---- -------
Knox W. Askins 1001 Highway 146 South
La Porte, Texas 77571
Emery Farkas 1001 Highway 146 South
La Porte, Texas 77571
Albert D. Fields 1001 Highway 146 South
La Porte, Texas 77571
Eddie V. Gray 1001 Highway 146 South
Baytown, Texas 77520
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W. E. Gwaltney, Jr. 1001 Highway 146 South
La Porte, Texas 77571
Doug Latimer 1001 Highway 146 South
La Porte, Texas 77571
Jay Marks 1001 Highway 146 South
La Porte, Texas 77571
L. H. McKey 1001 Highway 146 South
La Porte, Texas 77571
Lindsay Pfeiffer 1001 Highway 146 South
La Porte, Texas 77571
Ken Strum 1001 Highway 146 South
La Porte, Texas 77571
James N. Wallace 1001 Highway 146 South
La Porte, Texas 77571
Ruede M. Wheeler 1001 Highway 146 South
La Porte, Texas 77571
Alice Worthington 1001 Highway 146 South
La Porte, Texas 77571
L.D. Wright 1001 Highway 146 South
La Porte, Texas 77571
ARTICLE SEVENTEEN: LIABILITY OF DIRECTORS
A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for an act or omission in
the director's capacity as a director, except that this Article does not
eliminate or limit the liability of a director for:
(1) a breach of a director's duty of loyalty to the corporation or its
shareholders;
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(2) an act or omission not in good faith or that involves intentional
misconduct or a knowing violation of the law;
(3) 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;
(4) an act or omission for which the liability of a director is expressly
provided for by statute; or
(5) an act related to an unlawful stock repurchase or payment of a
dividend.
If the Texas Miscellaneous Corporation Laws Act, or the Texas Business
Corporation Act, hereafter are amended to authorize the further elimination of
limitation of the liability of directors, then the liability of a director of
the Corporation, in addition to the limitation on personal liability provided
herein, shall be limited to the fullest extent permitted by the amended Texas
Miscellaneous Corporation Act, as the case may be. Any repeal or modification
of this Article by the shareholders of the Corporation shall be prospective
only, and shall not adversely affect any limitation on the personal liability of
a director of the Corporation existing at the time of such repeal or
modification.
ARTICLE EIGHTEEN: SPECIAL MEETINGS OF SHAREHOLDERS
Special meetings of the shareholders of the Corporation may be called only
(1) by the Chairman of the Board, by the President, by a majority of the Board
of Directors, or by such other person or persons as may be authorized in the
Bylaws or (2) by the holders of 50% of the outstanding shares of the Company
entitled to vote at the proposed special meeting.
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AMENDED AND RESTATED BYLAWS
OF
BAY BANCSHARES, INC.
A Texas Corporation
Date of Adoption
August 8, 1997
<PAGE>
TABLE OF CONTENTS
Page
Article 1
Offices
Section 1.1. Registered Office............................................1
Section 1.2. Other Offices................................................1
Article 2
Shareholders
Section 2.1. Place of Meetings............................................1
Section 2.2. Quorum; Adjournment of Meetings.............................1
Section 2.3. Annual Meetings..............................................2
Section 2.4. Special Meetings.............................................2
Section 2.5. Record Date..................................................2
Section 2.6. Notice of Meetings...........................................3
Section 2.7. Shareholder List.............................................3
Section 2.8. Proxies......................................................3
Section 2.9. Voting; Election; Inspectors.................................4
Section 2.10. Conduct of Meetings..........................................5
Section 2.12. Treasury Stock...............................................6
Article 3
Board of Directors
Section 3.1. Power; Number; Term of Office................................6
Section 3.3. Quorum; Voting...............................................7
Section 3.4. Place of Meetings; Order of Business.........................7
Section 3.5. First Meeting................................................7
Section 3.6. Regular Meetings.............................................8
Section 3.7. Special Meetings.............................................8
Section 3.8. Removal......................................................8
Section 3.9. Vacancies; Increases in the Number of Directors..............8
Section 3.10. Compensation.................................................8
Section 3.11. Action Without a Meeting; Telephone Conference Meeting.......8
Section 3.12. Approval or Ratification of Acts or Contracts by
Shareholders................................................9
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Article 4
Committees
Section 4.1. Designation; Powers..........................................9
Section 4.2. Procedure; Meetings; Quorum.................................10
Section 4.3. Substitution and Removal of Members; Vacancies..............10
Article 5
Officers
Section 5.1. Number, Titles and Term of Office...........................10
Section 5.2. Powers and Duties of the Chairman of the Board..............11
Section 5.3. Powers and Duties of the President..........................11
Section 5.4. Vice Presidents.............................................11
Section 5.5. Secretary...................................................11
Section 5.6. Assistant Secretaries.......................................12
Section 5.7. Treasurer...................................................12
Section 5.8. Assistant Treasurers........................................12
Section 5.9. Action with Respect to Securities of Other Corporations.....12
Section 5.10. Delegation..................................................12
Article 6
Capital Stock
Section 6.1. Certificates of Stock.......................................13
Section 6.2. Transfer of Shares..........................................13
Section 6.3. Ownership of Shares.........................................13
Section 6.4. Regulations Regarding Certificates..........................14
Section 6.5. Lost or Destroyed Certificates..............................14
Article 7
Miscellaneous Provisions
Section 7.1. Fiscal Year.................................................14
Section 7.2. Corporate Seal..............................................14
Section 7.3. Notice and Waiver of Notice.................................14
Section 7.4. Facsimile Signatures........................................15
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Section 7.5. Reliance upon Books, Reports and Records....................15
Section 7.6. Application of Bylaws.......................................15
Article 8
Indemnification of Officers and Directors
Section 8.1. Indemnification.............................................15
Section 8.2. Nonexclusivity..............................................16
Section 8.3. Insurance...................................................16
Section 8.4. Witnesses...................................................16
Article 9
Amendments
Section 9.1. Amendments..................................................17
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BYLAWS
OF
BAY BANCSHARES, INC.
Article 1
OFFICES
SECTION 1.1. REGISTERED OFFICE. The registered office of the
Corporation required by the State of Texas to be maintained in the State of
Texas shall be the registered office named in the Articles of Incorporation
of the Corporation, or such other office as may be designated from time to
time by the Board of Directors in the manner provided by law.
SECTION 1.2. OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the State of Texas as the Board of
Directors may from time to time determine or the business of the Corporation
may require.
Article 2
SHAREHOLDERS
SECTION 2.1. PLACE OF MEETINGS. All meetings of the shareholders shall
be held at the principal office of the Corporation, or at such other place
within or without the State of Texas as shall be specified or fixed in the
notices or waivers of notice thereof.
SECTION 2.2. QUORUM; ADJOURNMENT OF MEETINGS. Unless otherwise
required by law or provided in the Articles of Incorporation of the
Corporation or these Bylaws, the holders of a majority of the stock issued
and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at any meeting of
shareholders for the transaction of business. The shareholders present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
Notwithstanding the other provisions of the Articles of Incorporation of
the Corporation or these Bylaws, the chairman of the meeting or the holders
of a majority of the issued and outstanding stock, present in person or
represented by proxy and entitled to vote thereat, at any meeting of
shareholders, whether or not a quorum is present, shall have the power to
adjourn such meeting from time to time, without any notice other than
announcement at the meeting of the time and place of the holding of the
adjourned meeting. If the adjournment is for more than thirty (30) days, or
if after
<PAGE>
the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each shareholder of record
entitled to vote at such meeting. At such adjourned meeting at which a
quorum shall be present or represented any business may be transacted which
might have been transacted at the meeting as originally called.
SECTION 2.3. ANNUAL MEETINGS. An annual meeting of the shareholders,
for the election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place (within or without the State of Texas), on such
date, and at such time as the Board of Directors shall fix and set forth in
the notice of the meeting, which date shall be within thirteen (13) months
subsequent to the last annual meeting of shareholders.
SECTION 2.4. SPECIAL MEETINGS. Unless otherwise provided in the
Articles of Incorporation of the Corporation, special meetings of the
shareholders for any purpose or purposes may be called at any time by the
Chairman of the Board, by the President, by a majority of the Board of
Directors, or by a majority of the executive committee (if any) or by the
holders of 50% of the outstanding shares of the Company entitled to vote at
the proposed special meeting, at such time and at such place as may be stated
in the notice of the meeting. Business transacted at a special meeting shall
be confined to the purpose(s) stated in the notice of such meeting.
SECTION 2.5. RECORD DATE. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders, or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion or exchange of stock or for the purpose
of any other lawful action, the Board of Directors of the Corporation may fix
a date as the record date for any such determination of shareholders, which
record date shall not precede the date on which the resolutions fixing the
record date are adopted and which record date shall not be more than sixty
(60) days nor less than ten (10) days before the date of such meeting of
shareholders, nor more than sixty (60) days prior to any other action to
which such record date relates.
If the Board of Directors does not fix a record date for any meeting of
the shareholders, the record date for determining shareholders entitled to
notice of or to vote at such meeting shall be at the close of business on
the day next preceding the day on which notice is given, or, if in accordance
with Article 7, Section 7.3 of these Bylaws notice is waived, at the close of
business on the day next preceding the day on which the meeting is held. The
record date for determining shareholders for any other purpose (other than
the consenting to corporate action in writing without a meeting) shall be at
the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of shareholders of record
entitled to notice of or to vote at a meeting of
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shareholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the
adjourned meeting.
For the purpose of determining the shareholders entitled to consent to
corporate action in writing without a meeting, the Board of Directors may fix
a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If
the Board of Directors does not fix the record date, the record date for
determining shareholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is
necessary, shall be the first date on which a signed written consent setting
forth the action taken or proposed to be taken is delivered to the
Corporation at its registered office in the State of Texas or at its
principal place of business. If the Board of Directors does not fix the
record date, and prior action by the Board of Directors is necessary, the
record date for determining shareholders entitled to consent to corporate
action in writing without a meeting shall be at the close of business on the
day on which the Board of Directors adopts the resolution taking such prior
action.
SECTION 2.6. NOTICE OF MEETINGS. Written notice of the place, date and
hour of all meetings, and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be given by or at the
direction of the Board of Directors or the other person(s) calling the
meeting to each shareholder entitled to vote thereat not less than ten (10)
nor more than sixty (60) days before the date of the meeting. Such notice
may be delivered either personally or by mail. If mailed, notice is given
when deposited in the United States mail, postage prepaid, directed to the
shareholder at such shareholder's address as it appears on the records of the
Corporation.
SECTION 2.7. SHAREHOLDER LIST. A complete list of shareholders entitled
to vote at any meeting of shareholders, arranged in alphabetical order for
each class of stock and showing the address of each such shareholder and the
number of shares registered in the name of such shareholder, shall be open to
the examination of any shareholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The shareholder
list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any shareholder who is
present.
SECTION 2.8. PROXIES. Each shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent to a corporate action in
writing without a meeting may authorize another person or persons to act for
him by proxy. Proxies for use at any meeting of shareholders shall be filed
with the Secretary, or such other officer as the Board of Directors may from
time to time
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determine by resolution, before or at the time of the meeting. All proxies
shall be received and taken charge of and all ballots shall be received and
canvassed by the secretary of the meeting, who shall decide all questions
touching upon the qualification of voters, the validity of the proxies, and
the acceptance or rejection of votes, unless an inspector or inspectors shall
have been appointed by the chairman of the meeting, in which event such
inspector or inspectors shall decide all such questions.
No proxy shall be valid after eleven (11) months from its date, unless
the proxy provides for a longer period. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power.
Should a proxy designate two or more persons to act as proxies, unless
such instrument shall provide the contrary, a majority of such persons
present at any meeting at which their powers thereunder are to be exercised
shall have and may exercise all the powers of voting or giving consents
thereby conferred, or if only one be present, then such powers may be
exercised by that one; or, if an even number attend and a majority do not
agree on any particular issue, each proxy so attending shall be entitled to
exercise such powers in respect of such portion of the shares as is equal to
the reciprocal of the fraction equal to the number of proxies representing
such shares divided by the total number of shares represented by such proxies.
SECTION 2.9. VOTING; ELECTION; INSPECTORS. Unless otherwise required by
law or provided in the Articles of Incorporation of the Corporation, each
shareholder shall on each matter submitted to a vote at a meeting of
shareholders have one vote for each share of the stock entitled to vote which
is registered in his name on the record date for the meeting. For the
purposes hereof, each election to fill a directorship shall constitute a
separate matter. Shares registered in the name of another corporation,
domestic or foreign, may be voted by such officer, agent or proxy as the
bylaws (or comparable body) of such corporation may determine. Shares
registered in the name of a deceased person may be voted by the executor or
administrator of such person's estate, either in person or by proxy.
All voting, except as required by the Articles of Incorporation of the
Corporation or where otherwise required by law, may be by a voice vote;
provided, however, upon request of the chairman of the meeting or upon demand
therefor by shareholders holding a majority of the issued and outstanding
stock present in person or by proxy at any meeting a stock vote shall be
taken. Every stock vote shall be taken by written ballots, each of which
shall state the name of the shareholder or proxy voting and such other
information as may be required under the procedure established for the
meeting. All elections of directors shall be by written ballots, unless
otherwise provided in the Articles of Incorporation of the Corporation.
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At any meeting at which a vote is taken by written ballots, the chairman
of the meeting may appoint one or more inspectors, each of whom shall
subscribe an oath or affirmation to execute faithfully the duties of
inspector at such meeting with strict impartiality and according to the best
of such inspector's ability. Such inspector shall receive the written
ballots, count the votes, and make and sign a certificate of the result
thereof. The chairman of the meeting may appoint any person to serve as
inspector, except no candidate for the office of director shall be appointed
as an inspector.
Unless otherwise provided in the Articles of Incorporation of the
Corporation, cumulative voting for the election of directors shall be
prohibited.
SECTION 2.10. CONDUCT OF MEETINGS. The meetings of the shareholders
shall be presided over by the Chairman of the Board, or, if the Chairman of
the Board is not present, by the President, or, if the President is not
present, by any Vice President, or if no Vice President is present, by a
chairman elected at the meeting. The Secretary of the Corporation, if
present, shall act as secretary of such meetings, or, if the Secretary is not
present, an Assistant Secretary shall so act; if neither the Secretary or an
Assistant Secretary is present, then a secretary shall be appointed by the
chairman of the meeting.
The chairman of any meeting of shareholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to the chairman in
order.
SECTION 2.11. NOTIFICATIONS OF NOMINATIONS AND PROPOSED BUSINESS.
Subject to the rights of holders of any class of capital stock of the
Corporation (other than the common stock), nominations for the election of
directors and proposals for business to be brought before any shareholder
meeting may be made by the Board of Directors or by any shareholder entitled
to vote in the election of directors generally. However, any such
shareholder may nominate one or more persons for election as directors at a
meeting or propose business to be brought before a meeting, or both, only if
such shareholder has given timely notice in proper written form of his intent
to make such nomination or nominations or to propose such business. To be
timely, a shareholder's notice must be delivered to or mailed and received by
the Secretary of the Corporation not later than sixty (60) days prior to such
meeting. To be in proper written form, a shareholder's notice to the
Secretary shall set forth:
(i) the name and address of the shareholder who intends to make
the nominations or propose the business and, in the case of nominations for
the election of directors, of the person or persons to be nominated;
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(ii) a representation that the shareholder is a holder of record
of stock of the Corporation entitled to vote at such meeting and, if
applicable, intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice or propose the
business specified in the notice;
(iii) if applicable, a description of all arrangements or
understandings between the shareholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder;
(iv) such other information regarding each nominee or each matter
of business to be proposed by such shareholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated or the
matter been proposed by the Board of Directors; and
(v) if applicable, the consent of each nominee to serve as
director of the Corporation if so elected.
A nomination of any person or proposal of any business not made in
compliance with the foregoing procedures shall not be eligible to be voted
upon by the shareholders at the meeting.
SECTION 2.12. TREASURY STOCK. The Corporation shall not vote, directly
or indirectly, shares of its own stock owned by it and such shares shall not
be counted for quorum purposes. Nothing in this Section 2.11 shall be
construed as limiting the right of the Corporation to vote stock, including
but not limited to its own stock, held by it in a fiduciary capacity.
Article 3
BOARD OF DIRECTORS
SECTION 3.1. POWER; NUMBER; TERM OF OFFICE. The business and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors, and, subject to the restrictions imposed by law or the Articles of
Incorporation of the Corporation, the Board of Directors may exercise all the
powers of the Corporation.
The number of directors which shall constitute the whole Board of
Directors shall be determined from time to time by the Board of Directors
(provided that no decrease in the number of directors which would have the
effect of shortening the term of an incumbent director may be made by the
Board of Directors). If the Board of Directors makes no such determination,
the number of directors shall be three. Each director shall hold office for
the term for which such director is
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elected, and until such director's successor shall have been elected and
qualified or until such director's earlier death, resignation or removal.
Unless otherwise provided in the Articles of Incorporation of the
Corporation, directors need not be shareholders nor residents of the State of
Texas.
SECTION 3.2. CLASSIFIED BOARD. The directors of the Corporation shall
be divided into three classes, with respect to the time that they severally
hold office, as nearly equal in number as possible, with the initial term of
office of the first class of directors (the "Class I Directors") to expire at
the 1998 annual meeting of holders of capital stock of the Corporation, the
initial term of office of the second class of directors (the "Class II
Directors") to expire at the 1999 annual meeting of holders of capital stock
of the Corporation and the initial term of office of the third class of
directors (the "Class III Directors") to expire at the 2000 annual meeting of
holders of capital stock of the Corporation. Directors elected to succeed
those directors whose terms have thereupon expired shall be elected for a
term of office to expire at the third succeeding annual meeting of holders of
capital stock of the Corporation after their election. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain or attain, if possible, the equality of the number
of directors in each class, but in no case will a decrease in the number of
directors shorten the term of any incumbent director. If such equality is not
possible, the increase or decrease shall be apportioned among the classes in
such a way that the difference in the number of directors in any two classes
shall not exceed one.
SECTION 3.3. QUORUM; VOTING. Unless otherwise provided in the Articles
of Incorporation of the Corporation, a majority of the number of directors
fixed in accordance with Section 3.1 shall constitute a quorum for the
transaction of business of the Board of Directors and the vote of a majority
of the directors present at a meeting at which a quorum is present shall be
the act of the Board of Directors.
SECTION 3.4. PLACE OF MEETINGS; ORDER OF BUSINESS. The directors may
hold their meetings and may have an office and keep the books of the
Corporation, except as otherwise provided by law, in such place or places,
within or without the State of Texas, as the Board of Directors may from time
to time determine. At all meetings of the Board of Directors business shall
be transacted in such order as shall from time to time be determined by the
Chairman of the Board, or in the Chairman of the Board's absence by the
President, or in the President's absence by the Vice President, or by the
Board of Directors.
SECTION 3.5. FIRST MEETING. Each newly elected Board of Directors may
hold its first meeting for the purpose of organization and the transaction of
business, if a quorum is present,
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immediately after and at the same place as the annual meeting of the
shareholders. Notice of such meeting shall not be required. At the first
meeting of the Board of Directors in each year at which a quorum shall be
present, held after the annual meeting of shareholders, the Board of
Directors shall elect the officers of the Corporation.
SECTION 3.6. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times and places as shall be designated from
time to time by the Chairman of the Board, or in the absence of the Chairman
of the Board, by the President, or in the President's absence, by the Vice
President, or in the absence of the Vice President, by another officer of the
Corporation. Notice of such regular meetings shall not be required.
SECTION 3.7. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the President or, on
the written request of any director, by the Secretary, in each case on at
least twenty-four (24) hours' personal, written, telegraphic, cable or
wireless notice to each director. Such notice, or any waiver thereof
pursuant to Article 7, Section 7.3 hereof, need not state the purpose or
purposes of such meeting, except as may otherwise be required by law or
provided for in the Articles of Incorporation of the Corporation or these
Bylaws. Meetings may be held at any time without notice if all the directors
are present or if those not present waive notice of the meeting in writing.
SECTION 3.8. REMOVAL. Any director or the entire Board of Directors may
be removed, but only for cause, by the holders of a majority of the shares
then entitled to vote at an election of directors.
SECTION 3.9. VACANCIES; INCREASES IN THE NUMBER OF DIRECTORS. Unless
otherwise provided in the Articles of Incorporation of the Corporation,
vacancies existing on the Board of Directors for any reason may be filled by
the affirmative vote of a majority of the directors then in office, although
less than a quorum, or by a sole remaining director; and any director so
chosen shall hold office until the next annual meeting held for the election
of directors of the class of directors to which such director has been
appointed and until such director's successor shall have been elected and
qualified, or until such director's earlier death, resignation or removal.
SECTION 3.10. COMPENSATION. Directors and members of standing
committees may receive such compensation as the Board of Directors from time
to time shall determine to be appropriate, and shall be reimbursed for all
reasonable expenses incurred in attending and returning from meetings of the
Board of Directors.
SECTION 3.11. ACTION WITHOUT A MEETING; TELEPHONE CONFERENCE MEETING.
Unless otherwise restricted by the Articles of Incorporation of the
Corporation, any action required or permitted to be
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taken at any meeting of the Board of Directors or any committee designated by
the Board of Directors may be taken without a meeting if all members of the
Board of Directors or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors or committee. Such consent shall have
the same force and effect as a unanimous vote at a meeting, and may be stated
as such in any document or instrument filed with the Secretary of State of
the State of Texas.
Unless otherwise restricted by the Articles of Incorporation of the
Corporation, subject to the requirement for notice of meetings, members of
the Board of Directors, or members of any committee designated by the Board
of Directors, may participate in a meeting of such Board of Directors or
committee, as the case may be, by means of a conference telephone connection
or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in such a
meeting shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting to
the transaction of any business on the ground that the meeting is not
lawfully called or convened.
SECTION 3.12. APPROVAL OR RATIFICATION OF ACTS OR CONTRACTS BY
SHAREHOLDERS. The Board of Directors in its discretion may submit any act or
contract for approval or ratification at any annual meeting of the
shareholders, or at any special meeting of the shareholders called for the
purpose of considering any such act or contract, and any act or contract that
shall be approved or be ratified by the vote of the shareholders holding a
majority of the issued and outstanding shares of stock of the Corporation
entitled to vote and present in person or by proxy at such meeting (provided
that a quorum is present) shall be as valid and as binding upon the
Corporation and upon all the shareholders as if it has been approved or
ratified by every shareholder of the Corporation. In addition, any such act
or contract may be approved or ratified by the written consent of
shareholders holding a majority of the issued and outstanding shares of
capital stock of the Corporation entitled to vote, and such consent shall be
as valid and binding upon the Corporation and upon all the shareholders as if
it had been approved or ratified by every shareholder of the Corporation.
Article 4
COMMITTEES
SECTION 4.1. DESIGNATION; POWERS. The Board of Directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, including, if they shall so determine, an executive committee,
with each such committee to consist of one or more of the directors of the
Corporation. Any such designated committee shall have and may exercise such
of the powers and authority of the Board of Directors in the management of
the business and affairs of the Corporation as may be provided in such
resolution, except that no such committee shall have the power or authority
of the Board of Directors in reference to amending the Articles of
Incorporation
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of the Corporation, adopting an agreement of merger or consolidation,
recommending to the shareholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to
the shareholders a dissolution of the Corporation or a revocation of a
dissolution of the Corporation, or amending, altering or repealing these
Bylaws or adopting new bylaws for the Corporation. Any such designated
committee may authorize the seal of the Corporation to be affixed to all
papers which may require it. In addition to the above, such committee or
committees shall have such other powers and limitations of authority as may
be determined from time to time by the Board of Directors.
SECTION 4.2. PROCEDURE; MEETINGS; QUORUM. Any committee designated
pursuant to this Article 4 shall keep regular minutes of its actions and
proceedings in a book provided for that purpose and report the same to the
Board of Directors at its meeting next succeeding such action, shall fix its
own rules or procedures, and shall meet at such times and at such place or
places as may be provided by such rules, or by such committee or the Board of
Directors. Should a committee fail to fix its own rules, the provisions of
these Bylaws, pertaining to the calling of meetings and conduct of business
by the Board of Directors, shall apply as nearly as may be possible. At
every meeting of any such committee, the presence of a majority of all the
members thereof shall constitute a quorum, except as provided in Section 4.3
of this Article 4, and the affirmative vote of a majority of the members
present shall be necessary for the adoption by it of any resolution.
SECTION 4.3. SUBSTITUTION AND REMOVAL OF MEMBERS; VACANCIES. The Board
of Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting
of such committee. In the absence or disqualification of a member of a
committee, the member or members present at any meeting and not disqualified
from voting, whether or not constituting a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place
of the absent or disqualified member. The Board of Directors shall have the
power at any time to remove any member(s) of a committee and to appoint other
directors in lieu of the person(s) so removed and shall also have the power
to fill vacancies in a committee.
Article 5
OFFICERS
SECTION 5.1. NUMBER, TITLES AND TERM OF OFFICE. The officers of the
Corporation shall be a Chairman of the Board, a President, one or more Vice
Presidents (any one or more of whom may be designated Executive Vice
President or Senior Vice President), a Treasurer, a Secretary, and such other
officers as the Board of Directors may from time to time elect or appoint
(including, but not limited to, one or more Assistant Secretaries and one or
more Assistant Treasurers). Each officer shall hold office until such
officer's successor shall be duly elected and shall qualify or until such
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officer's death or until such officer shall resign or shall have been
removed. Any number of offices may be held by the same person, unless the
Articles of Incorporation of the Corporation provide otherwise. Except for
the Chairman of the Board, no officer need be a director.
SECTION 5.2. POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD. The
Chairman of the Board shall be the chief executive officer of the
Corporation. Subject to the control of the Board of Directors and the
Executive Committee (if any), the Chairman of the Board shall have general
executive charge, management and control of the properties, business and
operations of the Corporation with all such powers as may be reasonably
incident to such responsibilities; may agree upon and execute all leases,
contracts, evidences of indebtedness and other obligations in the name of the
Corporation and may sign all certificates for shares of capital stock of the
Corporation; and shall have such other powers and duties as designated in
accordance with these Bylaws and as from time to time may be assigned to the
Chairman of the Board by the Board of Directors. The Chairman of the Board
shall preside at all meetings of the shareholders and of the Board of
Directors.
SECTION 5.3. POWERS AND DUTIES OF THE PRESIDENT. Unless the Board of
Directors otherwise determines, the President shall have the authority to
agree upon and execute all leases, contracts, evidences of indebtedness and
other obligations in the name of the Corporation; and, unless the Board of
Directors otherwise determines, the President shall, in the absence of the
Chairman of the Board or if there be no Chairman of the Board, preside at all
meetings of the shareholders and of the Board of Directors; and the
President shall have such other powers and duties as designated in accordance
with these Bylaws and as from time to time may be assigned to the President
by the Board of Directors or the Chairman of the Board.
SECTION 5.4. VICE PRESIDENTS. Each Vice President shall at all times
possess power to sign all certificates, contracts and other instruments of
the Corporation, except as otherwise limited in writing by the Chairman of
the Board or the President of the Corporation. Each Vice President shall
have such other powers and duties as from time to time may be assigned to
such Vice President by the Board of Directors, the Chairman of the Board or
the President.
SECTION 5.5. SECRETARY. The Secretary shall keep the minutes of all
meetings of the Board of Directors, committees of the Board of Directors and
the shareholders, in books provided for that purpose; shall attend to the
giving and serving of all notices; may in the name of the Corporation affix
the seal of the Corporation to all contracts and attest the affixation of the
seal of the Corporation thereto; may sign with the other appointed officers
all certificates for shares of capital stock of the Corporation; shall have
charge of the certificate books, transfer books and stock ledgers, and such
other books and papers as the Board of Directors may direct, all of which
shall at all reasonable times be open to inspection of any director upon
application at the office of the
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Corporation during business hours; shall have such other powers and duties
as designated in these Bylaws and as from time to time may be assigned to the
Secretary by the Board of Directors, the Chairman of the Board or the
President; and shall in general perform all acts incident to the office of
Secretary, subject to the control of the Board of Directors, the Chairman of
the Board or the President.
SECTION 5.6. ASSISTANT SECRETARIES. Each Assistant Secretary shall have
the usual powers and duties pertaining to such offices, together with such
other powers and duties as designated in these Bylaws and as from time to
time may be assigned to an Assistant Secretary by the Board of Directors, the
Chairman of the Board, the President or the Secretary. The Assistant
Secretaries shall exercise the powers of the Secretary during that officer's
absence or inability or refusal to act.
SECTION 5.7. TREASURER. The Treasurer shall have responsibility for the
custody and control of all the funds and securities of the Corporation, and
shall have such other powers and duties as designated in these Bylaws and as
from time to time may be assigned to the Treasurer by the Board of Directors,
the Chairman of the Board or the President. The Treasurer shall perform all
acts incident to the position of Treasurer, subject to the control of the
Board of Directors, the Chairman of the Board or the President; and the
Treasurer shall, if required by the Board of Directors, give such bond for
the faithful discharge of the Treasurer's duties in such form as the Board of
Directors may require.
SECTION 5.8. ASSISTANT TREASURERS. Each Assistant Treasurer shall have
the usual powers and duties pertaining to such office, together with such
other powers and duties as designated in these Bylaws and as from time to
time may be assigned to each Assistant Treasurer by the Board of Directors,
the Chairman of the Board, the President, or the Treasurer. The Assistant
Treasurers shall exercise the powers of the Treasurer during that officer's
absence or inability or refusal to act.
SECTION 5.9. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS.
Unless otherwise directed by the Board of Directors, the Chairman of the
Board or the President, together with the Secretary or any Assistant
Secretary shall have power to vote and otherwise act on behalf of the
Corporation, in person or by proxy, at any meeting of security holders of or
with respect to any action of security holders of any other corporation in
which this Corporation may hold securities and otherwise to exercise any and
all rights and powers which this Corporation may possess by reason of its
ownership of securities in such other corporation.
SECTION 5.10. DELEGATION. For any reason that the Board of Directors
may deem sufficient, the Board of Directors may, except where otherwise
provided by statute, delegate the powers or duties of any officer to any
other person, and may authorize any officer to delegate specified duties
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of such office to any other person. Any such delegation or authorization by
the Board shall be effected from time to time by resolution of the Board of
Directors.
Article 6
CAPITAL STOCK
SECTION 6.1. CERTIFICATES OF STOCK. The certificates for shares of the
capital stock of the Corporation shall be in such form, not inconsistent with
that required by law and the Articles of Incorporation of the Corporation, as
shall be approved by the Board of Directors. Every holder of stock
represented by certificates shall be entitled to have a certificate signed by
or in the name of the Corporation by the Chairman of the Board, the President
or a Vice President and the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer of the Corporation representing the
number of shares (and, if the stock of the Corporation shall be divided into
classes or series, certifying the class and series of such shares) owned by
such shareholder which are registered in certified form; provided, however,
that any of or all the signatures on the certificate may be facsimile. The
stock record books and the blank stock certificate books shall be kept by the
Secretary or at the office of such transfer agent or transfer agents as the
Board of Directors may from time to time determine. In case any officer,
transfer agent or registrar who shall have signed or whose facsimile
signature or signatures shall have been placed upon any such certificate or
certificates shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued by the Corporation, such
certificate may nevertheless be issued by the Corporation with the same
effect as if such person were such officer, transfer agent or registrar at
the date of issue. The stock certificates shall be consecutively numbered
and shall be entered in the books of the Corporation as they are issued and
shall exhibit the holder's name and number of shares.
SECTION 6.2. TRANSFER OF SHARES. The shares of stock of the Corporation
shall be transferable only on the books of the Corporation by the holders
thereof in person or by their duly authorized attorneys or legal
representatives upon surrender and cancellation of certificates for a like
number of shares. Upon surrender to the Corporation or a transfer agent of
the Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall
be the duty of the Corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon
its books.
SECTION 6.3. OWNERSHIP OF SHARES. The Corporation shall be entitled to
treat the holder of record of any share or shares of capital stock of the
Corporation as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
the State of Texas.
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SECTION 6.4. REGULATIONS REGARDING CERTIFICATES. The Board of Directors
shall have the power and authority to make all such rules and regulations as
they may deem expedient concerning the issue, transfer and registration or
the replacement of certificates for shares of capital stock of the
Corporation.
SECTION 6.5. LOST OR DESTROYED CERTIFICATES. The Board of Directors may
determine the conditions upon which the Corporation may issue a new
certificate of stock in place of a certificate theretofore issued by it which
is alleged to have been lost, stolen or destroyed and may require the owner
of such certificate or such owner's legal representative to give bond, with
surety sufficient to indemnify the Corporation and each transfer agent and
registrar against any and all losses or claims which may arise by reason of
the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate in the place of the one so lost, stolen or
destroyed.
Article 7
MISCELLANEOUS PROVISIONS
SECTION 7.1. FISCAL YEAR. The fiscal year of the Corporation shall
begin on the first day of January of each year.
SECTION 7.2. CORPORATE SEAL. The corporate seal shall be circular in
form and shall have inscribed thereon the name of the Corporation and the
state of its incorporation, which seal shall be in the charge of the
Secretary and shall be affixed to certificates of stock, debentures, bonds,
and other documents, in accordance with the direction of the Board of
Directors or a committee thereof, and as may be required by law; however,
the Secretary may, if the Secretary deems it expedient, have a facsimile of
the corporate seal inscribed on any such certificates of stock, debentures,
bonds, contract or other documents. Duplicates of the seal may be kept for
use by any Assistant Secretary.
SECTION 7.3. NOTICE AND WAIVER OF NOTICE. Whenever any notice is
required to be given by law, the Articles of Incorporation of the Corporation
or under the provisions of these Bylaws, said notice shall be deemed to be
sufficient if given (i) by telegraphic, cable or wireless transmission
(including by telecopy or facsimile transmission) or (ii) by deposit of the
same in a post office box or by delivery to an overnight courier service
company in a sealed prepaid wrapper addressed to the person entitled thereto
at such person's post office address, as it appears on the records of the
Corporation, and such notice shall be deemed to have been given on the day of
such transmission or mailing or delivery to courier, as the case may be.
Whenever notice is required to be given by law, the Articles of
Incorporation of the Corporation or under any of the provisions of these
Bylaws, a written waiver thereof, signed by the
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person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person, including
without limitation a director, at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the shareholders, directors, or members of a
committee of directors need be specified in any written waiver of notice
unless so required by the Articles of Incorporation of the Corporation or
these Bylaws.
SECTION 7.4. FACSIMILE SIGNATURES. In addition to the provisions for
the use of facsimile signatures elsewhere specifically authorized in these
Bylaws, facsimile signatures of any officer or officers of the Corporation
may be used whenever and as authorized by the Board of Directors.
SECTION 7.5. RELIANCE UPON BOOKS, REPORTS AND RECORDS. A member of the
Board of Directors, or a member of any committee designated by the Board of
Directors, shall, in the performance of such person's duties, be PROTECTED to
the fullest extent permitted by law in relying upon the records of the
Corporation and upon information, opinion, reports or statements presented to
the Corporation.
SECTION 7.6. APPLICATION OF BYLAWS. In the event that any provisions of
these Bylaws is or may be in conflict with any law of the United States, of
the State of Texas or of any other governmental body or power having
jurisdiction over this Corporation, or over the subject matter to which such
provision of these Bylaws applies, or may apply, such provision of these
Bylaws shall be inoperative to the extent only that the operation thereof
unavoidably conflicts with such law, and shall in all other respects be in
full force and effect.
Article 8
INDEMNIFICATION OF OFFICERS AND DIRECTORS
SECTION 8.1. INDEMNIFICATION. As permitted by Section G of Article
2.02-1 of the Texas Business Corporation Act or any successor statute (the
"Indemnification Article"), the Corporation hereby:
(a) makes mandatory the indemnification permitted under Section B
of the Indemnification Article as contemplated by Section G thereof;
(b) makes mandatory its payment or reimbursement of the reasonable
expenses incurred by a former or present director who was, is, or is
threatened to be made a named defendant
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or respondent in a proceeding upon such director's compliance with the
requirements of Section K of the Indemnification Article; and
(c) extends the mandatory indemnification referred to in Section
8.1(a) above and the mandatory payment or reimbursement of expenses referred
to in Section 8.1(b) above (i) to all former or present officers of the
Corporation and (ii) to all persons who are or were serving at the request of
the Corporation as a director, officer, partner or trustee of another foreign
or domestic corporation, partnership, joint venture, trust or employee
benefit plan, to the same extent that the Corporation is obligated to
indemnify and pay or reimburse expenses to directors.
SECTION 8.2. NONEXCLUSIVITY. The indemnification provided by this
Article shall not be deemed exclusive of any other rights to which the person
indemnified may be entitled under any bylaw, agreement, authorization of
shareholders or disinterested directors or otherwise, both as to action in
such person's official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall enure to the benefit of such
person's heirs and legal representatives.
SECTION 8.3. INSURANCE. The Corporation shall have power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee, or agent of the Corporation or who is or was serving at
the request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another
business, foreign, domestic or non-profit corporation, partnership, joint
venture, sole proprietorship, trust or other enterprise or employee benefit
plan, against any liability asserted against such person and incurred by such
person in such a capacity or arising out of such person's status as such a
person, whether or not the Corporation would have the power to indemnify such
person against that liability under the provisions of this Article or the
Texas Business Corporation Act.
SECTION 8.4. WITNESSES. Notwithstanding any other provision of this
Article, the Corporation shall pay or reimburse expenses incurred by any
director, officer, employee or agent in connection with such person's
appearance as a witness or other participation in a proceeding at a time when
such person is not a named defendant or respondent in such proceeding.
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Article 9
AMENDMENTS
SECTION 9.1. AMENDMENTS. The Board of Directors shall have the power to
adopt, amend and repeal from time to time Bylaws of the Corporation. The
shareholders of the Corporation shall not have the power to adopt, amend or
repeal the Bylaws of the Corporation.
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BAY BANCSHARES, INC.
1997 STOCK INCENTIVE PLAN
I. PURPOSE
The purpose of the BAY BANCSHARES, INC. 1997 STOCK INCENTIVE PLAN (the
"PLAN") is to provide a means through which BAY BANCSHARES, INC., a Texas
corporation (the "COMPANY"), and its subsidiaries, may attract able persons to
enter the employ of the Company and to provide a means whereby those key
employees upon whom the responsibilities of the successful administration and
management of the Company rest, and whose present and potential contributions to
the welfare of the Company are of importance, can acquire and maintain stock
ownership, thereby strengthening their concern for the welfare of the Company
and their desire to remain in its employ. A further purpose of the Plan is to
provide such key employees with additional incentive and reward opportunities
designed to enhance the profitable growth of the Company. Accordingly, the Plan
provides for granting Incentive Stock Options, options which do not constitute
Incentive Stock Options, Stock Appreciation Rights, Restricted Stock Awards,
Performance Awards, Phantom Stock Awards, or any combination of the foregoing,
as is best suited to the circumstances of the particular employee as provided
herein.
II. DEFINITIONS
The following definitions shall be applicable throughout the Plan unless
specifically modified by any paragraph:
(a) "AFFILIATES" means any "parent corporation" of the Company and any
"subsidiary" of the Company within the meaning of Code Sections 424(e) and (f),
respectively.
(b) "AWARD" means, individually or collectively, any Option, Restricted
Stock Award, Phantom Stock Award, Performance Award or Stock Appreciation Right.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CHANGE OF CONTROL" means the occurrence of any of the following
events: (i) the Company shall not be the surviving entity in any merger,
consolidation or other reorganization (or survives only as a subsidiary of an
entity other than a previously wholly-owned subsidiary of the Company), (ii) the
Company sells, leases or exchanges all or substantially all of its assets to any
other person or entity (other than a wholly-owned subsidiary of the Company),
(iii) the Company is to be dissolved and liquidated, (iv) any person or entity,
including a "group" as contemplated by
<PAGE>
Section 13(d)(3) of the 1934 Act, acquires or gains ownership or control
(including, without limitation, power to vote) of more than 50% of the
outstanding shares of the Company's voting stock (based upon voting power),
or (v) as a result of or in connection with a contested election of
directors, the persons who were directors of the Company before such election
shall cease to constitute a majority of the Board.
(e) "CHANGE OF CONTROL VALUE" shall mean (i) the per share price offered
to stockholders of the Company in any such merger, consolidation,
reorganization, sale of assets or dissolution transaction, (ii) the price per
share offered to stockholders of the Company in any tender offer or exchange
offer whereby a Change of Control takes place, or (iii) if such Change of
Control occurs other than pursuant to a tender or exchange offer, the Fair
Market Value per share of the shares into which Awards are exercisable, as
determined by the Committee, whichever is applicable. In the event that the
consideration offered to stockholders of the Company consists of anything other
than cash, the Committee shall determine the fair cash equivalent of the portion
of the consideration offered which is other than cash.
(f) "CODE" means the Internal Revenue Code of 1986, as amended. Reference
in the Plan to any section of the Code shall be deemed to include any amendments
or successor provisions to any section and any regulations under such section.
(g) "COMMITTEE" means the Compensation Committee of the Board which shall
be (i) constituted so as to permit the Plan to comply with Rule 16b-3 and (ii)
constituted solely of "outside directors," within the meaning of section 162(m)
of the Code and applicable interpretive authority thereunder.
(h) "COMPANY" means Bay Bancshares, Inc. and any of its Affiliates.
(i) "DIRECTOR" means an individual elected to the Board by the
stockholders of the Company or by the Board under applicable corporate law who
is serving on the Board on the date the Plan is adopted by the Board or is
elected to the Board after such date.
(j) An "EMPLOYEE" means any person (including an officer or a Director) in
an employment relationship with the Company or any parent or subsidiary
corporation (as defined in section 424 of the Code).
(k) "1934 ACT" means the Securities Exchange Act of 1934, as amended.
(l) "FAIR MARKET VALUE" means, as of any specified date, the mean of the
high and low sales prices of the Stock (i) reported by the any interdealer
quotation system on which the Stock is
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quoted on that date or (ii) if the Stock is listed on a national stock
exchange, reported on the stock exchange composite tape on that date; or, in
either case, if no prices are reported on that date, on the last preceding
date on which such prices of the Stock are so reported. If the Stock is
traded over the counter at the time a determination of its fair market value
is required to be made hereunder, its fair market value shall be deemed to be
equal to the average between the reported high and low or closing bid and
asked prices of Stock on the most recent date on which Stock was publicly
traded. In the event Stock is not publicly traded at the time a determination
of its value is required to be made hereunder, the determination of its fair
market value shall be made by the Committee in such manner as it deems
appropriate.
(m) "HOLDER" means an employee who has been granted an Award.
(n) "INCENTIVE STOCK OPTION" means an incentive stock option within the
meaning of section 422(b) of the Code.
(o) "NONQUALIFIED STOCK OPTION" means an option granted under Paragraph
VII of the Plan to purchase Stock which does not constitute an Incentive Stock
Option.
(p) "OPTION" means an Award granted under Paragraph VII of the Plan and
includes both Incentive Stock Options to purchase Stock and Nonqualified Stock
Options to purchase Stock.
(q) "OPTION AGREEMENT" means a written agreement between the Company and a
Holder with respect to an Option.
(r) "PERFORMANCE AWARD" means an Award granted under Paragraph X of the
Plan.
(s) "PERFORMANCE AWARD AGREEMENT" means a written agreement between the
Company and a Holder with respect to a Performance Award.
(t) "PHANTOM STOCK AWARD" means an Award granted under Paragraph XI of the
Plan.
(u) "PHANTOM STOCK AWARD AGREEMENT" means a written agreement between the
Company and a Holder with respect to a Phantom Stock Award.
(v) "PLAN" means the Bay Bancshares, Inc. 1997 Stock Incentive Plan, as
amended from time to time.
(w) "RESTRICTED STOCK AGREEMENT" means a written agreement between the
Company and a Holder with respect to a Restricted Stock Award.
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(x) "RESTRICTED STOCK AWARD" means an Award granted under Paragraph IX of
the Plan.
(y) "RULE 16B-3" means SEC Rule 16b-3 promulgated under the 1934 Act, as
such may be amended from time to time, and any successor rule, regulation or
statute fulfilling the same or a similar function.
(z) "SPREAD" means, in the case of a Stock Appreciation Right, an amount
equal to the excess, if any, of the Fair Market Value of a share of Stock on the
date such right is exercised over the exercise price of such Stock Appreciation
Right.
(aa) "STOCK" means the common stock, $0.25 par value, of the Company.
(bb) "STOCK APPRECIATION RIGHT" means an Award granted under Paragraph VIII
of the Plan.
(cc) "STOCK APPRECIATION RIGHTS AGREEMENT" means a written agreement
between the Company and a Holder with respect to an Award of Stock Appreciation
Rights.
III. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall be effective upon the date of its adoption by the Board,
provided that the Plan is approved by the stockholders of the Company within
twelve months thereafter. No further Awards may be granted under the Plan after
the expiration of ten years from the date of its adoption by the Board. The
Plan shall remain in effect until all Awards granted under the Plan have been
satisfied or expired.
IV. ADMINISTRATION
(a) COMMITTEE. The Plan shall be administered by the Committee.
(b) POWERS. Subject to the provisions of the Plan, the Committee shall
have sole authority, in its discretion, to determine which employees shall
receive an Award, the time or times when such Award shall be made, whether an
Incentive Stock Option, Nonqualified Option or Stock Appreciation Right shall be
granted, the number of shares of Stock which may be issued under each Option,
Stock Appreciation Right or Restricted Stock Award, and the value of each
Performance Award and Phantom Stock Award. In making such determinations the
Committee may take into account the nature of the services rendered by the
respective employees, their present and potential contributions to the Company's
success and such other factors as the Committee in its discretion shall deem
relevant.
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(c) ADDITIONAL POWERS. The Committee shall have such additional powers as
are delegated to it by the other provisions of the Plan. Subject to the express
provisions of the Plan, the Committee is authorized to construe the Plan and the
respective agreements executed thereunder, to prescribe such rules and
regulations relating to the Plan as it may deem advisable to carry out the Plan,
and to determine the terms, restrictions and provisions of each Award, including
such terms, restrictions and provisions as shall be requisite in the judgment of
the Committee to cause designated Options to qualify as Incentive Stock Options,
and to make all other determinations necessary or advisable for administering
the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in any agreement relating to an Award in the manner
and to the extent it shall deem expedient to carry it into effect. The
determinations of the Committee on the matters referred to in this Article IV
shall be conclusive.
V. GRANT OF OPTIONS, STOCK APPRECIATION RIGHTS,
RESTRICTED STOCK AWARDS, PERFORMANCE AWARDS
AND PHANTOM STOCK AWARDS; SHARES SUBJECT TO THE PLAN
(a) STOCK GRANT AND AWARD LIMITS. The Committee may from time to time
grant Awards to one or more employees determined by it to be eligible for
participation in the Plan in accordance with the provisions of Paragraph VI.
Subject to Paragraph XII, the aggregate number of shares of Stock that may be
issued under the Plan shall not exceed 1,000,000 shares. Shares of Stock shall
be deemed to have been issued under the Plan only to the extent actually issued
and delivered pursuant to an Award. To the extent that an Award lapses or the
rights of its Holder terminate or the Award is paid in cash, any shares of Stock
subject to such Award shall again be available for the grant of an Award. To the
extent that an Award lapses or the rights of its Holder terminate, any shares of
Stock subject to such Award shall again be available for the grant of an Award.
Separate stock certificates shall be issued by the Company for those shares
acquired pursuant the exercise of an Incentive Stock Option and for those shares
acquired pursuant to the exercise of a Nonqualified Stock Option.
(b) STOCK OFFERED. The stock to be offered pursuant to the grant of an
Award may be authorized but unissued Stock or Stock previously issued and
outstanding and reacquired by the Company.
VI. ELIGIBILITY
Awards may be granted only to persons who, at the time of grant, are key
employees. Awards may not be granted to any Director who is not an employee.
An Award may be granted on more than one occasion to the same person, and,
subject to the limitations set forth in the Plan, such Award may include an
Incentive Stock Option or a Nonqualified Stock Option, a Stock Appreciation
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Right, a Restricted Stock Award, a Performance Award, a Phantom Stock Award or
any combination thereof.
VII. STOCK OPTIONS
(a) OPTION PERIOD. The term of each Option shall be as specified by the
Committee at the date of grant.
(b) LIMITATIONS ON EXERCISE OF OPTION. An Option shall be exercisable in
whole or in such installments and at such times as determined by the Committee.
(c) SPECIAL LIMITATIONS ON INCENTIVE STOCK OPTIONS. To the extent that
the aggregate Fair Market Value (determined at the time the respective Incentive
Stock Option is granted) of Stock with respect to which Incentive Stock Options
are exercisable for the first time by an individual during any calendar year
under all incentive stock option plans of the Company and its parent and
subsidiary corporations exceeds $100,000, such Incentive Stock Options shall be
treated as Nonqualified Stock Options as determined by the Committee. The
Committee shall determine, in accordance with applicable provisions of the Code,
Treasury Regulations and other administrative pronouncements, which of an
optionee's Incentive Stock Options will not constitute Incentive Stock Options
because of such limitation and shall notify the optionee of such determination
as soon as practicable after such determination. No Incentive Stock Option
shall be granted to an individual if, at the time the Option is granted, such
individual owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of its parent or subsidiary
corporation, within the meaning of section 422(b)(6) of the Code, unless (i) at
the time such Option is granted the option price is at least 110% of the Fair
Market Value of the Stock subject to the Option and (ii) such Option by its
terms is not exercisable after the expiration of five years from the date of
grant.
(d) OPTION AGREEMENT. Each Option shall be evidenced by an Option
Agreement in such form and containing such provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve,
including, without limitation, provisions to qualify an Incentive Stock Option
under section 422 of the Code. An Option Agreement may provide for the payment
of the option price, in whole or in part, by the delivery of a number of shares
of Stock (plus cash if necessary) having a Fair Market Value equal to such
option price. Each Option Agreement shall provide that the Option may not be
exercised earlier than six months from the date of grant and shall specify the
effect of termination of employment on the exercisability of the Option.
Moreover, an Option Agreement may provide for a "cashless exercise" of the
Option by establishing procedures whereby the Holder, by a properly-executed
written notice, directs (i) an immediate market sale or margin loan respecting
all or a part of the shares of Stock to which he is entitled upon exercise
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pursuant to an extension of credit by the Company to the Holder of the option
price, (ii) the delivery of the shares of Stock from the Company directly to a
brokerage firm and (iii) the delivery of the option price from the sale or
margin loan proceeds from the brokerage firm directly to the Company. Such
Option Agreement may also include, without limitation, provisions relating to
(i) vesting of Options, subject to the provisions hereof accelerating such
vesting on a Change of Control, (ii) tax matters (including provisions
(y) permitting the delivery of additional shares of Stock or the withholding of
shares of Stock from those acquired upon exercise to satisfy federal or state
income tax withholding requirements and (z) dealing with any other applicable
employee wage withholding requirements), and (iii) any other matters not
inconsistent with the terms and provisions of this Plan that the Committee shall
in its sole discretion determine. The terms and conditions of the respective
Option Agreements need not be identical.
(e) OPTION PRICE AND PAYMENT. The price at which a share of Stock may be
purchased upon exercise of an Option shall be determined by the Committee, but
(i) such purchase price shall not be less than the Fair Market Value of Stock
subject to an Incentive Stock Option on the date the Incentive Stock Option is
granted and (ii) such purchase price shall be subject to adjustment as provided
in Paragraph XII. The Option or portion thereof may be exercised by delivery of
an irrevocable notice of exercise to the Company. The purchase price of the
Option or portion thereof shall be paid in full in the manner prescribed by the
Committee.
(f) STOCKHOLDER RIGHTS AND PRIVILEGES. The Holder shall be entitled to
all the privileges and rights of a stockholder only with respect to such shares
of Stock as have been purchased under the Option and for which certificates of
stock have been registered in the Holder's name.
(g) OPTIONS AND RIGHTS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER
CORPORATIONS. Options and Stock Appreciation Rights may be granted under the
Plan from time to time in substitution for stock options held by individuals
employed by corporations who become employees as a result of a merger or
consolidation of the employing corporation with the Company or any subsidiary,
or the acquisition by the Company or a subsidiary of the assets of the employing
corporation, or the acquisition by the Company or a subsidiary of stock of the
employing corporation with the result that such employing corporation becomes a
subsidiary.
VIII. STOCK APPRECIATION RIGHTS
(a) STOCK APPRECIATION RIGHTS. A Stock Appreciation Right is the right to
receive an amount equal to the Spread with respect to a share of Stock upon the
exercise of such Stock Appreciation Right. Stock Appreciation Rights may be
granted in connection with the grant of an Option, in which case the Option
Agreement will provide that exercise of Stock Appreciation Rights will result in
the surrender of the right to purchase the shares under the Option as to which
the Stock
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Appreciation Rights were exercised. Alternatively, Stock Appreciation Rights
may be granted independently of Options in which case each Award of Stock
Appreciation Rights shall be evidenced by a Stock Appreciation Rights
Agreement which shall contain such terms and conditions as may be approved by
the Committee. The Spread with respect to a Stock Appreciation Right may be
payable either in cash, shares of Stock with a Fair Market Value equal to the
Spread or in a combination of cash and shares of Stock. With respect to
Stock Appreciation Rights that are subject to Section 16 of the 1934 Act,
however, the Committee shall, except as provided in Paragraph XII(c), retain
sole discretion (i) to determine the form in which payment of the Stock
Appreciation Right will be made (I.E., cash, securities or any combination
thereof) or (ii) to approve an election by a Holder to receive cash in full
or partial settlement of Stock Appreciation Rights. Each Stock Appreciation
Rights Agreement shall provide that the Stock Appreciation Rights may not be
exercised earlier than six months from the date of grant and shall specify
the effect of termination of employment on the exercisability of the Stock
Appreciation Rights.
(b) OTHER TERMS AND CONDITIONS. At the time of such Award, the Committee,
may in its sole discretion, prescribe additional terms, conditions or
restrictions relating to Stock Appreciation Rights, including, but not limited
to rules pertaining to termination of employment (by retirement, disability,
death or otherwise) of a Holder prior to the expiration of such Stock
Appreciation Rights. Such additional terms, conditions or restrictions shall be
set forth in the Stock Appreciation Rights Agreement made in conjunction with
the Award. Such Stock Appreciation Rights Agreements may also include, without
limitation, provisions relating to (i) vesting of Awards, subject to the
provisions hereof accelerating vesting on a Change of Control,(ii) tax matters
(includinG provisions covering applicable wage withholding requirements), and
(iii) any other matters not inconsistent with the terms and provisions of this
Plan, that the Committee shall in its sole discretion determine. The terms and
conditions of the respective Appreciation Rights Agreements need not be
identical.
(c) EXERCISE PRICE. The exercise price of each Stock Appreciation Right
shall be determined by the Committee, but such exercise price (i) shall not be
less than the Fair Market Value of a share of Stock on the date the Stock
Appreciation Right is granted (or such greater exercise price as may be required
if such Stock Appreciation Right is granted in connection with an Incentive
Stock Option that must have an exercise price equal to 110% of the Fair Market
Value of the Stock on the date of grant pursuant to Paragraph VII(c)), and
(ii) shall be subject to adjustment as provided in Paragraph XII.
(d) EXERCISE PERIOD. The term of each Stock Appreciation Right shall be
as specified by the Committee at the date of grant.
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(e) LIMITATIONS ON EXERCISE OF STOCK APPRECIATION RIGHT. A Stock
Appreciation Right shall be exercisable in whole or in such installments and at
such times as determined by the Committee.
IX. RESTRICTED STOCK AWARDS
(a) FORFEITURE RESTRICTIONS TO BE ESTABLISHED BY THE COMMITTEE. Shares of
Stock that are the subject of a Restricted Stock Award shall be subject to
restrictions on disposition by the Holder and an obligation of the Holder to
forfeit and surrender the shares to the Company under certain circumstances (the
"FORFEITURE RESTRICTIONS"). The Forfeiture Restrictions shall be determined by
the Committee in its sole discretion, and the Committee may provide that the
Forfeiture Restrictions shall lapse upon (i) the attainment of targets
established by the Committee that are based on (1) the price of a share of
Stock, (2) the Company's earnings per share, (3) the Company's revenue, (4) the
revenue of a business unit of the Company designated by the Committee, (5) the
return on stockholders' equity achieved by the Company, or (6) the Company's
pre-tax cash flow from operations, (ii) the Holder's continued employment with
the Company for a specified period of time, or (iii) a combination of any two or
more of the factors listed in clauses (i) and (ii) of this sentence. Each
Restricted Stock Award may have different Forfeiture Restrictions, in the
discretion of the Committee. The Forfeiture Restrictions applicable to a
particular Restricted Stock Award shall not be changed except as permitted by
Paragraph IX(b) or Paragraph XII.
(b) OTHER TERMS AND CONDITIONS. Stock awarded pursuant to a Restricted
Stock Award shall be represented by a stock certificate registered in the name
of the Holder of such Restricted Stock Award. The Holder shall have the right
to receive dividends with respect to Stock subject to a Restricted Stock Award,
to vote Stock subject thereto and to enjoy all other stockholder rights, except
that (i) the Holder shall not be entitled to delivery of the stock certificate
until the Forfeiture Restrictions shall have expired, (ii) the Company shall
retain custody of the Stock until the Forfeiture Restrictions shall have
expired, (iii) the Holder may not sell, transfer, pledge, exchange, hypothecate
or otherwise dispose of the Stock until the Forfeiture Restrictions shall have
expired, and (iv) a breach of the terms and conditions established by the
Committee pursuant to the Restricted Stock Agreement, shall cause a forfeiture
of the Restricted Stock Award. At the time of such Award, the Committee may, in
its sole discretion, prescribe additional terms, conditions or restrictions
relating to Restricted Stock Awards, including, but not limited to, rules
pertaining to the termination of employment (by retirement, disability, death or
otherwise) of a Holder prior to expiration of the Forfeiture Restrictions. Such
additional terms, conditions or restrictions shall be set forth in a Restricted
Stock Agreement made in conjunction with the Award. Such Restricted Stock
Agreement may also include, without limitation, provisions relating to
(i) subject to the provisions hereof accelerating vesting on a Change of
Control, vesting of Awards, (ii) tax matters (including provisions (y) covering
any applicable employee wage withholding requirements and (z) prohibiting
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an election by the Holder under section 83(b) of the Code), and (iii) any
other matters not inconsistent with the terms and provisions of this Plan
that the Committee shall in its sole discretion determine. The terms and
conditions of the respective Restricted Stock Agreements need not be
identical.
(c) PAYMENT FOR RESTRICTED STOCK. The Committee shall determine the
amount and form of any payment for Stock received pursuant to a Restricted Stock
Award, provided that in the absence of such a determination, a Holder shall not
be required to make any payment for Stock received pursuant to a Restricted
Stock Award, except to the extent otherwise required by law.
(d) AGREEMENTS. At the time any Award is made under this Paragraph IX,
the Company and the Holder shall enter into a Restricted Stock Agreement setting
forth each of the matters as the Committee may determine to be appropriate. The
terms and provisions of the respective Restricted Stock Agreements need not be
identical.
X. PERFORMANCE AWARDS
(a) PERFORMANCE PERIOD. The Committee shall establish, with respect to
and at the time of each Performance Award, a performance period over which the
performance of the Holder shall be measured.
(b) PERFORMANCE AWARDS. Each Performance Award shall have a maximum value
established by the Committee at the time of such Award.
(c) PERFORMANCE MEASURES. A Performance Award shall be awarded to an
employee contingent upon future performance of the employee, the Company or any
subsidiary, division or department thereof by or in which is he employed during
the performance period. The Committee shall establish the performance measures
applicable to such performance prior to the beginning of the performance period
but subject to such later revisions as the Committee shall deem appropriate to
reflect significant, unforeseen events or changes.
(d) AWARDS CRITERIA. In determining the value of Performance Awards, the
Committee shall take into account an employee's responsibility level,
performance, potential, other Awards and such other considerations as it deems
appropriate.
(e) PAYMENT. Following the end of the performance period, the Holder of a
Performance Award shall be entitled to receive payment of an amount, not
exceeding the maximum value of the Performance Award, based on the achievement
of the performance measures for such performance period, as determined by the
Committee. Payment of a Performance Award may be made in cash,
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Stock or a combination thereof, as determined by the Committee. Payment
shall be made in a lump sum or in installments as prescribed by the
Committee. Any payment to be made in Stock shall be based on the Fair Market
Value of the Stock on the payment date. If a payment of cash is to be made
on a deferred basis, the Committee shall establish whether interest shall be
credited, the rate thereof and any other terms and conditions applicable
thereto.
(f) TERMINATION OF EMPLOYMENT. A Performance Award shall terminate if the
Holder does not remain continuously in the employ of the Company at all times
during the applicable performance period, except as may be determined by the
Committee or as may otherwise be provided in the Award at the time granted.
(g) AGREEMENTS. At the time any Award is made under this Paragraph X, the
Company and the Holder shall enter into a Performance Award Agreement setting
forth each of the matters contemplated hereby, and, in addition such matters are
set forth in Paragraph IX(b) as the Committee may determine to be appropriate.
The terms and provisions of the respective agreements need not be identical.
XI. PHANTOM STOCK AWARDS
(a) PHANTOM STOCK AWARDS. Phantom Stock Awards are rights to receive
shares of Stock (or cash in an amount equal to the Fair Market Value thereof),
or rights to receive an amount equal to any appreciation in the Fair Market
Value of Stock (or portion thereof) over a specified period of time, which vest
over a period of time or upon the occurrence of an event (including without
limitation a Change of Control) as established by the Committee, without payment
of any amounts by the Holder thereof (except to the extent otherwise required by
law) or satisfaction of any performance criteria or objectives. Each Phantom
Stock Award shall have a maximum value established by the Committee at the time
of such Award.
(b) AWARD PERIOD. The Committee shall establish, with respect to and at
the time of each Phantom Stock Award, a period over which or the event upon
which the Award shall vest with respect to the Holder.
(c) AWARDS CRITERIA. In determining the value of Phantom Stock Awards,
the Committee shall take into account an employee's responsibility level,
performance, potential, other Awards and such other considerations as it deems
appropriate.
(d) PAYMENT. Following the end of the vesting period for a Phantom Stock
Award, the Holder of a Phantom Stock Award shall be entitled to receive payment
of an amount, not exceeding the maximum value of the Phantom Stock Award, based
on the then vested value of the Award.
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Payment of a Phantom Stock Award may be made in cash, Stock or a combination
thereof as determine by the Committee. Payment shall be made in a lump sum or
in installments as prescribed by the Committee in its sole discretion. Any
payment to be made in Stock shall be based on the Fair Market Value of the
Stock on the payment date. Cash dividend equivalents may be paid during or
after the vesting period with respect to a Phantom Stock Award, as determined
by the Committee. If a payment of cash is to be made on a deferred basis,
the Committee shall establish whether interest shall be credited, the rate
thereof and any other terms and conditions applicable thereto.
(e) TERMINATION OF EMPLOYMENT. A Phantom Stock Award shall terminate if
the Holder does not remain continuously in the employ of the Company at all
times during the applicable vesting period, except as may be otherwise
determined by the Committee or as set forth in the Award at the time of grant.
(f) AGREEMENTS. At the time any Award is made under this Paragraph XI,
the Company and the Holder shall enter into a Phantom Stock Award Agreement
setting forth each of the matters contemplated hereby and, in addition such
matters as are set forth in Paragraph IX(b) as the Committee may determine to be
appropriate. The terms and provisions of the respective agreements need not be
identical.
XII. RECAPITALIZATION OR REORGANIZATION
(a) The shares with respect to which Awards may be granted are shares of
Stock as presently constituted, but if, and whenever, prior to the expiration of
an Award theretofore granted, the Company shall effect a subdivision or
consolidation by the Company, the number of shares of Stock with respect to
which such Award may thereafter be exercised or satisfied, as applicable, (i) in
the event of an increase in the number of outstanding shares shall be
proportionately increased, and the purchase price per share shall be
proportionately reduced, and (ii) in the event of a reduction in the number of
outstanding shares shall be proportionately reduced, and the purchase price per
share shall be proportionately increased.
(b) If the Company recapitalizes or otherwise changes its capital
structure, thereafter upon any exercise or satisfaction, as applicable, of an
Award theretofore granted the Holder shall be entitled to (or entitled to
purchase, if applicable) under such Award, in lieu of the number of shares of
Stock then covered by such Award, the number and class of shares of stock and
securities to which the Holder would have been entitled pursuant to the terms of
the recapitalization if, immediately prior to such recapitalization, the Holder
had been the holder of record of the number of shares of Stock then covered by
such Award.
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(c) In the event of a Change of Control, all outstanding Awards shall
immediately vest and become exercisable or satisfiable, as applicable. The
Committee, in its discretion, may determine that upon the occurrence of a Change
of Control, each Award other than an Option outstanding hereunder shall
terminate within a specified number of days after notice to the Holder, and such
Holder shall receive, with respect to each share of Stock subject to such Award,
cash in an amount equal to the excess, if any, of the Change of Control Value.
Further, in the event of a Change of Control, the Committee, in its discretion
shall act to effect one or more of the following alternatives with respect to
outstanding Options, which may vary among individual Holders and which may vary
among Options held by any individual Holder: (i) determine a limited period of
time on or before a specified date (before or after such Change of Control)
after which specified date all unexercised Options and all rights of Holders
thereunder shall terminate, (2) require the mandatory surrender to the Company
by selected Holders of some or all of the outstanding Options held by such
Holders (irrespective of whether such Options are then exercisable under the
provisions of the Plan) as of a date, before or after such Change of Control,
specified by the Committee, in which event the Committee shall thereupon cancel
such Options and the Company shall pay to each Holder an amount of cash per
share equal to the excess, if any, of the Change of Control Value of the shares
subject to such Option over the exercise price(s) under such Options for such
shares, (3) make such adjustments to Options then outstanding as the Committee
deems appropriate to reflect such Change of Control (provided, however, that the
Committee may determine in its sole discretion that no adjustment is necessary
to Options then outstanding) or (4) provide that thereafter upon any exercise of
an Option theretofore granted the Holder shall be entitled to purchase under
such Option, in lieu of the number of shares of Stock then covered by such
Option the number and class of shares of stock or other securities or property
(including, without limitation, cash) to which the Holder would have been
entitled pursuant to the terms of the agreement of merger, consolidation or sale
of assets and dissolution if, immediately prior to such merger, consolidation or
sale of assets and dissolution the Holder has been the holder of record of the
number of shares of Stock then covered by such Option. The provisions contained
in this paragraph shall be inapplicable to an Award granted within six (6)
months before the occurrence of a Change of Control if the Holder of such Award
is subject to the reporting requirements of Section 16(a) of the 1934 Act. The
provisions contained in this paragraph shall not terminate any rights of the
Holder to further payments pursuant to any other agreement with the Company
following a Change of Control.
(d) In the event of changes in the outstanding Stock by reason of
recapitalization, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the date
of the grant of any Award and not otherwise provided for by this Paragraph XII,
any outstanding Awards and any agreements evidencing such Awards shall be
subject to adjustment by the Committee at its discretion as to the number and
price of shares of Stock or other consideration subject to such Awards. In the
event of any such change in the outstanding
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Stock, the aggregate number of shares available under the Plan may be
appropriately adjusted by the Committee, whose determination shall be
conclusive.
(e) The existence of the Plan and the Awards granted hereunder shall not
affect in any way the right or power of the Board or the stockholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities ahead of or
affecting Stock or the rights thereof, the dissolution or liquidation of the
Company or any sale, lease, exchange or other disposition of all or any part of
its assets or business or any other corporate act or proceeding.
(f) Any adjustment provided for in Subparagraphs (a), (b), (c) or (d)
above shall be subject to any required stockholder action.
(g) Except as hereinbefore expressly provided, the issuance by the Company
of shares of stock of any class or securities convertible into shares of stock
of any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares of obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Stock subject to Awards theretofore granted or the purchase price per
share, if applicable.
XIII. AMENDMENT AND TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect
to any shares for which Awards have not theretofore been granted. The Board
shall have the right to alter or amend the Plan or any part thereof from time to
time; provided that no change in any Award theretofore granted may be made which
would impair the rights of the Holder without the consent of the Holder (unless
such change is required in order to cause the benefits under the Plan to qualify
as performance-based compensation within the meaning of section 162(m) of the
Code and applicable interpretive authority thereunder), and provided, further,
that the Board may not, without approval of the stockholders, amend the Plan:
(a) to increase the maximum number of shares which may be issued on
exercise or surrender of an Award, except as provided in Paragraph XII;
(b) to change the Option price;
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(c) to change the class of employees eligible to receive Awards or
materially increase the benefits accruing to employees under the Plan;
(d) to extend the maximum period during which Awards may be granted under
the Plan;
(e) to modify materially the requirements as to eligibility for
participation in the Plan; or
(f) to decrease any authority granted to the Committee hereunder in
contravention of Rule 16b-3.
XIV. MISCELLANEOUS
(a) NO RIGHT TO AN AWARD. Neither the adoption of the Plan by the Company
nor any action of the Board or the Committee shall be deemed to give an employee
any right to be granted an Award to purchase Stock, a right to a Stock
Appreciation Right, a Restricted Stock Award, a Performance Award or a Phantom
Stock Award or any of the rights hereunder except as may be evidenced by an
Award or by an Option Agreement, Stock Appreciation Rights Agreement, Restricted
Stock Agreement, Performance Award Agreement or Phantom Stock Award Agreement on
behalf of the Company, and then only to the extent and on the terms and
conditions expressly set forth therein. The Plan shall be unfunded. The
Company shall not be required to establish any special or separate fund or to
make any other segregation of funds or assets to assure the payment of any
Award.
(b) NO EMPLOYMENT RIGHTS CONFERRED. Nothing contained in the Plan shall
(i) confer upon any employee any right with respect to continuation of
employment with the Company or any subsidiary or (ii) interfere in any way with
the right of the Company or any subsidiary to terminate his or her employment at
any time.
(c) OTHER LAWS; WITHHOLDING. The Company shall not be obligated to issue
any Stock pursuant to any Award granted under the Plan at any time when the
shares covered by such Award have not been registered under the Securities Act
of 1933 and such other state and federal laws, rules or regulations as the
Company or the Committee deems applicable and, in the opinion of legal counsel
for the Company, there is no exemption from the registration requirements of
such laws, rules or regulations available for the issuance and sale of such
shares. No fractional shares of Stock shall be delivered, nor shall any cash in
lieu of fractional shares be paid. The Company shall have the right to deduct
in connection with all Awards any taxes required by law to be withheld and to
require any payments required to enable it to satisfy its withholding
obligations.
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(d) NO RESTRICTION ON CORPORATE ACTION. Nothing contained in the Plan
shall be construed to prevent the Company or any subsidiary from taking any
corporate action which is deemed by the Company or such subsidiary to be
appropriate or in its best interest, whether or not such action would have an
adverse effect on the Plan or any Award made under the Plan. No employee,
beneficiary or other person shall have any claim against the Company or any
subsidiary as a result of any such action.
(e) RESTRICTIONS ON TRANSFER. An Award shall not be transferable
otherwise than by will or the laws of descent and distribution or pursuant to a
"qualified domestic relations order" as defined by the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder, and shall be exercisable during the Holder's lifetime only by such
Holder or the Holder's guardian or legal representative.
(f) RULE 16b-3. It is intended that the Plan and any grant of an Award
made to a person subject to Section 16 of the 1934 Act meet all of the
requirements of Rule 16b-3. If any provision of the Plan or any such Award
would disqualify the Plan or such Award under, or would otherwise not comply
with, Rule 16b-3, such provision or Award shall be construed or deemed amended
to conform to Rule 16b-3.
(g) SECTION 162(m). If the plan is subject to 162(m) of the Code, it is
intended that the Plan comply fully with and meet all the requirements of
Section 162(m) of the Code so that Options and Stock Appreciation Rights granted
hereunder and, if determined by the Committee, Restricted Stock Awards, shall
constitute "performance-based" compensation within the meaning of such section.
If any provision of the Plan would disqualify the Plan or would not otherwise
permit the Plan to comply with Section 162(m) as so intended, such provision
shall be construed or deemed amended to conform to the requirements or
provisions of Section 162(m); provided that no such construction or amendment
shall have an adverse effect on the economic value to a Holder of any Award
previously granted hereunder.
(h) GOVERNING LAW. This Plan shall be construed in accordance with the
laws of the State of Texas.
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BAY BANCSHARES, INC.
AMENDED AND RESTATED
1997 KEY EMPLOYEE STOCK OPTION PLAN
<PAGE>
BAY BANCSHARES, INC.
AMENDED AND RESTATED
1997 KEY EMPLOYEE STOCK OPTION PLAN
TABLE OF CONTENTS
Section
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ARTICLE I - PLAN
Purpose............................................................1.1
Effective Date of Plan.............................................1.2
ARTICLE II - DEFINITIONS
Affiliate..........................................................2.1
Board of Directors.................................................2.2
Change of Control..................................................2.3
Code...............................................................2.4
Committee..........................................................2.5
Company............................................................2.6
Disinterested Person...............................................2.7
Employee...........................................................2.8
Fair Market Value..................................................2.9
Incentive Option..................................................2.10
Nonqualified Option...............................................2.11
Option............................................................2.12
Option Agreement..................................................2.13
Outside Director..................................................2.14
Plan..............................................................2.15
Stock.............................................................2.16
10% Percent Stockholder...........................................2.17
ARTICLE III - ELIGIBILITY
ARTICLE IV - GENERAL PROVISIONS RELATING TO OPTIONS
Authority to Grant Options.........................................4.1
Dedicated Shares...................................................4.2
Non-Transferability................................................4.3
Requirements of Law................................................4.4
Changes in the Company's Capital Structure.........................4.5
Election Under Section 83(b) of the Code...........................4.6
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ARTICLE V - OPTIONS
Type of Option.....................................................5.1
Option Price.......................................................5.2
Duration of Options................................................5.3
Amount Exercisable - Incentive Options.............................5.4
Exercise of Options................................................5.5
Exercise on Termination of Employment..............................5.6
Substitution Options...............................................5.7
No Rights as Stockholder...........................................5.8
Right to Put Stock to Company......................................5.9
Exercise Upon Change of Control...................................5.10
ARTICLE VI - ADMINISTRATION
ARTICLE VII - AMENDMENT OR TERMINATION OF PLAN
ARTICLE VIII - MISCELLANEOUS
No Establishment of a Trust Fund...................................8.1
No Employment Obligation...........................................8.2
Forfeiture ........................................................8.3
Tax Withholding....................................................8.4
Written Agreement..................................................8.5
Indemnification of the Committee and the
Board of Directors............................................8.6
Gender.............................................................8.7
Headings...........................................................8.8
Other Compensation Plans...........................................8.9
Other Options or Awards...........................................8.10
Governing Law.....................................................8.11
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ARTICLE I
PLAN
1.1 PURPOSE. This Plan is a plan for key employees of the Company
and its Affiliates and is intended to advance the best interests of the Company,
its Affiliates, and its stockholders by providing those persons who have
substantial responsibility for the management and growth of the Company and its
Affiliates with additional incentives and an opportunity to obtain or increase
their proprietary interest in the Company, thereby encouraging them to continue
in the employ of the Company or any of its Affiliates.
1.2 EFFECTIVE DATE OF PLAN. The Plan is effective January 1, 1997,
if within one year of that date it shall have been approved by at least a
majority vote of stockholders voting in person or by proxy at a duly held
stockholders' meeting, or if the provisions of the corporate charter, by-laws or
applicable state law prescribes a greater degree of stockholder approval for
this action, the approval by the holders of that percentage, at a duly held
meeting of stockholders. No Incentive Option shall be granted pursuant to the
Plan after December 31, 2006.
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ARTICLE II
DEFINITIONS
The words and phrases defined in this Article shall have the meaning
set out in these definitions throughout this Plan, unless the context in which
any such word or phrase appears reasonably requires a broader, narrower, or
different meaning.
2.1 "AFFILIATE" means any parent corporation and any subsidiary
corporation. The term "parent corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at the
time of the action or transaction, each of the corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in the chain. The term
"subsidiary corporation" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of the
action or transaction, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in the
chain.
2.2 "CHANGE OF CONTROL" means the occurrence of one or more of the
following events:
(a) Any "person", including a "syndication" or "group" as those terms
are used in Section 13(d)(3) of the Securities Exchange Act of 1934, is or
becomes the beneficial owner, directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of the Company's
then outstanding voting securities;
(b) The Company is merged or consolidated with another corporation
and immediately after giving effect to the merger or consolidation either
(i) less than 80% of the outstanding voting securities of the surviving or
resulting entity are then beneficially owned in the aggregate by (1) the
stockholders of the Company immediately prior to such merger or consolidation,
or (2) if a record date has been set to determine the stockholders of the
Company entitled to vote on such merger or consolidation, the stockholders of
the Company as of such record date, or (ii) the Board of Directors of the
Company, or similar governing body, of the surviving or resulting entity does
not have as a majority of its members the persons specified in clause (c)(i) and
(ii) below;
(c) If at any time the following do not constitute a majority of the
Board of Directors of the Company (or any successor entity referred to in clause
(b) above):
(i) persons who are directors of the Company on
December 31, 1996; and
(ii) persons who, prior to their election as a director
of the Company (or successor entity if applicable) were
nominated, recommended or endorsed by a formal resolution of
the Board of Directors of the Company;
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(d) If at any time during a calendar year a majority of the directors
of the Company are not persons who were directors at the beginning of the
calendar year; and
(e) the Company transfers substantially all of its assets to
another corporation which is a less than 80% owned subsidiary of the
Company.
2.3 "BOARD OF DIRECTORS" means the board of directors of the Company.
2.4 "CODE" means the Internal Revenue Code of 1986, as amended.
2.5 "COMMITTEE" means the Compensation Committee of the Board of
Directors or such other committee designated by the Board of Directors. The
Committee shall be comprised solely of at least two members who are both
Disinterested Persons and Outside Directors.
2.6 "COMPANY" means Bay Bancshares, Inc.
2.7 "DISINTERESTED PERSON" means a "disinterested person" as that
term is defined in Rule 16b-3 under the Securities Exchange Act of 1934.
2.8 "EMPLOYEE" means a person employed by the Company or any
Affiliate to whom an Option is granted.
2.9 "FAIR MARKET VALUE" of the Stock as of any date means (a) the
average of the high and low sale prices of the Stock on that date on the
principal securities exchange on which the Stock is listed; or (b) if the Stock
is not listed on a securities exchange, the average of the high and low sale
prices of the Stock on that date as reported on the NASDAQ National Market
System; or (c) if the Stock is not listed on the NASDAQ National Market System,
the average of the high and low bid quotations for the Stock on that date as
reported by the National Quotation Bureau Incorporated; or (d) if none of the
foregoing is applicable, the average between the closing bid and ask prices per
share of stock on the last preceding date on which those prices were reported or
that amount as determined by the Committee in its sole discretion. In
exercising its discretion, to the extent Stock is being purchased from the
general public, Fair Market Value shall be the price set by the Board of
Directors to purchase such Stock from the general public.
2.10 "INCENTIVE OPTION" means an option granted under this Plan which
is designated as an "Incentive Option" and satisfies the requirements of Section
422 of the Code.
2.11 "NONQUALIFIED OPTION" means an option granted under this Plan
other than an Incentive Option.
2.12 "OPTION" means both an Incentive Option and a Nonqualified Option
granted under this Plan to purchase shares of Stock.
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2.13 "OPTION AGREEMENT" means the written agreement which sets out the
terms of an Option.
2.14 "OUTSIDE DIRECTOR" means a member of the Board of Directors
serving on the Committee who satisfies Section 162(m) of the Code.
2.15 "PLAN" means the Bay Bancshares, Inc. 1997 Key Employee Stock
Option Plan, as set out in this document and as it may be amended from time to
time.
2.16 "STOCK" means the common stock of the Company, $. par value
or, in the event that the outstanding shares of common stock are later changed
into or exchanged for a different class of stock or securities of the Company or
another corporation, that other stock or security.
2.17 "10% STOCKHOLDER" means an individual who, at the time the Option
is granted, owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of any Affiliate. An individual
shall be considered as owning the stock owned, directly or indirectly, by or for
his brothers and sisters (whether by the whole or half blood), spouse,
ancestors, and lineal descendants; and stock owned, directly or indirectly, by
or for a corporation, partnership, estate, or trust, shall be considered as
being owned proportionately by or for its stockholders, partners, or
beneficiaries.
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ARTICLE III
ELIGIBILITY
The individuals who shall be eligible to receive Options shall be
those key employees as the Committee shall determine from time to time.
However, no member of the Committee shall be eligible to receive any Option
under any other plan of the Company or any of its Affiliates, if receipt of it
would cause the individual not to be a Disinterested Person or Outside Director.
The Board of Directors may designate one or more individuals who shall not be
eligible to receive any Option under this Plan or under other similar plans of
the Company.
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ARTICLE IV
GENERAL PROVISIONS RELATING TO OPTIONS
4.1 AUTHORITY TO GRANT OPTIONS. The Committee may grant to those key
Employees as it shall from time to time determine, Options under the terms and
conditions of this Plan. Subject only to any applicable limitations set out in
this Plan, the number of shares of Stock to be covered by any Option to be
granted to an Employee shall be as determined by the Committee.
4.2 DEDICATED SHARES. The total number of shares of Stock with
respect to which Options may be granted under the Plan shall be
shares. The shares may be treasury shares or authorized but unissued shares.
The maximum number of shares subject to Options which may be issued to any
Employee under the Plan during each year is ______ shares. The number of shares
stated in this Section 4.2 shall be subject to adjustment in accordance with the
provisions of Section 4.5.
In the event that any outstanding Option shall expire or terminate for
any reason or any Option is surrendered, the shares of Stock allocable to the
unexercised portion of that Option may again be subject to an Option under the
Plan.
4.3 NON-TRANSFERABILITY. Options shall not be transferable by the
Employee otherwise than by will or under the laws of descent and distribution,
and shall be exercisable, during the Employee's lifetime, only by him.
4.4 REQUIREMENTS OF LAW. The Company shall not be required to sell
or issue any Stock under any Option if issuing that Stock would constitute or
result in a violation by the Employee or the Company of any provision of any
law, statute, or regulation of any governmental authority. Specifically, in
connection with any applicable statute or regulation relating to the
registration of securities, upon exercise of any Option, the Company shall not
be required to issue any Stock unless the Committee has received evidence
satisfactory to it to the effect that the holder of that Option will not
transfer the Stock except in accordance with applicable law, including receipt
of an opinion of counsel satisfactory to the Company to the effect that any
proposed transfer complies with applicable law. The determination by the
Committee on this matter shall be final, binding and conclusive. The Company
may, but shall in no event be obligated to, register any Stock covered by this
Plan pursuant to applicable securities laws of any country or any political
subdivision. In the event the Stock issuable on exercise of an Option is not
registered, the Company may imprint on the certificate evidencing the Stock any
legend that counsel for the Company considers necessary or advisable to comply
with applicable law. The Company shall not be obligated to take any other
affirmative action in order to cause the exercise of an Option, or the issuance
of shares under it, to comply with any law or regulation of any governmental
authority.
4.5 CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of
outstanding Options shall not affect in any way the right or power of the
Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or
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any merger or consolidation of the Company, or any issue of bonds, debentures,
preferred or prior preference stock ahead of or affecting the Stock or its
rights, or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise.
If the Company shall effect a subdivision or consolidation of shares
or other capital readjustment, the payment of a stock dividend, or other
increase or reduction of the number of shares of the Stock outstanding, without
receiving compensation for it in money, services or property, then (a) the
number, class, and per share price of shares of Stock subject to outstanding
Options under this Plan shall be appropriately adjusted in such a manner as to
entitle an Employee to receive upon exercise of an Option, for the same
aggregate cash consideration, the equivalent total number and class of shares he
would have received had he exercised his Option in full immediately prior to the
event requiring the adjustment; and (b) the number and class of shares of Stock
then reserved to be issued under the Plan shall be adjusted by substituting for
the total number and class of shares of Stock then reserved, that number and
class of shares of Stock that would have been received by the owner of an equal
number of outstanding shares of each class of Stock as the result of the event
requiring the adjustment.
If the Company is merged or consolidated with another corporation or
if the Company is liquidated or sells or otherwise disposes of substantially all
its assets while unexercised Options remain outstanding under the Plan, (a)
subject to the provisions of clause (c) below, after the effective date of the
merger, consolidation, liquidation, sale or other disposition, as the case may
be, each holder of an outstanding Option shall be entitled, upon exercise of the
Option, to receive, in lieu of shares of Stock, the number and class or classes
of shares of stock or other securities or property to which the holder would
have been entitled if, immediately prior to the merger, consolidation,
liquidation, sale or other disposition, the holder had been the holder of record
of a number of shares of Stock equal to the number of shares as to which the
Option shall be so exercised; (b) the Board of Directors may waive any
limitations set out in or imposed under this Plan so that all Options, from and
after a date prior to the effective date of the merger, consolidation,
liquidation, sale or other disposition, as the case may be, specified by the
Board of Directors, shall be exercisable in full; and (c) all outstanding
Options may be canceled by the Board of Directors as of the effective date of
any merger, consolidation, liquidation, sale or other disposition, if (i) notice
of cancellation shall be given to each holder of an Option and (ii) each holder
of an Option shall have the right to exercise that Option in full (without
regard to any limitations set out in or imposed under the Plan) during a period
set by the Board of Directors preceding the effective date of the merger,
consolidation, liquidation, sale or other disposition and, if in the event all
outstanding Options may not be exercised in full under applicable securities
laws without registration of the shares of Stock issuable on exercise of the
Options, the Board of Directors may limit the exercise of the Options to the
number of shares of Stock, if any, as may be issued without registration. The
method of choosing which Options may be exercised, and the number of shares of
Stock for which Options may be exercised, shall be solely within the discretion
of the Board of Directors.
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After a merger of one or more corporations into the Company or after a
consolidation of the Company and one or more corporations in which the Company
shall be the surviving corporation, each Employee shall be entitled to have his
Restricted Stock appropriately adjusted based on the manner the Stock was
adjusted under the terms of the agreement of merger or consolidation.
The issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, for cash or property,
or for labor or services either upon direct sale or upon the exercise of rights
or warrants to subscribe for them, or upon conversion of shares or obligations
of the Company convertible into shares or other securities, shall not affect,
and no adjustment by reason of it shall be made with respect to, the number,
class, or price of shares of Stock then subject to outstanding Options.
4.6 ELECTION UNDER SECTION 83(b) OF THE CODE. No Employee shall
exercise the election permitted under Section 83(b) of the Code without the
approval of the Committee. Such approval shall be deemed to be approved by the
Committee thirty days following written request to the Committee by the Employee
unless the Employee is otherwise notified in writing within thirty days. Any
Employee exercising the election permitted under Section 83(b) of the Code other
than with such consent shall forfeit all Options issued to him under this Plan.
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ARTICLE V
OPTIONS
5.1 TYPE OF OPTION. The Committee shall specify whether a given
option shall constitute an Incentive Option or a Nonqualified Option.
5.2 OPTION PRICE. The price at which Stock may be purchased under an
Incentive Option shall not be less than the greater of: (a) 100% of the Fair
Market Value of the shares of Stock on the date the Option is granted or (b) the
aggregate par value of the shares of Stock on the date the Option is granted.
The Committee in its discretion may provide that the price at which shares of
Stock may be purchased under an Incentive Option shall be more than 100% of Fair
Market Value. In the case of any 10% Stockholder, the price at which shares of
Stock may be purchased under an Incentive Option shall not be less than 110% of
the Fair Market Value of the Stock on the date the Incentive Option is granted.
The price at which shares of Stock may be purchased under a
Nonqualified Option shall not be less than the aggregate par value of the shares
of Stock on the date the Option is granted.
5.3 DURATION OF OPTIONS. No Incentive Option shall be exercisable
after the expiration of 10 years from the date the Option is granted. In the
case of a 10% Stockholder, no Incentive Option shall be exercisable after the
expiration of five years from the date the Incentive Option is granted.
5.4 AMOUNT EXERCISABLE--INCENTIVE OPTIONS. Each Option may be
exercised from time to time, in whole or in part, in the manner and subject to
the conditions the Committee, in its sole discretion, may provide in the Option
Agreement, as long as the Option is valid and outstanding. To the extent that
the aggregate Fair Market Value (determined as of the time an Incentive Option
is granted) of the Stock with respect to which Incentive Options first become
exercisable by the Optionee during any calendar year (under this Plan and any
other incentive stock option plan(s) of the Company or any Affiliate) exceeds
$100,000, the Incentive Options shall be treated as Nonqualified Options. In
making this determination, Incentive Options shall be taken into account in the
order in which they were granted.
5.5 EXERCISE OF OPTIONS. Options shall be exercised by the delivery
of written notice to the Committee setting forth the number of shares with
respect to which the Option is to be exercised, together with: (a) cash,
certified check, bank draft, or postal or express money order payable to the
order of the Company for an amount equal to the option price of the shares,
(b) Stock at its Fair Market Value on the date of exercise, and/or (c) any other
form of payment which is acceptable to the Committee, and specifying the address
to which the certificates for the shares are to be mailed. As promptly as
practicable after receipt of written notification and payment, the Company shall
deliver to the Employee certificates for the number of shares with respect to
which the Option has been exercised, issued in the Employee's name. If shares
of Stock are used in payment, the Fair Market Value of the shares of Stock
tendered must be less than the Option Price of the shares being purchased, and
the difference must be
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paid by check. Delivery shall be deemed effected for all purposes when a stock
transfer agent of the Company shall have deposited the certificates in the
United States mail, addressed to the optionee, at the address specified by the
Employee.
Whenever an Option is exercised by exchanging shares of Stock owned by
the Employee, the Employee shall deliver to the Company certificates registered
in the name of the Employee representing a number of shares of Stock legally and
beneficially owned by the Employee, free of all liens, claims, and encumbrances
of every kind, accompanied by stock powers duly endorsed in blank by the record
holder of the shares represented by the certificates, (with signature guaranteed
by a commercial bank or trust company or by a brokerage firm having a membership
on a registered national stock exchange). The delivery of certificates upon the
exercise of Options is subject to the condition that the person exercising the
Option provide the Company with the information the Company might reasonably
request pertaining to exercise, sale or other disposition.
Notwithstanding the preceding provisions of this section 5.3 to the
contrary, the Company shall make available to any Employee a loan or equivalent
vehicle to enable the Employee to exercise Options granted under this Plan to
the extent that such loans or similar vehicles adhere to the Company's margin
requirements and other lending policy guidelines.
5.6 EXERCISE ON TERMINATION OF EMPLOYMENT. Subject to section 5.8,
unless it is expressly provided otherwise in the Option Agreement, Options shall
terminate upon severance of employment of the Employee from the Company and all
Affiliates for any reason, with or without cause, other than death, retirement
or disability under the then established rules of the Company, or severance for
disability. Whether authorized leave of absence or absence on military or
government service shall constitute severance of the employment of the Employee
shall be determined by the Committee at that time.
In determining the employment relationship between the Company and the
Employee, employment by any Affiliate shall be considered employment by the
Company, as shall employment by a corporation issuing or assuming a stock option
in a transaction to which Section 424(a) of the Code applies, or by a parent
corporation or subsidiary corporation of the corporation issuing or assuming a
stock option (and for this purpose, the phrase "corporation issuing or assuming
a stock option" shall be substituted for the word "Company" in the definitions
of parent corporation and subsidiary corporation in Section 2.1, and the
parent-subsidiary relationship shall be determined at the time of the corporate
action described in Section 424(a) of the Code).
If, before the expiration of an Option, the Employee, whether in the
employ of the Company or after he has retired or was severed for disability,
dies, the Option shall continue until the earlier of the Option's expiration
date or following the date of his death, unless it is expressly provided
otherwise in the Option Agreement. After the death of the Employee, his
executors, administrators or any persons to whom his Option may be transferred
by will or by the laws of descent and distribution shall have the right, at any
time prior to the Option's expiration or termination, whichever is earlier, to
exercise it, to the extent to which he was entitled to exercise it
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immediately prior to his death, unless it is expressly provided otherwise in the
Option Agreement.
Unless it is expressly provided otherwise in the Option Agreement, if
before the expiration of an Option, the Employee shall be retired in good
standing from the employ of the Company under the then established rules of the
Company, the Option shall terminate on the earlier of the Option's expiration
date or one day less than one year after his retirement. In the event of
retirement, the Employee shall have the right prior to the termination of the
Option to exercise the Option, to the extent to which he was entitled to
exercise it immediately prior to his retirement, unless it is expressly provided
otherwise in the Option Agreement.
If, before the expiration of an Option, the Employee shall be retired
for disability under the then established rules of the Company, or severed from
the employ of the Company for disability, the Option shall terminate on the
earlier of the Option's expiration date or one day less than one year after the
date he retired or was severed because of disability, unless it is expressly
provided otherwise in the Option Agreement. In the event that the Employee shall
be retired for disability under the then established rules of the Company or
severed from the employ of the Company for disability, the Employee shall have
the right prior to the termination of the Option to exercise the Option, to the
extent to which he was entitled to exercise it immediately prior to his
retirement or severance of employment for disability, unless it is expressly
provided otherwise in the Option Agreement.
5.7 SUBSTITUTION OPTIONS. Options may be granted under this Plan
from time to time in substitution for stock options held by employees of other
corporations who are about to become employees of or affiliated with the Company
or any Affiliate as the result of a merger or consolidation of the employing
corporation with the Company or any Affiliate, or the acquisition by the Company
or any Affiliate of the assets of the employing corporation, or the acquisition
by the Company or any Affiliate of stock of the employing corporation as the
result of which it becomes an Affiliate of the Company. The terms and
conditions of the substitute Options granted may vary from the terms and
conditions set out in this Plan to the extent the Committee, at the time of
grant, may deem appropriate to conform, in whole or in part, to the provisions
of the stock options in substitution for which they are granted.
5.8 NO RIGHTS AS STOCKHOLDER. No Employee shall have any rights as a
stockholder with respect to Stock covered by his Option until the date a stock
certificate is issued for the Stock.
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5.9 RIGHT TO PUT STOCK TO COMPANY. All shares of Stock owned by an
Employee following the exercise of an Option pursuant to this Article V shall be
subject to a Put Option permitting the Employee (and his estate, any distributee
of his estate or any other person to whom shares of Stock pass by reason of his
death) to sell the Stock to the Company at the then Fair Market Value of the
Stock to the extent the Stock is not publicly traded. The Employee (and his
estate, any distributee of his estate or any other person to whom shares of
Stock pass by reason of his death) shall only be entitled to put the Stock to
the Company during the sixty day period beginning on the earlier of his death,
disability, severance of employment or retirement from the Company or an
Affiliate unless the Company is purchasing Stock from the public; in which case,
the Employee shall be able to put Stock to the Company for any reason during
such time that the Company is purchasing Stock from the public, provided that
the purchase would not result in the violation of applicable regulatory
requirements.
5.10 EXERCISE UPON CHANGE OF CONTROL. In the event of the Employee's
termination of employment following a Change of Control, all options previously
granted to the Employee not then vested shall become fully vested and may be
exercised immediately following the Employee's termination of employment for a
period of thirty (30) days following said termination of employment. Any
options fully vested following the Employee's termination of employment
following a Change of Control not exercised within the thirty (30) day period
following the Employee's termination of employment shall lapse.
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ARTICLE VI
ADMINISTRATION
The Plan shall be administered by the Committee. All questions of
interpretation and application of the Plan, Options or Stock Awards shall be
subject to the determination of the Committee. A majority of the members of the
Committee shall constitute a quorum. All determinations of the Committee shall
be made by a majority of its members. Any decision or determination reduced to
writing and signed by a majority of the members shall be as effective as if it
had been made by a majority vote at a meeting properly called and held. This
Plan shall be administered in such a manner as to permit the Options granted
under it which are designated to be Incentive Options to qualify as Incentive
Options. In carrying out its authority under this Plan, the Committee shall
have full and final authority and discretion, including but not limited to the
following rights, powers and authorities, to:
(a) determine the Employees to whom and the time or
times at which Options will be made,
(b) determine the number of shares and the purchase
price of Stock covered in each Option, subject to the terms
of the Plan,
(c) determine the terms, provisions and conditions of
each Option, which need not be identical,
(d) define the effect, if any, on an Option of the
death, disability, retirement, or termination of employment
of the Employee,
(e) proscribe, amend and rescind rules and regulations
relating to administration of the Plan, and
(f) make all other determinations and take all other
actions deemed necessary, appropriate, or advisable for the
proper administration of the Plan.
The actions of the Committee in exercising all of the rights, powers, and
authorities set out in this Article and all other Articles of this Plan, when
performed in good faith and in its sole judgment, shall be final, conclusive and
binding on all parties.
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ARTICLE VII
AMENDMENT OR TERMINATION OF PLAN
The Board of Directors of the Company may amend, terminate or suspend
this Plan at any time, in its sole and absolute discretion; provided, however,
that to the extent required to qualify this Plan under Rule 16b-3 promulgated
under Section 16 of the Securities Exchange Act of 1934, as amended, no
amendment that would (a) materially increase the number of shares of Stock that
may be issued under this Plan, (b) materially modify the requirements as to
eligibility for participation in this Plan, or (c) otherwise materially increase
the benefits accruing to participants under this Plan, shall be made without the
approval of the Company's stockholders; provided further, however, that to the
extent required to maintain the status of any Incentive Option under the Code,
no amendment that would (a) change the aggregate number of shares of Stock which
may be issued under Incentive Options, (b) change the class of employees
eligible to receive Incentive Options, or (c) decrease the Option price for
Incentive Options below the Fair Market Value of the Stock at the time it is
granted, shall be made without the approval of the Company's stockholders.
Subject to the preceding sentence, the Board shall have the power to make any
changes in the Plan and in the regulations and administrative provisions under
it or in any outstanding Incentive Option as in the opinion of counsel for the
Company may be necessary or appropriate from time to time to enable any
Incentive Option granted under this Plan to continue to qualify as an incentive
stock option or such other stock option as may be defined under the Code so as
to receive preferential federal income tax treatment.
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ARTICLE VIII
MISCELLANEOUS
8.1 NO ESTABLISHMENT OF A TRUST FUND. No property shall be set aside
nor shall a trust fund of any kind be established to secure the rights of any
Employee under this Plan. All Employees shall at all times rely solely upon the
general credit of the Company for the payment of any benefit which becomes
payable under this Plan.
8.2 NO EMPLOYMENT OBLIGATION. The granting of any Option shall not
constitute an employment contract, express or implied, nor impose upon the
Company or any Affiliate any obligation to employ or continue to employ any
Employee. The right of the Company or any Affiliate to terminate the employment
of any person shall not be diminished or affected by reason of the fact that an
Option has been granted to him.
8.3 FORFEITURE. Notwithstanding any other provisions of this Plan,
if the Committee finds by a majority vote after full consideration of the facts
that the Employee, before or after termination of his employment with the
Company or an Affiliate for any reason (a) committed or engaged in fraud,
embezzlement, theft, commission of a felony, or proven dishonesty in this course
of his employment by the Company or an Affiliate, which conduct materially
damaged the Company or an Affiliate, or disclosed trade secrets of the Company
or an Affiliate, or (b) participated, engaged in or had a material, financial or
other interest, whether as an employee, officer, director, consultant,
contractor, stock holder, owner or otherwise, in any commercial endeavor in any
line of business competitive with the Company or an Affiliate at the time of
said participation, without the written consent of the Company or Affiliate, the
Employee shall forfeit all outstanding Options, including all exercised Options
and other situations pursuant to which the Company has not yet delivered a stock
certificate. Clause (b) shall not be deemed to have been violated solely by
reason of the Employee's ownership of stock or securities of any publicly owned
corporation, if that ownership does not result in effective control of the
corporation, and if written notice of the ownership is given the Committee by
the Employee within 60 days after the later of the date on which the Employee is
notified of a grant of an Option under this Plan or the date on which the
Employee acquires the ownership.
The decision of the Committee as to the cause of the Employee's
discharge, the damage done to the Company or an Affiliate, and the extent of the
Employee's competitive activity shall be final. No decision of the Committee,
however, shall affect the finality of the discharge of the Employee by the
Company or an Affiliate in any manner. To provide the Company with an
opportunity to enforce this Section, no certificate for Stock may be issued
under this Plan without the certification by the Committee that no action
forbidden by this provision has been raised for their determination.
8.4 TAX WITHHOLDING. The Company or any Affiliate shall be entitled
to deduct from other compensation payable to each Employee any sums required by
federal, state, or local tax law to be withheld with respect to the grant or
exercise of an Option. In the alternative, the Company may require the Employee
(or other person exercising the Option) to pay the sum directly to the employer
corporation. If the Employee (or other person
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exercising the Option) is required to pay the sum directly, payment in cash or
by check of such sums for taxes shall be delivered within 10 days after the date
of exercise or lapse of restrictions. The Company shall have no obligation upon
exercise of any Option until payment has been received, unless withholding (or
offset against a cash payment) as of or prior to the date of exercise or lapse
of restrictions is sufficient to cover all sums due with respect to that
exercise. The Company and its Affiliates shall not be obligated to advise an
Employee of the existence of the tax or the amount which the employer
corporation will be required to withhold.
8.5 WRITTEN AGREEMENT. Each Option shall be embodied in a written
Option Agreement which shall be subject to the terms and conditions of this Plan
and shall be signed by the Employee and by a member of the Committee on behalf
of the Committee and the Company. The Option Agreement may contain any other
provisions that the Committee in its discretion shall deem advisable which are
not inconsistent with the terms of this Plan.
8.6 INDEMNIFICATION OF THE COMMITTEE AND THE BOARD OF DIRECTORS.
With respect to administration of the Plan, the Company shall indemnify each
present and future member of the Committee and the Board of Directors against,
and each member of the Committee and the Board of Directors shall be entitled
without further act on his part to indemnity from the Company for, all expenses
(including the amount of judgments and the amount of approved settlements made
with a view to the curtailment of costs of litigation, other than amounts paid
to the Company itself) reasonably incurred by him in connection with or arising
out of any action, suit, or proceeding in which he may be involved by reason of
his being or having been a member of the Committee and/or the Board of
Directors, whether or not he continues to be a member of the Committee and/or
the Board of Directors at the time of incurring the expenses. However, this
indemnity shall not include any expenses incurred by any member of the Committee
and/or the Board of Directors (a) in respect of matters as to which he shall be
finally adjudged in any action, suit or proceeding to have been guilty of gross
negligence or willful misconduct in the performance of his duty as a member of
the Committee and the Board of Directors, or (b) in respect of any matter in
which any settlement is effected, to an amount in excess of the amount approved
by the Company on the advice of its legal counsel. In addition, no right of
indemnification under this Plan shall be available to or enforceable by any
member of the Committee and the Board of Directors unless, within 60 days after
institution of any action, suit or proceeding, he shall have offered the
Company, in writing, the opportunity to handle and defend same at its own
expense. This right of indemnification shall inure to the benefit of the heirs,
executors or administrators of each member of the Committee and the Board of
Directors and shall be in addition to all other rights to which a member of the
Committee and the Board of Directors may be entitled as a matter of law,
contract, or otherwise.
8.7 GENDER. If the context requires, words of one gender when used
in this Plan shall include the others and words used in the singular or plural
shall include the other.
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8.8 HEADINGS. Headings of Articles and Sections are included for
convenience of reference only and do not constitute part of the Plan and shall
not be used in construing the terms of the Plan.
8.9 OTHER COMPENSATION PLANS. The adoption of this Plan shall not
affect any other stock option, incentive or other compensation or benefit plans
in effect for the Company or any Affiliate, nor shall the Plan preclude the
Company from establishing any other forms of incentive or other compensation for
employees of the Company or any Affiliate.
8.10 OTHER OPTIONS. The grant of an Option shall not confer upon the
Employee the right to receive any future or other Options under this Plan,
whether or not Options may be granted to similarly situated Employees, or the
right to receive future Options upon the same terms or conditions as previously
granted.
8.11 GOVERNING LAW. The provisions of this Plan shall be construed,
administered, and governed under the laws of the State of Texas.
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AGREEMENT AND PLAN OF REORGANIZATION
BY AND BETWEEN
BAY BANCSHARES, INC.
LA PORTE, TEXAS
AND
TEXAS BANK
BAYTOWN, TEXAS
AND
JOINED IN BY
HENRY ADAIR; HARRY OLLINGER, JR.; JOSEPH D. CROOK;
ROY PETTIETTE; ERWIN WILBANKS; LEE JOSEPH; DAVID HAYWOOD; THE
OLLINGER FAMILY 1990 LIMITED PARTNERSHIP; THE HARRY OLLINGER AND
MARY WINSLOW OLLINGER REVOCABLE FAMILY TRUST, MANAGING AND
GENERAL PARTNER BY HARRY OLLINGER; MARY WINSLOW OLLINGER; AND
THE ESTATE OF JAMES W. GUEST BY RALPH GUEST, EXECUTOR
Dated as of June 24, 1997
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<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and entered
into as of the 24th day of June, 1997, by and between Bay Bancshares, Inc., a
Texas corporation and registered bank holding company with its principal offices
in La Porte, Texas ("Bancshares") and Texas Bank, Baytown, Texas ("Baytown"), a
Texas state bank, and joined in by Henry Adair, Harry Ollinger, Jr., Joseph D.
Crook, Roy Pettiette, Erwin L. Wilbanks, Lee Joseph, David Haywood; The Ollinger
Family 1990 Limited Partnership; The Harry Ollinger and Mary Winslow Ollinger
Revocable Family Trust, Managing and General Partner by Harry Ollinger; Mary
Winslow Ollinger; and the Estate of James W. Guest by Ralph Guest, Executor;
individually and as shareholders of Baytown (each a "Shareholder" and
collectively, the "Shareholders").
W I T N E S S E T H:
WHEREAS, Bancshares desires to acquire all of the issued and outstanding
stock of Baytown through the eventual consolidation of Baytown with and into
Bayshore National Bank of La Porte, La Porte, Texas ("Bayshore"), a wholly owned
subsidiary of Bancshares (the "Consolidation"); and
WHEREAS, Bancshares has previously delivered to Baytown an earnest money
deposit in the amount of Ten Thousand Dollars ($10,000.00); and
WHEREAS, Bancshares and Baytown believe that the Consolidation, as provided
for and subject to the terms and conditions set froth in this Agreement and all
exhibits, schedules and supplements hereto, is in the best interests of
Bancshares, Baytown and their respective shareholders; and
WHEREAS, Bancshares and Baytown desire to set forth certain
representations, warranties and covenants made by each to the other as an
inducement to the execution and delivery of this Agreement and certain
additional agreements related to the transactions contemplated hereby; and
WHEREAS, the respective boards of directors of Bancshares and Baytown have
approved this Agreement and the proposed transactions substantially on the terms
and conditions set forth in this Agreement; and
WHEREAS, the Shareholders have joined in this Agreement for certain limited
purposes set forth herein;
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NOW, THEREFORE, for and in consideration of the foregoing and of the mutual
representations, warranties, covenants and agreements contained in this
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and subject to the conditions set
forth below, the parties, intending to be legally bound, undertake, promise,
covenant and agree with each other as follows:
ARTICLE I.
ACQUISITION OF BAYTOWN BY BANCSHARES
SECTION 1.01 INITIAL CONSOLIDATION. On the terms and subject to the
conditions contained in this Agreement and the Agreement and Plan of
Consolidation to be entered into between Baytown and Bayshore (the
"Consolidation Agreement") and joined in by Bancshares, attached hereto as
EXHIBIT "A", a newly formed Texas state interim bank to be formed by Banchsares
("New Bank") shall consolidate with and into Baytown (the resulting bank being
herein referred to as the "First Surviving Bank") as of the Initial
Consolidation Effective Time, as defined in Section 2.05, under the charter and
Articles of Association of Baytown, as determined be the Texas Department of
Banking (the "Banking Department") and the Federal Deposit Insurance Corporation
(the "FDIC"), 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 one hundred percent (100%) of
the issued and outstanding capital stock of the First Surviving Bank, all of
which shall be owned by Bancshares.
SECTION 1.02 ARTICLES OF ASSOCIATION, BYLAWS AND FACILITIES OF FIRST
SURVIVING BANK. At the Initial Consolidation Effective Time and until thereafter
amended in accordance with law, the Articles of Association of the First
Surviving Bank shall be the Articles of Association of Baytown as in effect at
the Initial Consolidation Effective Time. 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 Baytown as in
effect at the Initial Consolidation Effective Time. The main office of the
First Surviving Bank shall be the main office of Baytown as of the Initial
Consolidation Effective Time, and all corporate acts, plans, policies,
contracts, approvals, and authorizations of Baytown 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 Initial Consolidation Effective Time, shall be taken for all purposes as
the acts, plans, policies, contracts, approvals, and authorizations of the First
Surviving Bank and shall be effective and binding thereon as the same were with
respect to Baytown and New Bank, respectively, as of the Initial Consolidation
Effective Time.
SECTION 1.03 EFFECT OF THE INITIAL CONSOLIDATION. At the Initial
Consolidation Effective Time, the separate corporate existence of Baytown and
New Bank shall be merged
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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 Baytown and New
Bank. All rights, franchises and interests of Baytown 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 and enjoyed by Baytown and
New Bank, respectively, as of the Initial Consolidation Effective Time.
SECTION 1.04 LIABILITIES OF THE FIRST SURVIVING BANK. At the Initial
Consolidation Effective Time, the First Surviving Bank shall be liable for all
liabilities of Baytown and New Bank. All deposits, debts, liabilities and
obligations of Baytown and 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 Baytown 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 Baytown or New Bank shall be preserved
unimpaired.
SECTION 1.05 FINAL CONSOLIDATION. Immediately after the Initial
Consolidation Effective Time, the First Surviving Bank shall be consolidated
(the "Final Consolidation") with and into Bayshore (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 2.05 of this
Agreement)) under the charter and Articles of Association of Bayshore, pursuant
to the provisions of, and with the effect provided in the Bank Merger Act and
the Texas Banking Act, as amended.
SECTION 1.06 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 the Continuing Bank shall be the Articles of
Association of Bayshore as in effect on the Effective Date. Until altered,
amended or repealed as provided therein and in the Articles of Association of
the Continuing Bank, the Bylaws of the Continuing Bank shall be the Bylaws of
Bayshore as in effect on 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
Bayshore and their respective shareholders, boards of directors, committees,
elected or appointed thereby, officers and agents, which were valid and
effective immediately prior to the Initial Consolidation Effective Time, shall
be taken for all purposes as the acts, plans, policies, contracts, approvals,
and authorizations of the Continuing Bank and shall be effective
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and binding thereon as the same were with respect to Baytown and New Bank,
respectively, as of the Effective Date.
SECTION 1.07 EFFECT OF THE FINAL CONSOLIDATION. On the Effective Date,
the separate corporate existence of the First Surviving Bank and Bayshore shall
be consolidated into and continued in the Continuing Bank, and the Continuing
Bank shall be deemed to be a continuation in entity and identity of First
Surviving Bank and Bayshore. All rights, franchises and interests of First
Surviving Bank and Bayshore, respectively, in and to any type of property and
choses in action shall be transferred to and vested in the Continuing Bank by
virtue of the 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 and
enjoyed by First Surviving Bank and Bayshore, respectively, as of the Effective
Date.
SECTION 1.08 LIABILITIES OF THE CONTINUING BANK. On the Effective Date,
the Continuing Bank shall be liable for all liabilities of First Surviving Bank
and Bayshore. All deposits, debts, liabilities and obligations of First
Surviving Bank and Bayshore, respectively, accrued, absolute, contingent or
otherwise, and whether or not reflected or reserved against on balance sheets,
books of account or records of First Surviving Bank and Bayshore, as the case
may be, shall be those of the Continuing Bank and shall not be released or
impaired by the Fianl Consolidation. All rights of creditors and other obligees
and all liens on property of either First Surviving Bank and Bayshore shall be
preserved unimpaired.
SECTION 1.09 CONSOLIDATION CONSIDERATION. The total consideration payable
for all of the capital stock of Baytown referenced below shall be Five Million
Three Hundred Eighty Five Thousand Dollars ($5,385,000.00) to be payable in the
following manner:
A. Subject to the provisions of Section 1.09, at the Initial
Consolidation Effective Time and upon and by reason of the Initial
Consolidation becoming effective, all holders of the common stock of
Baytown, par value $3.75 per share (the "Baytown Common Stock") shall
be entitled to receive from Bayshore, as of the Initial Consolidation
Effective Time, for each share of Baytown Common Stock owned by such
holder at the Effective Date, an amount equal to Five Million Three
Hundred Eighty Five Thousand Dollars ($5,385,000.00) divided by the
number of shares of Baytown Common Stock outstanding as of the Initial
Consolidation Effective Time (the "Per Share Baytown Common Stock
Consideration"; the aggregate Per Share Baytown Common Stock
Consideration to be paid for all of the shares of the Baytown Common
Stock is referred to herein as the "Baytown Common Stock
Consideration"), and any and all rights arising out of the ownership
of such shares shall, without any action on the part of the holder
thereof, be canceled and
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converted into the right to receive the Per Share Baytown Common Stock
Consideration.
B. On or immediately prior to the Initial Consolidation Effective Time,
Bancshares shall have available cash in sufficient amount to pay the
Baytown Common Stock Consideration. At least ten (10) days in advance
of the Closing Date (as defined in Section 2.01 of this Agreement),
Bancshares will send to each shareholder of Baytown a letter of
transmittal for use in exchanging such holder's certificates for his
Per Share Baytown Common Stock Consideration. Each holder of Baytown
shall be entitled to receive payment for his shares only upon
surrender of the certificates representing his shares of Baytown
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 Baytown Common
Stock certificate will be deemed for all corporate purposes to
represent and evidence solely the right to receive the amount of the
Baytown Common Stock Consideration to be paid therefor pursuant to
this Agreement without interest thereon.
C. Upon consummation of the Consolidations, the par value and number of
issued and outstanding shares of capital stock of the Continuing Bank
shall be the same as the par value and number of issued and
outstanding shares of capital stock of Bayshore as of the Effective
Date.
SECTION 1.10 DISSENTING SHARES. Each share of Baytown 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 perfected his
dissenters' rights of appraisal by following the procedures set forth in the
Bank Merger Act and the Texas Banking Act, is referred to herein as a
"Dissenting Share." Dissenting Shares owned by each holder thereof who has not
exchanged his certificates representing shares of Baytown Common Stock for the
Per Share Baytown Common Stock Consideration and has otherwise not effectively
withdrawn or lost his dissenters' rights, shall not be converted into or
represent the right to receive the Per Share Baytown Common Stock Consideration
pursuant to Section 1.09 hereof and shall be entitled to only such rights as are
available to such holder pursuant to the applicable provisions of the Bank
Merger Act and the Texas Banking Act, provided such holder complies with the
procedures contemplated by and set forth in the applicable provisions of the
Bank Merger Act and the Texas Banking Act. If any holder of Dissenting Shares
shall effectively withdraw or lose his dissenter's rights under the applicable
provisions of the Bank Merger Act and the Texas Banking Act, such Dissenting
Shares shall be converted into the right to receive the Per Share Baytown Common
Stock Consideration in accordance with the provisions of Section 1.09 hereof.
SECTION 1.11 RATIFICATION BY SHAREHOLDERS. This Agreement shall be
submitted to the shareholders of Baytown and, if required, to Banchsares as the
sole shareholder of New Bank and Bayshore in accordance with applicable
provisions of law and the respective Articles
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of Association and Bylaws of Baytown, New Bank and Bayshore. Baytown and
Bancshares and Bayshore shall proceed expeditiously and cooperate fully in the
procurement of any other consents and approvals and the taking of any other
actions in the satisfaction of all other requirements prescribed by law or
otherwise necessary for the consummation of the Consolidations 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 FDIC,
the Banking Department and the Office of the Comptroller of the Currency ( the
"OCC").
SECTION 1.12 ADJUSTMENT TO THE BAYTOWN COMMON STOCK CONSIDERATION. The
Baytown Common Stock Consideration specifically contemplates that the
shareholders' equity of Baytown, plus one half of the retained earnings of
Baytown for the period from December 31, 1996 through the Closing Date
(excluding any net unrealized gain or loss on securities held as available for
sale) shall at least equal Three Million Five Hundred Eighty Nine Thousand
Dollars ($3,589,000.00) on the Closing Date. In the event that the
shareholders' equity of Baytown plus one half of the retained earnings of
Baytown for the period from December 31, 1996 through the Closing Date shall be
less than $3,589,000.00 on the Closing Date, the Baytown Common Stock
Consideration shall be reduced to an amount equal to the shareholders' equity of
Baytown as of the Closing Date multiplied by 1.50042.
SECTION 1.13 PERMITTED DIVIDENDS BY BAYTOWN. On and as of June 30, 1997
and quarterly thereafter until Closing, Baytown shall be permitted to declare
and pay to its shareholders a dividend equal to one half of Baytown's net income
as reflected on its statement of income dated June 30, 1997 and each quarterly
statement thereafter until Closing for the three months then ended. Immediately
prior to the Closing, and subject to the verification of Bancshares as to the
proper reflection of all items of income and expense on Baytown's statement of
income, Baytown shall be permitted to declare and pay to its shareholders a
dividend equal to one half of Baytown's net income as reflected on its statement
of income dated as of the last day of the month immediately preceding the
Closing Date.
ARTICLE II.
THE CLOSING AND THE CLOSING DATE
SECTION 2.01 CLOSING. Subject to the other provisions of this Section II,
on a mutually acceptable date (the "Closing Date") as soon as practicable within
a thirty day period commencing with the latest to occur of the following dates:
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 Banchsares or Baytown have elected to
contest the same,
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then the date that such proceeding has been brought to a conclusion
favorable, in the judgment of each of Bancshares and Baytown, to the
consummation of the transactions contemplated herein, or such prior
date as each of Bancshares and Baytown 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 Bancshares, 1001 Highway
146, La Porte, Texas 77571 on the Closing Date, or at such other place to which
the parties may agree.
SECTION 2.02 ACTIONS TO BE TAKEN AT THE CLOSING BY THE SHAREHOLDERS AND
BAYTOWN. At the Closing, Baytown shall execute and acknowledge (where
appropriate) and deliver or cause to be delivered to Bancshares, such documents
and certificates necessary to carry out the terms and provisions of this
Agreement, including, without limitation, the following (all of such actions
constituting conditions precedent to Bancshares' obligations to close
hereunder):
A. True, correct and complete copies of the Articles of Association of
Baytown and all amendments thereto, and true, correct and complete
copies of the Bylaws of Baytown and all amendments thereto, duly
certified as of a recent date by the Banking Department.
B. A certificate of existence, dated as of a recent date, issued by the
Banking Department, duly certifying as to the existence of the Baytown
under the laws of the State of Texas.
C. A certificate of good standing, dated as of a recent date, issued by
the Texas Comptroller of Public Accounts, duly certifying as to the
good standing of the Baytown in the State of Texas.
D. A certificate, dated as of a recent date, issued by the FDIC, duly
certifying that the deposits of the Baytown are insured by the Bank
Insurance Fund of the FDIC pursuant to the Federal Deposit Insurance
Act (the "FDIA").
E. A certificate, dated as of the Closing Date, executed by the Cashier
or an Assistant Cashier of Baytown, pursuant to which Baytown shall
certify (a) the due adoption by the Board of Directors of Baytown of
corporate resolutions attached to such certificate authorizing the
execution and delivery of this Agreement and the other agreements and
documents contemplated hereby and the taking of all actions of
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Baytown contemplated hereby, including, but not limited to the
Consolidation Agreement, and the taking of all actions contemplated
hereby and thereby; (b) the due adoption by the shareholders of
Baytown authorizing the transactions and the execution and delivery of
this Agreement and the other agreements and documents contemplated
hereby and the taking of all actions contemplated hereby and thereby;
(c) the incumbency and true signatures of those officers of Baytown
duly authorized to act on its behalf in connection with the
transactions contemplated by this Agreement and to execute and deliver
this Agreement and other agreements and documents contemplated hereby
and the taking of all actions contemplated hereby and thereby on
behalf of Baytown; and (d) that the copy of the Bylaws of Baytown
attached to such certificate is true and correct and such Bylaws have
not been amended except as reflected in such copy.
F. A certificate duly executed by a duly authorized officer of Baytown,
dated as of the Closing Date, pursuant to which Baytown shall certify
that all of the representations and warranties made in Article III of
this Agreement are true and correct on and as of the Closing Date as
if made on such date and that except as expressly permitted by this
Agreement there shall have been no Material Adverse Change (as defined
herein) since December 31, 1996.
G. All consents required to be obtained by Baytown from third parties to
consummate the transactions contemplated by this Agreement, including,
but not limited to, those listed on Schedule 3.07.
H. An opinion of counsel to Baytown in accordance with this Agreement;
and
I. All other documents required to be delivered to Bancshares by Baytown
under the provisions of this Agreement, and all other documents,
certificates and instruments as are reasonably requested by Bancshares
or its counsel.
SECTION 2.03 ACTIONS TO BE TAKEN AT THE CLOSING BY BANCSHARES. At the
Closing, Bancshares shall execute and acknowledge (where appropriate) and
deliver to Baytown, such documents and certificates necessary to carry out the
terms and provisions of this Agreement, including without limitation, the
following (all of such actions constituting conditions precedent to Baytown's
obligations to close hereunder):
A. True, correct and complete copies of the Articles of Association of
Bayshore and all amendments thereto, and true, correct and complete
copies of the Bylaws of Bayshore and all amendments thereto, duly
certified as of a recent date by the OCC.
B. True, correct and complete copies of the Articles of Incorporation of
Bancshares and all amendments thereto, and true, correct and complete
copies of the Bylaws of Bancshares and all amendments thereto, duly
certified as of a recent date by the
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Secretary of State of the State of Texas.
C. Good standing and existence certificates of a recent date, issued by
the appropriate state officials, duly certifying as to the existence
and good standing of Bancshares in Texas.
D. A certificate of existence, dated as of a recent date, issued by the
OCC, duly certifying as to the existence of the Bayshore under the
laws of the United States of America.
E. A certificate of good standing, dated as of a recent date, issued by
the Texas Comptroller of Public Accounts, duly certifying as to the
good standing of the Bayshore in the State of Texas.
F. A certificate, dated as of a recent date, issued by the FDIC, duly
certifying that the deposits of the Bayshore are insured by the FDIC
pursuant to the FDIA.
G. A certificate, dated as of the Closing Date, executed by the Secretary
or an Assistant Secretary of Bancshares, pursuant to which Bancshares
shall certify (a) the due adoption by the Board of Directors of
Bancshares of corporate resolutions attached to such certificate
authorizing the execution and delivery of this Agreement and the other
agreements and documents contemplated hereby and the taking of all
actions of Bancshares contemplated hereby and thereby; (b) the
incumbency and true signatures of those officers of Bancshares duly
authorized to act on its behalf in connection with the transactions
contemplated by this Agreement and to execute and deliver this
Agreement and other agreements and documents contemplated hereby and
the taking of all actions contemplated hereby and thereby on behalf of
Bancshares; and (c) that the copy of the Bylaws of Bancshares attached
to such certificate is true and correct and such Bylaws have not been
amended except as reflected in such copy.
H. A certificate, dated as of the Closing Date, executed by the Cashier
or an Assistant Cashier of Bayshore, pursuant to which Bayshore shall
certify (a) the due adoption by the Board of Directors of Bayshore of
corporate resolutions attached to such certificate authorizing the
execution and delivery of the Consolidation Agreement and the taking
of all actions of Bayshore contemplated thereby; (b) the incumbency
and true signatures of those officers of Bayshore duly authorized to
act on its behalf in connection with the transactions contemplated by
the Consolidation Agreement and to execute and deliver the
Consolidation Agreement and the taking of all actions contemplated
thereby on behalf of Bayshore; and (d) that the copy of the Bylaws of
Bayshore attached to such certificate is true and correct and such
Bylaws have not been amended except as reflected in such copy.
I. A certificate, dated as of the Closing Date, executed by a duly
authorized officer of
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Bancshares, pursuant to which Bancshares shall certify that all of the
representations and warranties made in Article IV of this Agreement
are true and correct on and as of the date of such certificate as if
made on such date.
J. All consents required to be obtained by Bancshares or Bayshore from
third parties to consummate the transactions contemplated by this
Agreement, including, but not limited to, those listed on
Schedule 4.05.
K. An opinion of counsel to Bancshares in accordance with this Agreement;
and
L. All other documents required to be delivered to Baytown by Bancshares
under the provisions of this Agreement, and all other documents,
certificates and instruments as are reasonably requested by Baytown or
its counsel.
SECTION 2.04 FURTHER ASSURANCES. At any time and from time to time after
the Closing, at the request of any party to this Agreement and without further
consideration, any party so requested (to the extent possible) will execute and
deliver such other instruments and take such other action as the requesting
party may reasonably deem necessary or desirable in order to effectuate the
transactions contemplated hereby. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each party hereto shall take or cause to be taken all such action.
SECTION 2.05 INITIAL CONSOLIDATION EFFECTIVE TIME. 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
approval of the shareholders of New Bank and Baytown and the regulatory
approvals of the Federal Reserve Board, the OCC, the FDIC, the Banking
Department, and any other federal or state regulatory agency whose approval must
be received in order to consummate the Initial Consolidation, the Initial
Consolidation shall become effective, and the effective time of the Initial
Consolidation shall occur, at the date and time specified in the certificate
approving the Initial Consolidation to be issued by the Banking Department (the
"Initial Consolidation Effective Time"). It is anticipated by Bancshares and
Baytown that the Closing, the Initial Consolidation Effective Time and the
Effective Date will occur on the same day.
SECTION 2.06 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 approval of the
shareholders of Bayshore and Baytown and the regulatory approvals of the Federal
Reserve Board, the OCC, the FDIC, the 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 time 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 (the "Effective Date"). It is anticipated by Bancshares and Baytown
that the Closing, the Initial Consolidation Effective Time and the Effective
Date will occur on the same day.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
OF BAYTOWN
Baytown hereby makes the representations and warranties set forth in this
Article III to Bancshares. Baytown agrees at the Closing to provide Bancshares
with supplemental schedules reflecting any material changes thereto between the
date of this Agreement and the Closing Date.
SECTION 3.01 ORGANIZATION AND QUALIFICATION. Baytown is a state bank
organized under the laws of the State of Texas. Baytown has all requisite
corporate power and authority (including all licenses, franchises, permits and
other governmental authorizations as are legally required) to carry on its
business as now being conducted, to own, lease and operate its properties and
assets as now owned, leased or operated and to enter into and carry out its
obligations under this Agreement. True and complete copies of the Articles of
Association and Bylaws of Baytown as amended to date, certified by the Cashier
of Baytown, have been delivered to Bancshares. Baytown is an insured bank as
defined in the Federal Deposit Insurance Act and is not a member of the Federal
Reserve System (the "Federal Reserve"). Baytown does not own or control any
Affiliate (as defined in Section 12.09) or Subsidiary (as defined in
Section 12.09). The nature of the business of Baytown and its activities do not
require it to be qualified to do business in any jurisdiction other than the
State of Texas. Baytown has no equity interest, direct or indirect, in any other
bank or corporation or in any partnership, joint venture or other business
enterprise or entity, other than as acquired through settlement of indebtedness,
foreclosure, the exercise of creditors' remedies or in a fiduciary capacity, and
the business carried on by Baytown has not been conducted through any other
direct or indirect subsidiary or affiliate of Baytown.
SECTION 3.02 EXECUTION AND DELIVERY. Subject to the shareholder approval
required in Section 1.11, Baytown has taken all corporate action necessary to
authorize the execution, delivery and (provided the required regulatory
approvals are obtained) performance of this Agreement and the other agreements
and documents contemplated hereby to which it is a party, including, but not
limited to the Consolidation Agreement. This Agreement has been, and the other
agreements and documents contemplated hereby, including, but not limited to the
Consolidation Agreement, have been or at Closing will be, duly executed by
Baytown and each constitutes the legal, valid and binding obligation of Baytown,
enforceable in accordance with its respective terms and conditions, except as
enforceability may be limited by bankruptcy, conservatorship, insolvency,
moratorium, reorganization, receivership or similar laws and judicial decisions
affecting the rights of creditors generally and by general principles of equity
(whether applied in a proceeding at law or in equity).
SECTION 3.03 BAYTOWN CAPITALIZATION. The entire authorized capital stock
of
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Baytown consists solely of 77,616 shares of Baytown Common Stock, par value
$3.75 per share, of which 77,616 shares are issued and outstanding and none of
which are held in treasury. There are no (i) other outstanding equity
securities of any kind or character, (ii) outstanding subscriptions, options,
convertible securities, rights, warrants, calls or other agreements or
commitments of any kind issued or granted by, or binding upon, Baytown to
purchase or otherwise acquire any security of or equity interest in Baytown,
obligating Baytown to issue any shares of, restricting the transfer of or
otherwise relating to shares of its capital stock of any class. All of the
issued and outstanding shares of Baytown Common Stock have been duly authorized,
validly issued and are fully paid and nonassessable, and have not been issued in
violation of the preemptive rights of any person. Such shares of Baytown Common
Stock have been issued in compliance with the securities laws of the United
States and other jurisdictions having applicable securities laws. There are no
restrictions applicable to the payment of dividends on the shares of Baytown
Common Stock except pursuant to applicable laws and regulations, and all
dividends declared prior to the date of this Agreement have been paid.
SECTION 3.04 COMPLIANCE WITH LAWS, PERMITS AND INSTRUMENTS. Except as
disclosed on Schedule 3.04, Baytown has in all material respects performed and
abided by all obligations required to be performed by it to the date hereof, and
has complied with, and is in compliance with, and is not in default (or with the
giving of notice or the passage of time will be in default) under, or in
violation of, (i) any provision of the Articles of Association or Association or
Bylaws of Baytown, (ii) any material provision of any material mortgage,
indenture, lease, contract, agreement or other instrument applicable to Baytown
or its assets, operations, properties or businesses now conducted or heretofore
conducted or (iii) any permit, concession, grant, franchise, license,
authorization, judgment, writ, injunction, order, decree, award, statute,
federal, state or local law, ordinance, rule or regulation of any court,
arbitrator or any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality applicable to Baytown or
its assets, operations, properties or business now conducted or heretofore
conducted.
Except as set forth on Schedule 3.04, the execution, delivery and (provided
the required regulatory and shareholder approvals are obtained) performance of
this Agreement and the other agreements contemplated hereby, including, but not
limited to the Consolidation Agreement, and the consummation of the transactions
contemplated hereby and thereby will not conflict with, or result, by itself or
with the giving of notice or the passage of time, in any violation of or default
or loss of a benefit under, (i) any provision of the Articles of Association or
Bylaws of Baytown, (ii) any material mortgage, indenture, lease, contract,
agreement or other instrument applicable to Baytown or its assets, operations,
properties or businesses or (iii) any permit, concession, grant, franchise,
license, authorization, judgment, writ, injunction, order, decree, statute, law,
ordinance, rule or regulation applicable to Baytown or its respective assets,
operations, properties or business.
SECTION 3.05 BAYTOWN FINANCIAL STATEMENTS. Baytown has furnished to
Bancshares true and complete copies of the audited balance sheets of Baytown as
of December 31, 1994,
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1995 and 1996, and the related audited consolidated statements of income,
stockholders' equity and cash flows for the years ended December 31, 1994, 1995
and 1996 and unaudited balance sheets of Baytown as of March 31, 1997, and the
related unaudited statements of income for the three-month period ended March
31, 1997 (such balance sheets and the related statements of income,
stockholders' equity and cash flows are collectively referred to herein as the
"Financial Statements"). Except as described in the notes to the Financial
Statements, the Financial Statements fairly present, in all material respects,
the financial position of Baytown as of the respective dates thereof and the
results of operations and changes in financial position of Baytown for the
periods then ended, in conformity with generally accepted accounting principles
("GAAP"), applied on a basis consistent with prior periods (subject, in the case
of the unaudited interim financial statements, to normal year-end adjustments
and the fact that they do not contain all of the footnote disclosures required
by GAAP), except as otherwise noted therein, and the accounting records
underlying the Financial Statements accurately and fairly reflect in all
material respects the transactions of Baytown. The Financial Statements do not
contain any items of special or non-recurring income or any other income not
earned in the ordinary course of business except as expressly specified therein.
Baytown has furnished Bancshares with a true and complete copy of the Report of
Condition and Income as of March 31, 1997 (the "Call Report"). The Call Report
fairly presents, in all material respects, the financial position of Baytown and
the results of its operations at the date and for the period indicated in
conformity with the Instructions for the Preparation of Call Reports as
promulgated by applicable regulatory authorities. The Call Report does not
contain any items of special or non-recurring income or any other income not
earned in the ordinary course of business except as expressly specified therein.
Baytown has calculated its allowance for loan losses in accordance with
regulatory accounting principles ("RAP") as applied to banking institutions and
in accordance with all applicable rules and regulations.
SECTION 3.06 LITIGATION. Except as set forth on Schedule 3.06, there are
no actions, claims, suits, investigations, reviews or other legal,
quasi-judicial or administrative proceedings of any kind or nature now pending
or, to the best knowledge of Baytown, threatened against or affecting Baytown at
law or in equity, or by or before any federal, state or municipal court or other
governmental or administrative department, commission, board, bureau, agency or
instrumentality, domestic or foreign, that in any manner involve Baytown or any
of its properties or capital stock that might reasonably be anticipated to
result in a Material Adverse Change or materially and adversely affect the
transactions contemplated by this Agreement, and Baytown does not know or have
any reason to be aware of any basis for the same. No legal action, suit or
proceeding or judicial, administrative or governmental investigation is pending
or, to the knowledge of any of the Shareholders or Baytown, threatened against
Baytown that questions or might question the validity of this Agreement or the
agreements contemplated hereby, including, but not limited to the Consolidation
Agreement, or any actions taken or to be taken by Baytown pursuant hereto or
thereto or seeks to enjoin or otherwise restrain the transactions contemplated
hereby or thereby.
SECTION 3.07 CONSENTS AND APPROVALS. Baytown's Board of Directors (at a
meeting duly called and held) has resolved to recommend approval and adoption of
the Consolidation
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and the Consolidation Agreement. Except as disclosed in Schedule 3.07, no
approval, consent, order or authorization of, or registration, declaration or
filing with, any governmental authority or other third party is required on the
part of Baytown in connection with the execution, delivery or performance of
this Agreement or the agreements contemplated hereby, including, but not limited
to the Consolidation Agreement, or the consummation by Baytown of the
transactions contemplated hereby or thereby.
SECTION 3.08 UNDISCLOSED LIABILITIES. Baytown has no material liability
or obligation, accrued, absolute, contingent or otherwise and whether due or to
become due (including, without limitation, unfunded obligations under any
Employee Benefit Plan (as defined in Section 3.30 of this Agreement) or
liabilities for federal, state or local taxes or assessments or liabilities
under any tax sharing agreements (as described in Section 3.16 of this
Agreement)) that are not reflected in or disclosed in the Financial Statements
or the Call Report, except (i) those liabilities and expenses incurred in the
ordinary course of business and consistent with prudent business practices since
the date of the Financial Statements or the Call Report, respectively or (ii) as
disclosed on Schedule 3.08.
SECTION 3.09 TITLE TO ASSETS. True and complete copies of all existing
deeds, leases and title insurance policies for all real property owned or leased
by Baytown and all mortgages, deeds of trust, security agreements and other
documents describing encumbrances to which such property is subject have been
made available to Bancshares. Baytown has good and marketable title to all of
its assets and properties including, without limitation, all personal and
intangible properties reflected in the Financial Statements or the Call Report
or acquired subsequent thereto, subject to no liens, mortgages, security
interests, encumbrances or charges of any kind except (i) as described in
Schedule 3.09, (ii) as noted in the Financial Statements or the Call Report or
as set forth in the documents delivered to Bancshares pursuant to this
Section 3.09, (iii) statutory liens not yet delinquent, (iv) consensual landlord
liens (v) minor defects and irregularities in title and encumbrances that do not
materially impair the use thereof for the purpose for which they are held, (vi)
pledges of assets in the ordinary course of business to secure public funds
deposits, and (vii) those assets and properties disposed of for fair value in
the ordinary course of business since the dates of the Financial Statements or
the Call Report.
SECTION 3.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed on
Schedule 3.10, since December 31, 1996, Baytown has conducted its business only
in the ordinary course and has not, other than in the ordinary course of
business and consistent with past practices and safe and sound banking
practices:
A. Incurred any obligation or liability, absolute, accrued, contingent or
otherwise, whether due or to become due, except deposits taken and
federal funds purchased and current liabilities for trade or business
obligations, none of which, individually or in the aggregate, result
in a Material Adverse Change;
B. Discharged or satisfied any lien, charge or encumbrance or paid any
obligation or
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liability, whether absolute or contingent, due or to become due;
C. Except as contemplated by this Agreement or as otherwise permitted
hereunder, declared or made any payment of dividends or other
distribution to its shareholders, or purchased, retired or redeemed,
or obligated itself to purchase, retire or redeem, any of its shares
of capital stock or other securities, except as specifically
contemplated by the terms of this Agreement.
D. Issued, reserved for issuance, granted, sold or authorized the
issuance of any shares of its capital stock or other securities or
subscriptions, options, warrants, calls, rights or commitments of any
kind relating to the issuance thereto;
E. Acquired any capital stock or other equity securities or acquired any
equity or ownership interest in any bank, corporation, partnership or
other entity (except (i) through settlement of indebtedness,
foreclosure, or the exercise of creditors' remedies or (ii) in a
fiduciary capacity, the ownership of which does not expose it to any
liability from the business, operations or liabilities of such
person);
F. Mortgaged, pledged or subjected to lien, charge, security interest or
any other encumbrance or restriction any of its property, business or
assets, tangible or intangible except (i) as described in Schedule
3.10, (ii) statutory liens not yet delinquent, (iii) consensual
landlord liens, (iv) minor defects and irregularities in title and
encumbrances that do not materially impair the use thereof for the
purpose for which they are held, (v) pledges of assets to secure
public funds deposits, and (vi) those assets and properties disposed
of for fair value since the dates of the Financial Statements or the
Call Report.
G. Sold, transferred, leased to others or otherwise disposed of any of
its assets (except for assets disposed of for fair value) or canceled
or compromised any debt or claim, or waived or released any right or
claim (except pursuant to the settlement of litigation described in
Section 3.10(L)) of material value;
H. Terminated, canceled or surrendered, or received any notice of or
threat of termination or cancellation of any contract, lease or other
agreement or suffered any damage, destruction or loss (whether or not
constituting, or may reasonably be anticipated to result in, a
Material Adverse Change covered by insurance), which, in any case or
in the aggregate, may reasonably constitute a Material Adverse Change;
I. Disposed of, permitted to lapse, transferred or granted any rights
under, or entered into any settlement regarding the breach or
infringement of, any United States or foreign license or Proprietary
Right (as defined in Section 3.15) or modified any existing rights
with respect thereto;
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J. Except as specifically contemplated by Section 5.17 or as may be set
forth on Schedule 3.10, made any change in the rate of compensation,
commission, bonus or other direct or indirect remuneration payable, or
paid or agreed or orally promised to pay, conditionally or otherwise,
any bonus, extra compensation, pension or severance or vacation pay,
to or for the benefit of any of its shareholders, directors, officers,
employees or agents, or entered into any employment or consulting
contract or other agreement with any director, officer or employee or
adopted, amended in any material respect or, except as specifically
contemplated by Section 5.16, terminated any pension, employee
welfare, retirement, stock purchase, stock option, stock appreciation
rights, termination, severance, income protection, golden parachute,
savings or profit-sharing plan (including trust agreements and
insurance contracts embodying such plans), any deferred compensation,
or collective bargaining agreement, any group insurance contract or
any other incentive, welfare or employee benefit plan or agreement
maintained by it for the benefit of its directors, employees or former
employees;
K. Except for improvements or betterments relating to Properties (as
defined in Section 3.20) made any capital expenditures or capital
additions or betterments in excess of an aggregate of $25,000;
L. Instituted, had instituted against it, settled or agreed to settle any
litigation, action or proceeding before any court or governmental body
relating to its property other than routine collection suits
instituted by it to collect amounts owed or suits in which the amount
in controversy is less than $25,000;
M. Suffered any change, event or condition that, in any case or in the
aggregate, has caused or may reasonably be anticipated to result in a
Material Adverse Change, or any Material Adverse Change in earnings or
costs or relations with its employees, agents, depositors, loan
customers, correspondent banks or suppliers;
N. Except for the transactions contemplated by this Agreement or as
otherwise permitted hereunder, entered into any transaction, or
entered into, modified or amended any contract or commitment;
O. Entered into or given any promise, assurance or guarantee of the
payment, discharge or fulfillment of any undertaking or promise made
by any person, firm or corporation;
P. Sold, or knowingly disposed of, or otherwise divested itself of the
ownership, possession, custody or control, of any corporate books or
records of any nature that, in accordance with sound business
practice, normally are retained for a period of time after their use,
creation or receipt, except at the end of the normal retention period;
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Q. Made any, or acquiesced with any, change in any accounting methods,
principles or material practices except as required by GAAP or RAP;
R. Sold (provided, however, that payment at maturity is not deemed a
sale) or purchased any investment securities in excess of an aggregate
amount of $250,000, except as necessary to secure public funds
deposits and to reduce securities after the withdrawal of said public
funds;
S. Made, renewed, extended the maturity of, or altered any of the
material terms of any loan to any single borrower and his related
interests in excess of the principal amount of $100,000, unless
secured by certificate(s) of deposit or negotiable securities; or
T. Entered into any agreement or made any commitment whether in writing
or otherwise to take any of the types of action described in
subsections A. through S. above.
SECTION 3.11 LEASES, CONTRACTS AND AGREEMENTS. Schedule 3.11 sets forth
an accurate and complete description of all leases, subleases, licenses,
contracts and agreements to which Baytown is a party or by which Baytown is
bound that obligates or may obligate Baytown in the aggregate for an amount in
excess of $25,000 over the entire term of any such agreement or related
contracts of a similar nature that in the aggregate obligates or may obligate
Baytown for an amount in excess of $25,000 over the entire term of such related
contracts (the "Contracts"). Baytown has delivered to Bancshares true and
correct copies of all Contracts. For the purposes of this Agreement, the
Contracts shall be deemed not to include loans made by, repurchase agreements
made by, spot foreign exchange transactions of, bankers acceptances of or
deposits by Baytown, but does include unfunded loan commitments and letters of
credit issued by Baytown where the borrowers' total direct and indirect
indebtedness to the Bank is in excess of $25,000. Except as set forth in
Schedule 3.11, no participations or loans have been sold that have buy back,
recourse or guaranty provisions that create contingent or direct liabilities of
Baytown. Each such lease or agreement is in full force and effect and
constitutes the legal, valid and binding obligation of the respective parties
thereto enforceable in accordance with its terms except as enforceability may be
limited by bankruptcy, conservatorship, insolvency, moratorium, reorganization,
receivership or similar laws and judicial decisions affecting the rights of
creditors generally and by general principles of equity (whether applied in a
proceeding at law or equity). Baytown has not received any notice of material
default or any notice of material noncompliance, including, without limitation,
noncompliance with any applicable Federal, state or local obligation as lessee
that it has not fully performed, or is aware of any expenditure required under
the provisions of any such lease for any purpose other than payment. For each
lease in which Baytown is named as lessee, such party is the owner and holder of
all the leasehold estates or other rights and interest purported to be granted
by such instruments, in each case free and clear of any security interests,
claims, liens (including tax liens), forfeitures, mortgages, pledges, penalties,
encumbrances, assignments or charges whatsoever except as established by the
lease or
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applicable law. Baytown enjoys peaceful and undisturbed possession under all
leases under which it is currently operting.
SECTION 3.12 TAXES. Except as set forth on Schedule 3.12, Baytown has
duly and timely filed with the appropriate Federal, state and local governmental
agencies all material tax returns and reports required to be filed, including,
without limitation, income, excise, property, sales, use, franchise, value
added, unemployment, employees' income withholding and social security taxes,
imposed by the United States or by any foreign country or by any state,
municipality, subdivision or instrumentality of the United States or of any
foreign country, or by any other taxing authority, and has paid, or has
established adequate reserves for the payment of, all taxes and assessments that
are or are claimed to be due, payable or owed by Baytown, or for which Baytown
may have liability, whether as a result of its own activities or by virtue of
its affiliation with other entities and all interest and penalties thereon,
whether disputed or not. Except as set forth on Schedule 3.12, all such tax
returns and reports are accurately prepared and all deposits required by law to
be made by Baytown, with respect to employees' withholding taxes have been duly
made. Except set forth on Schedule 3.12, Baytown is not nor has been delinquent
in the payment of any foreign or domestic tax, assessment or governmental charge
or deposit and has no tax deficiency or claim outstanding, proposed or assessed
against it, and, to the best knowledge of Baytown, there is no basis for any
such deficiency or claim. Within the last four (4) years, except as set forth
on Schedule 3.12, Baytown's Federal income tax return has not been audited or
examined and no such audit is currently pending or, to Baytown's knowledge,
threatened. Except as set forth on Schedule 3.12, Baytown has not been granted
any extension of time with respect to the date on which any tax return was or is
due to be filed by or with respect to Baytown, or any waiver or agreement by
Baytown for the extension of time for the assessment or collection of any tax.
Except as set forth on Schedule 3.12, to the best knowledge of Baytown, Baytown
has not committed any material violation of any applicable Federal, state, local
or foreign tax laws.
The amounts set up as provisions for current or deferred taxes on the
Financial Statements and the Call Report are sufficient for the payment of all
unpaid Federal, state, county, local, foreign or other taxes (including any
interest or penalties) of or on behalf of Baytown applicable to the periods
covered by its financial statements, and all years and periods prior thereto.
True and complete copies of the Federal income tax returns of Baytown as filed
with the Internal Revenue Service (the "IRS") for the years ended December 31,
1994, 1995, and 1996, have been delivered to Bancshares.
SECTION 3.13 INSURANCE. Schedule 3.13 contains an accurate and complete
list and brief description of all policies of insurance, including fidelity and
bond insurance, of Baytown. All such policies (a) are sufficient for compliance
by Baytown with all requirements of law and all agreements to which Baytown is a
party, (b) are valid, outstanding and enforceable except as enforceability may
be limited by bankruptcy, conservatorship, insolvency, moratorium,
reorganization, receivership, or similar laws and judicial decisions affecting
the rights of creditors generally and by general principles of equity (whether
applied in a proceeding at law or equity), (c) will not in any significant
respect be affected by, and will
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not terminate or lapse by reason of, the transactions contemplated by this
Agreement, and (d) are presently in full force and effect, no notice has been
received of the cancellation, or threatened or proposed cancellation, of any
such policy and there are no unpaid premiums due thereon. Baytown is not in
default with respect to the provisions of any such policy and has not failed to
give any notice or present any claim hereunder in a due and timely fashion.
Baytown has not been refused any insurance with respect to its assets or
operations, nor has its insurance been limited by any insurance carrier to which
such entity has applied for any such insurance within the last five (5) years.
Each material property of Baytown is insured for the benefit of Baytown in
amounts deemed adequate by Baytown's management against risks customarily
insured against. Except as set forth on Schedule 3.13, there has been no single
claim in excess of $10,000 under any fidelity bond and there have been no claims
in the aggregate in excess of $50,000 under any fidelity bonds of Baytown within
the last five (5) years and Baytown is not aware of any facts that would form
the basis of a claim under such bonds.
SECTION 3.14 NO ADVERSE CHANGE. Except as disclosed in the
representations and warranties made in this Article III, there has not been any
Material Adverse Change since December 31, 1996, nor has any event or condition
occurred (other than events or conditions that may affect the banking industry
generally) that has resulted in, or, to the best knowledge of Baytown, has a
reasonable possibility of resulting in the future in a Material Adverse Change.
SECTION 3.15 PROPRIETARY RIGHTS. Except as set forth on Schedule 3.15,
Baytown does not own or require the use of any patent, patent application,
patent right, invention, process, trademark (whether registered or
unregistered), trademark application, trademark right, trade name, service name,
service mark, copyright or any trade secret ("Proprietary Rights") for the
business or operations of Baytown. To the best knowledge of Baytown, Baytown is
not infringing upon or otherwise acting adversely to, and has not in the past
three (3) years infringed upon or otherwise acted adversely to, any Proprietary
Right owned by any other person or persons. There is no claim or action by any
such person pending, or to the knowledge of Baytown, threatened, with respect
thereto.
SECTION 3.16 TRANSACTIONS WITH CERTAIN PERSONS AND ENTITIES. Except as
disclosed in Schedule 3.16, Baytown does not owe any amount to (excluding
deposit liabilities), or have any loan, contract, lease, commitment or other
obligation from or to any of the present or former directors or officers (other
than compensation for current services not yet due and payable and reimbursement
of expenses arising in the ordinary course of business) of Baytown, and none of
such persons owes any amount to Baytown. Except as set forth on Schedule 3.16,
there are no agreements, instruments, commitments, extensions of credit, tax
sharing or allocation agreements or other contractual agreements of any kind
between or among Baytown, whether on its own behalf or in its capacity as
trustee or custodian for the funds of any employee benefit plan (as defined in
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and
any of its Affiliates.
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SECTION 3.17 EVIDENCES OF INDEBTEDNESS. All evidences of indebtedness and
leases that are reflected as assets of Baytown are, to Baytown's knowledge,
legal, valid and binding obligations of the respective obligors thereof,
enforceable in accordance with their respective terms (except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors generally and the availability of injunctive relief,
specific performance and other equitable remedies) and are not subject to any
known or threatened defenses, offsets or counterclaims that may be asserted
against Baytown or the present holder thereof, except as disclosed in Schedule
3.17. The credit files of the Baytown, to Baytown's knowledge, contain all
material information (excluding general, local or national industry, economic or
similar conditions) known to Baytown, that is reasonably required to evaluate in
accordance with generally prevailing practices in the banking industry the
collectibility of the loan portfolio of Baytown (including loans that will be
outstanding if any of them advances funds they are obligated to advance).
Baytown has disclosed all of the substandard, doubtful, loss, nonperforming or
problem loans on the internal watch list of Baytown, a copy of which as of
December 31, 1996, has been provided to Bancshares.
SECTION 3.18 EMPLOYEE RELATIONSHIPS. Baytown has complied with all
applicable material laws relating to its relationships with its employees, and
Baytown believes that the relationships between Baytown and its employees are
good. To the best knowledge of Baytown, no key executive officer or manager of
any of the operations operated by Baytown or any group of employees of Baytown
has any present plans to terminate their employment with Baytown.
SECTION 3.19 CONDITION OF ASSETS. Except as set forth on Schedule 3.19,
to Baytown's knowledge, all tangible assets used by Baytown are in good
operating condition, ordinary wear and tear excepted, and conform with all
applicable ordinances, regulations, zoning and other laws, whether Federal,
state or local. Baytown's premises or equipment are not in need of maintenance
or repairs other than ordinary routine maintenance and repairs that are not
material in nature or cost.
SECTION 3.20 ENVIRONMENTAL COMPLIANCE. Except as disclosed on Schedule
4.20:
A. Baytown and all of the Properties and Baytown's operations are in
compliance with all Environmental Laws (as defined in Section 12.09).
Baytown is not aware of, nor has Baytown received notice of, any past,
present, or future conditions, events, activities, practices or
incidents that may interfere with or prevent the compliance of Baytown
with all Environmental Laws.
B. Baytown has obtained all material permits, licenses and authorizations
that are required under all Environmental Laws.
C. No Hazardous Materials (as defined in Section 12.09) exist on, about
or within any of the Properties, nor have any Hazardous Materials
previously existed on, about or within or been used, generated,
stored, transported, disposed of, on or released
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from any of the Properties during the period from their respective
dates of acquisition by Baytown to the present, nor, to the best
knowledge of Baytown, have any Hazardous Materials previously existed
on, about or within or been used, generated, stored, transported,
disposed of, on or released from any of the Properties prior to their
respective dates of acquisition by Baytown. The use that Baytown
makes and intends to make of the Properties will not result in the use,
generation, storage, transportation, accumulation, disposal or release
of any Hazardous Material on, in or from any of the Properties.
D. There is no action, suit, proceeding, investigation, or inquiry before
any court, administrative agency or other governmental authority
pending or, to the best knowledge of Baytown, threatened, against
Baytown relating in any way to any Environmental Law. Baytown has no
liability for remedial action under any Environmental Law. Baytown
has not received any request for information by any governmental
authority with respect to the condition, use or operation of any of
the Properties nor has Baytown received any notice of any kind from
any governmental authority or other person with respect to any
violation of or claimed or potential liability of any kind under any
Environmental Law (including, without limitation, any letter, notice
or inquiry from any person or governmental entity informing Baytown
that it is or may be liable in any way under CERCLA (as defined in
Section 12.09) or requesting information to enable such a
determination to be made).
E. As used in this Section 3.20, the term "Property" or "Properties"
shall include all real property owned or leased by Baytown, including,
but not limited to properties that Baytown has foreclosed on as well
as their respective premises and all improvements and fixtures
thereon.
SECTION 3.21 REGULATORY COMPLIANCE. Except as set forth on Schedule 3.21,
all reports, records, registrations, statements, notices and other documents or
information required to be filed by Baytown with any federal or state regulatory
authority, including, without limitation, the Federal Reserve, the FDIC and the
IRS have been duly and timely filed and all information and data contained in
such reports, records or other documents are true, accurate, correct and
complete. Except as set forth on Schedule 3.21, Baytown is not now nor has been
within the last five (5) years subject to any memorandum of understanding, cease
and desist order, written agreement or other formal or informal administrative
action with any such regulatory bodies. Baytown does not believe any such
regulatory bodies have any present intent to place Baytown under any such
administrative action. Except as set forth on Schedule 3.21, there are no
actions or proceedings pending or threatened against Baytown by or before any
such regulatory bodies or any other nation, state or subdivision thereof, or any
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
SECTION 3.22 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither Baytown nor,
any
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officer, employee or agent of Baytown, nor any other person acting on its
behalf, has, directly or indirectly, within the past five (5) years, given or
agreed to give any gift of a material nature or similar benefit to any customer,
supplier, governmental employee or other person who is or may be in a position
to help or hinder the business of Baytown (or assist Baytown in connection with
any actual or proposed transaction) that (i) might subject Baytown to any damage
or penalty in any civil, criminal or governmental litigation or proceeding, (ii)
if not given in the past, might have resulted in a Material Adverse Change or
(iii) if not continued in the future might result in a Material Adverse Change
or might subject Baytown to suit or penalty in any private or governmental
litigation or proceeding.
SECTION 3.23 PROXY STATEMENT. None of the information supplied or to be
supplied by Baytown, or any of its directors, officers, employees or agents for
inclusion in the Proxy Statement, or any amendment thereof or supplement
thereto, will be false or misleading with respect to any material fact, or omit
to state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, or at the
time of the Shareholders' Meeting, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Shareholders' Meeting. All documents that Baytown is responsible
for filing with any regulatory or governmental agency in connection with the
Consolidation will comply in all material respects with the provisions of
applicable law.
SECTION 3.24 DISSENTING SHAREHOLDERS. Baytown has no knowledge of any
plan or intention on the part of any shareholders to make written demand for
payment of the fair value of their shares of the Baytown Common Stock in the
manner provided by applicable law.
SECTION 3.25 BOOKS AND RECORDS. The minute books, stock certificate
books and stock transfer ledgers of Baytown (i) have been kept accurately in
the ordinary course of business, (ii) are complete and correct in all
material respects, (iii) the transactions entered therein represent bona fide
transactions, and (iv) there have been no transactions involving the business
of Baytown that properly should have been set forth therein and that have not
been accurately so set forth.
SECTION 3.26 FORMS OF INSTRUMENTS, ETC. Baytown has made, and will make,
available to Bancshares copies of all standard forms of notes, mortgages, deeds
of trust and other routine documents of a like nature used on a regular and
recurring basis by Baytown in the ordinary course of its business.
SECTION 3.27 FIDUCIARY RESPONSIBILITIES. Baytown has performed in all
material respects all of its duties as a trustee, custodian, guardian or as an
escrow agent in a manner that complies in all material respects with all
applicable laws, regulations, orders, agreements, instruments and common law
standards, where the failure to so perform would result in a Material Adverse
Change or materially and adversely affect the transactions contemplated by this
Agreement, and Baytown has no reason to be aware of any basis for the same.
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SECTION 3.28 GUARANTIES. Except for items in the process of collection in
the ordinary course of Baytown's business, none of the obligations or
liabilities of Baytown are guaranteed by any other person, firm or corporation,
nor, except in the ordinary course of business, according to prudent business
practices and in compliance with applicable law, has Baytown guaranteed the
obligations or liabilities of any other person, firm or corporation.
SECTION 3.29 VOTING TRUST OR BUY-SELL AGREEMENTS. Except as set forth on
Schedule 3.29, Baytown is not aware of any agreement between any of its
shareholders relating to a right of first refusal with respect to the purchase
or sale by any such shareholder of capital stock of Baytown or any voting
agreement or voting trust with respect to shares of capital stock of Baytown.
SECTION 3.30 EMPLOYEE BENEFIT PLANS. "Employee Benefit Plans" means all
present, and those terminated, transferred or assigned within the sixty (60)
months prior to the Closing Date, plans, programs, agreements, arrangements, and
methods of contribution or compensation providing any remuneration or benefits
by any member of the Control Group, as hereafter defined, other than current
cash compensation, to any current or former employee of the Control Group or to
any other person who provides services to the Control Group, whether or not such
plan or plans, programs, agreements, arrangements, and methods of contribution
or compensation are subject to ERISA, and whether or not such plan or plans,
programs, agreements, arrangements and methods of contribution or compensation
are qualified under the Internal Revenue Code of 1986, as amended (the "Code"),
and such term includes, but is not limited to plans that are, or are in the
nature of pension, retirement, profit sharing, bonus, stock option, employee
stock purchase plan, restricted stock awards, excess benefit plan, incentive
compensation awards, severance pay, golden parachute, 401(k), deferred
compensation, medical, dental, workers' compensation, health insurance, life
insurance, incentive, vacation benefits, rabbi trusts, and fringe benefits
(other than normal policies concerning holidays, vacations and salary
continuation during short absences for illness or other reasons). "Control
Group" means, individually and collectively, any member of any "affiliated
service group" as defined in section 414(m) of the Code, any "trades or
businesses under common control" as defined in section 414(c) of the Code, any
"controlled group of corporations" as defined under section 414(b) of the Code,
or any group described pursuant to section 414(o) of the Code, in each case
where the group includes Baytown. With respect to all the Employee Benefit
Plans in which employees of Baytown participate or have participated, the
following are true and correct:
A. Schedule 3.30(A) lists each "employee welfare benefit plan" (as
defined in section 3(1) of ERISA), maintained by Baytown or to which
Baytown contributes or is required to contribute, including any
multi-employer welfare plan (such employee welfare benefit plans being
hereinafter collectively referred to as the "Welfare Benefit Plans");
B. Schedule 3.30(B) lists each "employee pension benefit plan" (as
defined in
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section 3(2) of ERISA and not exempted under section 4(b) of ERISA)
maintained by Baytown or to which Baytown contributes or is required
to contribute, including any multi-employer plan (as defined in
sections 3(37) or 4001(a)(3) of ERISA) (such employee pension benefit
plans being hereinafter collectively referred to as the "Pension
Benefit Plans");
C. All of Pension Benefit Plans and Welfare Benefit Plans and any related
trust agreements, annuity contracts and any other funding instruments
comply, in all material respects, currently, and have, in all material
respects, complied in the past, both as to form and operation, with
the provisions of ERISA, the Code and with all other applicable laws,
rules and regulations governing the establishment and operation of
Pension Benefit Plans and Welfare Benefit Plans; all necessary
governmental approvals relating to the establishment of Pension
Benefit Plans have been obtained; and with respect to each Pension
Benefit Plan that is intended to be tax-qualified under
sections 401(a) or 403(a) of the Code, a favorable determination
letter as to the qualification under the Code of each such Pension
Benefit Plan and each material amendment thereto has been issued by
the IRS (and nothing has occurred since the date of the last such
determination letter which resulted in, or may be reasonably
anticipated to result in, the revocation of such determination),
including, without limitation, amendments which may be required by the
Tax Reform Act of 1986, the Omnibus Budget Reconciliation Acts of 1986
and 1987, the Technical and Miscellaneous Revenue Act of 1988, the
Revenue Reconciliation Act of 1989 and the Omnibus Budget
Reconciliation Act of 1990 or, if no such letter has been issued, such
a letter has been or will be requested within the applicable period
for making retroactive amendments to the plan under section 401 (b) of
the Code and related regulations, notices and announcements;
D. Each Welfare Benefit Plan and each Pension Benefit Plan has been
administered in compliance with the requirements of the Code, ERISA
and all other applicable laws, or the consequences of a failure to
administer a Welfare Benefit Plan or a Pension Benefit Plan as
described in this subsection are not material, and all reports and
disclosures required by ERISA, the Code and any other applicable laws
with respect to each Welfare Benefit Plan and each Pension Benefit
Plan have been timely filed and provided;
E. On and after January 1, 1987, and to Baytown's knowledge, on and after
January 1, 1975, neither Baytown nor any Common Control Entity nor any
Welfare Benefit Plan nor any Pension Benefit Plan nor any trust
established under such plan nor any plan fiduciary of any Welfare
Benefit Plan or Pension Benefit Plan has engaged in any transaction in
violation of sections 406 or 407 of ERISA (for which transaction no
exemption exists under section 408 of ERISA) or in any "prohibited
transaction" as defined in section 4975(c)(1) of the Code (for which
no exemption exists under sections 4975(c)(2) or 4975(d) of the Code),
and no officer, director or employee of Baytown or any Common Control
Entity has committed a material breach of any of
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the responsibilities and obligations imposed on fiduciaries by Title I
of ERISA;
F. Schedule 3.30(F) lists each deferred compensation plan, bonus plan,
stock option plan, employee stock purchase plan, restricted stock
awards, excess benefit plan, incentive compensation awards, stock
bonus, cash bonus, severance pay, golden parachute, life insurance,
all nonqualified deferred compensation arrangements, rabbi trusts, all
unfunded plans and any other employee benefit plan, agreement,
arrangement or commitment not required under a previous subsection to
be listed (other than normal policies concerning holidays, vacations
and salary continuation during short absences for illness or other
reasons) maintained now or within the sixty (60) months preceding the
Closing Date by Baytown;
G. Except as set forth in Schedule 3.30(A), neither Baytown nor any
corporation or other trade or business controlled by or under common
control with Baytown (as determined under sections 414(b) or 414(c) of
the Code) ("Common Control Entity") is, or has been within the past
five (5) years, a contributing sponsor (as defined in section 4001 (a)
(13) of ERISA) of a Pension Benefit Plan subject to the provisions of
Title IV of ERISA, nor has Baytown or a Common Control Entity
maintained or participated in any employee pension benefit plan
(defined in section 3(2) of ERISA) subject to the provision of Title
IV of ERISA. In addition, neither Baytown nor a Common Control Entity
(i) is a party to a collective bargaining agreement, (ii) has
maintained or contributed to, or has participated in or agreed to
participate in, a multi-employer plan (as defined in section 3(37) of
ERISA or section 414(f) of the Code), or (iii) has made a complete or
partial withdrawal from a multi-employer plan so as to incur
withdrawal liability as defined in section 4201 of ERISA (without
regard to subsequent reduction or waiver of such liability under
sections 4207 or 4208 of ERISA);
H. True and complete copies of each Welfare Benefit Plan and each Pension
Benefit Plan, related trust agreements, annuity contracts and any
other funding instruments, summary plan descriptions, each plan,
agreement, arrangement, and commitment referred to in Section 3.30(F),
the most recent determination letter issued by the IRS with respect to
each Pension Benefit Plan, the most recent application for a
determination letter from the IRS with respect to each Pension Benefit
Plan and Annual Returns/Reports on Form 5500 Series filed with any
governmental agency for each Welfare Benefit Plan and each Pension
Benefit Plan for the two (2) most recent plan years, have been made
available to Bancshares;
I. All Welfare Benefit Plans, Pension Benefit Plans, related trust
agreements, annuity contracts and any other funding instruments and
all plans, agreements, arrangements and commitments referred to in
Section 3.30(F) are legal, valid and binding and in full force and
effect; there are no promised increases in benefits (whether
expressed, implied, oral or written) under any of these plans that
have a material effect on the obligation to fund any of these plans
nor any obligations,
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commitments or understandings to continue any of these plans (whether
expressed, implied, oral or written) except as required by section
4980B of the Code and sections 601-608 of ERISA; and all such plans
and arrangements may be terminated by Baytown or a member of a Common
Control Entity without the consent of any other person or entity;
J. There are no claims pending or, to the best knowledge of Baytown,
threatened with respect to, or under, any Pension Benefit Plan,
Welfare Benefit Plan or any plan, agreement, arrangement or commitment
described in Section 3.30(F), other than routine claims for plan
benefits, and there are no material disputes, litigation, arbitration
or government audit pending or, to the knowledge of Baytown,
threatened with respect to any such plans or arrangements, and Baytown
has no knowledge of facts that would give rise to any such dispute,
litigation, arbitration or government audit;
K. No "multiple employer welfare arrangement" as defined in section 3(40)
of ERISA is presently or has within the forty-eight (48) months prior
to the Closing Date been maintained by Baytown or any other member of
the Control Group;
L. No liens exist or are, to the best knowledge of Baytown, threatened as
a result of, or in connection with the funding or operation of, one or
more Pension Benefit Plans, Welfare Benefit Plans or any plans,
agreements, arrangements or commitments described in Section 3.30(F);
and
M. Except as otherwise set forth in Schedule 3.30(M), neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment to be
made by Baytown (including, without limitation, severance,
unemployment compensation, golden parachute (defined in section 280G
of the Code), or otherwise) becoming due to any employee, or (ii)
increase any benefits otherwise payable under any Welfare Benefit
Plan, Pension Benefit Plan or any plan, agreements, arrangements, and
commitments referred to in Section 3.30(F).
SECTION 3.31 REPRESENTATIONS NOT MISLEADING. No representation or
warranty by Baytown contained in this Agreement, nor any written statement,
exhibit or schedule furnished to Bancshares by Baytown under and pursuant to, or
in anticipation of this Agreement, contains or will contain on the Closing Date
any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained herein or therein, in
light of the circumstances under which it was or will be made, not misleading
and such representations and warranties would continue to be true and correct
following disclosure to any governmental authority having jurisdiction over
Baytown or its properties of the facts and circumstances upon which they were
based.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF BANCSHARES
Bancshares hereby makes the representations and warranties set forth in
this Article IV to Baytown.
SECTION 4.01 ORGANIZATION AND QUALIFICATION. Bancshares is a corporation,
duly organized, validly existing under the laws of the State of Texas, and in
good standing under all laws, rules, and regulations applicable to corporations
located in the State of Texas. Banchares has all requisite corporate power and
authority (including all licenses, franchises, permits and other governmental
authorizations as are legally required) to carry on its business as now being
conducted, to own, lease and operate its properties and assets as now owned,
leased or operated and to enter into and carry out its obligations under this
Agreement.
SECTION 4.02 EXECUTION AND DELIVERY. Bancshares has taken all corporate
action necessary to authorize the execution, delivery and (provided the required
regulatory approvals are obtained) performance of this Agreement and the other
agreements and documents contemplated hereby to which it is a party, including
but not limited to the Consolidation Agreement. This Agreement has been, and
the other agreements and documents contemplated hereby, have been or at Closing
will be, duly executed by Bancshares and each constitutes the valid and binding
obligation of Bancshares, enforceable in accordance with its respective terms
and conditions, except as enforceability may be limited by bankruptcy,
conservatorship, insolvency, moratorium, reorganization, receivership or similar
laws and judicial decisions affecting the rights of creditors generally and by
general principles of equity (whether applied in a proceeding at law or in
equity).
SECTION 4.03 COMPLIANCE WITH LAWS, PERMITS AND INSTRUMENTS. The
execution, delivery and (provided the required regulatory approvals are
obtained) performance of this Agreement and the other agreements contemplated
hereby, including but not limited to the Consolidation Agreement, and the
consummation of the transactions contemplated hereby and thereby, will not
conflict with, or result, by itself or with the giving of notice or the passage
of time, in any violation of or default or loss of a benefit under, (i) any
provision of the Articles of Incorporation or Bylaws of Bancshares, (ii) any
material provision of any mortgage, indenture, lease, contract, agreement or
other instrument applicable to Bancshares or its assets, operations, properties
or businesses now conducted or heretofore conducted or (iii) any permit,
concession, grant, franchise, license, authorization, judgment, writ,
injunction, order, decree, award, statute, federal, state or local law,
ordinance, rule or regulation of any court, arbitrator or any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality applicable to Bancshares.
SECTION 4.04 LITIGATION. No legal action, suit or proceeding or judicial,
administrative or governmental investigation is pending or, to the knowledge of
Bancshares, threatened against Bancshares that questions or might question the
validity of this Agreement or the agreements contemplated hereby, including but
not limited to the Consolidation
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Agreement, or any actions taken or to be taken by Bancshares pursuant hereto or
thereto or seeks to enjoin or otherwise restrain the transactions contemplated
hereby or thereby.
SECTION 4.05 CONSENTS AND APPROVALS. Except for regulatory approvals as
disclosed in Schedule 4.05, no approval, consent, order or authorization of, or
registration, declaration or filing with, any governmental authority or other
third party is required on the part of Bancshares in connection with the
execution, delivery or performance of this Agreement or the agreements
contemplated hereby, including but not limited to the Consolidation Agreement,
or the consummation by Bancshares of the transactions contemplated hereby or
thereby.
SECTION 4.06 PROXY STATEMENT. None of the information supplied or to be
supplied by Bancshares, or any of its directors, officers, employees or agents
for inclusion in the Proxy Statement, or any amendment thereof or supplement
thereto, will be false or misleading with respect to any material fact, or omit
to state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, or at the
time of the Shareholders' Meeting, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Shareholders' Meeting. All documents that Bancshares is
responsible for filing with any regulatory or governmental agency in connection
with the Consolidation will comply in all material respects with the provisions
of applicable law.
SECTION 4.07 REPRESENTATIONS NOT MISLEADING. No representation or
warranty by Bancshares contained in this Agreement, nor any statement, exhibit
or schedule furnished to Baytown by Bancshares under and pursuant to, or in
anticipation of this Agreement, contains or will contain on the Closing Date any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statements contained herein or therein, in light of
the circumstances under which it was or will be made, not misleading and such
representations and warranties would continue to be true and correct following
disclosure to any governmental authority having jurisdiction over Bancshares of
the facts and circumstances upon which they were based. No information material
to the Consolidation, and that is necessary to make the representations and
warranties herein contained not misleading, has been withheld by Bancshares.
ARTICLE V.
COVENANTS OF BAYTOWN
Baytown hereby makes the covenants set forth in this Article V to
Bancshares.
SECTION 5.01 BEST EFFORTS. Baytown will use its best efforts to cause
consummation of the transactions contemplated hereby in accordance with the
terms and conditions of this Agreement.
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SECTION 5.02 CONSOLIDATION AGREEMENT. Baytown will, as soon a practicable
after the execution of this Agreement, duly authorize and enter into the
Consolidation Agreement, the form of which is Attached hereto as EXHIBIT "A",
and perform all of its obligations thereunder.
SECTION 5.03 INFORMATION FOR APPLICATIONS AND STATEMENTS. Baytown will
promptly furnish to Bancshares, within twenty (20) business days after
Bancshares' request, all information concerning Baytown required to be included
in any application or filing to be made by Bancshares to or filed by Bancshares
with any governmental body in connection with the transactions contemplated by
this Agreement, or in connection with any unrelated transactions during the
pendency of this Agreement, and Baytown represents and warrants that all
information so furnished for such statements and applications shall be true and
correct in all material respects and shall not omit any material fact required
to be stated therein or necessary to make the statements made, in light of the
circumstances under which they were made, not misleading. Baytown will otherwise
fully cooperate with Bancshares in the filing of any applications or other
documents necessary to consummate the transactions contemplated by this
Agreement, including the Consolidations.
SECTION 5.04 REQUIRED ACTS OF BAYTOWN. Prior to the Closing, Baytown
shall, unless otherwise permitted in writing by Mr. Larry D. Wright, President
of Bancshares, or his designee:
A. Operate only in the ordinary course of business and consistent with
prudent banking practices;
B. Except as required by prudent business practices, use all reasonable
efforts to preserve its business organization intact and to retain its
present customers, depositors, suppliers, correspondent banks,
officers, directors, employees and agents;
C. Act in a manner intended to preserve or attempt to preserve its
goodwill;
D. Perform all of its obligations under contracts, leases and documents
relating to or affecting its assets, properties and business except
such obligations as Baytown may in good faith reasonably dispute;
E. Except as required by prudent business practices, maintain all
offices, machinery, equipment, materials, supplies, inventories,
vehicles and other properties owned, leased or used by it (whether
under its control or the control of others), in good operating
condition and repair, ordinary wear and tear excepted;
F. Maintain in full force and effect all insurance policies now in effect
or renewals thereof and, except as required by prudent business
practices that do not jeopardize insurance coverage, give all notices
and present all claims under all insurance
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policies in due and timely fashion;
G. Timely file all reports required to be filed with governmental
authorities and observe and conform to all applicable laws, rules,
regulations, ordinances, codes, orders, licenses and permits, except
those being contested in good faith by appropriate proceedings;
H. Timely file all tax returns required to be filed by it and promptly
pay all taxes, assessments, governmental charges, duties, penalties,
interest and fines that become due and payable, except those being
contested in good faith by appropriate proceedings;
I. Withhold from each payment made to each of its employees the amount of
all taxes (including, but not limited to, federal income taxes, FICA
taxes and state and local income and wage taxes) required to be
withheld therefrom and pay the same to the proper tax receiving
officers; and
J. Continue to follow and implement policies, procedures and practices
regarding the identification, monitoring, classification and treatment
of all assets in substantially the same manner as it has in the past.
SECTION 5.05 PROHIBITED ACTS OF BAYTOWN. Prior to the Closing, Baytown
shall not, unless otherwise permitted in writing by Mr. Larry D. Wright,
President of Bancshares, or his designee:
A. Introduce any new material method of management or operation;
B. Take any action that could reasonably be anticipated to result in a
Material Adverse Change;
C. Take or fail to take any action that would cause or permit the
representations and warranties made in Article III hereof to be
inaccurate at the time of the Closing or preclude Baytown from making
such representations and warranties at the time of the Closing;
D. Mortgage, pledge or subject to lien, charge, security interest or any
other encumbrance or restriction any of its property, business or
assets, tangible or intangible except in the ordinary course of
business and consistent with prudent banking practices;
E. Cause or allow the loss of insurance coverage, unless replaced with
coverage which is substantially similar (in amount and insurer) to
that now in effect;
F. Incur any obligation or liability, whether absolute or contingent,
except in the
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ordinary course of business and consistent with prudent banking
practices;
G. Discharge or satisfy any lien, charge or encumbrance or pay any
obligation or liability, whether absolute or contingent, due or to
become due, except in the ordinary course of business consistent with
prudent banking practices;
H. Issue, reserve for issuance, grant, sell or authorize the issuance of
any shares of its capital stock or other securities or subscriptions,
options, warrants, calls, rights or commitments of any kind relating
to the issuance thereto;
I. Purchase or redeem any of its stock or declare or pay any distribution
on its outstanding capital stock;
J. Change its articles or bylaws or change its authorized capital stock;
K. Sell, transfer, lease to others or otherwise dispose of any of its
assets or cancel or compromise any debt or claim, or waive or release
any right or claim of material value, except in the ordinary course of
business and consistent with past practices and safe and sound banking
principles;
L. Enter into any transaction other than in the ordinary course of
business;
M. Enter into or give any promise, assurance or guarantee of the payment,
discharge or fulfillment of any undertaking or promise made by any
other person, firm or corporation;
N. Sell or knowingly dispose of, or otherwise divest itself of the
ownership, possession, custody or control, of any corporate books or
records of any nature that, in accordance with sound business
practice, normally are retained for a period of time after their use,
creation or receipt, except at the end of the normal retention period;
O. Except as specifically contemplated by Section 5.17, make any change
in the rate of compensation, commission, bonus or other direct or
indirect remuneration payable, or pay or agree or orally promise to
pay, conditionally or otherwise, any bonus, extra compensation,
pension or severance or vacation pay, to or for the benefit of any of
its shareholders, directors, officers, employees or agents, or enter
into any employment or consulting contract (other than as contemplated
by this Agreement) or other agreement with any director, officer or
employee or adopt, amend in any material respect or terminate any
pension, employee welfare, retirement, stock purchase, stock option,
stock appreciation rights, termination, severance, income protection,
golden parachute, savings or profit-sharing plan (including trust
agreements and insurance contracts embodying such plans), any deferred
compensation, or collective bargaining agreement, any group insurance
contract or
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any other incentive, welfare or employee benefit plan or agreement
maintained by it for the benefit of its directors, employees or former
employees, except in the ordinary course of business and consistent
with past practices and safe and sound banking principles;
P. Except as explicitly permitted hereunder or in accordance with
applicable law, engage in any transaction with any affiliated person
except loans secured by liquid collateral having a fair market value
at least equal to the principal balance due on such loan, or create
any liability of Baytown owed to such persons except in the form of
deposits, wages, salaries and reimbursement of expenses created in the
ordinary course of business;
Q. Acquire any capital stock or other equity securities or acquire any
equity or ownership interest in any other bank, corporation,
partnership or other entity (except (i) through settlement of
indebtedness, foreclosure, or the exercise of creditors' remedies or
(ii) in a fiduciary capacity, the ownership of which does not expose
it to any liability from the business, operations or liabilities of
such person);
R. Except as explicitly permitted hereunder, terminate, cancel or
surrender any contract, lease or other agreement or unreasonably
permit any damage, destruction or loss (whether or not constituting,
or reasonably anticipated to constitute, a Material Adverse Change
covered by insurance), which, in any case or in the aggregate, may
result in a Material Adverse Change;
S. Dispose of, permit to lapse, transfer or grant any rights under, or
breach or infringe upon, any United States or foreign license or
Proprietary Right or modify any existing rights with respect thereto,
except in the ordinary course of business and consistent with past
practices and safe and sound banking principles;
T. Except for improvements or betterments relating to Properties, make
any capital expenditures or capital additions or betterments in excess
of an aggregate of $50,000;
U. Hire or employ any person with an annual salary equal to or greater
than $40,000;
V. Make any, or acquiesce with any, change in any accounting methods,
principles or material practices;
W. Sell or purchase any investment securities in an aggregate amount of
$250,000 between the date of the Agreement and the Closing Date except
as necessary to secure public funds deposits and to reduce securities
after the withdrawal of said public funds; or
X. Make, renew, extend the maturity of, or alter any of the material
terms of any loan
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to any single borrower and his related interests in excess of the
principal amount of $100,000 unless secured by certificate(s) of
deposit or negotiable securities.
SECTION 5.06 ACCESS; PRE-CLOSING INVESTIGATION. Subject to the provisions
of Article XI, Baytown shall afford the officers, directors, employees,
attorneys, accountants, investment bankers and authorized representatives of
Bancshares full access to the properties, books, contracts and records of
Baytown, permit Bancshares to make such inspections (including without
limitation with regard to such properties physical inspection of the surface and
subsurface thereof and any structure thereon) as they may require and furnish to
Bancshares during such period all such information concerning Baytown and its
affairs as Bancshares may reasonably request, in order that Bancshares may have
full opportunity to make such reasonable investigation as it shall desire to
make of the affairs of Baytown, including, without limitation, access sufficient
to verify the value of the assets and the liabilities of Baytown and the
satisfaction of the conditions precedent to Bancshares' obligations described in
Article IX of this Agreement. Baytown agrees at any time, and from time to
time, to furnish to Bancshares as soon as practicable, any additional
information that Bancshares may reasonably request.
SECTION 5.07 INVITATIONS TO AND ATTENDANCE AT DIRECTORS' AND COMMITTEE
MEETINGS. Baytown shall give notice to two designees of Bancshares, and shall
invite such persons to attend all regular and special meetings of the board of
directors of Baytown and all regular and special meetings of any senior
management committee of Baytown.
SECTION 5.08 ADDITIONAL FINANCIAL STATEMENTS. Baytown shall promptly upon
receipt furnish Bancshares with (i) unaudited statements of condition and income
of Baytown as of June 30, 1997 and each quarter thereafter until Closing, and
(ii) true and complete copies of each additional Report of Condition and Income
of Baytown, as soon as such reports are made available to the FDIC.
SECTION 5.09 UNTRUE REPRESENTATIONS. Baytown shall promptly notify
Bancshares in writing if Baytown becomes aware of any fact or condition that
makes untrue, or shows to have been untrue, in any material respect, any
schedule or any other information furnished to Bancshares or any representation
or warranty made in or pursuant to this Agreement or that results in Baytown's
failure to comply with any covenant, condition or agreement contained in this
Agreement.
SECTION 5.10 LITIGATION AND CLAIMS. Baytown shall promptly notify
Bancshares in writing of any litigation, or of any claim, controversy or
contingent liability that might be expected to become the subject of litigation,
against Baytown or affecting any of its properties, if such litigation or
potential litigation might, in the event of an unfavorable outcome, result in a
Material Adverse Change, and Baytown shall promptly notify Bancshares of any
legal action, suit or proceeding or judicial, administrative or governmental
investigation, pending or, to the best knowledge of Baytown, threatened against
Baytown that questions or might question the validity of this Agreement or the
agreements contemplated hereby, including, but
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not limited to the Consolidation Agreement, or any actions taken or to be taken
by Baytown pursuant hereto or thereto or seeks to enjoin or otherwise restrain
the transactions contemplated hereby or thereby.
SECTION 5.11 ADVERSE CHANGES. Baytown shall promptly notify Bancshares in
writing if any change shall have occurred or been threatened (or any development
shall have occurred or been threatened involving a prospective change) in the
business, financial condition, operations or prospects of Baytown that has or
may reasonably be expected to have or lead to a Materially Adverse Change.
Notwithstanding the disclosure to Bancshares of any such change, Baytown shall
not be relieved of any liability to Bancshares pursuant to this Agreement for,
nor shall the providing of such information by Baytown to Bancshares be deemed a
waiver by Bancshares of, the breach of any representation or warranty of the
Baytown contained in this Agreement.
SECTION 5.12 NO NEGOTIATION WITH OTHERS. Baytown shall not, directly or
indirectly, nor shall Baytown permit its officers, directors, employees,
representatives or agents to, directly or indirectly (i) encourage, solicit or
initiate discussions or negotiations with, or (ii) entertain, discuss or
negotiate with, or provide any information to, or cooperate with, any
corporation, partnership, person or other entity or group (other than Bancshares
or its Affiliates or associates or officers, partners, employees or other
authorized representatives of Bancshares or such Affiliates or associates)
concerning any Consolidation, tender offer or other takeover offer, sale of
substantial assets, sale of shares of capital stock or similar transaction
involving Baytown. Immediately upon receipt of any unsolicited offer, Baytown
will communicate to Bancshares the terms of any proposal or request for
information and the identity of the parties involved.
SECTION 5.13 CONSENTS AND APPROVALS. Baytown shall use its best efforts
to obtain all consents and approvals from third parties, including those listed
on Schedule 3.07, at the earliest practicable time.
SECTION 5.14 ENVIRONMENTAL INVESTIGATION; RIGHT TO TERMINATE AGREEMENT.
A. Bancshares and its consultants, agents and representatives shall have
the right to the same extent that Baytown has such right, but not the
obligation or responsibility, to inspect any Property, including,
without limitation, conducting asbestos surveys and sampling,
environmental assessments and investigation, and other environmental
surveys and analyses including soil and ground sampling
("Environmental Inspections") at any time on or prior to July 1, 1997.
Bancshares shall notify Baytown prior to any physical inspections of
the Property, and Baytown may place reasonable restrictions on the
time of such inspections. If, as a result of any such Environmental
Inspection, further investigation ("secondary investigation")
including, without limitation, test borings, soil, water and other
sampling is deemed desirable by Bancshares, Bancshares shall (i)
notify Baytown of any Property for which it intends to conduct such a
secondary investigation and the
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reasons for such secondary investigation, and (ii) commence such
secondary investigation, on or prior to August 1, 1997. Bancshares
shall give reasonable notice to Baytown of such secondary
investigations, and Baytown may place reasonable time and place
restrictions on such secondary investigations.
B. Baytown agrees to indemnify and hold harmless Bancshares for any
claims for damage to property, or injury or death to persons, made as
a result of any Environmental Inspection or secondary investigation
conducted by Bancshares or its agents, which damage or injury is
attributable to the negligent actions or negligent omissions of
Baytown or its agents. Bancshares agrees to indemnify and hold
harmless Baytown for any claims for damage to property, or injury or
death to persons, attributable to the negligent actions or omissions
of Bancshares or its agents in performing any Environmental Inspection
or secondary investigation except to the extent caused in whole or in
part by the negligence of Baytown. Bancshares shall not have any
liability or responsibility of any nature whatsoever for the results,
conclusions or other findings related to any Environmental Inspection,
secondary investigation or other environmental survey. If this
Agreement is terminated, then except as otherwise required by law,
reports to any governmental authority of the results of any
Environmental Inspection, secondary investigation or other
environmental survey shall be made by Baytown and not by Bancshares.
Bancshares shall make no such report prior to Closing unless required
to do so by law, and in such case will give Baytown reasonable notice
of Bancshares' intentions.
C. Bancshares shall have the right to terminate this Agreement if (i) the
factual substance of any warranty or representation set forth in
Article III is not true and accurate; (ii) the results of such
Environmental Inspection, secondary investigation or other
environmental survey are disapproved by Bancshares because the
environmental inspection, secondary investigation or other
environmental survey identifies violations or potential violations of
Environmental Laws; (iii) Baytown has refused to allow Bancshares to
conduct an Environmental Inspection or secondary investigation in a
manner that Bancshares reasonably considers necessary; (iv) the
Environmental Inspection, secondary investigation or other
environmental survey identifies any past or present event, condition
or circumstance that would or potentially would require remedial or
cleanup action or result in a Material Adverse Change; (v) the
Environmental Inspection, secondary investigation or other
environmental survey identifies the presence of any underground or
above ground storage tank in, on or under any Property that is not
shown to be in compliance with all Environmental Laws applicable to
the tank either now or at a future time certain, or that has had a
release of petroleum or some other Hazardous Material that has not
been cleaned up to the satisfaction of the relevant governmental
authority or any other party with a legal right to compel cleanup; or
(vi) the Environmental Inspection, secondary investigation or other
environmental survey identifies the presence of any
asbestos-containing material in,
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on or under any Property, the removal of which would result in a
Material Adverse Change. On or prior to August 15, 1997, Bancshares
shall advise Baytown in writing as to whether Bancshares intends to
terminate this Agreement because Bancshares disapproves of the results
of the Environmental Inspection, secondary investigation or other
environmental survey. Baytown shall have the opportunity to correct
any objected to violations or conditions to Bancshares' reasonable
satisfaction prior to August 31, 1997. In the event that Baytown
fails to demonstrate its satisfactory correction of the violations or
conditions to Bancshares, Bancshares may terminate the Agreement on or
before September 15, 1997.
D. Baytown agrees to make available to Bancshares and its consultants,
agents and representatives all documents and other material relating
to environmental conditions of any Property including, without
limitation, the results of other environmental inspections and
surveys. Baytown also agrees that all engineers and consultants who
prepared or furnished such reports may discuss such reports and
information with Banchares and shall be entitled to certify the same
in favor of Bancshares and its consultants, agents and representatives
and make all other data available to Bancshares and its consultants,
agents and representatives.
E. For purposes of this Section, the term "Property" or "Properties"
shall have the same meaning given in Section 3.20.
SECTION 5.15 PROXIES. Simultaneously with the execution of this
Agreement, Baytown and each of the Shareholders shall execute the Voting
Agreement and Irrevocable Proxy in the form of EXHIBIT "B" attached hereto, and
Baytown acknowledges that such persons have agreed that they will vote the
shares of Baytown Common Stock owned by them in favor of the Consolidation
Agreement and the Consolidation and the transactions contemplated hereby and
thereby, subject to required regulatory approvals.
SECTION 5.16 TERMINATION OF THE RETIREMENT PLAN. Prior to the Closing
Date, Baytown shall make application to, and if approval is granted, take all
actions necessary on the part of Baytown to, terminate the Retirement Plan for
the Employees of Texas Bank (the "Retirement Plan"). Baytown will make all
contributions to be made to the Retirement Plan up to and including the
contributions to be made as of September 30, 1997. Upon termination of the
Retirement Plan and payment of all related costs and expenses of termination,
all of the assets of the Retirement Plan shall be distributed to the
participants in the Plan, and none of such assets shall be retained by Baytown
or Bancshares.
SECTION 5.17 TERMINATION OF EMPLOYMENT CONTRACTS. Prior to the Closing
Date, Baytown shall take all actions necessary to terminate, and shall secure
the release of all obligations under all employment contracts with it directors,
officers, and employees.
SECTION 5.18 TERMINATION OF DATA PROCESSING CONTRACT. Prior to the
Closing Date, Baytown shall take all actions necessary to terminate, and shall
secure the release of all
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obligations under its current data processing contract.
SECTION 5.19 RESIGNATION AS DIRECTORS. At the request of Bancshares, each
of the directors of Baytown shall resign as directors of Baytown as of the
Closing Date.
ARTICLE VI.
COVENANTS OF BANCSHARES
Bancshares hereby makes the covenants set forth in this Article VI to
Baytown.
SECTION 6.01 BEST EFFORTS. Bancshares agrees to use its best efforts to
cause the consummation of the transactions contemplated hereby in accordance
with the terms and conditions of this Agreement.
SECTION 6.02 UNTRUE REPRESENTATIONS. Bancshares shall promptly notify
Baytown in writing if Bancshares becomes aware of any fact or condition that
makes untrue, or shows to have been untrue, in any material respect, any
schedule or any other information furnished to Baytown or any representation or
warranty made in or pursuant to this Agreement or that results in Bancshares'
failure to comply with any covenant, condition or agreement contained in this
Agreement.
SECTION 6.03 CONSOLIDATION AGREEMENT. Bancshares will, as soon as
practicable after the execution of this Agreement, cause Bayshore to enter into
the Consolidation Agreement, the form of which is attached hereto as EXHIBIT
"A", and perform all of the obligations thereunder. Bancshares shall vote all of
the stock of New Bank and Bayshore in favor of the Consolidations and the
Consolidation Agreement.
SECTION 6.04 INFORMATION FOR APPLICATIONS AND STATEMENTS. Bancshares will
promptly furnish to Baytown all information concerning Bancshares, including,
but not limited to, financial statements, required for inclusion in (i) any
proxy statement, prospectus or offering document to be used by Baytown in
connection with the approval of the shareholders of Baytown of the transactions
contemplated hereby and (ii) any application or statement to be made by Baytown
or filed by Baytown with any governmental body in connection with the
transactions contemplated by this Agreement, or in connection with any unrelated
transactions during the pendency of this Agreement, and Bancshares represents
and warrants that all information so furnished for such statements and
applications shall be true and correct in all material respects and shall not
omit any material fact required to be stated therein or necessary to make the
statements made, in light of the circumstances under which they were made, not
misleading. Bancshares shall otherwise fully cooperate with Baytown in the
filing of any applications or other documents necessary to consummate the
transactions contemplated by this Agreement, including the Consolidations.
SECTION 6.05 LITIGATION AND CLAIMS. Bancshares shall promptly notify
Baytown in
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writing of any legal action, suit or proceeding or judicial, administrative or
governmental investigation, pending or, to the knowledge of Bancshares,
threatened against Bancshares that questions or might question the validity of
this Agreement or the agreements contemplated hereby, including, but not limited
to the Consolidation Agreement, or any actions taken or to be taken by
Bancshares pursuant hereto or thereto or seeks to enjoin or otherwise restrain
the transactions contemplated hereby or thereby.
SECTION 6.06 REGULATORY AND OTHER APPROVALS. Bancshares shall promptly,
but in no event later than sixty (60) days after the date of this Agreement,
file or cause to be filed applications for all regulatory approvals required to
be obtained by Bancshares in connection with this Agreement and the other
agreements contemplated hereby. Bancshares shall promptly furnish Baytown with
copies of all such regulatory filings and all correspondence for which
confidential treatment has not been requested. Bancshares shall use its best
efforts to obtain all such regulatory approvals and any other approvals from
third parties, including those listed on Schedule 4.05, at the earliest
practicable time.
SECTION 6.07 ADVERSE CHANGE. Bancshares shall promptly notify Baytown in
writing if any change shall have occurred or been threatened (or any development
shall have occurred or been threatened involving a prospective change) that
would adversely affect, prevent or delay consummation of the transactions
contemplated by this Agreement or the other agreements contemplated hereby.
SECTION 6.08 CONTINUITY OF EMPLOYMENT. All employees of Baytown shall
become employees of Bayshore after Closing. Baytown employees who participate
in Baytown benefits shall be eligible to participate in all similar benefits
available to Bayshore's employees to the extent permitted by such benefit
providers. For purposes of calculating such benefits, Bayshore shall use as
their date of hiring as Bayshore employees their date of hiring at Baytown.
Further, all sick leave accrued to Baytown employees shall be transferred to
their sick leave accounts at Bayshore.
ARTICLE VII.
CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF BAYTOWN
All obligations of Baytown under this Agreement are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions,
any or all of which may be waived in whole or in part by Baytown:
SECTION 7.01 COMPLIANCE WITH REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
All representations and warranties made by Bancshares in this Agreement or in
any document or schedule delivered to Baytown pursuant hereto shall have been
true and correct in all material respects when made and shall be true and
correct in all material respects as of the Closing with the same force and
effect as if such representations and warranties were made at and as of the
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Closing, except with respect to those representations and warranties
specifically made as of an earlier date (in which case such representations and
warranties shall be true as of such earlier date). Bancshares shall have
performed or complied in all material respects with all agreements, terms,
covenants and conditions required by this Agreement to be performed or complied
with by Bancshares prior to or at the Closing.
SECTION 7.02 SHAREHOLDER APPROVALS. The holders of at least two-thirds of
the shares of each class of stock of Baytown entitled to vote on the Initial
Consolidation and the Consolidation Agreement shall have approved the Initial
Consolidation and the Consolidation Agreement.
SECTION 7.03 GOVERNMENT AND OTHER APPROVALS. Bancshares and Baytown shall
have received approvals, acquiescence or consents, all on terms and conditions
reasonably acceptable to Bancshares in its sole discretion, of the transactions
contemplated by this Agreement and the Consolidation Agreement, from all
necessary governmental agencies and authorities and other third parties,
including but not limited to the Federal Reserve, the FDIC, the OCC and the
Banking Department, and all applicable waiting periods shall have expired, and
the approvals and consents of all third parties required to consummate this
Agreement and the other agreements contemplated hereby, including, but not
limited to the Consolidation Agreement, and the transactions contemplated hereby
and thereby, including all consents described on Schedule 5.05. Such approvals
and the transactions contemplated hereby shall not have been contested or
threatened to be contested by any Federal or state governmental authority or by
any other third party (except shareholders asserting statutory dissenters'
appraisal rights) by formal proceedings.
SECTION 7.04 NO LITIGATION. No action shall have been taken, and no
statute, rule, regulation or order shall have been promulgated, enacted,
entered, enforced or deemed applicable to the Acquisition by any Federal, state
or foreign government or governmental authority or by any court, domestic or
foreign, including the entry of a preliminary or permanent injunction, that
would (a) make the Agreement or any other agreement contemplated hereby,
including, but not limited to the Consolidation Agreement, or the transactions
contemplated hereby or thereby illegal, invalid or unenforceable, (b) impose
material limits in the ability of any party to this Agreement to consummate the
Agreement or any other agreement contemplated hereby, including, but not limited
to the Consolidation Agreement, or the transactions contemplated hereby or
thereby, or (c) if the Agreement or any other agreement contemplated hereby,
including, but not limited to the Consolidation Agreement, or the transactions
contemplated hereby or thereby are consummated, subject Baytown or subject any
officer, director, shareholder or employee of Baytown to criminal or civil
liability. No action or proceeding before any court or governmental authority,
domestic or foreign, by any government or governmental authority or by any other
person, domestic or foreign, shall be threatened, instituted or pending that
would reasonably be expected to result in any of the consequences referred to in
clauses (a) through (c) above.
SECTION 7.05 OPINION OF LEGAL COUNSEL TO BANCSHARES. Baytown shall have
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received an opinion of counsel to Bancshares in connection with the transactions
contemplated by this Agreement, dated the Closing Date and addressed to Baytown,
as described in EXHIBIT "C".
ARTICLE VIII.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BANCSHARES
All obligations of Bancshares under this Agreement are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions,
any or all of which may be waived in whole or in part by Bancshares.
SECTION 8.01 COMPLIANCE WITH REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
All representations and warranties made by Baytown in this Agreement or in any
schedule delivered to Baytown pursuant hereto shall have been true and correct
when made and shall be true and correct as of the Closing with the same force
and effect as if such representations and warranties were made at and as of the
Closing, except with respect to those representations and warranties
specifically made as of an earlier date (in which case such representations and
warranties shall be true as of such earlier date). Baytown shall have performed
or complied in all material respects with all agreements, terms, covenants and
conditions required by this Agreement to be performed or complied with by
Baytown prior to or at the Closing.
SECTION 8.02 GOVERNMENT AND OTHER APPROVALS. Baytown shall have received
approvals, acquiescence or consents, all on terms and conditions acceptable to
Bancshares in its sole discretion, of the transactions contemplated by this
Agreement from all necessary governmental agencies and authorities, including
but not limited to the OCC, and all applicable waiting periods shall have
expired, and the approvals and consents of all third parties required to
consummate this Agreement and the other agreements contemplated hereby,
including, but not limited to the Consolidation Agreement, and the transactions
contemplated hereby and thereby, including all consents described on Schedule
4.05. Such approvals and the transactions contemplated hereby shall not have
been contested or threatened to be contested by any Federal or state
governmental authority or by any other third party by formal proceedings. It is
understood that, if such contest is brought by formal proceedings, Bancshares
may, but shall not be obligated to, answer and defend such contest or otherwise
pursue this transaction over such objection.
SECTION 8.03 NO LITIGATION. No action shall have been taken, and no
statute, rule, regulation or order shall have been promulgated, enacted,
entered, enforced or deemed applicable to this Agreement, or the transactions
contemplated hereby by any Federal, state or foreign government or governmental
authority or by any court, domestic or foreign, including the entry of a
preliminary or permanent injunction, that would (a) make this Agreement or any
other agreement contemplated hereby, including, but not limited to the
Consolidation Agreement, or the transactions contemplated hereby or thereby
illegal, invalid or unenforceable, (b) require the divestiture of a material
portion of the assets of Baytown,
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(c) impose material limits in the ability of any party to this Agreement to
consummate the Agreement or any other agreement contemplated hereby, including,
but not limited to the Consolidation Agreement, or the transactions contemplated
hereby or thereby, (d) otherwise result in a Material Adverse Change or (e) if
this Agreement or any other agreement contemplated hereby, or the transactions
contemplated hereby or thereby are consummated, subject Bancshares or subject
any officer, director, shareholder or employee of Bancshares to criminal or
civil liability. No action or proceeding before any court or governmental
authority, domestic or foreign, by any government or governmental authority or
by any other person, domestic or foreign, shall be threatened, instituted or
pending that would reasonably be expected to result in any of the consequences
referred to in clauses (a) through (e) above.
SECTION 8.04 CROOK EMPLOYMENT ARRANGEMENT. Bancshares and Mr. Joseph D.
Crook shall have entered into a mutually satisfactory agreement regarding the
continuation of his employment.
SECTION 8.05 OPINION OF LEGAL COUNSEL TO BAYTOWN. Bancshares shall have
received an opinion of counsel to Baytown in connection with the transactions
contemplated by this Agreement, dated the Closing Date and addressed to
Bancshares, as described in EXHIBIT "D".
SECTION 8.06 ACCOUNTING TREATMENT. All accounting and tax treatment,
entries and adjustments in connection with the transactions contemplated by this
Agreement and the other agreements contemplated hereby shall be satisfactory to
Bancshares, Bancshares shall not have received notification from any proper
regulatory authority that Bancshares' accounting and tax treatment, entries and
adjustments used in connection with the Consolidation are improper, and
Bancshares shall not have been required by any such regulatory authority to make
any accounting or tax adjustments that would constitute a Material Adverse
Change.
SECTION 8.07 RELEASES AND RESIGNATIONS. Bancshares shall have received
from each of the directors of Baytown an instrument dated the Closing Date
releasing Baytown from any and all claims of such directors (except to their
deposits and accounts), the form of which is attached as EXHIBIT "E".
Bancshares shall have received from each of the officers of Baytown an
instrument dated the Closing Date releasing Baytown from any and all claims of
such officers (except as to accrued compensation permitted by this Agreement and
their deposits and accounts), the form of which is attached as EXHIBIT "F".
Each of the directors of Baytown shall have delivered to Bancshares, if
requested, their resignations as directors of Baytown, respectively, effective
as of the Closing Date.
SECTION 8.08 NONCOMPETITION AGREEMENTS. Bancshares shall have received
from each of the Shareholders of Baytown a noncompetition agreement dated as of
the Closing Date, the form of which is attached as EXHIBIT "G".
SECTION 8.09 NO MATERIAL ADVERSE CHANGE. There shall have been no
Material Adverse Change since December 31, 1996.
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ARTICLE IX.
DISPOSITION OF EARNEST MONEY DEPOSIT; TERMINATION AND
ABANDONMENT
SECTION 9.01 DISPOSITION OF EARNEST MONEY DEPOSIT. On the Closing Date,
the Ten Thousand Dollar ($10,000.00) earnest money deposit which has been placed
with Baytown shall be applied to the Baytown Common Stock Consideration, thereby
reducing the Baytown Common Stock Consideration by the amount of the earnest
money deposit, with the effect that the aggregate Baytown Common Stock
Consideration shall be $5,375,000, subject to any required adjustments to the
Baytown Common Stock Consideration pursuant to Section 1.08. In the event that
the transactions contemplated by this Agreement are not consummated in
accordance with the terms of this Agreement, the earnest money deposit shall be
treated as set forth in the remaining subsections of this Article IX.
SECTION 9.02 RIGHT OF TERMINATION. This Agreement and the transactions
contemplated hereby may be terminated and abandoned at any time prior to or at
the Closing (notwithstanding approval thereof by the shareholders of Baytown),
as follows, and in no other manner:
A. By the mutual consent of Baytown and Bancshares, duly authorized by
the board of directors of each of Baytown and Bancshares. In such
event, the earnest money deposit shall be returned to Bancshares.
B. By either Baytown or Bancshares, if the conditions precedent to such
parties' obligations to close specified in Articles VII and VIII,
respectively, hereof have not been met or waived by September 30,
1997, or such later date as has been approved by Baytown and
Bancshares. In the event that the conditions precedent to Baytown's
obligations to close have not been met or waived by September 30,
1997, or such later date as has been approved by Baytown and
Bancshares, the earnest money deposit shall be retained by Baytown. In
the event that the conditions precedent to Bancshares's obligations to
close have not been met or waived by September 30, 1997, or such later
date as has been approved by Baytown and Bancshares, the earnest money
deposit shall be returned to Bancshares.
C. By either Baytown or Bancshares, if any of the transactions
contemplated by this Agreement or the Consolidation Agreement are
disapproved by any regulatory authority whose approval is required to
consummate such transactions or if any court of competent jurisdiction
in the United States or other United States (federal or state)
governmental body shall have issued an order, decree or ruling or
taken any other action restraining, enjoining, invalidating or
otherwise prohibiting the Agreement or the transactions contemplated
hereby and such order, decree, ruling
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or other action shall have been final and nonappealable. In such
event, the earnest money deposit shall be returned to Bancshares.
D. By Bancshares if it reasonably determines, in good faith and after
consulting with counsel, there is substantial likelihood that any
necessary regulatory approval will not be obtained or will be obtained
only upon a condition or conditions that make it inadvisable to
proceed with the transactions contemplated by this Agreement. In such
event, the earnest money deposit shall be returned to Bancshares.
E. By Bancshares if there shall have been any Material Adverse Change.
In such event, the earnest money deposit shall be returned to
Bancshares.
F. By Bancshares if Baytown fails to comply in any material respect with
any of its covenants or agreements contained in this Agreement or in
any other agreement contemplated hereby, including, but not limited to
the Consolidation Agreement, and such failure shall not have been
cured within a period of ten (10) calendar days after notice from
Bancshares, or if any of the representations or warranties of Baytown
contained herein or therein shall be inaccurate in any material
respect. In such event, the earnest money deposit shall be returned
to Bancshares.
G. By Baytown if Bancshares shall fail to comply in any material respect
with any of its covenants or agreements contained in this Agreement or
in any other agreement contemplated hereby and such failure shall not
have been cured within a period of ten (10) calendar days after notice
from Baytown, or if any of the representations or warranties of
Bancshares contained herein or therein shall be inaccurate in any
material respect. In such event, the earnest money deposit shall be
retained by Baytown.
SECTION 9.03 NOTICE OF TERMINATION. The power of termination provided for
by Section 9.01 hereof may be exercised only by a notice given in writing, as
provided in Section 12.06 of this Agreement.
SECTION 9.04 EFFECT OF TERMINATION. Without limiting any other relief to
which either party hereto may be entitled for breach of this Agreement, in the
event of the termination and abandonment of this Agreement pursuant to the
provisions of Section 9.01 hereof, no party to this Agreement shall have any
further liability or obligation in respect of this Agreement, except for (a)
liability of a party for expenses pursuant to Sections 12.02 and 12.11 hereof,
and (b) the provisions of Articles X and XI hereof shall remain applicable.
ARTICLE X
SURVIVAL; INDEMNIFICATION
SECTION 10.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The parties
hereto
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agree that all of their respective representations and warranties contained in
this Agreement shall survive for a period of one (1) year after the Closing
Date.
SECTION 10.02 INDEMNIFICATION BY THE SHAREHOLDERS. Each of the
Shareholders who is also a director of Baytown hereby agrees, severally in
proportion to such Shareholders' pro rata ownership of the Baytown Common Stock
to the ownership by all of the Shareholders of the Baytown Common Stock and up
to the amount of Baytown Common Stock Consideration received by such
Shareholder, to indemnify and hold Bancshares and each of its Subsidiaries,
Affiliates, directors, officers, employees and agents (the "Indemnified
Persons") harmless with respect to any and all liabilities, losses, damages,
deficiencies, judgments, costs expenses (including, without limitation, the fees
and expenses of counsel), and interest or penalties (collectively "Losses")
resulting from (i) any inaccuracy or any breach of any representation or
warranty made by Baytown in this Agreement or any schedule, certificate or other
document delivered pursuant hereto or thereto or as a part of the transactions
contemplated hereby or thereby and (ii) the failure of Baytown to perform any
agreement or covenant required by this Agreement, the Consolidation Agreement or
any other instrument or agreement contemplated hereby or thereby. Losses shall
not include loan losses which occur after the Closing unless such loan losses
are a direct result of any inaccuracy or any breach of any representation or
warranty made by Baytown in this Agreement or any schedule, certificate or other
document delivered pursuant hereto or thereto or as a part of the transactions
contemplated hereby or thereby. The indemnification provided for in this
Section 10.02 shall be the exclusive post-closing remedy for the Indemnified
Persons for any Losses.
SECTION 10.03 CONTROL OF LITIGATION.
A. Promptly, or in any event within ten (10) calendar days (in the case
of service of legal process) or within thirty (30) calendar days (in
the case of any other claim), following receipt by Bancshares of
notice of any action, suit, proceeding, claim, demand, or assessment
(each, an "Action") against Bancshares that might give rise to a claim
pursuant to Section 10.02 hereof, Bancshares shall give written notice
thereof to the Shareholders, indicating the nature of the claim, the
basis therefor and the estimated amount thereof. Failure to give any
notice provided hereunder shall in no way be deemed a forfeiture of
Bancshares' right to be indemnified hereunder; provided, however, if
the Shareholders shall have been prejudiced in any material respect by
such failure so to notify the Shareholders, the Shareholders shall
have the right to set-off against any amounts payable or that become
payable by the Shareholders under this Agreement the amount by which
the Shareholders have been damaged as a result of the failure so to
notify the Shareholders. A claim for indemnity may, at the option of
Bancshares, be asserted as soon as any claim has been asserted by a
third party in writing, regardless of whether actual harm has been
suffered or out-of-pocket expenses incurred.
B. At any time after Bancshares gives notice to the Shareholders of a
claim being made against Bancshares for which a claim for indemnity is
being asserted, to the extent
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that such claim is not being defended by any third party under the
terms of any applicable insurance policy or policies, Bancshares shall
permit the Shareholders, at the option and expense of the
Shareholders, to assume the complete defense of such Action with full
authority to conduct such defense and to settle or otherwise dispose
of the same (except as hereinafter provided), and Bancshares will
reasonably cooperate in such defense. In order to assume such
defense, the Shareholders must notify Bancshares in writing of its
election to do so within ten (10) calendar days following receipt of
notice of the claim from Bancshares; in the event that the
Shareholders do not so notify Bancshares within such ten (10) calendar
day period, the Shareholders shall be deemed to have elcted not to
assume such defense. After notice to Bancshares of the Shareholders'
election to assume the defense of such Action as provided above, the
Shareholders shall be liable, severally and in proportion to such
Shareholders' pro rata ownership of the Baytown Common Stock to the
ownership to the ownership by all of the Shareholders of the Baytown
Common Stock, to Bancshares for such legal or other expenses
subsequently incurred at the request of the Shareholders by Bancshares
in connection with the defense thereof.
C. The Shareholders will not, in defense of any such Action, except with
the consent of Bancshares, consent to the entry of any judgment or
enter into any settlement that does not include, as an unconditional
term thereof, the release by claimant or plaintiff of Bancshares from
all claims or liability in respect therefor.
D. As to those Actions with respect to which the Shareholders do not
elect to assume control of the defense, (i) Bancshares will afford the
Shareholders an opportunity to participate in such defense, at the
Shareholders' own cost and expense; (ii) Bancshares will not settle or
otherwise dispose of any of the same without the consent of the
Shareholders, which consent will not be unreasonably withheld; and
(iii) the Shareholders agree to reasonably cooperate in such defense.
E. The Shareholders shall make payments to Bancshares, pursuant to the
provisions hereof, with respect to Actions of third parties as
follows: with respect to out-of-pocket expenses of Bancshares, on
demand as incurred, and, with respect to amounts and fees owed to
third parties, to the extent not paid directly to such third parties
by the Shareholders, on demand at the time of payment by Bancshares to
such third party.
F. The liability of the Shareholders hereunder shall be subject to the
following limitations:
(i) The Shareholders shall pay claims hereunder when a claim
against Bancshares has been established by a final judgment in
litigation with a third party in which the Shareholders have
assumed defense, or by a settlement with a third party
consented to in writing by Bancshares; payment of other
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claims as to which Bancshares may contest its liability, or
claims not involving third parties, shall be made when the
dispute is settled either by litigation or consent;
(ii) Payments for amounts due Bancshares hereunder shall be paid by
either cash or cashier's check; and
(iii) The Shareholders shall not be liable for any claims covered by
the indemnities under Section 10.02 unless the Shareholders
have been notified of such claims pursuant to Section 10.03
within the period of one (1) year from the Closing Date.
SECTION 10.04 INSURANCE.
A. Upon receipt by Bancshares of notice of any Action, Bancshares shall,
in addition to giving notice to the Shareholders provided in Section
10.03, take such measures as are necessary or appropriate to enforce
the terms of any insurance policy that may be applicable to such
claim, including, without limitation, filing any and all appropriate
claims and notices with the insurer(s) under such insurance policy.
B. Except as otherwise required by applicable law, Bancshares may not
grant to any insurer of an indemnified claim any contractual or legal
rights of subrogation against the Shareholders; provided, however,
that this limitation shall not apply to the extent that it would
violate the provisions of, or prejudice the rights of Bancshares
under, any existing insurance policy or increase the cost or reduce
the scope of coverage to Bancshares with respect to any future
insurance policy obtained by Bancshares.
C. Notwithstanding anything to the contrary contained herein, any amounts
owing from the Shareholders to Bancshares under the provisions of this
Agreement shall be reduced to the extent to which Bancshares or any
other claimant actually receives any proceeds of any insurance policy
that are paid with respect to the claim or occurrence that gave rise
to such indemnification.
SECTION 10.05 ARBITRATION OF DISPUTED INDEMNIFICATION CLAIMS. IF ANY
DISPUTE SHOULD ARISE AS TO ANY PARTIES' INDEMNIFICATION OBLIGATIONS PURSUANT TO
SECTION 10.05 OF THIS AGREEMENT, BANCSHARES AND THE SHAREHOLDERS SHALL SUBMIT
THE MATTER TO BINDING ARBITRATION ADMINISTERED BY THE AMERICAN ARBITRATION
ASSOCIATION (THE "AAA"), IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT AND THE
COMMERCIAL ARBITRATION RULES OF THE AAA. In the event of any inconsistency
between this Agreement and such rules, this Agreement shall control.
ARTICLE XI.
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CONFIDENTIAL INFORMATION
SECTION 11.01 DEFINITION OF "RECIPIENT," "DISCLOSING PARTY" AND
"REPRESENTATIVE". For purposes of this Article XI, the term "Recipient" shall
mean the party receiving the Subject Information (as defined in Section 11.02)
and the term "Disclosing Party" shall mean the authorized party furnishing the
Subject Information. The terms "Recipient" or "Disclosing Party", as used
herein, include: (1) all persons and entities related to or affiliated in any
way with the Recipient or the Disclosing Party, as the case may be, and (2) any
person or entity controlling, controlled by or under common control with the
Recipient or the Disclosing Party, as the case may be. The term
"Representative" as used herein, shall include all directors, officers,
shareholders, employees, representatives, advisors, attorneys, accountants and
agents of any of the foregoing. The term "person" as used in this Article XI
shall be broadly interpreted to include, without limitation, any corporation,
company, group, partnership, governmental agency or individual.
SECTION 11.02 DEFINITION OF "SUBJECT INFORMATION". For purposes of this
Article XI, the term "Subject Information" shall mean all information furnished
to the Recipient or its Representatives (whether prepared by the Disclosing
Party, its Representatives or otherwise and whether or not identified as being
nonpublic, confidential or proprietary) by or on behalf of the Disclosing Party
or its Representatives relating to or involving the business, operations or
affairs of the Disclosing Party or otherwise in possession of the Disclosing
Party. The term "Subject Information" shall not include information that
(i) was already in the Recipient's possession at the time it was first furnished
to Recipient by or on behalf of Disclosing Party, provided that such information
is not known by the Recipient to be subject to another confidentiality agreement
with or other obligation of secrecy to the Disclosing Party, its Subsidiaries or
another party, or (ii) becomes generally available to the public other than as a
result of a disclosure by the Recipient or its Representatives, or (iii) becomes
available to the Recipient on a non-confidential basis from a source other than
the Disclosing Party, its Representative or otherwise, provided that such source
is not known by the Recipient to be bound by a confidentiality agreement with or
other obligation of secrecy to the Disclosing Party, its Representative or
another party.
SECTION 11.03 CONFIDENTIALITY. Each Recipient hereby agrees that the
Subject Information will be used solely for the purpose of reviewing and
evaluating the transactions contemplated by this Agreement and the other
agreements contemplated hereby, and that the Subject Information will be kept
confidential by the Recipient and the Recipient's Representatives; provided,
however, that (i) any of such Subject Information may be disclosed to the
Recipient's Representatives (including, but not limited to, the Recipient's
accountants, attorneys and investment bankers) who need to know such information
for the purpose of evaluating any such possible transaction between the
Disclosing Party and the Recipient (it being understood that such
Representatives shall be informed by the Recipient of the confidential nature of
such information and that the Recipient shall direct and cause such persons to
treat such information confidentially); and (ii) any disclosure of such Subject
Information may be made to which the Disclosing Party consents in writing prior
to any such
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disclosure by Recipient.
SECTION 11.04 SECURITIES LAW CONCERNS. Each Recipient hereby acknowledges
that the Recipient is aware, and the Recipient will advise the Recipient's
Representatives who are informed as to the matters that are the subject of this
Agreement, that the United States securities laws prohibit any person who has
received material, non-public information from an issuer of securities from
purchasing or selling securities of such issuer or from communicating such
information to any other person under circumstances in which it is reasonably
foreseeable that such person is likely to purchase or sell such securities.
SECTION 11.05 RETURN OF SUBJECT INFORMATION. In the event of termination
of this Agreement for any reason, the Recipient shall promptly return to the
Disclosing Party all written material containing or reflecting any of the
Subject Information other than information contained in any application, notice
or other document filed with any governmental agency and not returned to the
Recipient by such governmental agency. In making any such filing, the Recipient
will request confidential treatment of such Subject Information included in any
application, notice or other document filed with any governmental agency.
SECTION 11.06 SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. Each Recipient
acknowledges that the Subject Information constitutes valuable, special and
unique property of the Disclosing Party critical to its business and that any
breach of Article XI of this Agreement by it will give rise to irreparable
injury to the Disclosing Party that is not compensable in damages. Accordingly,
each Recipient agrees that the Disclosing Party shall be entitled to obtain
specific performance or injunctive relief against the breach or threatened
breach of Article XI of this Agreement by the Recipient or its Representatives.
Each Recipient further agrees to waive, and use its reasonable efforts to cause
its Representatives to waive, any requirement for the securing or posting of any
bond in connection with such remedies. Such remedies shall not be deemed the
exclusive remedies for a breach of Article XI of this Agreement, but shall be in
addition to all other remedies available at law or in equity to the Disclosing
Party.
ARTICLE XII.
MISCELLANEOUS
SECTION 12.01 EXPENSES. Bancshares shall pay all of its expenses and
costs (including, without limitation, all counsel fees and expenses) and Baytown
shall pay all of its expenses and costs (including, without limitation, all
counsel fees and expenses), incurred in connection with this Agreement and the
consummation of the transactions contemplated hereby.
SECTION 12.02 BROKERAGE FEES AND COMMISSIONS. Banchares hereby represents
to Baytown that no agent, representative or broker has represented Bancshares in
connection with the transactions described in this Agreement. Baytown shall
have no responsibility or liability
48
<PAGE>
for any fees, expenses or commissions payable to any agent, representative or
broker of Bancshares, and Bancshares hereby agrees to indemnify and hold Baytown
harmless for any amounts owed to any agent, representative or broker of
Bancshares. Baytown hereby represents to Bancshares that no agent,
representative or broker has represented Baytown in connection with the
transactions described in this Agreement. Bancshares shall have no
responsibility or liability for any fees, expenses or commissions payable to any
agent, representative or broker of Baytown, and the Shareholders hereby agree,
severally in proportion to such Shareholders' pro rata ownership of the Baytown
Common Stock, to indemnify and hold Bancshares harmless for any amounts owed to
any agent, representative or broker of Baytown or any Shareholder.
SECTION 12.03 ENTIRE AGREEMENT. This Agreement and the other agreements,
documents, schedules and instruments executed and delivered by the parties to
each other at the Closing constitute the full understanding of the parties, a
complete allocation of risks between them and a complete and exclusive statement
of the terms and conditions of their agreement relating to the subject matter
hereof and supersede any and all prior agreements, whether written or oral, that
may exist between the parties with respect thereto. Except as otherwise
specifically provided in this Agreement, no conditions, usage of trade, course
of dealing or performance, understanding or agreement purporting to modify,
vary, explain or supplement the terms or conditions of this Agreement shall be
binding unless hereafter or contemporaneously herewith made in writing and
signed by the party to be bound, and no modification shall be effected by the
acknowledgment or acceptance of documents containing terms or conditions at
variance with or in addition to those set forth in this Agreement.
SECTION 12.04 FURTHER COOPERATION. The parties agree that they will, at
any time and from time to time after the Closing, upon request by the other and
without further consideration, do, perform, execute, acknowledge and deliver all
such further acts, deeds, assignments, assumptions, transfers, conveyances,
powers of attorney, certificates and assurances as may be reasonably required in
order to fully consummate the transactions contemplated hereby in accordance
with this Agreement or to carry out and perform any undertaking made by the
parties hereunder.
SECTION 12.05 SEVERABILITY. In the event that any provision of this
Agreement is held to be illegal, invalid or unenforceable under present or
future laws, then (a) such provision shall be fully severable and this Agreement
shall be construed and enforced as if such illegal, invalid or unenforceable
provision were not a part hereof; (b) the remaining provisions of this Agreement
shall remain in full force and effect and shall not be affected by such illegal,
invalid or unenforceable provision or by its severance from this Agreement; and
(c) there shall be added automatically as a part of this Agreement a provision
as similar in terms to such illegal, invalid or unenforceable provision as may
be possible and still be legal, valid and enforceable.
SECTION 12.06 NOTICES. Any and all payments (other than payments at the
Closing), notices, requests, instructions and other communications required or
permitted to be given
49
<PAGE>
under this Agreement after the date hereof by any party hereto to any other
party may be delivered personally or by nationally-recognized overnight courier
service or sent by mail or (except in the case of payments) by telex or
facsimile transmission, at the respective addresses or transmission numbers set
forth below and shall be effective (a) in the case of personal delivery, telex
or facsimile transmission, when received; (b) in the case of mail, upon the
earlier of actual receipt or five (5) business days after deposit in the United
States Postal Service, first class certified or registered mail, postage
prepaid, return receipt requested; and (c) in the case of nationally-recognized
overnight courier service, one (1) business day after delivery to such courier
service together with all appropriate fees or charges and instructions for such
overnight delivery. The parties may change their respective addresses and
transmission numbers by written notice to all other parties, sent as provided in
this Section 12.06. All communications must be in writing and addressed as
follows:
IF TO BAYTOWN:
Mr. Joseph D. Crook
President
Texas Bank
6810 Garth Road
Baytown, Texas 77521
Telecopy: (713) 421-1344
WITH A COPY TO:
Mr. Edwin Lamm, III
1415 Louisiana
Suite 1415
Houston, Texas 77002
Telecopy: (713) 651-1044
IF TO BANCSHARES:
Mr. Larry D. Wright
President
Bay Bancshares, Inc.
1001 Highway 146
La Porte, Texas 77571
Telecopy: (713) 470-8122
WITH A COPY TO:
Mr. Robert G. Wright II
2200 Ross Avenue
Suite 5400
50
<PAGE>
Dallas, Texas 75201
Telecopy: (214) 953-0202
SECTION 12.07 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS (INCLUDING THOSE
LAWS RELATING TO CHOICE OF LAW) APPLYING TO CONTRACTS ENTERED INTO AND TO BE
PERFORMED WITHIN THE STATE OF TEXAS, WITHOUT REGARD FOR THE PROVISIONS THEREOF
REGARDING CHOICE OF LAW. VENUE FOR ANY CAUSE OF ACTION ARISING FROM THIS
AGREEMENT SHALL LIE IN LA PORTE, TEXAS.
SECTION 12.08 MULTIPLE COUNTERPARTS. For the convenience of the parties
hereto, this Agreement may be executed in multiple counterparts, each of which
shall be deemed an original, and all counterparts hereof so executed by the
parties hereto, whether or not such counterpart shall bear the execution of each
of the parties hereto, shall be deemed to be, and shall be construed as, one and
the same Agreement. A telecopy or facsimile transmission of a signed
counterpart of this Agreement shall be sufficient to bind the party or parties
whose signature(s) appear thereon.
SECTION 12.09 CERTAIN DEFINITIONS.
A. "Affiliate" means, with respect to any person, any person that,
directly or indirectly, controls, is controlled by, or is under common
control with, such person in question. For the purposes of this
definition, "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with") as used with respect to
any person, shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such
person, whether through the ownership of voting securities or by contract
or otherwise.
B. "Subsidiary" means, when used with reference to an entity, any
corporation, a majority of the outstanding voting securities of which are
owned directly or indirectly by such entity or any partnership, joint
venture or other enterprise in which any entity has, directly or
indirectly, any equity interest.
C. "Material Adverse Change" means any material adverse change in
the financial condition, assets, properties, liabilities (absolute,
accrued, contingent or otherwise), reserves, business or results of
operations or prospects of Baytown and specifically includes any change
that reduces the shareholders' equity of Baytown by an amount equaling or
exceeding $50,000.
D. "Environmental Laws" mean all federal, state and local laws,
regulations, statutes, ordinances, codes, rules, decisions, orders or
decrees relating or pertaining to the public health and safety or the
environment, or otherwise governing the generation, use, handling,
collection, treatment, storage, transportation, recovery,
51
<PAGE>
recycling, removal, discharge or disposal of Hazardous Materials,
including, without limitation, the Solid Waste Disposal Act, 42 U.S.C. 6901
ET SEQ., as amended ("SWDA," also known as "RCRA" for a subsequent amending
act), (b) the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601 ET SEQ., as amended ("CERCLA"), (c)
the Clean Water Act, 33 U.S.C. Section 1251 ET SEQ., as amended ("CWA"),
(d) the Clean Air Act, 42 U.S.C. Section 7401 ET SEQ., as amended ("CAA"),
(e) the Toxic Substances Control Act, 15 U.S.C. Section 2601 ET SEQ., as
amended ("TSCA"), (f) the Emergency Planning and Community Right to Know
Act, 15 U.S.C. Section 2601 ET SEQ., as amended ("EPCRKA"), and (g) the
Occupational Safety and Health Act, 29 U.S.C. Section 651 ET SEQ., as
amended.
E. "Hazardous Material" means, without limitation, (a) any "hazardous
wastes" as defined under RCRA, (b) any "hazardous substances" as defined
under CERCLA, (c) any toxic pollutants as defined under CWA, (d) any
hazardous air pollutants as defined under CAA, (e) any hazardous chemicals
as defined under TSCA, (f) any hazardous substances or extremely hazardous
substances as defined under EPCRKA, (g) asbestos, (h) polychlorinated
biphenyls, (i) underground storage tanks, whether empty, filled or
partially filled with any substance, (j) any substance the presence of
which on the property in question is prohibited under any Environmental
Law, and (k) any other substance which under any Environmental Law requires
special handling or notification of or reporting to any federal, state or
local governmental entity in its generation, use, handling, collection,
treatment, storage, re-cycling, treatment, transportation, recovery,
removal, discharge or disposal.
SECTION 12.10 SPECIFIC PERFORMANCE. Each of the parties hereto
acknowledges that the other parties would be irreparably damaged and would not
have an adequate remedy at law for money damages in the event that any of the
covenants contained in this Agreement were not performed in accordance with its
terms or otherwise were materially breached. Each of the parties hereto
therefore agrees that, without the necessity of proving actual damages or
posting bond or other security, the other party shall be entitled to temporary
or permanent injunction or injunctions to prevent breaches of such performance
and to specific enforcement of such covenants in addition to any other remedy to
which they may be entitled, at law or in equity.
SECTION 12.11 ATTORNEYS' FEES AND COSTS. In the event attorneys' fees or
other costs are incurred to secure performance of any of the obligations herein
provided for, or to establish damages for the breach thereof, or to obtain any
other appropriate relief, whether by way of prosecution or defense, the
prevailing party shall be entitled to recover reasonable attorneys' fees and
costs incurred therein.
SECTION 12.12 RULES OF CONSTRUCTION. Each use herein of the masculine,
neuter or feminine gender shall be deemed to include the other genders. Each
use herein of the plural shall include the singular and vice versa, in each case
as the context requires or as it is otherwise appropriate. The word "or" is
used in the inclusive sense. All articles and sections
52
<PAGE>
referred to herein are articles and sections, respectively, of this Agreement
and all exhibits and schedules referred to herein are exhibits and schedules,
respectively, attached to this Agreement. Descriptive headings as to the
contents of particular sections are for convenience only and shall not control
or affect the meaning, construction or interpretation of any provision of this
Agreement. Any and all schedules, exhibits, annexes, statements, reports,
certificates or other documents or instruments referred to herein or attached
hereto are and shall be incorporated herein by reference hereto as though fully
set forth herein verbatim.
SECTION 12.13 BINDING EFFECT; ASSIGNMENT. All of the terms, covenants,
representations, warranties and conditions of this Agreement shall be binding
upon, and inure to the benefit of and be enforceable by, the parties hereto
and their respective heirs, successors, representatives and permitted
assigns. Nothing expressed or referred to herein is intended or shall be
construed to give any person other than the parties hereto any legal or
equitable right, remedy or claim under or in respect of this Agreement, or
any provision herein contained, it being the intention of the parties hereto
that this Agreement, the assumption of obligations and statements of
responsibilities hereunder, and all other conditions and provisions hereof
are for the sole benefit of the parties to this Agreement and for the benefit
of no other person. Nothing in this Agreement shall act to relieve or
discharge the obligation or liability of any third party to any party to this
Agreement, nor shall any provision give any third party any right of
subrogation or action over or against any party to this Agreement. No party
to this Agreement shall assign this Agreement, by operation of law or
otherwise, in whole or in part, without the prior written consent of the
other parties. Any assignment made or attempted in violation of this Section
12.13 shall be void and of no effect.
SECTION 12.14 PUBLIC DISCLOSURE. Neither Baytown nor Bancshares will
make, issue or release any announcement, statement, press release,
acknowledgment or other public disclosure of the existence of, or reveal the
terms, conditions or the status of, this Agreement or the transactions
contemplated hereby without the prior written consent of the other parties to
this Agreement; provided, however, that notwithstanding the foregoing, Baytown
and Bancshares will be permitted to make any public disclosures or governmental
filings as legal counsel may deem necessary to maintain compliance with or to
prevent violations of applicable federal or state laws or regulations or that
may be necessary to obtain regulatory approval for the transactions contemplated
hereby.
SECTION 12.15 EXTENSION; WAIVER. At any time prior to the Closing Date,
the parties may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document, certificate or writing delivered pursuant hereto, or (iii) waive
compliance with any of the agreements or conditions contained herein. Such
action shall be evidenced by a signed written notice given in the manner
provided in Section 12.06 hereof. No party to this Agreement shall by any act
(except by a written instrument given pursuant to Section 12.06 hereof) be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising any right, power or privilege hereunder by any party
53
<PAGE>
hereto shall operate as a waiver thereof. No single or partial exercise of any
right, power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. A waiver of any
party of any right or remedy on any one occasion shall not be construed as a bar
to any right or remedy that such party would otherwise have on any future
occasion or to any right or remedy that any other party may have hereunder.
SECTION 12.16 AMENDMENTS. This Agreement may be amended, modified or
supplemented only by an instrument in writing executed by the party against
which enforcement of the amendment, modification or supplement is sought.
SECTION 12.17 DELIVERY OF SCHEDULES. In order to provide for the prompt
execution of this Agreement, the parties hereto agree that with respect to the
schedules to this Agreement:
A. Full and complete originals of all of the schedules to this
Agreement described in Article IV of this Agreement shall be
delivered to Bancshares pursuant to Section 12.06, within twenty
(20) days after the date of this Agreement.
B. Bancshares will have five (5) business days after receipt of the
schedules to this Agreement to review such schedules to determine
whether they are in form and substance satisfactory to Bancshares
in its sole discretion. If such schedules are satisfactory, then
this Agreement shall remain in full force and effect and the
parties shall proceed in accordance with their respective rights
and obligations hereunder. If such schedules are not satisfactory
to Bancshares, in its sole discretion, Bancshares shall have the
unconditional right to terminate this Agreement and all of its
obligations hereunder by providing Baytown notice of such
termination in accordance with the terms of Section 12.06 of the
Agreement no later than 5:00 p.m., La Porte, Texas time on the
fifth business day after receipt of the schedules to this
Agreement.
C. Schedule 4.05 and all exhibits to the Agreement are satisfactory
to the parties hereto.
54
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed either individually or by their duly authorized officers as of the date
first above written.
TEXAS BANK
By: /s/ Joseph D. Crook
-------------------------------------
Joseph D. Crook, President
SHAREHOLDERS:
/s/ Henry Adair
---------------------------------------------
Henry Adair
/s/ Harry Ollinger, Jr.
---------------------------------------------
Harry Ollinger, Jr.
/s/ Joseph D. Crook
---------------------------------------------
Joseph D. Crook
/s/ Roy Pettiette
---------------------------------------------
Roy Pettiette
/s/ Erwin L. Wilbanks
---------------------------------------------
Erwin L. Wilbanks
---------------------------------------------
Lee Joseph
---------------------------------------------
David Haywood
55
<PAGE>
/s/ Harry Ollinger, Jr.
---------------------------------------------
The Harry Ollinger and Mary Winslow Ollinger
Revocable Family Trust, Managing and General
Partner by Harry Ollinger, Jr.
/s/ Harry Ollinger, Jr.
---------------------------------------------
Mary Winslow Ollinger
---------------------------------------------
The Estate of James W. Guest by Ralph Guest,
Executor
BAY BANCSHARES, INC.
By:
----------------------------------------
Larry D. Wright, President
56
<PAGE>
[LETTERHEAD]
June 12, 1997
Mr. Joseph D. Crook
President
Texas Bank
6810 Garth Road
Baytown, Texas 77521
Dear Mr. Crook:
This letter will serve to amend that certain Agreement and Plan of
Reorganization dated May 29, 1997 (the "Agreement") by and among Bay
Bancshares, Inc., La Porte, Texas ("Bancshares"), Texas Bank, Baytown, Texas
(the "Bank"), and shareholders of Texas Bank. Throughout the Agreement
reference is made to the stockholders' equity of the Bank as of September 30,
1996 of $3,589,000. Management of the Bank has noted that the appropriate
stockholders' equity figure should be $3,690,000, which reflects earnings
through December 31, 1996. Accordingly, the Agreement is hereby amended to
insert $3,690,000 in all instances where the Agreement reflects $3,589,000.
This means that stockholders' equity of the Bank at closing must equal at
least $3,690,000 in order to receive the $5,500,000 purchase price. In the
event that the stockholders' equity is less than $3,690,000, the purchase price
will be calculated by taking the stockholders' equity at closing and multiplying
it times 1.50042. In addition, keep in mind that the Agreement also calls for
Bancshares to receive one half of all earnings of the Bank from December 31,
1996 through the closing.
In addition, because of the change noted above, the purchase price should
be adjusted in the following manner. In all instances where the Agreement
refers to a purchase price of $5,385,000, the amount $5,500,000 should be
substituted as the adjusted purchase price.
All other terms and conditions of the Agreement shall remain in full force
and unaffected by this amendment.
Very Truly Yours,
/s/ L.D. Wright
L.D. Wright
RGW/rw
ACCEPTED AND AGREED, this 24th day of June, 1997.
/s/ Joseph D. Crook
- --------------------------
Joseph D. Crook
Its President
<PAGE>
EXHIBIT "A"
CONSOLIDATION AGREEMENT
<PAGE>
EXHIBIT "B"
VOTING AGREEMENT AND IRREVOCABLE PROXY
This VOTING AGREEMENT AND IRREVOCABLE PROXY (this "Agreement") dated as
of May 29, 1997, is executed by and among Texas Bank, Baytown, Texas, a Texas
banking association ("Baytown"), Bay Bancshares, Inc., a Texas corporation
("Bancshares"), Larry D. Wright ("Wright"), as a proxy, ________("________"),
as a substitute proxy, and the other persons who are signatories hereto
(referred to herein individually as a "Shareholder" and collectively as the
"Shareholders").
WHEREAS, Baytown, Bancshares and certain other parties have executed that
certain Agreement and Plan of Reorganization, dated as of May 29, 1997 (the
"Agreement"), providing for the eventual consolidation of Baytown with and into
Bayshore National Bank of La Porte, La Porte, Texas ("Bayshore"), a wholly owned
subsidiary of Bancshares to consolidate (the "Consolidation"); and
WHEREAS, Section 5.15 of the Agreement requires that Baytown deliver to
Bancshares the irrevocable proxies of the Shareholders; and
WHEREAS, Baytown and Bancshares are relying on the irrevocable proxies in
incurring expenses in reviewing Baytown'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 Consolidation.
NOW, THEREFORE, for and in consideration of the foregoing and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Bancshares, Baytown and the Shareholders undertake, promise,
covenant and agree with each other as follows:
1. The Shareholders, being the holders of the shares of common stock,
par value $3.75 per share of Baytown (the "Baytown Common Stock") set forth
beside their names on the signature pages hereto, hereby agree to vote at the
shareholders' meeting referred to in Section 1.11 of the Agreement (the
"Meeting") all shares of Baytown Common Stock the Shareholders own of record
as of the date of the Meeting and to direct the vote of all shares of Baytown
Common Stock that the Shareholders own beneficially and have the power and
authority to direct the voting thereof as of the date of the Meeting (the
"Shares") in favor of approval of the Initial Consolidation and the Agreement
and Plan of Consolidation by and between Baytown and Bayshore (the
"Consolidation Agreement") and all of the agreements and transactions
contemplated by the Agreement and the Consolidation Agreement.
2. In order to better effect the provisions of Section 1, each
Shareholder hereby revokes any previously executed proxies and hereby
constitutes and appoints Wright, with full power of substitution, his or her
true and lawful proxy and attorney-in-fact (the "Proxy Holder") to vote at the
Meeting all of such Shareholder's Shares in favor of the approval of
<PAGE>
the Initial Consolidation and the Consolidation Agreement and the transactions
contemplated by the Agreement and the Consolidation Agreement, with such
modifications to the Initial Consolidation and the Consolidation Agreement as
the parties thereto may make; provided, however, that this proxy shall not apply
with respect to any vote on the Initial Consolidation or the Consolidation
Agreement if the Agreement of the Consolidation Agreement is modified so as to
reduce the amount of consideration to be received by the Shareholders under the
Consolidation Agreement in its present form.
3. Wright, by his execution below, hereby appoints _________________as
substitute proxy to act as the Proxy Holder under this Agreement; provided,
however, that such appointment of ______________________ as Proxy Holder is
subject to revocation by Wright at any time upon notice to Baytown.
___________________, by his execution below as substitute Proxy Holder,
agrees to vote all of the Shareholders' Shares at the Meeting in favor of the
approval of the Initial Consolidation and the Consolidation Agreement and the
transactions contemplated by the Agreement and the Consolidation Agreement,
with such modifications to the Initial Consolidation and the Consolidation
Agreement as the parties may make; provided, however, that this proxy shall
not apply with respect to any vote on the Initial Consolidation or the
Consolidation Agreement if the Agreement or the Consolidation Agreement is
modified so as to reduce the amount of consideration to be received by the
Shareholders under the Consolidation Agreement in its present form.
4. Each Shareholder hereby covenants and agrees that until this Agreement
is terminated in accordance with its terms, each Shareholder will not, and will
not agree to, without the consent of Bancshares, directly or indirectly, sell,
transfer, assign, pledge, hypothecate, cause to be redeemed or otherwise dispose
of any of the Shares or grant any proxy or interest in or with respect to any
such Shares or deposit such shares into a voting trust or enter into another
voting agreement or arrangement with respect to such Shares except as
contemplated by this Agreement, unless the Shareholder causes the transferee of
such Shares, or another holder of Baytown Common Stock in the amount of such
Shares, to deliver to Bancshares an amendment to this Agreement whereby such
transferee becomes bound by the terms of this Agreement.
5. This proxy shall be limited strictly to the power to vote the Shares
in the manner set forth in Section 2 and shall not extend to any other matters.
6. The Shareholders acknowledge that Baytown and Bancshares are relying
on this Agreement in incurring expenses in reviewing Baytown'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 Initial Consolidation and that THE PROXY GRANTED HEREBY IS
COUPLED WITH AN INTEREST AND IS IRREVOCABLE TO THE FULL EXTENT PERMITTED BY
APPLICABLE LAW, INCLUDING ARTICLE 2.29C OF THE TEXAS BUSINESS CORPORATION ACT.
The Shareholders and Baytown acknowledge that the performance of this Agreement
is intended to benefit Bancshares.
<PAGE>
7. 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
transactions contemplated by the Agreement and the Consolidation Agreement.
8. The vote of the Proxy Holder shall control in any conflict between his
vote of the Shares and a vote by the Shareholders of the Shares, and Baytown
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 Initial Consolidation and the Consolidation Agreement as set forth in
Section 1 hereof.
9. This 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 Baytown, Bancshares and such Shareholder.
10. This 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. A telecopy or facsimile transmission of
a signed counterpart of this Agreement shall be sufficient to bind the party or
parties whose signature(s) appear thereon.
11. This 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 Agreement
supersedes all prior agreements and understandings among the parties with
respect to such subject matter contained herein.
12. 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
on 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.
13. This Agreement and the relations among the parties hereto arising from
this Agreement shall be governed by and construed in accordance with the laws of
the State of Texas.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
above written.
TEXAS BANK
By: /s/ Joseph D. Crook
------------------------------
Joseph D. Crook, President
ADDRESS FOR BAYTOWN:
Texas Bank
6810 Garth Road
Baytown, Texas 77521
Telecopy: (713) 421-1344
BAY BANCSHARES, INC.
By:
------------------------------
Larry D. Wright, President
PROXY HOLDER:
------------------------------
Larry D. Wright
ADDRESS FOR BANCSHARES AND PROXY HOLDER:
1001 Highway 146
La Porte, Texas 77571
Telecopy: (713) 470-8122
SUBSTITUTE PROXY HOLDER:
------------------------------
------------------------------
SHAREHOLDERS:
<PAGE>
/s/ H. Erwin Wilbanks
------------------------------------
4,136 shares H. ERWIN WILBANKS
/s/ Joseph D. Crook
------------------------------------
1,606 shares JOSEPH D. CROOK
/s/ Henry D. Adair
------------------------------------
3444 shares HENRY ADAIR
/s/ The Pettiette Family Partnership
------------------------------------
28,115 shares THE PETTIETTE FAMILY
PARTNERSHIP LTD
4,330 shares ROY G. PETTIETTE IRA
------------------------------------
shares
--------
/s/ Henry W. Ollinger
for Ollinger Partnership
-------------------------------------
7,267 shares OLLINGER FAMILY 1990 LTD
PARTNERSHIP
/s/ Henry W. Ollinger
for Mary Ollinger
------------------------------
2,907 shares MARY WINSLOW OLLINGER
/s/ David P. Haywood
------------------------------
7,214 shares DAVID P. HAYWOOD
/s/ Lee N. Joseph
------------------------------
3,618 shares LEE N. JOSEPH
------------------------------------
shares
--------
<PAGE>
ADDRESS FOR THE SUBSTITUTE PROXY HOLDER
AND ALL THE SHAREHOLDERS:
------------------------------
------------------------------
---------------, Texas -------
Telecopy: ( )
--- ---------------
<PAGE>
LIMITED PARTNERSHIP
AGREEMENT OF
THE PETTIETTE FAMILY PARTNERSHIP, LTD.,
A TEXAS LIMITED PARTNERSHIP
<PAGE>
principal office in the United States, as referenced in the Act. The Managing
Partner may, from time to time, change the principal place of business, the
registered office and/or the principal office in the United States of the
Partnership to any other location by complying with the applicable provisions of
the Act.
2.3 REGISTERED AGENT. The registered agent of the Partnership shall be Roy
Gerald Pettiette, in his individual capacity.
ARTICLE III
PURPOSES
The purposes of the Partnership shall be as follows:
A. to provide a vehicle to combine capital to make investments
(including, but not limited to, investments in real estate ventures, stocks,
bonds and other equity and debt securities);
B. to manage Partnership Properties and to reinvest the income or
gains therefrom;
C. to sell, exchange or otherwise dispose of Partnership Properties
as hereinafter provided; and
D. to do any and all acts, enter into any businesses or ventures and
make any investments which are lawful under the Act.
ARTICLE IV
TERM
The Partnership shall come into being at the date of this Agreement
(notwithstanding the filing of the certificate of limited partnership at a later
date), and shall remain in being, unless sooner terminated as hereinafter
provided, through December 31, 2044.
ARTICLE V
PARTNERS AND CAPITAL
5.1 PARTNERS. The names of the General Partners and Limited Partners are
as set forth in Schedule A. There are no other Partners of the Partnership and
no other Person has any right to take part in the ownership, management or other
rights of the Partnership, except as otherwise provided in this Agreement.
-2-
<PAGE>
21.5 HEADINGS. The Article and Section headings appearing in this
Agreement are for convenience of reference only and are not intended, to any
extent or for any purpose, to limit or define the text or any Article or
Section.
21.6 GENDER AND NUMBER. Whenever required by the context, as used in
this Agreement, the singular number shall include the plural and the neuter
shall include the masculine or feminine gender, and vice versa.
21.7 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which together shall
constitute one agreement binding on all parties hereto, notwithstanding that all
the parties have not signed the same counterpart.
21.8 DISPUTES. In the event the General Partners cannot agree on
any matter, the then acting certified public account who filed the last tax
return for the Partnership shall decide.
21.9 INITIAL CONTRIBUTION AND ASSIGNMENT. Roy Gerald Pettiette and
Patsy Ann Zuehlke Pettiette will initially contribute all assets to the
Partnership. Execution of this instrument shall act as an assignment from Roy
Gerald Pettiette and Patsy Ann Zuehlke Pettiette of a 1% General Partnership
interest to the Roy and Patsy Pettiette Family 1996 Trust as shown on Exhibit
"A".
IN WITNESS WHEREOF, the General Partners and the Limited Partners have
executed this Agreement to be effective as of the date first above written.
GENERAL PARTNERS: /s/ Roy Gerald Pettiette
----------------------------------------------------
Roy Gerald Pettiette
/s/ Patsy Ann Zuehlke Pettiette
----------------------------------------------------
Patsy Ann Zuehlke Pettiette
/s/ Roy Gerald Pettiette
----------------------------------------------------
Roy Gerald Pettiette, Trustee of the Roy and Patsy
Pettiette Family 1996 Trust
LIMITED PARTNERS: /s/ Roy Gerald Pettiette
----------------------------------------------------
Roy Gerald Pettiette
/s/ Patsy Ann Zuehlke Pettiette
----------------------------------------------------
Patsy Ann Zuehlke Pettiette
-36-
<PAGE>
UNIVERSAL POWER OF ATTORNEY
THE STATE OF TEXAS )
KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF HARRIS )
1
2 THAT THE OLLINGER FAMILY 1990 LTD. PARTNERSHIP, of the County
3 of Harris in the State of Texas, does hereby constitute and appoint
4 HARRY WILLIAM OLLINGER JR. its true and lawful attorney for it and
5 in its name, place and stead, to manage and conduct all of the
6 Partnerships affairs and for that purpose, in its name and on its
7 behalf to do and execute any and all of the following acts, deeds
8 and thing, that is to say:
9 1. To ask, demand, sue for, recover and receive all sums of
10 money, debts, dues, goods, wares, merchandise, chattels, effects,
11 and things of whatsoever nature or description which now are or
12 hereafter shall be or become due, owing, payable or belonging to
13 the Partnership in or by any right, title, ways or means howsoever,
14 and upon receipt thereof or of any part thereof or make, sign,
15 execute and deliver such receipts, releases, or other discharges
16 for the same respectively as they shall think fit or be advised.
17
18 2. To settle any account or reckoning whatsoever wherein the
19 Partnership now is or at any time hereafter shall be in any wise
20 interested or concerned with any person whomsoever, and to pay or
21 receive the balance thereof as the case may require.
22
23 3. To receive every sum of money which now is or hereafter
24 shall be due or belonging to the Partnership upon the security or
25 by virtue of any mortgage and on receipt of the full amount secured
26 thereby to execute a good and sufficient release or other discharge
27 of such mortgage by deed or otherwise.
28
29 4. To compound with or make allowances to any person for or
30 in respect to any debt or demand whatsoever which now is or shall
31 at any time hereafter become due and payable to the Partnership,
32 and to take and receive any composition or dividend thereof or
33 thereupon, and to five releases or other discharges for the whole
34 of such debts or demands, or to settle, compromise, or submit to
35 arbitration every such debt or demand, and every other right,
36 matter, and thing due to or concerning the Partnership as its
37 attorney shall think best, and for the purpose to enter into and
<PAGE>
1 Page 2.
2
3
4 execute and deliver such bonds or arbitration or other instruments
5 as its attorney may deem advisable in the premises.
6
7 5. To commence, prosecute, discontinue, or defend all actions
8 or other legal proceedings touching its estate or any part thereof,
9 or touching any matter in which the Partnership or its estate may
10 be in any wise concerned.
11
12 6. To enter into and upon all and singular its real estate,
13 and to let, manage, and improve the same or any part thereof, and
14 to repair or otherwise improve or alter, and to insure any
15 buildings thereon.
16
17 7. To sell, either at public or private sale, or exchange any
18 part or parts of the Partnerships real estate or personal property
19 for such consideration and upon such terms as its attorney shall
20 think fit, and to execute and deliver good and sufficient deeds or
21 other instruments for the conveyance or transfer of the same, with
22 such covenants of warranty or otherwise as by attorney shall see
23 fit, and to give good and effectual receipts for all or any part of
24 the purchase price or other consideration.
25
26 8. To deposit any moneys which may come into its attorney's
27 hands with any bank or banker in its name, and any of such money or
28 any other money to which the Partnership is entitled which now is
29 or shall be so deposited to withdraw, and either employ as its
30 attorney shall think fit in the payment of any debts, or interest,
31 payable by the Partnership, or taxes, assessments, insurance, and
32 expenses due and payable or to become due and payable on account of
33 its real and personal estate, or in or about any of the purposes
34 herein mentioned, or otherwise for its use and benefit, or to
35 invest in its name in any stocks, bonds, securities or other
36 property, real or personal, as its attorney may think proper, and
37 to receive and give receipts for any income or dividend arising
38 from such investments, and all and any such investments or other
39 investments to vary or dispose of for the Partnership's use and
40 benefit as its attorney may think fit.
41
42 9. To borrow any sum or sums of money on such terms and with
43 such security, whether real or personal property, as its attorney
44 may think fit, and for that purpose to execute all promissory
45 notes, bonds, mortgages, and other instruments which may be
46 necessary or proper.
47
48 10. To vote at the meetings of stockholders or other meetings
49 of any corporation or company, or otherwise to act as its attorney
50 or proxy in respect of any stocks, shares, or other instruments now
51 or hereafter held by the Partnership therein, and for that purpose
52 to execute any proxies or other instruments.
<PAGE>
1 Page 3
2
3
4 11. For all or any of the purposes of these presents to enter
5 into and sign, seal, execute, acknowledge, and deliver any
6 contracts, deeds, or other instruments, whatsoever, and to draw,
7 accept, make, endorse, discount, or otherwise deal with any bills
8 of exchange, checks, promissory notes, or other commercial or
9 mercantile instruments.
10
11 12. To sign, execute, acknowledge and deliver any oil, gas
12 and mining lease or royalty deed or conveyance or assignments of
13 oil, gas and mining leases, or royalties, for such consideration on
14 such terms and such provisions as to its said attorney may seem necessary
15 or proper, and to receive any and all sums derived
16 therefrom, including bonus, delay rental, royalty payments or any
17 sum, for the extension or renewal thereof, and to do any and all
18 other things in connection therewith.
19
20 13. To execute and to file income tax returns required by any
21 act or acts of congress for the present year, or any succeeding
22 year hereafter, and to file any claim on account of overpayment or
23 illegal collection of income taxes for any year, and to make and
24 file any return of any tax that may be required of the partnership
25 in connection with its business, especially the making of
26 assessments for the purpose of ad valorem taxes and the making of
27 returns and payment of Social Security taxes.
28
29 14. In general, to do all other acts, deeds, matters, and
30 things whatsoever in or about the partnership's estate, property,
31 and affairs, or to concur with persons jointly interested with the
32 Partnership therein in doing all acts, deeds, matters, and things
33 herein, either particularly or generally described, as fully and
34 effectually to all intents and purposes as the Managing General
35 Partners could do in their own proper person if personally present.
36
37 15. And Harry W. & Mary W. Ollinger the said Managing General
38 Partners, do hereby ratify and confirm and promise at all times to
39 ratify and confirm all and whatsoever the Partnerships said attorney
40 shall lawfully do or cause to be done about the premises by virtue
41 of these presents. We expressly provide that this power of
42 attorney shall not terminate on our disability, it being our intent
43 that power of attorney shall not terminate by reason of our later
44 disability or incompetency. This power of attorney may be revoked
45 by the Managing General Partners only by written revocation, filed
46 for record in the Office of the County Clerk of Harris County,
47 Texas, or their death, and we hereby declare that as against us and
48 all persons claiming under us, everything which the Partnerships
49 said attorney shall do and cause to be done in pursuance hereof
50 shall be valid and effectual in favor of any person claiming the
51 benefits thereof, who, before the doing thereof shall not have had
52 notice of such revocation. Neither our mental or physical
<PAGE>
1 Page 4.
2
3
4 disability will void this power.
5
6
7 EXECUTED, this the 3 day of May, 1994.
8
9
10
11 /s/ Harry W. Ollinger
---------------------------------
12 Harry W. Ollinger
13 Managing General Partner
14
15
16 /s/ Mary W. Ollinger
---------------------------------
17 Mary W. Ollinger
18 Managing General Partner
19
20
21 STATE OF TEXAS )
22
23 COUNTY OF HARRIS )
24
25 BEFORE ME, the undersigned authority, on this day personally
26 appeared Harry W. and Mary Winslow Ollinger known to me to be
27 the persons whose names are subscribed to the foregoing instrument
28 and acknowledged to me that they executed the same for the purposes
29 and consideration therein expressed.
30 GIVEN UNDER MY HAND AND SEAL OF OFFICE this 3rd day of
31 May, 1994.
32
33 /s/ Illegible
---------------------------
34 NOTARY PUBLIC in and for
35 Harris County, Texas
36
37
<PAGE>
EXHIBIT "C"
OPINION OF COUNSEL TO BANCSHARES
1. Bancshares is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas and has the power and
authority to own its property and carry on its business as now conducted.
2. This Agreement has been duly authorized by all necessary corporate action
on the part of Bancshares, has been executed and delivered by Bancshares,
and constitutes the valid and legally binding obligation of Bancshares,
enforceable in accordance with its terms.
3. The Consolidation Agreement has been duly authorized by all necessary
corporate action on the part of Bancshares, has been executed and delivered
by Bancshares, and constitutes the valid and legally binding obligation of
Bancshares, enforceable in accordance with its terms.
4. The execution, delivery, and performance by Bancshares of this Agreement
will not violate any covenants or conditions of the Articles of
Incorporation or Bylaws of Bancshares and will not violate any provision of
law, any order of any court or governmental agency.
5. The execution, delivery, and performance by Bayshore of the Consolidation
Agreement will not violate any covenants or conditions of the Articles of
Association or Bylaws of Bayshore and will not violate any provision of
law, any order of any court or governmental agency.
6. All necessary approvals and consents for Bancshares to consummate the
transactions contemplated by this Agreement and the Consolidation Agreement
have been obtained;
7. Such other matters as counsel for Baytown may reasonably request.
In giving the foregoing opinions, such counsel may rely upon the opinion of
other legal counsel satisfactory to the Shareholders and Baytown and upon
certificates of public officials and officers and directors of Bancshares. Such
opinions may be based on such assumptions and subject to such qualifications and
limitations as are usual in legal opinions in similar situations.
<PAGE>
EXHIBIT "D"
OPINION OF COUNSEL TO THE SHAREHOLDERS AND BAYTOWN
1. Baytown is a Texas banking association, organized, validly existing and in
good standing under the laws of the State of Texas and has the power and
authority to own its property and carry on its business as now conducted.
2. This Agreement and the Consolidation Agreement have been duly authorized by
all necessary corporate action on the part of Baytown, have been duly
executed and delivered by Baytown, and constitute the valid and legally
binding obligation of Baytown, enforceable in accordance with their terms.
3. The execution, delivery, and performance by the Shareholders and Baytown of
this Agreement and the Consolidation Agreement will not violate any
covenants or conditions of the Articles or Bylaws of Baytown and will not
violate any provision of law, any order of any court or governmental agency
or result in the creation or imposition of any lien, charge or encumbrance
upon the assets of Baytown to the provisions of any indenture, mortgage,
trust, franchise, permit, license, note or other agreement or instrument to
which Baytown is a party.
4. To the best knowledge of such counsel, there are no actions, suits or
proceedings pending or threatened against or affecting Baytown, at law or
in equity or before or by any governmental department, commission, board,
bureau agency or instrumentality, domestic or foreign other than those
disclosed in Schedules 3.06 and 3.08 of the Agreement and Plan of
Reorganization by and between Bay Bancshares, Inc. and Texas Bank, which,
if adversely determined, would result in a Material Adverse Change.
5. The entire authorized capital stock of Baytown consists of 77,616 shares of
common stock, par value $3.75 per share, of which 77,616 shares are issued
and outstanding and none are held in treasury.
6. All necessary approvals and consents for Baytown to consummate the
transactions contemplated by this Agreement have been obtained.
7. Such other matters as counsel for Bancshares may reasonably request.
In giving the foregoing opinions, such counsel may rely upon the opinion of
other legal counsel satisfactory to Bancshares and upon certificates of public
officials and officers and directors of Baytown. Such opinions may be based on
such assumptions and subject to such qualifications and limitations as are usual
in legal opinions in similar situations.
<PAGE>
EXHIBIT "E"
FORM OF RELEASE TO BE EXECUTED BY DIRECTORS
<PAGE>
RELEASE
(Director)
This Release (the "Release"), dated as of May 29, 1997, is made by ______
(the "Director"), in favor of Texas Bank, Baytown, Texas, a Texas banking
association (the "Baytown").
WITNESSETH:
WHEREAS, pursuant to that certain Agreement and Plan of Reorganization
(the "Agreement"), dated as of May 29, 1997, by and between Baytown and Bay
Bancshares, Inc., and joined in by certain other parties, it is a condition to
the consummation of the transactions contemplated by the Agreement that the
Director shall have executed and delivered to the Baytown an instrument
releasing the Baytown from any and all claims of such Director;
WHEREAS, the purpose of this Release is to serve as the instrument referred
to in Section 8.08 of the Agreement as discussed above;
WHEREAS, the Director desires to enter into this Release in consideration
of the matters set forth herein;
NOW, THEREFORE, for and in consideration of $1.00 and other good and
valuable consideration, the receipt and sufficiency of which is hereby expressly
acknowledged, the Director agrees as follows:
1. The Director acknowledges that, to the best of his or her knowledge, there
are no existing claims or defenses, personal or otherwise, or rights of
setoff whatsoever against Baytown, except as a result of the Director's
capacity as a depositor with Baytown, or for salary or bonus due to such
Director in the ordinary course of business. The Director for himself or
herself and on behalf of his or her heirs and assigns (the "Director
Releasing Parties") releases, acquits and forever discharges Baytown and
their respective predecessors, successors, assigns, officers, directors,
employees, agents, and servants, and all persons, natural or corporate, in
privity with them or any of them, from any and all claims or causes of
action of any kind whatsoever, at common law, statutory or otherwise, which
the Director Releasing Parties, or any of them, has now or might have in
the future, known or unknown, now existing or that might arise hereafter,
except such claims or causes of action as may exist as a result of or may
arise out of the Director's capacity as a depositor with the Bank or for
salary or bonus due to such Director in the ordinary course of business. It
is intended that this Release shall release all claims of any kind or
nature that any of the Director Releasing Parties might have against those
hereby released whether asserted or not and except as may exist as a result
of or may arise out of the Director's capacity as a depositor with Baytown
or for salary or bonus due to such Director in the ordinary course of
business.
2. It is expressly understood and agreed that the terms hereof are contractual
and not merely
<PAGE>
recitals, and that the agreements herein contained and the consideration
herein transferred is to comprise doubtful and disputed claims, and that no
releases made or other consideration given hereby or in connection herewith
shall be construed as an admission of liability, all liability being
expressly denied by Baytown. The Director hereby represents and warrants
that the consideration hereby acknowledged for entering into this Release
and the transactions contemplated hereby is greater than the value of all
claims, demands, actions and causes of action herein relinquished,
released, renounced, abandoned, acquitted, waived and/or discharged, and
that this Release is in full settlement, satisfaction and discharge of any
and all such claims, demands, actions, and causes of action that the
Director may have or be entitled to against Baytown, and their respective
predecessors, assigns, legal representatives, officers, directors,
employees, attorneys and agents.
3. The Director represents and warrants that he or she has full power and
authority to enter into, execute and deliver this Release, all proceedings
required to be taken to authorize the execution, delivery and performance
of this Release and the agreements and undertakings relating hereto and the
transactions contemplated hereby have been validly and properly taken and
this Release constitutes a valid and binding obligation of the Director in
the capacity in which executed. The Director further represents and
warrants that he or she has entered into this Release freely of his or her
own accord and without reliance on any representations of any kind of
character not set forth herein. The Director enters into this release upon
the advice of and in concurrence with his or her own legal counsel, and the
Director is represented by separate legal counsel than that of Baytown.
4. This Release shall be construed and enforced in accordance with the laws of
the State of Texas, and to the extent applicable, the laws of the United
States. If any provision of this Release or the application thereof to any
person or circumstance shall be determined to be invalid or unenforceable
to any extent, such provision shall be deemed severable, the remainder of
this Release and the application of all other provisions shall not be
affected thereby and shall be enforced to the greatest extent permitted by
law, consistent with the intent of the parties hereto to enter into a
mutual release. This Release is executed as of the date first above
written. As used herein, the singular includes the plural, the masculine
includes the feminine and neuter, and vice versa.
THE DIRECTOR:
------------------------------
-----------------
<PAGE>
STATE OF TEXAS
COUNTY OF ____________________
This instrument was acknowledged before me on ____________________, 1997,
by _____________________________, Individually.
_____________________________________________
Notary Public in and for the State of Texas
Printed Name:________________________________
My Commission Expires:_______________________
<PAGE>
EXHIBIT "F"
FORM OF RELEASE TO BE EXECUTED OFFICERS
<PAGE>
RELEASE
(Officer)
This Release (the "Release"), dated as of May 29, 1997, is made by
____________ (the "Officer"), in favor of Texas Bank, Baytown, Texas, a Texas
banking association (the "Baytown").
WITNESSETH:
WHEREAS, pursuant to that certain Agreement and Plan of Reorganization (the
"Agreement"), dated as of May 29, 1997, by and between Baytown and Bay
Bancshares, Inc., and joined in by certain other parties, it is a condition to
the consummation of the transactions contemplated by the Agreement that the
Officer shall have executed and delivered to the Baytown an instrument releasing
the Baytown from any and all claims of such Officer;
WHEREAS, the purpose of this Release is to serve as the instrument referred
to in Section 8.08 of the Agreement as discussed above;
WHEREAS, the Officer desires to enter into this Release in consideration of
the matters set forth herein;
NOW, THEREFORE, for and in consideration of $1.00 and other good and
valuable consideration, the receipt and sufficiency of which is hereby expressly
acknowledged, the Officer agrees as follows:
1. The Officer acknowledges that, to the best of his or her knowledge, there
are no existing claims or defenses, personal or otherwise, or rights of
setoff whatsoever against Baytown, except as a result of the Officer's
capacity as a depositor with Baytown, or for salary or bonus due to such
Officer in the ordinary course of business. The Officer for himself or
herself and on behalf of his or her heirs and assigns (the "Officer
Releasing Parties") releases, acquits and forever discharges Baytown and
their respective predecessors, successors, assigns, officers, directors,
employees, agents, and servants, and all persons, natural or corporate, in
privity with them or any of them, from any and all claims or causes of
action of any kind whatsoever, at common law, statutory or otherwise, which
the Officer Releasing Parties, or any of them, has now or might have in the
future, known or unknown, now existing or that might arise hereafter,
except such claims or causes of action as may exist as a result of or may
arise out of the Officer's capacity as a depositor with the Bank or for
salary or bonus due to such Officer in the ordinary course of business. It
is intended that this Release shall release all claims of any kind or
nature that any of the Officer Releasing Parties might have against those
hereby released whether asserted or not and except as may exist as a result
of or may arise out of the Officer's capacity as a depositor with Baytown
or for salary or bonus due to such Officer in the ordinary course of
business.
2. It is expressly understood and agreed that the terms hereof are contractual
and not merely recitals, and that the agreements herein contained and the
consideration herein transferred is
<PAGE>
to comprise doubtful and disputed claims, and that no releases made or
other consideration given hereby or in connection herewith shall be
construed as an admission of liability, all liability being expressly
denied by Baytown. The Officer hereby represents and warrants that the
consideration hereby acknowledged for entering into this Release and the
transactions contemplated hereby is greater than the value of all claims,
demands, actions and causes of action herein relinquished, released,
renounced, abandoned, acquitted, waived and/or discharged, and that this
Release is in full settlement, satisfaction and discharge of any and all
such claims, demands, actions, and causes of action that the Officer may
have or be entitled to against Baytown, and their respective predecessors,
assigns, legal representatives, officers, directors, employees, attorneys
and agents.
3. The Officer represents and warrants that he or she has full power and
authority to enter into, execute and deliver this Release, all proceedings
required to be taken to authorize the execution, delivery and performance
of this Release and the agreements and undertakings relating hereto and the
transactions contemplated hereby have been validly and properly taken and
this Release constitutes a valid and binding obligation of the Officer in
the capacity in which executed. The Officer further represents and warrants
that he or she has entered into this Release freely of his or her own
accord and without reliance on any representations of any kind of character
not set forth herein. The Officer enters into this release upon the advice
of and in concurrence with his or her own legal counsel, and the Officer is
represented by separate legal counsel than that of Baytown.
4. This Release shall be construed and enforced in accordance with the laws of
the State of Texas, and to the extent applicable, the laws of the United
States. If any provision of this Release or the application thereof to any
person or circumstance shall be determined to be invalid or unenforceable
to any extent, such provision shall be deemed severable, the remainder of
this Release and the application of all other provisions shall not be
affected thereby and shall be enforced to the greatest extent permitted by
law, consistent with the intent of the parties hereto to enter into a
mutual release. This Release is executed as of the date first above
written. As used herein, the singular includes the plural, the masculine
includes the feminine and neuter, and vice versa.
THE OFFICER:
-----------------------------------
-------------------------
<PAGE>
STATE OF TEXAS
COUNTY OF________________
This instrument was acknowledged before me on ___________________, 1997, by
_________________________________, Individually.
______________________________________________
Notary Public in and for the State of Texas
Printed Name:_________________________________
My Commission Expires:________________________
<PAGE>
EXHIBIT "G"
FORM OF NONCOMPETITION AGREEMENT
<PAGE>
NONCOMPETITION AGREEMENT
This Agreement made as of this 29th day of May, 1997, by and between
_______________ ("Shareholder"), and Bay Bancshares, Inc. ("Bancshares").
A. Concurrently with the execution of this Agreement, Shareholder is receiving
cash from Bancshares for shares of common stock (the "Shares") of Texas Bank,
Baytown, Texas ("Baytown") representing all of the Shareholder's interest in
Baytown.
B. As a condition to purchasing such Shares, and in partial consideration of
the amounts to be paid by Bancshares to Shareholder in connection with such
purchase, Bancshares has requested Shareholder to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. NONDISCLOSURE COVENANT. Shareholder agrees not to, at any time, divulge or
communicate to any person or entity, or use to the detriment of the Bancshares,
or for the benefit of himself or any other person or entity, or misuse in any
other way, any confidential information or trade secrets of Baytown or
Bancshares. For this purpose, the terms "confidential information" and "trade
secrets" shall be deemed to include all information concerning the Baytown's or
Bancshares's operations and products, formulas, properties, assets, costs and
pricing data, customer listings and names of potential customers, services,
business and collection methods, financial reports, practices, know how,
confidential and proprietary information, marketing strategies and other trade
secrets, whether in the form of records, files, correspondence, notes, data,
information or otherwise; provided, however, that "confidential information" and
"trade secrets" shall not include any of the foregoing that (i) has been made
available to the public by Baytown or Bancshares, (ii) is in the public domain,
or (iii) is readily ascertainable from public or published information or trade
sources. Notwithstanding the foregoing, Shareholder may disclose information
relating to Baytown's or Bancshares business that would otherwise be required to
be kept confidential (a) if required to be disclosed pursuant to a subpoena
issued by a court or governmental agency, whether or not said subpoena is issued
pursuant to a lawsuit or other proceeding involving the parties hereto or any
other third party, if Shareholder has notified Bancshares of such subpoena and
given the Bancshares a reasonable opportunity to object to such subpoena, or (b)
if such disclosure is authorized by Bancshares in writing in advance of such
disclosure. Shareholder shall exercise utmost diligence to protect and guard the
Baytown's and Bancshares confidential information and trade secrets. Shareholder
agrees promptly to deliver to Bancshares all property and documents of Baytown
or Bancshares relating to Baytown's or Bancshare's business that Shareholder is
required to keep confidential under this paragraph 1 in
<PAGE>
Shareholder's custody or control, and shall not retain any copies or extracts of
any such property, documents or data without the prior written consent of
Bancshares.
2. NONCOMPETITION COVENANT.
(a) Shareholder hereby acknowledges that Bancshares would not pay for the
Shares or any part thereof, unless Shareholder enters into the agreements
and covenants contained in this Agreement, and that such agreements and
covenants on the part of Shareholder are one of the inducing causes of the
payment for Shareholder's Shares as provided in the Agreement and Plan of
Reorganization of even date herewith; and Shareholder hereby covenants and
agrees that Shareholder will not, without the prior written consent of
Bancshares, for a period of two (2) years from the date hereof in the
geographic area delineated by Baytown as its Community Reinvestment Act
Assessment Area:
(1) directly or indirectly, own, engage in, manage, operate, join,
control, or participate in the ownership, management, operation or
control of, or be connected as a stockholder, director, officer,
employee, consultant, agent, partner, joint venturer or in any other
manner with, any business which, or any business organization any part
of which, engages in the business of Bancshares; or
(2) canvass, solicit or accept or give any other person, firm,
business organization or corporation the right to canvass, solicit, or
accept any business from any present or past customers of Baytown or
Bancshares; or
(3) directly or indirectly, request or advise any present or future
customer of Baytown or Bancshares to withdraw, curtail, or cancel any
deposits, loans, contracts, orders or modify any arrangement with
Bancshares.
(b) Shareholder hereby agrees that his undertakings set forth in this
paragraph 2 may be assigned by Bancshares to any person, firm, corporation
or other business organization or entity to whom may be transferred all or
a part of the assets of Bancshares, the intention of the parties being that
the said agreements and covenants on the part of Shareholder shall inure to
the benefit of any such person, firm, corporation or other business
organization or entity that may succeed to any or all of the assets owned
by Bancshares with the same force and effect as if the said agreements and
covenants on the part of Shareholder were made directly to such successor.
(c) If any court of competent jurisdiction should determine that any term
or terms of this paragraph 2 are too broad in terms of time, geographic
area, lines of commerce or otherwise, such court shall modify and revise
any such term or
<PAGE>
terms so that they shall comply with application law; in such case, all of
the remaining terms of this paragraph 2, together with such modified term
or terms, shall remain in full force and effect.
3. INJUNCTIVE RELIEF. Shareholder recognizes that the restrictions and
covenants contained in this Agreement are reasonable and necessary for the
protection of the legitimate business interests and goodwill of Bancshares.
Shareholder acknowledges that any material breach or violation of the
restrictions and covenants contained in this Agreement will cause substantial
damages and irreparable harm to Bancshares and to Buyer for which there is no
adequate remedy at law. Thus, in addition to any other remedies, Bancshares will
each be entitled to temporary and/or permanent injunctive relief to enforce the
provisions of this Agreement without the necessity of proving actual damages or
posting bond or other security.
4. GOVERNING LAW. THIS NONCOMPETITION AGREEMENT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS,
WITHOUT REGARD FOR THE PROVISIONS THEREOF RELATING TO CHOICE OF LAW.
5. TITLES AND SUBTITLES. The descriptive headings of the several sections of
this Agreement are inserted for convenience only and do not constitute a part
of this Agreement.
6. ASSIGNMENT. This Agreement shall be binding upon Shareholder, successors,
assigns and legal representatives, and shall inure to the benefit of Bancshares
and its respective successors and assigns. Shareholder may not delegate or
assign his obligations hereunder.
7. ENTIRE AGREEMENT. This Agreement expresses the entire agreement between
Shareholder and Bancshares with reference to the subject matter hereof.
8. ATTORNEYS' FEES. If either party should file a lawsuit against the other
to enforce any right such party has hereunder, the prevailing party shall
also be entitled to recover a reasonable attorneys' fee and costs of suit in
addition to any other relief awarded such prevailing party.
9. LEGAL COUNSEL. Each of the undersigned has read this Agreement, has had the
opportunity to consult with legal counsel concerning the matters contained
herein, and has either obtained legal counsel with respect to such matters and
the execution of this Agreement, or has voluntarily waived such right.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first written above.
SHAREHOLDER:
- -------------------------
[Name]
AGREED TO AND ACCEPTED THIS ____ day of ____________, 19___:
BANCSHARES
By:
-----------------------
[Name and Title]
<PAGE>
SCHEDULE 4.05
CONSENTS AND APPROVALS
Approval of the Federal Reserve pursuant to 12 U.S.C. Section ___, as amended.
Approval of the FDIC pursuant to 12 U.S.C. Section ___, as amended.
Approval of the Comptroller of the Currency pursuant to 12 U.S.C. Section ___,
as amended.
Approval of the Texas Department of Banking pursuant to ______________ of the
Texas Banking Act, as amended.
<PAGE>
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AGREEMENT AND PLAN OF CONSOLIDATION
BY AND AMONG
BAY BANCSHARES, INC.,
BAYSHORE NATIONAL BANK,
AND
TEXAS NATIONAL BANK OF BAYTOWN
DATED AS OF AUGUST 7, 1997
-------------------------------------
<PAGE>
TABLE OF CONTENTS
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........................ 3
Section 1.8. Liabilities of Continuing Bank....................... 4
Section 1.9. Consolidation Consideration.......................... 4
Section 1.10. Dissenting Shares.................................... 5
Section 1.11. Ratification by Shareholders......................... 5
Section 1.12. Earnest Money Deposit................................ 5
II. REPRESENTATIONS AND WARRANTIES OF TEXAS NATIONAL....................... 6
Section 2.1. Organization......................................... 6
Section 2.2. Capitalization....................................... 7
Section 2.3. Approvals; Authority................................. 7
Section 2.4. Financial Statements................................. 8
Section 2.5. Title................................................ 8
Section 2.6. Environmental Laws................................... 8
Section 2.7. Litigation and Other Proceedings..................... 9
Section 2.8. Taxes................................................ 9
Section 2.9. Contracts............................................ 10
Section 2.10. Insurance............................................ 11
Section 2.11. No Conflict With Other Instruments................... 11
Section 2.12. Laws................................................. 11
Section 2.13. Conduct.............................................. 11
Section 2.14. Allowance for Possible Loan Losses................... 12
Section 2.15. Employment Relations................................. 12
Section 2.16. ERISA................................................ 12
Section 2.17. Loans and Investments................................ 12
Section 2.18. Accurate and Complete Records........................ 13
Section 2.19. Performance of Obligations........................... 13
Section 2.20. No Misleading Statements............................. 13
Section 2.21. Absence of Changes................................... 13
Section 2.22. Brokers and Finders.................................. 13
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Section 2.23. Regulatory Approvals................................. 14
III. REPRESENTATIONS AND WARRANTIES OF
BANCSHARES AND BAYSHORE............................................... 14
Section 3.1. Organization......................................... 14
Section 3.2. Approvals; Authority................................. 14
Section 3.3. No Conflict With Other Instruments................... 14
Section 3.4. Regulatory Approvals................................. 15
Section 3.5. Litigation........................................... 15
Section 3.6. Due Diligence........................................ 15
IV. COVENANTS OF TEXAS NATIONAL............................................ 15
Section 4.1. Shareholder Approval and Best Efforts................ 15
Section 4.2. Invitation to Meetings............................... 15
Section 4.3. Conduct of Business Prior to Closing................. 16
Section 4.4. Litigation and Claims................................ 18
Section 4.5. Confidentiality...................................... 18
Section 4.6. Standstill Provision................................. 18
Section 4.7. Access to Properties and Records..................... 18
Section 4.8. Information for Applications......................... 19
Section 4.9. Additional Disclosures and Information............... 19
Section 4.10. Proxies.............................................. 19
Section 4.11. Releases............................................. 20
V. COVENANTS OF BANCSHARES AND BAYSHORE.................................... 20
Section 5.1. Best Efforts......................................... 20
Section 5.2. Information for Applications and Proxy Solicitation.. 20
Section 5.3. Confidentiality...................................... 21
Section 5.4. Notices.............................................. 21
Section 5.5. Releases............................................. 21
VI. CLOSING................................................................ 21
Section 6.1. Closing.............................................. 21
Section 6.2. Initial Consolidation Effective Time................. 22
Section 6.3. Effective Date....................................... 22
VII. TERMINATION........................................................... 23
Section 7.1. Termination.......................................... 23
Section 7.2. Right to Cure........................................ 24
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VIII. CONDITIONS TO OBLIGATIONS OF BANCSHARES AND BAYSHORE................. 24
Section 8.1. Compliance with Representations and Covenants........ 24
Section 8.2. Material Adverse Change.............................. 24
Section 8.3. Legal Opinion........................................ 25
Section 8.4. Registration of Bancshares Common Stock.............. 25
Section 8.5. Successful Initial Public Offering................... 25
Section 8.6. Releases............................................. 25
Section 8.7. Proceedings and Documents............................ 25
Section 8.8. Litigation........................................... 25
Section 8.9. Resignation.......................................... 26
Section 8.10. No Pending Actions................................... 26
Section 8.11. No Default........................................... 26
Section 8.12. OCC Letter........................................... 26
Section 8.13. Cancellation of Data Processing Contracts............ 26
Section 8.14. Removal of Certain Credit............................ 26
Section 8.15. Covenant Not to Compete.............................. 26
IX. CONDITIONS TO OBLIGATIONS OF TEXAS NATIONAL............................ 26
Section 9.1. Compliance with Representations and Covenants........ 27
Section 9.2. Legal Opinion........................................ 27
Section 9.3. Releases............................................. 27
Section 9.4. Proceedings and Documents............................ 27
Section 9.5. Payment of Consideration............................. 27
X. CONDITIONS TO RESPECTIVE OBLIGATIONS OF BANCSHARES,
BAYSHORE AND TEXAS NATIONAL............................................. 27
Section 10.1. Government Approvals................................. 27
Section 10.2. Shareholder Approval................................. 28
XI. MISCELLANEOUS.......................................................... 28
Section 11.1. Notices.............................................. 28
Section 11.2. Effect of Termination................................ 28
Section 11.3. Entire Agreement Modification; Waiver................ 29
Section 11.4. Governing Law........................................ 29
Section 11.5. Legal Construction................................... 29
Section 11.6. Attorney's Fees...................................... 29
Section 11.7. Cooperation.......................................... 29
Section 11.8. Assignability........................................ 29
Section 11.9. Singular, Plural, Headings........................... 29
Section 11.10. Commissions.......................................... 30
Section 11.11. Effective Date....................................... 30
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Section 11.12. Expenses............................................. 30
Section 11.13. Binding Effect....................................... 30
Section 11.14. Representation by Counsel............................ 30
Section 11.15. Non-Survival of Representations...................... 30
Section 11.16. Facsimile Signatures................................. 30
Section 11.17. Modifications or Waiver.............................. 30
Section 11.18. Severability......................................... 31
Section 11.19. Counterparts......................................... 31
Section 11.20. Gender............................................... 31
Section 11.21. Publicity............................................ 31
Section 11.22. Disclosures.......................................... 31
Section 11.23. Agreement Regarding Certain Participations........... 31
Section 11.24. Indemnification...................................... 32
SCHEDULE 2.5 TO THE CONSOLIDATION AGREEMENT:
Title - Texas National............................................ 35
SCHEDULE 2.6 TO THE CONSOLIDATION AGREEMENT:
Environmental Laws - Texas National............................... 36
SCHEDULE 2.7 TO THE CONSOLIDATION AGREEMENT:
Litigation and Other Proceedings - Texas National................. 37
SCHEDULE 2.8 TO THE CONSOLIDATION AGREEMENT:
Taxes - Texas National............................................ 38
SCHEDULE 2.9 TO THE CONSOLIDATION AGREEMENT:
Contracts - Texas National........................................ 39
SCHEDULE 2.10 TO THE CONSOLIDATION AGREEMENT:
Insurance - Texas National........................................ 40
SCHEDULE 2.12 TO THE CONSOLIDATION AGREEMENT:
Laws - Texas National............................................. 41
SCHEDULE 2.13 TO THE CONSOLIDATION AGREEMENT:
Conduct - Texas National.......................................... 42
SCHEDULE 2.15 TO THE CONSOLIDATION AGREEMENT:
Employment Relations - Texas National............................. 43
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SCHEDULE 2.17 TO THE CONSOLIDATION AGREEMENT:
Loans and Investments - Texas National............................ 44
SCHEDULE 2.21 TO THE CONSOLIDATION AGREEMENT:
Absence of Changes - Texas National............................... 45
SCHEDULE 4.10 TO THE CONSOLIDATION AGREEMENT:
Proxies........................................................... 46
SCHEDULE 4.11 TO THE CONSOLIDATION AGREEMENT:
Releases.......................................................... 47
SCHEDULE 5.5 TO THE CONSOLIDATION AGREEMENT:
Releases.......................................................... 48
SCHEDULE 8.3 TO THE CONSOLIDATION AGREEMENT:
Legal Opinion to be Delivered by Texas National................... 49
SCHEDULE 8.14 TO THE CONSOLIDATION AGREEMENT:
Removal of Certain Credit......................................... 51
SCHEDULE 9.2 TO THE CONSOLIDATION AGREEMENT:
Legal Opinion to be Delivered by Bancshares....................... 52
EXHIBIT A
PLAN OF CONSOLIDATION BETWEEN BAYSHORE
INTERIM NATIONAL BANK AND TEXAS NATIONAL
BANK OF BAYTOWN..................................................... A-1
EXHIBIT B
PLAN OF CONSOLIDATION BETWEEN TEXAS NATIONAL
BANK OF BAYTOWN AND BAYSHORE NATIONAL BANK.......................... B-1
EXHIBIT C
ESCROW AGREEMENT.................................................... C-1
EXHIBIT D
VOTING AGREEMENT AND IRREVOCABLE PROXY.............................. D-1
EXHIBIT E
RELEASE OF CLAIMS................................................... E-1
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EXHIBIT F
RELEASE OF CLAIMS................................................... F-1
EXHIBIT G
OUTLINE OF TERMS OF NON-COMPETITION AGREEMENT....................... G-1
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<PAGE>
AGREEMENT AND PLAN OF CONSOLIDATION
This Agreement and Plan of Consolidation ("Agreement") dated as of August
7, 1997, is by and among Bay Bancshares, Inc., a Texas corporation
("Bancshares"), Bayshore National Bank, a national banking association
("Bayshore"), and Texas National Bank of Baytown, a national banking association
located in Baytown, Texas ("Texas National").
WHEREAS, Texas National desires to affiliate with Bancshares and Bayshore
and Bancshares and Bayshore desire to affiliate with Texas National in the
manner provided in this Agreement; and
WHEREAS, Bancshares, Bayshore, and Texas National believe that the
acquisition of Texas National 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;
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, Bayshore, and
Texas National, Bancshares will charter and organize as a wholly-owned
subsidiary an interim national banking association ("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 Texas
National with Texas National as the survivor (the "Initial Consolidation"), all
pursuant to this Agreement and related Plan of Consolidation by and between New
Bank and Texas National, a form of which is attached hereto as Exhibit "A" and
all terms of which are incorporated herein by reference for all purposes and,
immediately thereafter, (ii) the consolidation of Texas National with and into
Bayshore, with Bayshore as the survivor (the "Final Consolidation"), all
pursuant to this Agreement and the Plan of Consolidation by and between Texas
National and Bayshore, a form of which is attached hereto as Exhibit "B" and all
of the terms of which are incorporated herein 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 acquire all issued and outstanding shares of
common stock, $10.00 par value, of Texas National ("Texas National Common
Stock") in exchange for the payment in cash to the shareholders of Texas
National a total consideration of $2,400,000, or approximately $61.59848 per
share based on 38,962 shares of Texas National Common Stock outstanding.
<PAGE>
I. THE CONSOLIDATIONS
Section 1.1. INITIAL CONSOLIDATION. New Bank shall consolidate with and
into Texas National (the resulting bank being herein referred to as the "First
Surviving Bank") as of the Initial Consolidation Effective Time, as defined in
Section 6.2, under the charter and Articles of Association of Texas National, 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 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 1.2. ARTICLES OF ASSOCIATION, BYLAWS AND FACILITIES OF FIRST
SURVIVING BANK. At the Initial Consolidation Effective Time and until
thereafter amended in accordance with law, the Articles of Association of the
First Surviving Bank shall be the Articles of Association of Texas National as
in effect at the Initial Consolidation Effective Time. 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
Texas National as in effect at the Initial Consolidation Effective Time. The
main office of the First Surviving Bank shall be the main office of Texas
National as of the Initial Consolidation Effective Time, and all corporate acts,
plans, policies, contracts, approvals and authorizations of Texas National 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 Initial Consolidation Effective Time, 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 Texas National and New Bank
respectively, as of the Initial Consolidation Effective Time.
Section 1.3. EFFECT OF INITIAL CONSOLIDATION. At the Initial
Consolidation Effective Time, the corporate existence of Texas National 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 Texas National and New Bank. All rights, franchises and interests of Texas
National and New Bank, respectively, in and to any type of property and chooses
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 Texas National and New Bank, respectively, as of the Initial
Consolidation Effective Time.
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<PAGE>
Section 1.4. LIABILITIES OF THE FIRST SURVIVING BANK. At the Initial
Consolidation Effective Time, the First Surviving Bank shall be liable for all
liabilities of Texas National and New Bank. All deposits, debts, liabilities
and obligations of Texas National 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 Texas National 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 Texas National
or New Bank shall be preserved unimpaired.
Section 1.5. FINAL CONSOLIDATION. Immediately after the Initial
Consolidation Effective Time, the First Surviving Bank shall be consolidated
with and into Bayshore (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 6.3 of this Agreement)) under the
charter and Articles of Association of Bayshore, pursuant to the provisions of,
and with the effect provided in the National Bank Act, as amended.
Section 1.6. 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 Bayshore 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 Bayshore
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 Bayshore 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 Bayshore
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 the First Surviving Bank and Bayshore, 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 Bayshore shall, as provided
in the provisions of law heretofore mentioned, be consolidated with 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 Bayshore.
All rights, franchises and interests of the First Surviving Bank and Bayshore,
respectively, in and to any type of property and chooses 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,
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<PAGE>
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 Texas National
and Bayshore, respectively, as of the Effective Date.
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 Bayshore. All deposits, debts, liabilities,
obligations and contracts of the First Surviving Bank and of Bayshore,
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 Bayshore 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 Bayshore shall be preserved
unimpaired subsequent to the Consolidations.
Section 1.9. CONSOLIDATION CONSIDERATION. The total consolidation
consideration payable for all of the capital stock of Texas National referenced
below shall be $2,400,000.00, or $61.59848 per share of Texas National Common
Stock (based on 38,962 shares issued and outstanding) to be payable in the
following manner:
At the Initial Consolidation Effective Time and upon and by reason of the
Initial Consolidation becoming effective, each of the 38,962 shares of Texas
National Common Stock issued and outstanding immediately prior to the Initial
Consolidation Effective Time, excluding any Dissenting Shares (as defined in
Section 1.10 of this Agreement), and any and all rights arising out of the
ownership of such shares shall, without any action on the part of the holder
thereof, be canceled and converted into the right to receive $61.59848 in cash
payable upon tender of the stock certificates evidencing such shares as set
forth in the following paragraph. The aggregate consideration to be paid for
all of the shares of Texas National Common Stock shall hereafter sometimes be
referred to as the "Consolidation Price."
On or immediately prior to the Initial Consolidation Effective Time,
Bancshares or Bayshore shall have available cash in sufficient amount to pay the
aggregate Consolidation Price. At least ten (10) days in advance of the Closing
Date (as defined in Section 6.1 of this Agreement), Bancshares will send to each
shareholder of Texas National a letter of transmittal for use in exchanging such
holder's certificates for his pro rata amount of the Consolidation Price.
Commencing immediately after the Effective Date (as defined in Section 6.3 of
this Agreement), each shareholder of Texas National shall be entitled to receive
payment for his shares upon surrender of the certificates representing his
shares of Texas National 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 Texas National
Common Stock certificate will be deemed
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<PAGE>
for all corporate purposes to represent and evidence solely the right to
receive the amount of the Consolidation Price to be paid therefor pursuant to
this Agreement without interest thereon.
Upon the consummation of the Consolidations, the par value and number of
issued and outstanding shares of capital stock of the Continuing Bank shall be
the same as the par value and number of issued and outstanding shares of capital
stock of Bayshore as of the Effective Date.
Section 1.10. DISSENTING SHARES. Each share of Texas National 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
exchanged his certificates representing shares of Texas National Common Stock
for the Consolidation Price and otherwise has not effectively withdrawn or lost
his dissenter's rights, shall not be converted into or represent the right to
receive the Consolidation Price pursuant to Section 1.9 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. If any holder of
Dissenting Shares shall effectively withdraw or lose his dissenter's rights
under the applicable provisions of the National Bank Act, such Dissenting Shares
shall be converted into the right to receive the Consolidation Price in
accordance with the provisions of Section 1.9 hereof.
Section 1.11. RATIFICATION BY SHAREHOLDERS. This Agreement shall be
submitted to the shareholders of Texas National and, if required, to Bancshares
as the sole shareholder of New Bank and Bayshore in accordance with applicable
provisions of law and the respective Articles of Association and Bylaws of Texas
National, New Bank and Bayshore. Texas National and Bancshares and Bayshore
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 Consolidations 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 Federal Deposit Insurance Corporation
("FDIC"), the Texas Department of Banking ("Banking Department") and the OCC.
Section 1.12. EARNEST MONEY DEPOSIT.
(a) Upon the execution of this Agreement by Texas National,
Bancshares shall deliver Fifty Thousand Dollars ($50,000) to Texas National as
an earnest money deposit and expression of Bancshares' good faith interest in
Texas National and as compensation for the standstill
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<PAGE>
set forth in Section 4.6 of this Agreement (the "Earnest Money"). Texas
National will deliver the Earnest Money to an independent escrow agent
("Escrow Agent") who will hold it pursuant to the terms of the Escrow
Agreement ("Escrow Agreement") set forth as Exhibit "C" to this Agreement.
As set forth in the Escrow Agreement, the Earnest Money will not become
subject to the disbursement provisions of the Escrow Agreement or this
Agreement until Texas National has delivered to the Escrow Agent and
Bancshares evidence satisfactory to the Escrow Agent and Bancshares that each
of the directors, officers and owners of five percent or more of the issued
and outstanding Texas National Common Stock have executed the Voting
Agreement and Irrevocable Proxy set forth as Exhibit "D" to this Agreement.
If the Consolidations are completed, the Earnest Money will be credited
against the Consolidation Price at the Closing.
(b) In the event that despite the fact that all of Bancshares'
conditions to Closing set forth in Articles VIII and X of this Agreement have
been satisfied and Bancshares has not elected to terminate this Agreement
pursuant to Article VII of this Agreement, the Closing does not occur by
November 30, 1997, or such other later date mutually agreed to in writing by the
parties hereto, Texas National shall be entitled to retain the Earnest Money.
(c) Bancshares shall be entitled to a return of the Earnest Money and
both Texas National and Bancshares shall be relieved of any further obligations
pursuant to this Agreement if the Consolidations do not close as a result of any
of Bancshares' conditions to Closing set forth in Articles VIII and X not being
satisfied or if the Agreement is terminated under the provisions of Sections
7.1(a), (c), (d) or (e). Any other failure to close the transactions
contemplated by this Agreement for any reason whatsoever will entitle Texas
National to retain the Earnest Money. It is specifically provided, however,
that Texas National shall not be entitled to retain the Earnest Money if Texas
National was the cause of or contributed to the failure of a condition precedent
or event of termination that serves as the basis for Bancshares' claim of the
Earnest Money.
II. REPRESENTATIONS AND WARRANTIES OF TEXAS NATIONAL
Texas National makes each of the following representations and warranties
to Bancshares and Bayshore. Texas National agrees that, at the Closing, it
shall provide Bancshares with supplemental Schedules reflecting any changes in
the information contained in the Schedules attached to this Agreement on the
date of its execution which have occurred in the period from the date of
execution of this Agreement to the date of Closing.
Section 2.1. ORGANIZATION. (a) Texas National is a national banking
association duly organized, validly existing and in good standing under the laws
of the United States of America. Texas National has full corporate power and
authority to own and lease its properties, to engage in the business and
activities now conducted by it and is duly licensed or qualified to do business
in each jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary.
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<PAGE>
(b) True and complete copies of the Articles of Association and
Bylaws of Texas National, as amended to date, have been delivered or made
available to Bancshares.
(c) Texas National (i) does not have any subsidiaries or affiliates,
(ii) is not a general partner or material owner in any joint venture, general
partnership, limited partnership, trust or other non-corporate entity (other
than in the capacity as a participating lender in multi-bank loans in the
ordinary course of business) and (iii) 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
stockholders of Texas National.
(d) The deposit accounts of Texas National are insured by the FDIC
through the Bank Insurance Fund to the fullest extent permitted by law, and all
premiums and assessments required in connection therewith have been paid by
Texas National.
Section 2.2. CAPITALIZATION. The authorized capital stock of Texas
National consists of 38,962 shares of Texas National Common Stock, all of which
shares are issued and outstanding. As of the date of this Agreement, no shares
of other classes of stock or other securities of Texas National are authorized,
issued or outstanding. There are no shares of Texas National Common Stock or
other classes of stock or other securities of Texas National held in treasury.
All of the issued and outstanding shares of Texas National Common Stock are
validly issued, fully paid and non-assessable and, to the best knowledge of
Texas National, were not issued in violation of the securities laws of the
United States or any other applicable jurisdiction or in violation of the
preemptive rights of any person. There are no authorized or outstanding
subscriptions, options, warrants, calls, convertible securities or commitments
of any kind obligating Texas National to issue any shares of Texas National
Common Stock or other classes of stock or other securities of Texas National nor
does Texas National have any outstanding commitment or obligation to repurchase,
reacquire or redeem any shares of its outstanding capital stock. There are no
voting trusts, voting agreements, buy-sell agreements or other similar
arrangements affecting either the Texas National Common Stock or, to the best
knowledge of Texas National, any of the other shares of the common stock of
Texas National.
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 Texas National as required by law, and, other
than shareholder approval, no further corporate proceedings of Texas National
are needed to deliver this Agreement and consummate the Consolidations. Neither
the execution and delivery of this Agreement nor the consummation of the
Consolidations contemplated hereby nor compliance by Texas National with any of
the provisions hereof will conflict with or result in a breach of any provisions
of its Articles of Association or By-laws. This Agreement has been duly
executed and delivered by Texas National and, when all requisite regulatory and
shareholder approvals have been obtained, it will be a binding agreement of
Texas National enforceable against Texas National in accordance with its terms,
subject to the effect of
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bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to creditors' rights generally and general equitable principles.
Section 2.4. FINANCIAL STATEMENTS. Texas National has furnished or made
available to Bancshares true and complete copies of Texas National's (i)
unaudited balance sheet (the "Balance Sheet) as of June 30, 1997 (the "Balance
Sheet Date") and the related statements of income and changes in stockholders'
equity for the six months then ended, together with the notes thereto, (ii)
audited balance sheets as of December 31, 1996, December 31,1995 and December
31,1994 and the related statements of income and changes in stockholders' equity
for the years then ended, together with the notes thereto and (iii) Texas
National's Call Report as filed with the OCC as of and for the period ended June
30, 1997. The financial information referred to in this Section 2.4 is
collectively referred to herein as the "Financial Statements". The Financial
Statements fairly present the financial position and results of operations of
Texas National at the dates and for the periods indicated. Texas National had,
as of the dates of the Financial Statements, no liabilities, fixed or
contingent, which were material and were not fully disclosed or adequately
provided for in the Financial Statements. No event has occurred since the
Balance Sheet Date which would have a material adverse effect on Texas National.
Section 2.5. TITLE. True and complete copies of the deed and title
insurance policy for the real property owned by Texas National have been
provided to Bancshares and such real property is not subject to any mortgages,
deeds of trust and security agreements. Except as set forth on Schedule 2.5 of
this Agreement, Texas National has unencumbered, good, legal and indefeasible
title to all of its properties and assets, real and personal, including without
limitation all of the properties and assets reflected in the Financial
Statements, except (i) as noted in the Financial Statements or as set forth in
the documents delivered or made available to Bancshares referred to above, (ii)
statutory liens not yet delinquent, (iii) 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 (iv) those assets and properties disposed
of for fair value in the ordinary course of business since the dates of the
Financial Statements. Texas National owns no securities of or interest in any
commercial bank, financial institution or other entity except as set forth in
Schedule 2.5 of this Agreement.
Section 2.6. ENVIRONMENTAL LAWS. Texas National is in compliance with
all terms and conditions of all applicable federal, state and local
environmental statutes, regulations or ordinances required thereunder
("Environmental Laws"), except to the extent that failure to comply would not
have a material adverse effect on Texas National. There is no legal,
administrative or other proceeding, claim or legal action of any nature pending,
or to the best knowledge of Texas National, threatened which seeks to impose on
Texas National any liability arising from (i) any violation of any Environmental
Laws or (ii) the release of Hazardous Materials (as hereinafter defined) under
any Environmental Laws. To the best knowledge of Texas National, Texas National
is not subject to any claim or lien under any Environmental Laws. To the best
knowledge of Texas National, no real
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estate currently owned, operated or leased by Texas National, or owned,
operated or leased by Texas National within ten years preceding the date of
this Agreement, has been designated by any federal, state or local agency as
requiring any environmental remediation or other response action to comply
with Environmental Laws, or to the best knowledge of Texas National, has been
the site of the release or discharge of any Hazardous Materials except as set
forth in Schedule 2.6 hereto. For purposes of this Section 2.6, Texas
National shall not be considered "owning" or "operating" real estate if it
merely maintains a security interest in that real estate. As used in this
Agreement, the term "Hazardous Materials" means petroleum and all petroleum
products as well as any pollutant, contaminant or hazardous substance under
the Comprehensive Environmental Response, Compensation and Liability Act, or
any similar state law.
Section 2.7. LITIGATION AND OTHER PROCEEDINGS. Except as otherwise noted
in Schedule 2.7 hereto, there are no legal, quasi judicial or administrative
proceedings of any kind or nature now pending or, to the best knowledge of Texas
National, threatened before any court or administrative body in any manner
against Texas National, or any of its properties or capital stock, which could
reasonably be expected to have a material adverse effect on Texas National, its
financial condition, assets, operations or earnings or the transactions proposed
by this Agreement. Except as previously disclosed to Bancshares in writing,
Texas National has no knowledge of any basis on which any litigation or
proceeding could be brought which could have a material adverse effect on Texas
National or which could question the validity of any action taken or to be taken
in connection with this Agreement and the transactions contemplated hereby.
Except for any uncompleted requirements of the Cease and Desist Order of the OCC
dated September 28, 1994 (the "Cease and Desist Order"), Texas National 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. There are no suits, actions, claims, proceedings or
investigations pending, or to the best knowledge of Texas National, threatened,
seeking to prevent or challenge the transactions contemplated by this Agreement.
Section 2.8. TAXES. Except as set forth on Schedule 2.8, Texas National
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 therein to be due. Except as described in Schedule
2.8 hereto, Texas National 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 Texas National 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 Texas National.
Texas National has not waived any statute of limitations with respect to any tax
or other assessment or levy, and except as set forth on Schedule 2.8, all such
taxes and other assessments and levies which Texas National 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 Texas National, as required by law.
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True and complete copies of the federal income tax returns of Texas
National as filed with the Internal Revenue Service for the years ended
December 31, 1996 (when available), December 31, 1995, December 31, 1994 and
December 31, 1993 have been delivered or made available to Bancshares.
Section 2.9. CONTRACTS. Except as otherwise noted in Schedule 2.9
hereto, Texas National is not a party to or bound by any (i) employment contract
(including without limitation any collective bargaining contract or union
agreement), consulting or similar agreement which is not terminable by Texas
National on less than sixty (60) days notice without payment of any amount on
account of such termination; (ii) bonus, stock option, deferred compensation or
profit-sharing, pension or retirement plan or other employee benefit
arrangement; (iii) material lease or license with respect to any property, real
or personal, whether as landlord, tenant, licensor or licensee; (iv) contract or
commitment for capital expenditures in excess of $10,000 for any one project;
(v) contract or commitment for the purchase of materials or supplies or for the
performance of services over a period of more than sixty (60) days from the date
of this Agreement involving an annual expenditure in excess of $50,000; (vi)
contract or option to purchase or sell any real or personal property other than
in the ordinary course of business; (vii) contract, order, memorandum, agreement
or letter with respect to the management of Texas National imposed by any bank
regulatory authority having supervisory jurisdiction over Texas National, (viii)
agreement, contract or indenture related to the borrowing by Texas National of
money other than those entered into in the ordinary course of business; (ix)
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; (x) agreement with or
extension of credit to any executive officer or director of Texas National or
holder of more than ten percent (10%) of the Texas National 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 collectability or other unfavorable features; (xi) agreement between Texas
National and any present or former officer, director, employee or agent of Texas
National or any business in which any of such persons has an interest; or (xii)
material contracts, other than the foregoing, involving more than $25,000 not
made in the ordinary course of business and not otherwise disclosed in this
Agreement or in any schedule attached hereto. Complete and correct copies of
all contracts, commitments, leases, agreements and other documents described in
Schedule 2.9 have been delivered or made available to Bancshares. Texas
National has in all material respects performed all material obligations
required to be performed by it to date and is not in default under, and to the
best knowledge of Texas National, 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 Texas National is a party
or by which its properties or assets are bound or under any provision of its
Articles of Association or Bylaws.
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Section 2.10. INSURANCE. Schedule 2.10 hereto is a true and complete list
of all insurance policies owned or held by or on behalf of Texas National (other
than credit-life policies), including policy numbers, retention levels,
insurance carriers and effective and termination dates. Such policies are in
full force and effect and contain standard cancellation or termination clauses.
Texas National has received no notice of cancellation or termination of any such
policies. Complete and correct copies of such policies have been delivered or
made available to Bancshares.
Section 2.11. NO CONFLICT WITH OTHER INSTRUMENTS. Neither the execution
and delivery of this Agreement nor the consummation of the purchase contemplated
thereby will conflict with or result in a breach of any provision of Texas
National's Articles of Association, Bylaws, or other constituent documents, if
applicable. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby, subject to obtaining all 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 Texas National 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 Texas National or upon the Texas National Common Stock.
Section 2.12. LAWS. Except as otherwise noted in Schedule 2.12 hereto,
Texas National is in compliance with all applicable federal, state and local
laws, rules, regulations and orders, except to the extent that failure to comply
would not have a material adverse effect on Texas National. Texas National 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, the
FDIC or any other regulatory authority having jurisdiction over Texas National,
and such reports, registrations and statements are, to the best knowledge of
Texas National, true and correct in all material respects.
Section 2.13. CONDUCT. Since the Balance Sheet Date and except as
otherwise disclosed on Schedule 2.13 hereto, Texas National has not (i) issued
or sold any of its capital stock or corporate debt obligations (excluding
insured deposits) or granted any options for the purchase of its capital stock;
(ii) 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 its issued and outstanding capital stock; (iii) 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);
(iv) 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 Balance Sheet, accruals, accounts and notes payable incurred
since the Balance Sheet Date in the ordinary course of business and accruals,
accounts and notes payable incurred in connection with the transactions
contemplated by this Agreement; (v) sold, exchanged or otherwise disposed of any
of its capital assets other than in the ordinary course of business; (vi)
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made any general or individual wage or salary increase (except in the
ordinary course of business and in accordance with prior practices of Texas
National), paid any bonus, entered into any employment contract or made any
accrual or arrangement for or payment of bonuses or special compensation of
any kind or any severance or termination pay to any present or former officer
or salaried employee or instituted or amended any employee welfare,
retirement or similar plan or arrangement; (vii) materially increased the
rate of compensation payable or to become payable by Texas National to any of
its directors, officers, employees or agents; (viii) made any significant
change in any method of management, operation or accounting of Texas
National; (ix) suffered any damage, destruction or casualty loss, whether or
not covered by insurance, which had or could have a material adverse effect
on Texas National; (x) except in the ordinary course of business, entered
into any agreement or arrangement granting any preferential rights to
purchase any 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; or (xi) agreed to do any of the foregoing.
Section 2.14. ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for
possible loan losses of Texas National has been calculated in accordance with
regulatory accounting principles as applied to banking institutions and in
accordance with all applicable rules and regulations. At the Closing Date, no
material facts relevant to the adequacy of the allowance for possible loan
losses as of that date will have been withheld from Bancshares.
Section 2.15. EMPLOYMENT RELATIONS. The relations of Texas National with
its employees are satisfactory, and Texas National has not received any notice
of any controversies with, or organizational efforts or other pending actions
by, representatives of its employees. Except as disclosed on Schedule 2.15,
Texas National has complied in all material respects with all laws relating to
employment or labor concerning its employees, including any provisions thereof
relating to wages, hours, collective bargaining and the payment of workers'
compensation insurance and social security and similar taxes, and no person has
asserted that Texas National is liable for any arrearage of wages, workers'
compensation insurance premiums or any taxes or penalties for failure to comply
with any of the foregoing.
Section 2.16. ERISA. Texas National has no employee pension benefits
plans and welfare benefit plans that are subject to the provisions of ERISA.
Section 2.17. LOANS AND INVESTMENTS. Texas National is not aware of any
defense to or excuse for Texas National's enforcement of the documents and
instruments which evidence loans and investments of Texas National in accordance
with their terms (subject to bankruptcy, insolvency, moratorium or other laws
affecting creditors generally or by the exercise of judicial discretion, and
authorized under applicable federal and state laws and regulations) and Texas
National has no notice whatsoever of any claim or objection to the enforcement
of such documents and instruments by the obligors thereunder. For the purposes
of this Section 2.17, Texas National makes no representation or warranty of any
kind or nature concerning whether any borrower or other obligor of Texas
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National has the financial ability to pay a loan or that the collateral is
sufficient in value to result in payment of the loan secured thereby.
Section 2.18. ACCURATE AND COMPLETE RECORDS. The books, ledgers,
financial records and other records of Texas National for the period of time
which is not less than three years prior to the date hereof or any such longer
period as may be required by applicable laws or regulations:
(a) are, or will be prior to the Closing Date, in the possession of
Texas National;
(b) have been, in all material respects, maintained in accordance
with all applicable laws, rules and regulations and generally accepted standards
of practice; and
(c) are accurate and complete and do not contain or reflect any
material discrepancies.
Section 2.19. PERFORMANCE OF OBLIGATIONS. Except as otherwise noted in
Schedule 2.19 hereto, Texas National has performed in all material respects all
of the obligations required to be performed by it to date under, and Texas
National is not in default under or in breach of, any term or provision of any
covenant, contract, lease, indenture or any other covenant to which it is a
party, is subject or is otherwise bound, and no event has occurred that, with
the giving of notice or the passage of time or both, would constitute such
default or breach, where such default or breach or failure to perform would have
a material adverse effect on Texas National. To Texas National's knowledge, no
party with whom Texas National has an agreement that is of material importance
to the business of Texas National is in default thereunder.
Section 2.20. NO MISLEADING STATEMENTS. The representations and
warranties of Texas National contained in this Agreement, the schedules hereto
and all other documents and information furnished to Bancshares and its
representatives pursuant hereto are complete and accurate and do not and will
not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements made and to be made not
misleading.
Section 2.21. ABSENCE OF CHANGES. Since the Balance Sheet Date, except as
disclosed in Schedule 2.21 to this Agreement, there has not been any material
adverse change in the condition (financial or otherwise), assets, liabilities,
earnings or business of Texas National. Since such date, the business of Texas
National has been conducted only in the ordinary course consistent with prior
practices.
Section 2.22. BROKERS AND FINDERS. Neither Texas National 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.
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Section 2.23. REGULATORY APPROVALS. Texas National has no reason to
believe that it will not be able to obtain all requisite regulatory approvals
(if any) necessary to consummate the Consolidations as set forth in this
Agreement.
III. REPRESENTATIONS AND WARRANTIES OF
BANCSHARES AND BAYSHORE
Bancshares and Bayshore represent and warrant to Texas National 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. Bancshares owns 100% of the issued and
outstanding common stock of Bayshore. Bayshore is a national banking
association duly organized, validly existing and in good standing under the laws
of the United States. Bayshore is an insured bank as defined in the Federal
Deposit Insurance Act. Upon the organization of New Bank, Bancshares 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 United States of America. Bancshares and Bayshore 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
and perform this Agreement.
Section 3.2. APPROVALS; AUTHORITY. The Boards of Directors of Bancshares
and Bayshore have each approved this Agreement and the transactions contemplated
herein subject to the approval thereof by the shareholders of Bancshares and
Bayshore as required by law, and, other than shareholder approval required by
law, no further corporate proceedings of Bancshares or Bayshore are needed to
deliver this Agreement and consummate the Consolidations. This Agreement has
been duly executed and delivered by Bancshares and Bayshore and, when all
requisite regulatory and shareholder approvals have been obtained, it will be a
binding agreement of Bancshares and Bayshore 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 3.3. 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, Bayshore, 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,
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or any order, writ, injunction or decree of any court or other governmental
agency, or any contract, agreement or instrument to which Bancshares,
Bayshore, 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 or
Bayshore or upon the stock of Bancshares or Bayshore.
Section 3.4. REGULATORY APPROVALS. Bancshares and Bayshore have no
reason to believe that they will not be able to obtain all requisite regulatory
approvals necessary to consummate the Consolidations as set forth in this
Agreement.
Section 3.5. LITIGATION. There is no pending or threatened litigation,
arbitration, or other action or proceeding to which Bancshares is a party that
seeks to prevent or delay the execution and delivery of this Agreement or the
completion of the transactions contemplated by this Agreement.
Section 3.6. DUE DILIGENCE. Bancshares has had, or by the Closing Date
will have had adequate opportunity to examine the books and records of Texas
National, including, without limitation, the loan records of Texas National, and
as a result of that examination, Bancshares has arrived at its own evaluation
of the quality of Texas National's loan portfolio and the adequacy of Texas
National's loan loss reserve. Consequently, in so far as the quality of Texas
National's loan portfolio and the adequacy of Texas National's loan loss reserve
is concerned, Bancshares is relying on its own evaluation and not upon any
statements, representations, or warranties of Texas National.
IV. COVENANTS OF TEXAS NATIONAL
Texas National covenants and agrees with Bancshares and Bayshore as
follows:
Section 4.1. SHAREHOLDER APPROVAL AND BEST EFFORTS. Texas National will,
as soon as practicable, present for the approval of its shareholders this
Agreement and the transactions contemplated hereby. Texas National 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 Bancshares reasonably considers
necessary, proper or advisable in connection with filing applications or
obtaining approvals from, all regulatory authorities having jurisdiction over
the transactions contemplated by this Agreement.
Section 4.2. INVITATION TO MEETINGS. A designee of Bancshares (the
"Bancshares Designee") shall be entitled to attend as an invited guest all
regular and special meetings of the Boards of Directors of Texas National. The
Bancshares Designee shall also be entitled to prior
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notice of and attendance as an invited guest at all meetings of the
executive, loan and discount, and any other committees of Texas National. In
addition, the Bancshares Designee shall be allowed to be present in Texas
National from time to time in manner so as not to interfere with the normal
operation of Texas National to review all financial reports, watch loan
lists, new loan lists and other documents generated by Texas National in its
day-to-day operations.
Section 4.3. CONDUCT OF BUSINESS PRIOR TO CLOSING. Without Bancshares'
prior written consent to the contrary, which consent shall not be unreasonably
withheld, prior to the date of the Closing, Texas National will operate so as:
(a) To carry on its business in substantially the same manner as it
has been conducted since June 30, 1997;
(b) To 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) To maintain in full force and effect insurance comparable in
amount and scope of coverage to that currently maintained for
Texas National;
(d) To 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) To perform all of its material obligations under contracts,
leases and documents relating to or affecting its assets,
properties and business, except such obligations as Texas
National may in good faith reasonably dispute;
(f) To maintain and preserve its business organization intact, use
its best efforts to retain its present employees and maintain
relationships with depositors and customers of Texas National;
(g) To comply with and perform all obligations and duties imposed
upon Texas National by all federal, state and local laws, and all
rules, regulations and orders imposed by federal, state or local
governmental authorities; provided, however, that Bancshares
agrees that the current steps being taken by Texas National to
achieve compliance with the Cease and Desist Order shall
constitute compliance with this subsection;
(h) To notify Bancshares immediately upon commencement of any
compliance, safety and soundness or the other type of examination
conducted by the
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FDIC, the OCC or any other agency having supervisory authority
over Texas National;
(i) Not to mortgage, pledge or encumber any asset, nor sell nor
transfer any of its assets, except in the ordinary course of
business;
(j) Not to declare or pay during 1997 any dividends in an amount in
excess of Texas National's earnings for the year, measured
through the end of the month prior to Closing if the Closing
takes place at any time before the sixteenth day of a given
month, and measured as of the fifteenth day of the month in which
the Closing takes place if the Closing occurs on or after the
sixteenth day of the month; provided that on the Closing Date
Texas National's total equity capital accounts shall be at least
$1,571,000. It is specifically provided that any increases or
decreases in value of the securities held available for sale will
not affect the calculation of total equity capital for purposes
of this Section 4.3(j);
(k) Not to make or authorize any change in Texas National's
authorized stock or in its articles of association or bylaws;
(l) Not to make any capital expenditures in an amount greater than
$10,000.00;
(m) Not to make any investment portfolio transactions;
(n) Not to enter into or amend or allow Texas National to enter into
or amend any contract agreement or other instrument of any of the
types listed in Section 2.9 of this Agreement other than in the
ordinary course of business with prior notice to Bancshares;
(o) Not take or allow Texas National to take any action described or
do any of the things listed in Section 2.13 of this Agreement
(except with respect to Section 2.13(ix)) other than in the
ordinary course of business with prior notice to Bancshares;
(p) Not to increase the compensation paid or to be paid to any
officer or employee of Texas National;
(q) To take such action as may be reasonably necessary to maintain,
preserve, renew and keep in full force and effect their corporate
existence and rights; and
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(r) Not to purchase from or sell a participation in any loan or other
extension of credit to First National Bank of Bellaire, First
Bank of Deer Park, Texas Coastal Bank or Mayde Creek Bank, N.A.
Section 4.4. LITIGATION AND CLAIMS. Texas National will promptly notify
Bancshares of (i) any litigation or any claim, controversy or contingent
liability that may become the subject of litigation against Texas National or
affecting Texas National's property, if such litigation or potential litigation
may, in the event of an unfavorable outcome, have a material adverse effect on
Texas National, (ii) any violation or alleged violation of any state or federal
environmental laws or regulations, or (iii) any correspondence from a state or
federal bank regulatory authority severely criticizing Texas National management
or proposing a formal or informal regulatory enforcement action.
Section 4.5. CONFIDENTIALITY. Without the prior written consent of
Bancshares, Texas National shall not release, disseminate or transfer, either
verbally or by any other means, any part of the information regarding Bancshares
acquired as a result of the execution and performance of this Agreement, to any
party not a party hereto, other than as necessary to consummate the
Consolidations.
Section 4.6. STANDSTILL PROVISION. So long as this Agreement is in
effect, Texas National will not provide any information to or negotiate with any
other party with respect to the merger, acquisition, or sale of all or
substantially all of the assets or capital stock of Texas National. Texas
National 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.
Section 4.7. ACCESS TO PROPERTIES AND RECORDS. To the extent permitted
by law, Texas National shall afford Bancshares and authorized representatives
(including legal counsel, accountants and consultants) of Bancshares full access
in a reasonable manner and at reasonable times to its properties, books and
records in order that Bancshares may have full opportunity to make such
reasonable investigation as it shall desire to make of Texas National's affairs
and officers of Texas National will furnish Bancshares with such additional
financial and operating data and other information as to its business and
properties as Bancshares shall, from time to time, request. Bancshares shall not
disclose any confidential information furnished by Texas National to Bancshares
except and to the extent required by law in the reasonable judgment of
Bancshares; the parties acknowledge that appropriate disclosure must be made to
governmental entities. In the event of termination of this Agreement,
Bancshares shall return to Texas National all documents and other information
obtained pursuant hereto and shall keep confidential and not use any information
obtained pursuant to this Agreement. This Section is not applicable to any
information that was or becomes generally available to the public other than
through a breach of this Agreement.
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Section 4.8. INFORMATION FOR APPLICATIONS. Texas National shall, to the
extent permitted by law, furnish Bancshares with all information required for
inclusion in (i) any application, statement or document to be made or filed by
Bancshares or Bayshore with any governmental entity in connection with the
transactions contemplated by this Agreement during the pendency of this
Agreement ("Regulatory Applications"), and (ii) any registration statement and
amendments thereto ("Registration Statement") to be filed by Bancshares with the
Securities and Exchange Commission ("SEC") or any state securities authorities
in order to register the shares of common stock of Bancshares ("Bancshares
Common Stock") to be sold in order to obtain the proceeds to pay the
Consolidation Price ("Securities Filings"). Texas National represents and
warrants to Bancshares that all information to be furnished by Texas National
for inclusion in any Regulatory Applications or Securities Filings shall be true
and correct in all material respects and shall not contain any statement which,
at the time and in light of the circumstances under which it is made, is false
or misleading with respect to any material fact, or omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances in which they are made, not misleading. Texas National 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
Texas National contained in any application or filing referred to in Sections
4.1 or 4.8 of this Agreement, and confirming that the information with respect
to Texas National contained in such document or draft was furnished by Texas
National 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 Texas National expressly for use therein.
Section 4.9. ADDITIONAL DISCLOSURES AND INFORMATION. Texas National
shall give Bancshares prompt written notice if at any time on or prior to the
Closing there is a change in any state of facts, or there is the occurrence,
nonoccurrence or existence of any event subsequent to the date of this Agreement
(or any event prior to the date of this Agreement which Texas National become
aware of subsequent to the date of such Agreement), which change or event is
known to Texas National and which would (i) make any representation or warranty
(including the information set forth in the Schedules) made by Texas National to
Bancshares not true or correct in any material respect or (ii) have a material
adverse effect on Texas National, it being the intention of the parties to this
Agreement that Texas National shall engage in a continuous disclosure process
from the date of this Agreement through the Closing.
Section 4.10. PROXIES. Texas National acknowledges that to the best of
its knowledge the persons listed on Schedule 4.10 have agreed that they will
vote the shares of Texas National Common Stock owned by them in favor of this
Agreement and the transactions contemplated hereby, subject to required
regulatory approvals, and that they will retain the right to vote such shares of
Texas National Common Stock during the term of this Agreement and have given
E.D. Vickery a proxy to vote such shares of Texas National Common Stock in favor
of the Agreement if they should fail to do so, pursuant to a Voting Agreement
and Irrevocable Proxy substantially in the form attached hereto as EXHIBIT D.
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Section 4.11. RELEASES. Texas National acknowledges that the persons
listed on Schedule 4.11 have agreed that they will release and discharge Texas
National from any action or claim that they may have against Texas National
(except as to deposits, accounts and loans with Texas National, any rights to
indemnification pursuant to the Articles and Bylaws of Texas National and any
rights of such person with respect to the Agreement) pursuant to the Release of
Claims substantially in the form attached hereto as EXHIBIT E.
V. COVENANTS OF BANCSHARES AND BAYSHORE
Bancshares and Bayshore covenant and agree with Texas National as follows:
Section 5.1. BEST EFFORTS. If required, Bayshore and New Bank will, as
soon as practicable, present for the approval of their respective shareholders,
this Agreement and the transactions contemplated thereby. Bancshares and
Bayshore will take all reasonable action to aid and assist in the consummation
of the Consolidations and the transactions contemplated hereby, 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 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 including, but not limited to, filing the Registration Statement with
the SEC and having the Bancshares Common Stock registered with the SEC.
Section 5.2. INFORMATION FOR APPLICATIONS AND PROXY SOLICITATION. To the
extent permitted by law, Bancshares will furnish Texas National with all
information concerning Bancshares and Bayshore required for inclusion in (a) any
application, statement or document to be made or filed by Texas National 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 (b) any proxy materials to be furnished to the shareholders of
Texas National in connection with their consideration of the Consolidations.
Each of Bancshares and Bayshore 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 Texas National from and against any
and all losses, claims, damages, expenses or liabilities to which Texas National
may become subject under applicable laws, rules and regulations and will
reimburse Texas National for any legal or other expenses reasonably incurred by
Texas National 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
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information expressly furnished by Bancshares expressly for use therein.
Bancshares agrees, upon the request of Texas National, to furnish to Texas
National a written letter or statement confirming to the best of its
knowledge the accuracy of the information with respect to Bancshares and
Bayshore 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 Bayshore 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. CONFIDENTIALITY. Bancshares shall not release, disseminate
or transfer either verbally or by any other means any part of the information
regarding Texas National acquired as a result of execution and performance of
this Agreement, to any party not a party hereto, other than as necessary to
consummate the Consolidations or have the Bancshares Common Stock registered
with the SEC. Furthermore, Bancshares agrees (i) not to use any information or
forms of documentation obtained from Texas National in any way, directly or
indirectly, damaging to the interests of Texas National; (ii) not to use,
directly or indirectly, any of the information obtained from Texas National for
its own benefit or for the benefit of another, separate and apart from the
purposes of this Agreement; and (iii) not to disclose any of the information
obtained from Texas National to anyone without the express, prior, written
permission of Texas National. In the event this Agreement is terminated, any
and all copies of the books and records of Texas National in the possession of
Bancshares shall be returned to Texas National.
Section 5.4. NOTICES. Bancshares will promptly give notice to Texas
National of the occurrence of any event or the failure of any event to occur
that results in a breach of any representation or warranty by Bancshares or a
failure by Bancshares to comply with any covenant, condition or agreement
contained in this Agreement.
Section 5.5. RELEASES. Bancshares will release and discharge the persons
listed on Schedule 5.5 from any action or claim that they may have against such
persons (except as to deposits and accounts with Texas National and any rights
of Bancshares pursuant to the Agreement) pursuant to the Release of Claims
substantially in the form attached hereto as EXHIBIT F.
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:
(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
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(b) if the transactions contemplated by this Agreement are being
contested in any legal proceeding and Bancshares or Texas National, 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 Texas National, to the consummation of the transactions
contemplated herein, or such prior date as each of Bancshares and Texas National
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. INITIAL CONSOLIDATION EFFECTIVE TIME. 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
approval of the shareholders of New Bank and Texas National and the regulatory
approvals of the Federal Reserve Board, OCC, the FDIC, Banking Department, and
any other federal or state regulatory agency whose approval must be received in
order to consummate the Initial Consolidation, the Initial Consolidation shall
become effective, and the effective time of the Initial Consolidation shall
occur, at the date and time specified in the certificate approving the Initial
Consolidation to be issued by the OCC ("Initial Consolidation Effective Time").
It is anticipated by Bancshares and Texas National that the Closing, the Initial
Consolidation Effective Time and the Effective Date will occur on the same day.
Section 6.3. 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 Bayshore and Texas National and the regulatory approvals of the
Federal Reserve Board, the OCC, the 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 Texas
National that the Closing, the Initial Consolidation Effective Time and the
Effective Date will occur on the same day.
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VII. TERMINATION
Section 7.1. TERMINATION.
(a) This Agreement may be terminated by action of the Board of
Directors of either Bancshares, Bayshore or Texas National at any time prior to
the Initial Consolidation Effective Time if:
(i) there shall be any actual or threatened action or proceeding
by or before any court or any other governmental body which shall seek
to restrain, prohibit or invalidate the transactions contemplated by
this Agreement and which, in the judgment of such Board or Boards of
Directors, makes it inadvisable to proceed with the Consolidations;
(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;
(iii) the Consolidations shall not have become effective on or
before December 31, 1997, or such later date as shall have been
approved in writing by the Boards of Directors of Bancshares, Bayshore
and Texas National; 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; or
(iv) Purchaser has not received all required regulatory approvals
as set forth in Section 10.1 of this Agreement by November 30, 1997;
provided however, that the right to terminate under this Section
7.1(a)(iv) 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 to obtain such approvals on
or before such date.
(b) This Agreement may be terminated at any time prior to the Initial
Consolidation Effective Time by the Board of Directors of Texas National if
Bancshares or Bayshore shall fail to comply in any material respect with any of
their covenants or agreements contained in this Agreement, or if any of the
representations or warranties of Bancshares or Bayshore contained herein shall
be defective in any material respect.
(c) This Agreement may be terminated any time prior to the Effective
Date by action of the Board of Directors of Bancshares or Bayshore if (i) Texas
National shall fail to comply
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in any material respect with any of its covenants or agreements contained in
this Agreement, or if any of the representations or warranties of Texas
National contained herein shall be defective in any material respect, (ii)
there shall have been any change after the Balance Sheet Date in the assets,
properties, business or financial condition of Texas National which
individually or in the aggregate have materially and adversely affected the
financial condition, results of operation or business of Texas National, or
(iii) the Board of Directors determines that necessary approval from a
regulatory authority, including but not limited to the registration of the
Bancshares Common Stock with the SEC, cannot reasonably be obtained or that
the terms or conditions of a necessary approval are unacceptable in its
reasonable discretion.
(d) This Agreement may be terminated by Bancshares within fifteen
(15) days of the date of execution of the Agreement in the event that the
executed Voting Agreement and Irrevocable Proxies described in Section 4.10 have
not been obtained.
(e) This Agreement may be terminated at any time prior to the
Effective Date with the mutual written consent of Bancshares, Bayshore, and
Texas National and the approval of such action by their respective Boards of
Directors.
Section 7.2. RIGHT TO CURE. If either Bancshares, Bayshore or Texas
National shall elect to terminate this Agreement pursuant to Section 7.1, then
such party must notify the other party in writing of its intent to terminate
stating the reason therefor and such other party shall have fifteen days from
the receipt of such notice to cure the alleged breach, inaccuracy or change or
satisfy such condition subject to the approval of the party seeking to terminate
the Agreement.
VIII. CONDITIONS TO OBLIGATIONS OF BANCSHARES AND BAYSHORE
The obligations of Bancshares and Bayshore 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 and Bayshore in their sole
discretion:
Section 8.1. COMPLIANCE WITH REPRESENTATIONS AND COVENANTS. The
representations and warranties made by Texas National in this Agreement must
have been true 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 Texas National 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 Texas National 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 Texas
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National, nor shall any event have occurred which, with the lapse of time,
may cause or create any material adverse change in the financial condition,
business or operations of Texas National 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 Texas National and dated as of the Closing Date.
Section 8.3. LEGAL OPINION. Bancshares shall have received an opinion of
counsel to Texas National, 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. REGISTRATION OF BANCSHARES COMMON STOCK. The Registration
Statement covering the Bancshares Common Stock to be issued to provide funds for
the Consolidation Price shall be effective under the Securities Act of 1933 and
any applicable state securities or "blue sky" acts and no stop order suspending
the effectiveness of such Registration Statement shall be in effect and no
proceedings for such purpose, or any proceedings under the SEC or applicable
state securities authorities rules with respect to the transactions contemplated
hereby, shall be pending before or threatened by the SEC or any applicable state
securities or "blue sky" acts and no stop order suspending the effectiveness of
such Registration Statement shall be in effect and no proceedings for such
purpose, or any proceedings under the SEC or applicable state securities
authorities rules with respect to the transactions contemplated hereby, shall be
pending before or threatened by the SEC or any applicable state securities or
blue sky authorities.
Section 8.5. SUCCESSFUL INITIAL PUBLIC OFFERING. Through no fault of
either Bancshares or Hoefer & Arnett, the Underwriter of Bancshares' proposed
public offering of common stock, Hoefer & Arnett fails to perform its firm
commitment to successfully underwrite and complete an initial public offering of
Bancshares Common Stock in which Bancshares shall have received from such public
offering net proceeds of at least $8,500,000 by purchasing the entire issue as
principal (whether or not they are able to subsequently resell the securities to
their institutional and retain clients).
Section 8.6. RELEASES. Bancshares shall have received all of the
releases referred to in Section 4.11.
Section 8.7. PROCEEDINGS AND DOCUMENTS. All actions, proceedings,
instruments and documents required to effectuate this Agreement or incidental
hereto shall be satisfactory in substance and form to Bancshares and its
counsel.
Section 8.8. LITIGATION. Texas National shall have furnished Bancshares
with certificates dated as of the Closing Date signed by an appropriate officer
of Texas National to the effect that to Texas National's knowledge, no
litigation, proceeding, investigation or inquiry, other than that which is set
forth in Schedule 2.7 of this Agreement, is pending or threatened that might
result in action
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to enjoin or prevent the consummation of the transaction contemplated by this
Agreement or is likely to result in a material adverse change in Texas
National or any of its assets, properties, business, financial condition, or
operations.
Section 8.9. RESIGNATION. Bancshares shall have received the written
resignations effective as of the Closing Date of any officers and directors of
Texas National as may be requested in writing by Bancshares.
Section 8.10. NO PENDING ACTIONS. No proceeding initiated by any person
or governmental authority seeking to restrain or enjoin the transaction shall be
pending.
Section 8.11. NO DEFAULT. Except for any uncompleted requirements of that
certain Cease and Desist Order, Texas National shall not be in default under any
material order, judgment, award or decree of any court, arbitrator or
governmental authority binding upon or affecting Texas National or by which any
of Texas National's assets may be bound or affected, and no such order,
judgment, award or decree materially adversely affects the ability of Texas
National to carry on its business as now conducted. Bancshares shall have
received a certificate to the foregoing effect executed by Texas National and
dated as of the Closing Date.
Section 8.12. OCC LETTER. Bayshore shall have received an opinion from
the OCC, satisfactory in form and content to Bancshares and its counsel, that
the loans to Jerry J. Moore and his affiliated interests which have been deemed
by the OCC to have been issued in excess of Texas National's lending limits,
will not represent a violation of 12 U.S.C. Section 84 to Bayshore and its
directors.
Section 8.13. CANCELLATION OF DATA PROCESSING CONTRACTS. Texas National
shall have received written confirmation that when Texas National's data
processing and ATM agreements terminate, they will do so without any penalty or
additional liability.
Section 8.14. REMOVAL OF CERTAIN CREDIT. Texas National shall have
removed from its books the loan identified in Schedule 8.14.
Section 8.15. COVENANT NOT TO COMPETE. Each officer of Texas National
shall have executed a Covenant Not to Compete in the form substantially as set
forth in Exhibit G.
IX. CONDITIONS TO OBLIGATIONS OF TEXAS NATIONAL
The obligations of Texas National under this Agreement are subject to the
satisfaction, at or prior to the Closing Date, of the following conditions,
which may be waived by Texas National in its sole discretion:
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Section 9.1. COMPLIANCE WITH REPRESENTATIONS AND COVENANTS. The
representations and warranties made by Bancshares and Bayshore in this Agreement
must have been true 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 and Bayshore
shall have performed and complied with all covenants and conditions required by
this Agreement to be performed or complied with by Bancshares and Bayshore prior
to or at the Closing. Texas National shall be furnished with a certificate,
executed by appropriate representatives of Bancshares and dated as of the
Closing Date, to the foregoing effect.
Section 9.2. LEGAL OPINION. Texas National shall have received an
opinion of counsel to Bancshares, dated as of the Closing Date and in form and
substance satisfactory to counsel for Texas National, to the effect set forth in
Schedule 9.2 hereof.
Section 9.3. RELEASES. Bancshares shall have delivered all of the
releases referred to in Section 5.5.
Section 9.4. PROCEEDINGS AND DOCUMENTS. All actions, proceedings,
instruments and documents required to effectuate this Agreement or incidental
hereto shall be satisfactory in substance and form to Texas National and its
counsel.
Section 9.5. PAYMENT OF CONSIDERATION. Bancshares shall pay the
Consolidation Price by cash, cashiers check, or wire transfer to the
shareholders of Texas National upon the proper surrender of the Texas National
Common Stock.
X. CONDITIONS TO RESPECTIVE OBLIGATIONS OF BANCSHARES,
BAYSHORE AND TEXAS NATIONAL
The respective obligations of Bancshares, Bayshore, and Texas National
under this Agreement are subject to the satisfaction of the following conditions
which may be waived by Bancshares, Bayshore and Texas National, respectively, in
their sole discretion:
Section 10.1. GOVERNMENT APPROVALS. Bancshares and Texas National 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 Federal Reserve Board 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 Texas National may, but
shall not be
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obligated to, answer and defend such contest or otherwise pursue the
Consolidations over such objection.
Section 10.2. SHAREHOLDER APPROVAL. The shareholders of Texas National
and Bancshares as the sole shareholder of Bayshore and New Bank shall have voted
for the authorization and approval of, or given their respective written consent
to, this Agreement and the transactions contemplated by this Agreement.
XI. MISCELLANEOUS
Section 11.1. NOTICES. Any notice, request, instruction or other
communication required hereunder shall be given in writing and shall be deemed
to be given and received when delivered personally, or forty-eight hours after
deposit in the United States mail, certified or registered, return receipt
requested, postage prepaid, as follows:
If to Texas National then to: Mr. E. D. Vickery
Royston Rayzor Vickery & Williams
600 Travis Street, Suite 2200
Houston, Texas 77002
With a copy to: Mr. C. Thomas Scott
Chamberlain, Hrdlicka, White, Williams &
Martin
2100 Smith Street, Suite 1400
Houston, Texas 77002
If to Bancshares then to: Mr. L. D. Wright
Bay Bancshares, Inc.
1001 Highway 146
La Porte, Texas 77571
With a copy to: Mr. William T. Luedke IV
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
Section 11.2. EFFECT OF TERMINATION. In the event of termination of this
Agreement and the abandonment of the transaction 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, stockholders or
agents, if any; provided, however, that the provisions of Sections 4.5 and 5.3
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respecting confidentiality shall remain in force. Nothing contained in this
Section 11.2 shall relieve any party hereto of any liability for a breach of
this Agreement.
Section 11.3. ENTIRE AGREEMENT MODIFICATION; WAIVER. This Agreement
constitutes the entire agreement between the parties hereto pertaining to the
subject matter hereof and supersedes all prior contemporaneous agreements,
undertakings, negotiations and discussions, whether oral or written, and there
are no warranties, representations or agreements between the parties in
connection with the subject matter hereof, except as set forth or referred to
herein. No supplement, modification, waiver or termination of this Agreement or
any provision thereof shall be binding unless executed in writing by the parties
to be bound thereby. No waiver of any of the provisions of this Agreement shall
constitute a waiver of any other provisions (whether or not similar) nor shall
such waiver constitute a continuing waiver unless otherwise expressly provided.
Section 11.4. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas, and to the extent
applicable, the laws of the United States of America.
Section 11.5. LEGAL CONSTRUCTION. In case any one or more of the
provisions contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall- not affect any other provisions hereof, and this
Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
Section 11.6. ATTORNEY'S FEES. If any action at law or in equity,
including an action for declaratory relief, is brought to enforce or interpret
the provisions of this Agreement, the prevailing party shall be entitled to
recover reasonable attorney's fees from the other party, which fees may be set
by the Court in the trial of such action or may be enforced in a separate action
brought for that purpose, and which fees shall be in addition to any other
relief that may be awarded.
Section 11.7. COOPERATION. Bancshares and Texas National agree to
cooperate and work together to provide any information required by either party
to consummate this transaction and in negotiating and agreeing upon any other
matters that may arise in connection with the consummation of the transactions
contemplated by this Agreement, and obtaining approval of all necessary
regulatory authorities.
Section 11.8. ASSIGNABILITY. This Agreement and the obligations created
hereunder are assignable by Bancshares to any person or entity, subject to prior
notice to, and the approval of, Texas National, which approval shall not be
unreasonably withheld.
Section 11.9. SINGULAR, PLURAL, HEADINGS. Whenever the singular form of
any word is used in this Agreement, the same shall include the plural form of
such word, whenever appropriate, and
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vice versa. The headings contained in this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning of any of
the provisions contained herein.
Section 11.10. COMMISSIONS. Texas National and Bancshares agree and
represent to each other that there are no commissions due to any broker or any
other persons related to the transaction that is the subject of this Agreement,
and each party hereto agrees to indemnify and hold harmless the other party
hereto from any commission due as a result of its actions with respect to this
transaction.
Section 11.11. EFFECTIVE DATE. The effective date of this Agreement shall
be the date a copy of this Agreement, fully executed by Texas National, is
returned to and received by Bancshares.
Section 11.12. EXPENSES. Whether or not the transactions provided for
herein are consummated, Bancshares and Texas National shall pay their own
expenses in connection with this Agreement and the transactions contemplated
hereby, including without limitation, all reasonable counsel fees; provided
that, Bancshares shall pay up to $5,000 of Texas National's legal fees related
to the consummation of the transactions set forth in this Agreement.
Section 11.13. BINDING EFFECT. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors and assigns as permitted by law.
Section 11.14. REPRESENTATION BY COUNSEL. Both parties acknowledge that
they have had the benefit of representation by legal counsel of their choosing
in negotiating the terms of this agreement, that they have executed this
agreement of their own free will with the intent to be bound hereby.
Section 11.15. NON-SURVIVAL OF REPRESENTATIONS. Bancshares and Texas
National shall satisfy themselves as to the accuracy of the representations and
warranties contained herein prior to Closing. None of the representations or
warranties contained herein shall survive the Closing.
Section 11.16. FACSIMILE SIGNATURES. The signature of any party hereto
transmitted by facsimile shall be effective in all respects to bind such party
in the same manner as an original signature.
Section 11.17. 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 11.18. 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 11.19. 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 11.20. GENDER. Any pronoun used herein shall refer to any gender,
either masculine, feminine or neuter, as the context requires.
Section 11.21. 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 Consolidations will occur upon, and be
determined by, the mutual consent of Bancshares and Texas National.
Section 11.22. 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 11.23. AGREEMENT REGARDING CERTAIN PARTICIPATIONS. At all times
prior to the Closing, and as required by the Cease and Desist Order, Texas
National and the other participating banks will attempt to sell their
participation interests in certain loans and extensions of credit originally
made to Jerry J. Moore and his affiliated interests and later assumed by what is
now CenterAmerica, Inc. (the "Moore Loans") and which loans are, inter alia, the
subject of the Cease and Desist Order. A list of the Moore Loans and the
participations of each bank participant are attached hereto as Schedule 11.23.
Such sale of the Moore Loans may be made individually or in bulk, and may take
place at a purchase price less than the face amount of the loan or loans. In
connection with any such sale of the Moore Loans, Texas National agrees as
follows:
(a) Texas National will use its best efforts to negotiate, and will
use its best efforts to persuade any of the other participants in the Moore
Loans to negotiate, a sale of the loans at the lowest possible discount,
provided however, that Texas National will not sell any Moore Loan participation
for a discount of greater than 10% without the prior written consent of
Bancshares.
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(b) At all times after the Closing, and for an indefinite period of
time thereafter, Bancshares and Bayshore agree as follows:
(i) Bancshares and Bayshore, and the other participating banks
as required by the Cease and Desist Order, will use their best efforts to
sell the Moore Loans at the lowest possible discount.
(ii) If a written offer to purchase all or any part of the Moore
Loans in which Bancshares and Bayshore have a participating interest is
received by Bancshares or Bayshore or any of the other financial
institutions who have participating interests in the Moore Loans at a
discount not to exceed 10%, and the holders of a majority interest in terms
of aggregate loan dollar amount outstanding with respect to those loans to
which the offer relates desire to accept such offer on the terms and
conditions stated in the written offer (as the same may thereafter be
negotiated in favor of the participating lenders), Bancshares and Bayshore
will sell their participating interest in and to the loans covered by the
written offer at the offered price and upon the same terms and conditions
as may be accepted by the holders of a majority interest in terms of
aggregate loan dollar amount outstanding with respect to the loans to which
the offer pertains.
(iii) If a written offer to purchase all or any part of the
Moore Loans at a discount in excess of 10% is received by Bancshares,
Bayshore or any of the other participating banks, all of the participating
banks will have to agree to the sale.
(c) Any purchaser of all or part of the Moore Loans from Texas
National or Bancshares or Bayshore or any of the participating banks will be
expressly required to be bound by the provisions of paragraphs (a) and (b) of
this Section 11.23.
(d) Without the prior written consent of all participating banks, no
sale of any Moore Loan participation at any discount will be made to any person
or entity other than a bona fide third party with no management or ownership
affiliation with any of the banks which own participations in the Moore Loans.
Section 11.24. INDEMNIFICATION. In consideration for Texas National
entering into this Agreement and agreeing to the consolidation rather than a
stock purchase arrangement, Bancshares and Bayshore agree to protect, defend,
indemnify and hold Texas National, its agents, directors, officers, and
employees harmless from and against all losses, claims, demands, liabilities or
causes of action of every kind and character, in favor of any person, entity or
party, for any damages of whatsoever nature sustained by any person, entity or
party, which arises out of or is incidental to, either directly or indirectly,
their activities or work or documentation in furtherance of the transactions set
forth in this Agreement, and regardless of whether the damages, losses, claims,
demands, liabilities or causes of action of every kind or character were caused
by or arose out of the
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sole, concurrent, active or passive negligence or gross negligence of any
party or entity, strict liability, breaches of express or implied warranties,
and/or any other legal fault of any party or entity, including that of Texas
National, its agents, directors, officers and employees. Bancshares and
Bayshore shall fully defend any such claims, demands or suits at its sole
expenses, including all attorneys' fees, costs, and other related expenses,
even if the same are groundless. It is specifically provided, however, that
the indemnification set forth above shall only apply to actions taken as a
result of this transaction being structured as a consolidation rather than a
stock purchase agreement containing the usual representations, warranties,
covenants and conditions as set forth in such a stock purchase agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
BAY BANCSHARES, INC.
By:
--------------------------------
ATTEST:
By:
-----------------------------
BAYSHORE NATIONAL BANK
By:
--------------------------------
ATTEST:
By:
-----------------------------
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<PAGE>
TEXAS NATIONAL BANK OF BAYTOWN
By:
------------------------------------
ATTEST:
By:
-----------------------------
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<PAGE>
SCHEDULE 2.5 TO THE CONSOLIDATION AGREEMENT:
TITLE - TEXAS NATIONAL
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<PAGE>
SCHEDULE 2.6 TO THE CONSOLIDATION AGREEMENT:
ENVIRONMENTAL LAWS - TEXAS NATIONAL
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<PAGE>
SCHEDULE 2.7 TO THE CONSOLIDATION AGREEMENT:
LITIGATION AND OTHER PROCEEDINGS - TEXAS NATIONAL
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<PAGE>
SCHEDULE 2.8 TO THE CONSOLIDATION AGREEMENT:
TAXES - TEXAS NATIONAL
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<PAGE>
SCHEDULE 2.9 TO THE CONSOLIDATION AGREEMENT:
CONTRACTS - TEXAS NATIONAL
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<PAGE>
SCHEDULE 2.10 TO THE CONSOLIDATION AGREEMENT:
INSURANCE - TEXAS NATIONAL
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<PAGE>
SCHEDULE 2.12 TO THE CONSOLIDATION AGREEMENT:
LAWS - TEXAS NATIONAL
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<PAGE>
SCHEDULE 2.13 TO THE CONSOLIDATION AGREEMENT:
CONDUCT - TEXAS NATIONAL
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<PAGE>
SCHEDULE 2.15 TO THE CONSOLIDATION AGREEMENT:
EMPLOYMENT RELATIONS - TEXAS NATIONAL
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<PAGE>
SCHEDULE 2.17 TO THE CONSOLIDATION AGREEMENT:
LOANS AND INVESTMENTS - TEXAS NATIONAL
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<PAGE>
SCHEDULE 2.21 TO THE CONSOLIDATION AGREEMENT:
ABSENCE OF CHANGES - TEXAS NATIONAL
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<PAGE>
SCHEDULE 4.10 TO THE CONSOLIDATION AGREEMENT:
PROXIES
The following list comprises individuals who are (i) directors, (ii) officers or
(iii) holders of 5% or more of the Texas National Common Stock, each of whom has
agreed to execute the Voting Agreement.
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<PAGE>
SCHEDULE 4.11 TO THE CONSOLIDATION AGREEMENT:
RELEASES
Directors and Officers of Texas National.
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<PAGE>
SCHEDULE 5.5 TO THE CONSOLIDATION AGREEMENT:
RELEASES
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<PAGE>
SCHEDULE 8.3 TO THE CONSOLIDATION AGREEMENT:
LEGAL OPINION TO BE DELIVERED BY TEXAS NATIONAL
The legal opinion of counsel for Texas National which is called for by Section
8.3 of the Agreement shall be to the following effect:
(a) Texas National is a national banking association duly organized,
validly existing and in good standing under the laws of the United
States of America and has full power and authority (including all
licenses, franchises, permits and other governmental authorizations
which are legally required) to own its properties, to engage in the
business and activities now conducted by it and to enter into this
Agreement.
(b) The authorized capital stock of Texas National consists of 38,962
shares of Common Stock, $10.00 par value. As of the date hereof,
38,962 shares of Texas National Common Stock were issued and
outstanding. All of the shares which are issued and outstanding are
validly issued, fully paid and have not been issued in violation of
the preemptive rights of any person. There are no existing options,
warrants, calls, convertible securities or commitments of any kind
enabling Texas National to issue any authorized and unissued Texas
National Common Stock nor does Texas National have any commitment or
obligation to repurchase, reacquire or redeem any of its outstanding
capital stock.
(c) The Board of Directors of Texas National has approved the Agreement
and the transactions contemplated thereby. All necessary corporate
proceedings, including all appropriate and legal actions by
shareholders of Texas National to approve and authorize the
transactions set forth in the Consolidation Agreement, have been
taken. This Agreement has been duly executed and delivered by Texas
National and is a binding agreement of Texas National enforceable
against Texas National in accordance with its terms.
(d) Except as otherwise noted in the Agreement, there are no legal,
quasi-judicial or administrative proceedings of any kind or nature now
pending or, to the knowledge of counsel to Texas National, threatened
before any court or administrative body in any manner against Texas
National or any of their properties or capital stock which might have
a material adverse effect on Texas National, its financial condition,
assets, operations or earnings or the transactions proposed by the
Agreement. Texas National 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.
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(e) The execution and delivery of the Agreement and the consummation of
the transactions contemplated thereby will not, to the best knowledge
of counsel to Texas National, 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 Texas National 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 Texas National or upon the Texas National
Common Stock.
Such opinion shall also cover such other matters incident to the transactions
contemplated by the Agreement as Bancshares may reasonably request. As to
questions of fact material to their opinion, such counsel may rely upon
certificates of officers of the Texas National. Such opinion may contain such
qualifications, exceptions and explanations as are satisfactory in form and
substance to Bancshares.
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<PAGE>
SCHEDULE 8.14 TO THE CONSOLIDATION AGREEMENT:
REMOVAL OF CERTAIN CREDIT
The loan originated in October of 1996 in the principal amount of $246,000 to
Billy F. Holcomb.
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<PAGE>
SCHEDULE 9.2 TO THE CONSOLIDATION AGREEMENT:
LEGAL OPINION TO BE DELIVERED BY BANCSHARES
The legal opinion of counsel for Bancshares which is called for by Section 9.2
of the Agreement shall be to the following effect:
(a) Bancshares is a corporation duly organized, validly existing and
in good standing under the laws of the State of Texas, and has
full power and authority (including all licenses, franchises,
permits and other governmental authorizations which are legally
required) to own its properties, to engage in the business and
activities now conducted by it and to enter into this Agreement.
(b) Bayshore is a national banking association duly organized, validly
existing and in good standing under the laws of the United States of
America, and has full power and authority (including all licenses,
franchises, permits and other governmental authorizations which are
legally required) to own its properties, to engage in the business and
activities now conducted by it and to enter into this Agreement.
(c) The Board of Directors of Bancshares and Bayshore and the shareholder
of Bayshore have approved the Agreement and the transactions
contemplated thereby. The Agreement has been duly executed and
delivered by Bancshares and Bayshore and is a binding agreement of
Bancshares and Bayshore enforceable against Bancshares and Bayshore in
accordance with its terms.
(d) The execution and delivery of the Agreement and the consummation of
the transactions contemplated thereby, will not, to the best knowledge
of counsel to Bancshares, 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 either Bancshares or Bayshore is a party or by
which they are 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 of the assets or properties of Bancshares or Bayshore
or upon the stock of Bancshares or Bayshore.
Such opinion shall also cover such other matters incident to the transactions
contemplated by the Agreement as Texas National may reasonably request. As to
questions of fact material to their opinion, such counsel may rely upon
certificates of officers of Bancshares and Bayshore. Such
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<PAGE>
opinion may contain such qualifications, exceptions and explanations as are
satisfactory in form and substance to Texas National.
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<PAGE>
EXHIBIT A
PLAN OF CONSOLIDATION
BETWEEN BAYSHORE INTERIM NATIONAL BANK
AND TEXAS NATIONAL BANK OF BAYTOWN
This PLAN OF CONSOLIDATION (the "Plan") is dated as of the ____ day of
_________, 1997, by and between Texas National Bank of Baytown, a national
banking association located in Baytown, Texas ("Texas National") and Bayshore
Interim National Bank ("New Bank"), a national interim banking association
formed as a wholly-owned subsidiary of Bayshore Bancshares, Inc. ("Bancshares")
solely to facilitate the transactions contemplated by the Consolidation
Agreement, defined below. Texas National and New Bank are hereinafter sometimes
collectively referred to as the "Merging Institutions."
This Plan of Consolidation is being entered into pursuant to the Agreement
and Plan of Consolidation dated as of August __, 1997 (the "Consolidation
Agreement") by and among Bancshares, Bayshore National Bank, and Texas National.
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 ("OCC").
Section 1.2. "New Bank Common Stock" shall mean the common stock, par
value $10.00 per share, of New Bank owned by Bancshares.
Section 1.3. "Texas National Common Stock" shall mean the common stock,
par value $10.00 per share, of Texas National.
<PAGE>
Section 1.4. "The Consolidation" shall refer to the consolidation of New
Bank with and into Texas National as provided in Section 2.1 of this Plan.
Section 1.5. "Surviving Bank" shall refer to Texas National as the
institution surviving the Consolidation.
ARTICLE 2.
TERMS OF THE CONSOLIDATION
Section 2.1. THE CONSOLIDATION. Subject to the terms and conditions set
forth in the Consolidation Agreement, on the Effective Date, New Bank shall be
consolidated with and into Texas National, with Texas National as the Surviving
Bank, under the charter and Articles of Association of Texas National, 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 Surviving Bank. The shares of
common stock of the 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 Surviving Bank, all of which shall be owned by Bancshares.
Section 2.2. ARTICLES OF ASSOCIATION, BYLAWS AND FACILITIES OF SURVIVING
BANK. On the Effective Date and until thereafter amended in accordance with
law, the Articles of Association of the Surviving Bank shall be the Articles of
Association of Texas National as in effect on the Effective Date. Until
altered, amended or repealed as provided therein and in the Articles of
Association of the Surviving Bank, the Bylaws of the Surviving Bank shall be the
Bylaws of Texas National as in effect on the Effective Date. The main office of
the Surviving Bank shall be the main office of Texas National as of the
Effective Date, and all corporate acts, plans, policies, contracts, approvals
and authorizations of Texas National 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 Surviving Bank and shall be as
effective and binding thereon as the same were with respect to Texas National
and New Bank respectively, as of the Effective Date.
Section 2.3. EFFECT OF CONSOLIDATION. On the Effective Date of the
Consolidation, the corporate existence of Texas National and New Bank shall be
consolidated into and continued in the Surviving Bank, and the Surviving Bank
shall be deemed to be a continuation in entity and identity of Texas National
and New Bank. All rights, franchises and interests of Texas National and New
Bank, respectively, in and to any type of property and chooses in action shall
be transferred to and
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<PAGE>
vested in the Surviving Bank by virtue of the Consolidation without any deed
or other transfer. 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 Texas National
and New Bank, respectively, as of the Effective Date.
Section 2.4. LIABILITIES OF THE SURVIVING BANK. On the Effective Date,
the Surviving Bank shall be liable for all liabilities of Texas National and New
Bank. All deposits, debts, liabilities and obligations of Texas National 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 Texas National or New Bank, as the case may be, shall be those of the
Surviving Bank and shall not be released or impaired by the Consolidation. All
rights of creditors and other obligees and all liens on property of either Texas
National or New Bank shall be preserved unimpaired.
ARTICLE 3.
CONVERSION OF SHARES
Section 3.1. CONVERSION OF TEXAS NATIONAL COMMON STOCK. On the Effective
Date, each share of Texas National 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 right to receive
$61.59848 in cash ("Consolidation Price") based on 38,962 shares outstanding.
Section 3.2. EXCHANGE OF SHARES. On or immediately prior to the
Effective Date, Bancshares shall have available cash in sufficient amount to pay
the aggregate Consolidation Price. At least ten (10) days in advance of the
Closing Date (as defined in Section 6.1 of the Agreement), Bancshares will send
to each shareholder of Texas National a letter of transmittal for use in
exchanging such holder's certificates for his pro rata amount of the
Consolidation Price. Each shareholder of Texas National shall be entitled to
receive payment for his shares only upon surrender of the certificates
representing his shares of Texas National 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 Texas
National Common Stock certificate will be deemed for all corporate purposes to
represent and evidence solely the right to receive the
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<PAGE>
amount of the Consolidation Price to be paid therefor pursuant to the
Consolidation Agreement without interest thereon.
Section 3.3. DISSENTING SHARES. Each share of Texas National Common
Stock issued and outstanding immediately prior to the Effective Date, the holder
of which has not voted in favor of the 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 exchanged his
certificates representing shares of Texas National Common Stock for the
Consolidation Price and otherwise has not effectively withdrawn or lost his
dissenter's rights, shall not be converted into or represent the right to
receive the Consolidation Price pursuant to Section 3.1 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. If any holder of
Dissenting Shares shall effectively withdraw or lose his dissenter's rights
under the applicable provisions of the National Bank Act, such Dissenting Shares
shall be converted into the right to receive the Consolidation Price in
accordance with the provisions of Section 3.1.
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 38,962 shares of common stock of the Surviving Bank. The
shares of common stock of the 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 Surviving Bank, all of which shall be owned by
Bancshares.
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 Consolidation Agreement.
Section 4.2. TERMINATION. This Plan shall be terminated upon the
termination of the Consolidation 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.
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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 Texas National.
IN WITNESS WHEREOF, New Bank and Texas National 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.
BAYSHORE INTERIM NATIONAL BANK
Attest:
By:
- ------------------------------ ------------------------------
TEXAS NATIONAL BANK OF BAYTOWN
Attest:
By:
- ------------------------------ ------------------------------
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<PAGE>
EXHIBIT B
PLAN OF CONSOLIDATION
BETWEEN
TEXAS NATIONAL BANK OF BAYTOWN
AND
BAYSHORE NATIONAL BANK
THIS PLAN OF CONSOLIDATION (the "Plan) is dated as of the ____ day of
________, 1997, by and between Texas National Bank of Baytown ("Texas
National"), a national banking association and the surviving bank of the Plan of
Consolidation between Bayshore Interim National Bank and Texas National, and
Bayshore National Bank ("Bayshore").
W I T N E S S E T H:
WHEREAS, pursuant to the Agreement and Plan of Consolidation (the
"Consolidation Agreement") dated as of August __, 1997, by and among Bayshore
Bancshares, Inc. ("Bancshares"), Bayshore, and Texas National and the Plan of
Consolidation, dated as of __________, 1997, between Texas National and Bayshore
Interim National Bank ("New Bank"), New Bank will consolidate with and into
Texas National (the "First Consolidation"), with the result that Texas National
will become a wholly-owned subsidiary of Bancshares;
WHEREAS, the Consolidation Agreement provides that simultaneously with or
as soon as practicable after the First Consolidation, Texas National will be
consolidated with and into Bayshore;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Texas National and Bayshore hereby
agree that, subject to the terms and conditions hereinafter set forth, and in
accordance with all applicable laws and regulations, Texas National shall be
consolidated with and into Bayshore 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 Consolidation Agreement, which conditions are incorporated
herein by reference, shall have been satisfied or waived.
2. IDENTITY OF RESULTING BANK. The resulting bank as a result of the
Final Consolidation (the "Resulting Bank") shall be Bayshore.
<PAGE>
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 Resulting Bank shall be the Articles of Association
of Bayshore as in effect on the Effective Date. Until altered, amended or
repealed as therein provided and in the Articles of Association of Resulting
Bank, the Bylaws of Resulting Bank shall be the Bylaws of Bayshore as in effect
on the Effective Date. Unless and until changed by the Board of Directors of
Resulting Bank, the main office of Resulting Bank shall be the main office of
Bayshore as of the Effective Date. The established offices and facilities of
Texas National immediately prior to the Final Consolidation shall become
established offices and facilities of the Resulting Bank. Until thereafter
changed in accordance with law or the Articles of Association or Bylaws of
Resulting Bank, all corporate acts, plans, policies, contracts, approvals and
authorizations of Texas National and Bayshore 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 Resulting Bank and shall be as effective and
binding thereon as the same were with respect to Texas National and Bayshore,
respectively, as of the Effective Date.
4. EFFECT OF FINAL CONSOLIDATION. On the Effective Date, the corporate
existence of the Texas National and Bayshore shall, as provided by law, be
consolidated into and continued in Resulting Bank, and Resulting Bank shall be
deemed to be a continuation in entity and identity of Texas National and
Bayshore. All rights, franchises and interests of Texas National and Bayshore,
respectively, in and to any type of property and chooses in action shall be
transferred to and vested in Resulting Bank by virtue of such Final
Consolidation without any deed or other transfer. Resulting 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 Texas National
and Bayshore, respectively, as of the Effective Date.
5. LIABILITIES OF CONTINUING BANK. On the Effective Date of the Final
Consolidation, Resulting Bank shall be liable for all liabilities of Texas
National and Bayshore. All deposits, debts, liabilities, obligations and
contracts of Texas National and of Bayshore, 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 Texas
National or Bayshore shall be those of Resulting 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 Texas National or Bayshore shall be
preserved unimpaired subsequent to the Final Consolidation.
-2-
<PAGE>
6. EFFECTIVE DATE. The Final Consolidation shall become effective upon
the issuance of a certificate approving the Final Consolidation to be issued by
the Office of the Comptroller of the Currency. The term "Effective Date" shall
mean the date and time designated in the certificate approving the Final
Consolidation. 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 Consolidation
Agreement.
7. CANCELLATION OF STOCK. On the Effective Date, all of the outstanding
shares of capital stock of Texas National, 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
Consolidation Agreement.
9. TERMINATION. This Plan shall be terminated upon the termination of
the Consolidation 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 Agreement 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.
11. SUCCESSORS. This Agreement shall be binding on the successors of
Texas National and Bayshore.
IN WITNESS WHEREOF, Texas National and Bayshore have caused this Agreement
to be executed by their duly authorized officers as of the date first above
written.
TEXAS NATIONAL BANK OF BAYTOWN
ATTEST:
By:
- ------------------------------ ------------------------------
-3-
<PAGE>
BAYSHORE NATIONAL BANK
ATTEST:
By:
- ------------------------------ ------------------------------
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<PAGE>
EXHIBIT C
ESCROW AGREEMENT
THIS ESCROW AGREEMENT dated as of August __, 1997 ("Agreement") is
entered into by and among Bay Bancshares, Inc. ("Bancshares") and Texas
National Bank of Baytown (the "Bank") who are parties to the Agreement and Plan
of Consolidation dated July __, 1997 ("Consolidation Agreement"), a copy of
which is attached as Exhibit "A" and _____________________ Bank (the "Escrow
Agent").
W I T N E S S E T H:
WHEREAS, Bancshares, Bayshore National Bank and the Bank have executed
and delivered the Consolidation Agreement; and
WHEREAS, the Agreement contemplates the acquisition of the Bank by
Bancshares; and
WHEREAS, pursuant to the Agreement, the parties desire to set aside in
escrow certain earnest money delivered by Bancshares in accordance with the
Agreement; and
WHEREAS, Bancshares and the Bank desire that the Escrow Agent act as
escrow agent hereunder, and the Escrow Agent is willing to act as escrow agent
hereunder;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS. Except as herein defined, capitalized terms used in this
Escrow Agreement have the meanings set forth in the Consolidation Agreement.
2. APPOINTMENT OF ESCROW AGENT. The Escrow Agent is hereby appointed as
escrow agent under this Escrow Agreement to perform the services described
herein, and the Escrow Agent hereby accepts such appointment.
3. ESCROW FUNDS.
a. EARNEST MONEY. Upon execution of this Agreement, Bancshares
shall deposit with the Escrow Agent the sum of $50,000 ("Earnest Money"). The
Escrow Agent shall hold the Earnest Money and will disburse the Earnest Money
and any accrued interest thereon in the following manner:
(1) The disbursement provisions set forth immediately below
shall not become affective unless and until the Bank has
delivered to the
<PAGE>
Escrow Agent and Bancshares evidence satisfactory to both
the Escrow Agent and Bancshares that each of the directors,
officers and holders of at least five percent of the issued
and outstanding common stock of the Bank have executed the
Voting Agreement and Irrevocable Proxy set forth as Exhibit
"D" to the Consolidation Agreement.
(2) CREDIT TO PURCHASE PRICE. If the Consolidations as defined
in the Consolidation Agreement close, the Earnest Money will
be credited to the Consolidation Price as set forth in
Section 1.12(a) of the Consolidation Agreement.
(3) RETURN OF EARNEST MONEY. Bancshares will be entitled to a
return of the Earnest Money if:
(a) the Consolidations do not close because of a failure to
satisfy one or more of the conditions to Closing set
forth in Articles VIII or X of the Agreement, or
(b) Bancshares terminates the Agreement for any of the
reasons set forth in Sections 7.1(a), (c), (d) or (e)
of the Consolidation Agreement.
(4) LOSS OF EARNEST MONEY. Bancshares will forfeit the earnest
money and it will be distributed to Bank if:
(a) the Closing does not occur by December 31, 1997, or
such other date mutually agreed to in writing by the
parties to the Consolidation Agreement, despite the
fact that the Bank has satisfied all conditions to
Closing and Bancshares has not terminated the
Consolidation Agreement.
(b) the Agreement is terminated by the Bank because
Bancshares or Bayshore has breached or failed to
perform in any material respect any of Bancshares'
covenants or agreements contained in the Consolidation
Agreement and has not cured the alleged breach after
receiving proper notice as set forth in the
Consolidation Agreement.
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<PAGE>
4. INVESTMENT OF EARNEST MONEY. The Earnest Money shall be invested and
reinvested in any certificate of deposit or acceptance, maturing not more than
30 days after the date of investment, issued by a commercial banking institution
that is a member of the Federal Reserve System and which has a combined capital
and surplus and undivided profits of not less than $2,000,000.
Notwithstanding the foregoing, no investment shall have a maturity greater than
30 days if such maturity extends past the termination date of this Escrow
Agreement. Without specific instructions, the Escrow Agent is not required to
invest the Earnest Money.
5. RESPONSIBILITY OF ESCROW AGENT. The Escrow Agent shall not be
responsible for the genuineness of any signature or document presented to it
pursuant to this Agreement and may rely conclusively upon and shall be protected
in acting upon any advice, judicial order or decree, certificate, notice,
request, consent, statement, instruction or other instrument believed by it in
good faith to be genuine or to be signed or presented by the proper person
hereunder, or duly authorized by such person or properly made. The Escrow Agent
shall not be responsible for any of the agreements contained herein except the
performance of its duties as expressly set forth herein. The Escrow Agent is
not responsible for investigating or assuring compliance with the Consolidation
Agreement or any amendments thereto or any other agreement or documents outside
of this Escrow Agreement. The Escrow Agent shall be entitled to retain counsel
and to act in reliance upon the advice of such counsel in all matters pertaining
to this Agreement, and shall not be liable for any action taken or omitted by it
in good faith in accordance with such advice. The duties and obligations of the
Escrow Agent hereunder shall be governed solely by the provisions of this
Agreement, and the Escrow Agent shall have no duties other than the duties
expressly imposed hereby and shall not be required to take any action other than
in accordance with the terms hereof. The Escrow Agent shall not be bound by any
notice of, or demand with respect to, any waiver, modification, amendment,
termination, cancellation, rescission or supersession of this Agreement, unless
in writing and signed by Bancshares and Bank, and, if the duties of the Escrow
Agent are affected thereby, unless it shall have given its prior written consent
thereto. In the event of any controversy or dispute hereunder or with respect
to any question as to the construction of this Agreement, or any action to be
taken by the Escrow Agent hereunder, the Escrow Agent shall incur no liability
for any action taken or suffered in good faith, its liability hereunder to be
limited solely to gross negligence or willful misconduct on its part. The
Escrow Agent's reliance on counsel shall be considered to be in good faith for
purposes of this Escrow Agreement.
6. INDEMNIFICATION OF ESCROW AGENT. BANCSHARES AND BANK HEREBY AGREE TO
INDEMNIFY THE ESCROW AGENT FOR, AND TO HOLD IT HARMLESS AGAINST, ANY LOSS,
LIABILITY OR EXPENSE INCURRED WITHOUT GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON
THE PART OF THE ESCROW AGENT, ARISING OUT OF OR IN CONNECTION WITH ITS ENTERING
INTO THIS
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<PAGE>
ESCROW AGREEMENT, AND CARRYING OUT ITS DUTIES HEREUNDER, INCLUDING THE COSTS
AND EXPENSES OF DEFENDING ITSELF AGAINST ANY CLAIM OF LIABILITY.
7. RIGHT OF INTERPLEADER. Should any controversy arise between
Bancshares and Bayshore, and Bank, or any other person, firm or entity, with
respect to this Escrow Agreement, the Earnest Money, or any part thereof, or the
right of any party or other person to receive the Earnest Money, or Bancshares
and Bank fail to designate another Escrow Agent as provided in Section 9 hereof,
or if the Escrow Agent should be in doubt as to what action to take, the Escrow
Agent shall have the right (but not the obligation) to (i) withhold delivery of
the Earnest Money until the controversy is resolved, the conflicting demands are
withdrawn or its doubt is resolved or (ii) institute a bill of interpleader in
any court of competent jurisdiction to determine the rights of the parties
hereto (the right of the Escrow Agent to institute such bill of interpleader
shall not, however, be deemed to modify the manner in which the Escrow Agent is
entitled to make disbursements of the Earnest Money as hereinabove set forth
other than to tender the Earnest Money into the registry of such court). If a
bill of interpleader is instituted, or if the Escrow Agent is threatened with
litigation or becomes involved in litigation in any manner whatsoever on account
of this Escrow Agreement or the Earnest Money, then as between themselves and
the Escrow Agent, Bancshares and Bank, jointly and severally, hereby bind and
obligate themselves, their successors, heirs, executors and assigns to pay the
Escrow Agent its reasonable attorney's fees and any and all other disbursements,
expenses, losses, costs and damages of the Escrow Agent in connection with or
resulting from such threatened or actual litigation.
8. COLLECTED FUNDS; COLLECTION OF CHECKS OR INSTRUMENTS. Any check
included in the Earnest Money shall be collected by the Escrow Agent and the
proceeds held as part of the Earnest Money. No monies shall be disbursed by the
Escrow Agent until and unless it has collected the deposited funds. If any
check or instrument delivered to the Escrow Agent under this Escrow Agreement is
uncollectible and if the Escrow Agent has distributed funds represented by such
item pursuant to the terms hereof, the Escrow Agent shall notify the depositor
thereof and shall deliver the returned check or instrument to such depositor,
and such depositor shall immediately reimburse the Escrow Agent for the amount
of funds uncollectible. The Escrow Agent may pay out monies held in escrow by
its check. The Escrow Agent shall not be obligated to take any legal action to
enforce payment of any item deposited with it in escrow.
9. TERMINATION. This Escrow Agreement shall terminate as to the Earnest
Money on the date on which the Escrow Agent receives written notice from
Bancshares and Bank that the parties have fulfilled all of their obligations
under this Escrow Agreement. Upon receipt of such notice, the Escrow Agent
shall deliver to Bancshares any remaining portion of the Earnest Money, if any,
including all income earned on the Earnest Money.
-4-
<PAGE>
10. REIMBURSEMENT OF EXPENSES OF ESCROW AGENT. All such fees and related
expenses (including legal expenses, if necessary) shall be the responsibility
of Bancshares and Bank and shall be paid directly by the responsible party upon
delivery of an invoice by the Escrow Agent to Bancshares and Bank.
11. RESIGNATION, REMOVAL AND REPLACEMENT OF ESCROW AGENT. The Escrow
Agent or any successor Escrow Agent may resign at any time by giving not less
than 60 days' prior written notice of resignation to Bancshares and Bank, such
resignation to be effective on the date specified in such notice. Bancshares
and Bank may at any time remove the Escrow Agent with or without cause by any
instrument or instruments in writing signed by Bancshares and Bank and delivered
to the Escrow Agent. In case the office of the Escrow Agent shall become vacant
for any reason, including, without limitation, resignation or removal, the
parties hereto shall appoint as successor Escrow Agent such other person or
entity as Bancshares and Bank agree, by an instrument or instruments in writing
delivered to such successor Escrow Agent and the retiring Escrow Agent. Upon
the appointment of any successor pursuant to this Section 14, the Escrow Agent
shall deliver the Earnest Money to the successor Escrow Agent on the date of
resignation, and such successor Escrow Agent shall immediately and without
further act succeed the retiring Escrow Agent as if originally named herein. If
no successor escrow agent is appointed, the Escrow Agent may, in its sole
discretion, deliver the Earnest Money to Bancshares, as successor escrow agent,
who shall become bound by the terms and provisions of this Escrow Agreement, or
institute a bill of interpleader.
12. NOTICES AND COMMUNICATIONS; FINAL ACCOUNTING. The Escrow Agent shall
keep Bancshares and Bank advised in writing of all transactions pursuant to this
Escrow Agreement by monthly statement of account, which shall be sent by regular
mail to each of the parties listed below. In addition, the Escrow Agent shall
issue a final financial accounting of all transactions concerning the Ernest
Money, including investments, income from investments and distributions, to
Bancshares and Bank upon termination of this Escrow Agreement.
Any notice or other communication under this Escrow Agreement shall be
deemed to have been duly delivered on the earlier of (i) the date of receipt, if
delivered by hand or telecopy, or (ii) three days after the date when the same
shall have been posted by certified mail, return receipt requested, in any post
office in the United States of America, postage prepaid and addressed to the
party to whom such notice or other communication is to be given or made at such
party's address set forth below, or to such other address as such party shall
designate by written notice to the other parties (including the Escrow Agent),
as follows:
If to Bank: Mr. E. D. Vickery
Royston Rayzor Vickery & Williams
600 Travis Street, Suite 2200
Houston, Texas 77002
-5-
<PAGE>
With a copy to: Mr. C. Thomas Scott
Chamberlain, Hrdlicka, White, Williams & Martin
1200 Smith Street, Suite 1400
Houston, Texas 77002
If to Bancshares: Mr. L. D. Wright
Bay Bancshares, Inc.
1001 Highway 146
La Porte, Texas 77571
With a copy to: Mr. William T. Luedke IV
Bracewell & Patterson, L.L.P.
711 Louisiana, Suite 2900
Houston, Texas 77002-2781
If to Escrow Agent:
---------------------
---------------------
---------------------
With a copy to :
---------------------
---------------------
---------------------
13. GOVERNING LAW. The validity, enforceability and construction of this
Escrow Agreement shall be governed by the laws of the State of Texas applicable
to contracts to be made and wholly performed in such state.
14. AMENDMENTS; SUCCESSORS. This Agreement may be amended only by a
writing signed by Bancshares and Bank, and shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
assigns. The consent of the Escrow Agent shall be required for any such
amendment in which the duties of the Escrow Agent are involved.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, which may be separately executed by the parties hereto, each of
which shall be an original and all of which taken together shall constitute one
and the same instrument.
16. ENTIRE AGREEMENT. This Escrow Agreement and the Consolidation
Agreement contain the entire agreements and understanding of the parties with
respect to the transaction contemplated
-6-
<PAGE>
hereby. No prior agreement, either written or oral, shall be construed to
change, amend, alter, repeal or invalidate this Escrow Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement
on the day and year first above written.
BAY BANCSHARES, INC.
---------------------------------------
L. D. WRIGHT
TEXAS NATIONAL BANK OF BAYTOWN
---------------------------------------
---------------------------------------
---------------------------------------
ESCROW AGENT
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<PAGE>
EXHIBIT D
VOTING AGREEMENT
AND IRREVOCABLE PROXY
This Voting Agreement and Irrevocable Proxy (the "Voting Agreement") dated
as of August __, 1997 is executed by and among Bay Bancshares, Inc., a Texas
corporation ("Bancshares"), Texas National Bank of Baytown, a national banking
association ("Texas National"), and the other persons who are signatories hereto
(referred to herein individually as a "Shareholder" and collectively as the
"Shareholders").
WHEREAS, Bancshares, Bayshore National Bank and Texas National have
executed that certain Agreement and Plan of Consolidation dated as August 4,
1997 (the "Consolidation Agreement") whereby Texas National will consolidate
into an interim bank formed as a subsidiary of Bancshares solely to facilitate
the transactions contemplated by the Consolidation Agreement, and immediately
thereafter, Texas National will consolidate into Bayshore National Bank, a
wholly owned subsidiary of Bancshares (collectively, the "Consolidations"); and
WHEREAS, the Consolidation Agreement provides that the total consideration
payable for all of issued and outstanding stock of Texas National will be
$2,400,000 or $61.59848 based on 38,962 shares issued and outstanding;
WHEREAS, Section 4.10 of the Consolidation Agreement requires that Texas
National deliver to Bancshares the irrevocable proxies of the Shareholders; and
WHEREAS, Texas National and Bancshares are relying on the irrevocable
proxies in incurring expenses in reviewing Texas National'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:
1. Each of the Shareholders hereby represents and warrants to Bancshares
and Texas National that he is the registered holder of and has the exclusive
right to vote the shares of common stock, $10.00 par value, of Texas National
("Stock") set forth below his name on the signature pages hereto. Each
Shareholder hereby agrees to vote at the shareholders' meeting referred to in
Section 1.11 of the Consolidation Agreement (the "Meeting") the shares of Stock
set forth below his name on the signature pages hereto and all other shares of
Stock such Shareholder owns of record as of the date of the Meeting and to
direct the vote of all shares of Stock which such Shareholder
-8-
<PAGE>
holds beneficially and has the power and authority to direct the voting
thereof as of the date of the Meeting (the "Shares") in favor of the
authorization and approval of the Consolidation Agreement, and the other
agreements and transactions contemplated thereby.
2. In order better to effect the provisions of Section 1, each
Shareholder hereby revokes any previously executed proxies and hereby
constitutes and appoints E.D. Vickery (the "Proxy Holder"), with full power of
substitution, his true and lawful proxy and attorney-in-fact to vote at the
Meeting all of such Shareholder's Shares in favor of the authorization and
approval of the Consolidation Agreement and the other agreements and
transactions contemplated thereby, with such modifications to the Consolidation
Agreement and the other agreements and transactions contemplated thereby as the
parties thereto may make, in the event such Shareholder does not vote in favor
of the authorization and approval of the Consolidation Agreement and the other
agreements and transactions contemplated thereby.
3. Each Shareholder hereby covenants and agrees that until this Voting
Agreement is terminated in accordance with its terms, such Shareholder will not,
and will not agree to, without the consent of Bancshares, directly or
indirectly, sell, transfer, assign, pledge, hypothecate, cause to be redeemed or
otherwise dispose of any of the Shares or grant any proxy or interest in or with
respect to any such Shares or deposit such shares into a voting trust or enter
into another voting agreement or arrangement with respect to such Shares except
as contemplated by this Voting Agreement, unless the Shareholder causes the
transferee of such Shares to deliver to Bancshares an amendment to this Voting
Agreement whereby such transferee or other holder becomes bound by the terms of
this Voting Agreement.
4. This proxy shall be limited strictly and solely to the power to vote
the Shares in the manner set forth in Section 2 and shall not extend to any
other matters.
5. Each Shareholder acknowledges that Bancshares and Texas National are
relying on this Voting Agreement in incurring expenses in reviewing Texas
National'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 Texas
National acknowledge that the performance of this Voting Agreement is intended
to benefit Bancshares.
6. The irrevocable proxy granted pursuant hereto shall continue in effect
until the earlier to occur of (i) the termination of the Consolidation
Agreement, as it may be amended or extended from time to time, or (ii) the
consummation of the Consolidations.
-9-
<PAGE>
7. 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 Texas
National 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 Consolidation Agreement as set forth in Section 1 hereof.
8. 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 Texas National, Bancshares and
the Shareholder.
9. 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.
10. This Voting Agreement, together with the Consolidation 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.
11. 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.
12. 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.
BAYSHORE BANCSHARES, INC.
By:
----------------------------------
L. D. Wright
President
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<PAGE>
Address:
1001 Highway 146
LaPorte, Texas 77571
Attention: L. D. Wright
TEXAS NATIONAL BANK OF BAYTOWN
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Address:
1900 Decker Drive
Baytown, Texas 77520
Attention: E. D. Vickery
SHAREHOLDER:
---------------------------------------
Printed Name:
--------------------------
Address:
-------------------------------
---------------------------------------
________ shares of Common Stock
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<PAGE>
EXHIBIT E
RELEASE OF CLAIMS
THIS RELEASE OF CLAIMS ("Release") dated the ______ day of ____________,
1997, is executed and delivered by the undersigned individual to Texas National
Bank of Baytown ("Bank").
WHEREAS, Bay Bancshares, Inc. ("Bancshares") will acquire the Bank pursuant
to that certain Agreement and Plan of Consolidation dated as of August ___, 1997
by and between Bancshares, Bayshore National Bank and the Bank (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 the Bank;
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 the Bank 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, no has, or hereafter can, shall or may have against the
Bank, 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 the Bank 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 the Bank 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.
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
Bank 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.
<PAGE>
Section 4. MODIFICATION. This Release may be modified only by a
written instrument executed by the undersigned and the Bank.
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 _______ )
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:
-----------------
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<PAGE>
EXHIBIT F
RELEASE OF CLAIMS
THIS RELEASE OF CLAIMS ("Release") dated the _____ day of ____________
1997, is executed and delivered by the undersigned Bay Bancshares, Inc.
("Bancshares") and Bayshore National Bank ("Bayshore") to ______________________
("Person").
WHEREAS, Bancshares will acquire Texas National Bank of Baytown (the
"Bank") pursuant to that certain Agreement and Plan of Consolidation by and
between Bancshares, Bayshore and the Bank; and
WHEREAS, the Bank has required as a condition of the acquisition that
Bancshares and Bayshore execute and deliver this Release to confirm the absence
of any claims by Bancshares and Bayshore 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, or 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 the Bank
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.
Section 4. MODIFICATION. This Release may be modified only by a
written instrument executed by the Bancshares, Bayshore and Person.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Release effective
as of the date first above written.
BAY BANCSHARES, INC.
---------------------------------------
Signature
---------------------------------------
Printed Name
BAYSHORE NATIONAL BANK
---------------------------------------
Signature
---------------------------------------
Printed Name
STATE OF TEXAS )
)
COUNTY OF HARRIS )
This instrument was acknowledged before me on _____________________, 1997
by __________________________, the ________________ of Bay Bancshares, Inc.
---------------------------------------
Notary Public in and for the
State of Texas
---------------------------------------
Notary's Name Typed or Printed
My Commission Expires:
-----------------
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<PAGE>
STATE OF TEXAS )
)
COUNTY OF HARRIS )
This instrument was acknowledged before me on _____________________, 1997
by __________________________, the ________________ of Bayshore National Bank.
---------------------------------------
Notary Public in and for the
State of Texas
---------------------------------------
Notary's Name Typed or Printed
My Commission Expires:
-----------------
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EXHIBIT G
OUTLINE OF TERMS OF NON-COMPETITION AGREEMENT
Any officer who is offered and accepts employment with Bancshares or
Bayshore will be required to enter into a Non-Competition Agreement providing
that for a one year period following the date of execution of the
Non-Competition Agreement the Officer shall not, directly or indirectly, either
as an employee, employer, consultant, agent, principal, partner, greater than
10% stockholder, 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 Texas National Bank and (ii) engage or participate in
any business that is in competition in any manner whatever with the business of
Bay Bancshares, Inc. or Bayshore National Bank within a five-mile radius of
Texas National's facility located at 1900 Decker Drive in Baytown, Texas.
Officers who are not offered employment or who are offered employment but
subsequently terminated by Bancshares or Bayshore shall not be subject to the
above restrictions. An officer who is offered employment but subsequently
voluntarily terminates his employment shall be subject to the above
restrictions.
<PAGE>
--------------------------------------
AGREEMENT AND PLAN OF CONSOLIDATION
BY AND AMONG
BAY BANCSHARES, INC.,
BAYSHORE NATIONAL BANK,
AND
FIRST BANK OF DEER PARK
DATED AS OF AUGUST 7, 1997
--------------------------------------
<PAGE>
TABLE OF CONTENTS
INTRODUCTION................................................................1
I. THE CONSOLIDATIONS.......................................................2
Section 1.1. Initial Merger..........................................2
Section 1.2. Articles of Association, Bylaws and Facilities of
First Surviving Bank....................................2
Section 1.3. Effect of Initial Merger................................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...........................3
Section 1.8. Liabilities of Continuing Bank..........................4
Section 1.9. Consolidation Consideration.............................4
Section 1.10. Dissenting Shares.......................................5
Section 1.11. Ratification by Shareholders............................5
Section 1.12. Earnest Money Deposit...................................5
II. REPRESENTATIONS AND WARRANTIES OF FIRST BANK............................6
Section 2.1. Organization............................................6
Section 2.2. Capitalization..........................................7
Section 2.3. Approvals; Authority....................................7
Section 2.4. Financial Statements....................................8
Section 2.5. Title...................................................8
Section 2.6. Environmental Laws......................................8
Section 2.7. Litigation and Other Proceedings........................9
Section 2.8. Taxes...................................................9
Section 2.10. Insurance..............................................10
Section 2.11. No Conflict With Other Instruments.....................11
Section 2.12. Laws...................................................11
Section 2.13. Conduct................................................11
Section 2.14. Allowance for Possible Loan Losses.....................12
Section 2.15. Employment Relations...................................12
Section 2.16. ERISA..................................................12
Section 2.17. Loans and Investments..................................12
Section 2.18. Accurate and Complete Records..........................13
Section 2.19. Performance of Obligations.............................13
Section 2.20. No Misleading Statements...............................13
Section 2.21. Absence of Changes.....................................13
Section 2.22. Brokers and Finders....................................13
Section 2.23. Regulatory Approvals...................................13
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III. REPRESENTATIONS AND WARRANTIES OF BANCSHARES AND BAYSHORE.............14
Section 3.1. Organization...........................................14
Section 3.2. Approvals; Authority...................................14
Section 3.3. No Conflict With Other Instruments.....................14
Section 3.4. Regulatory Approvals...................................15
Section 3.5. Litigation.............................................15
Section 3.6. Due Diligence..........................................15
IV. COVENANTS OF FIRST BANK................................................15
Section 4.1. Shareholder Approval and Best Efforts..................15
Section 4.2. Invitation to Meetings.................................15
Section 4.3. Conduct of Business Prior to Closing...................16
Section 4.4. Litigation and Claims..................................18
Section 4.5. Confidentiality........................................18
Section 4.6. Standstill Provision...................................18
Section 4.7. Access to Properties and Records.......................18
Section 4.8. Information for Applications...........................18
Section 4.9. Additional Disclosures and Information.................19
Section 4.10. Proxies................................................19
Section 4.11. Releases...............................................19
V. COVENANTS OF BANCSHARES AND BAYSHORE...................................20
Section 5.1. Best Efforts...........................................20
Section 5.2. Information for Applications and Proxy Solicitation....20
Section 5.3. Confidentiality........................................21
Section 5.4. Notices................................................21
Section 5.5. Releases...............................................21
VI. CLOSING...............................................................21
Section 6.1. Closing................................................21
Section 6.2. Initial Merger Effective Time..........................22
Section 6.3. Effective Date.........................................22
VII. TERMINATION..........................................................22
Section 7.1. Termination............................................22
Section 7.2. Right to Cure. .......................................24
VIII. CONDITIONS TO OBLIGATIONS OF BANCSHARES AND BAYSHORE................24
Section 8.1. Compliance with Representations and Covenants..........24
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Section 8.2. Material Adverse Change................................24
Section 8.3. Legal Opinion..........................................24
Section 8.4. Registration of Bancshares Common Stock................25
Section 8.5. Successful Initial Public Offering.....................25
Section 8.6. Releases...............................................25
Section 8.7. Proceedings and Documents..............................25
Section 8.8. Litigation.............................................25
Section 8.9. Resignation............................................25
Section 8.10. No Pending Actions.....................................25
Section 8.11. No Default.............................................26
Section 8.12. OCC Letter.............................................26
Section 8.13. Covenant Not to Compete................................26
IX. CONDITIONS TO OBLIGATIONS OF FIRST BANK...............................26
Section 9.1. Compliance with Representations and Covenants..........26
Section 9.2. Legal Opinion..........................................26
Section 9.3. Releases...............................................26
Section 9.4. Proceedings and Documents..............................27
Section 9.5. Payment of Consideration...............................27
X. CONDITIONS TO RESPECTIVE OBLIGATIONS OF BANCSHARES, BAYSHORE AND
FIRST BANK...........................................................27
Section 10.1. Government Approvals...................................27
Section 10.2. Shareholder Approval...................................27
XI. MISCELLANEOUS.........................................................27
Section 11.1. Notices................................................27
Section 11.2. Effect of Termination..................................28
Section 11.3. Entire Agreement Modification; Waiver..................28
Section 11.4. Governing Law..........................................28
Section 11.5. Legal Construction.....................................29
Section 11.6. Attorney's Fees........................................29
Section 11.7. Cooperation............................................29
Section 11.8. Assignability..........................................29
Section 11.9. Singular, Plural, Headings.............................29
Section 11.10. Commissions............................................29
Section 11.11. Effective Date.........................................29
Section 11.12. Expenses...............................................29
Section 11.13. Binding Effect.........................................30
Section 11.14. Representation by Counsel..............................30
Section 11.15. Non-Survival of Representations........................30
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Section 11.16. Facsimile Signatures...................................30
Section 11.17. Modifications or Waiver................................30
Section 11.18. Severability...........................................30
Section 11.19. Counterparts...........................................30
Section 11.20. Gender.................................................30
Section 11.21. Publicity..............................................31
Section 11.22. Disclosures............................................31
Section 11.23. Agreement Regarding Certain Participations.............31
Section 11.24. Indemnification........................................32
SCHEDULE 2.5 TO THE CONSOLIDATION AGREEMENT:
Title - First Bank...............................................35
SCHEDULE 2.6 TO THE CONSOLIDATION AGREEMENT:
Environmental Laws - First Bank..................................36
SCHEDULE 2.7 TO THE CONSOLIDATION AGREEMENT:
Litigation and Other Proceedings - First Bank....................37
SCHEDULE 2.8 TO THE CONSOLIDATION AGREEMENT:
Taxes - First Bank...............................................38
SCHEDULE 2.9 TO THE CONSOLIDATION AGREEMENT:
Contracts - First Bank...........................................39
SCHEDULE 2.10 TO THE CONSOLIDATION AGREEMENT:
Insurance - First Bank...........................................40
SCHEDULE 2.12 TO THE CONSOLIDATION AGREEMENT:
Laws - First Bank................................................41
SCHEDULE 2.13 TO THE CONSOLIDATION AGREEMENT:
Conduct - First Bank.............................................42
SCHEDULE 2.15 TO THE CONSOLIDATION AGREEMENT:
Employment Relations - First Bank................................43
SCHEDULE 2.17 TO THE CONSOLIDATION AGREEMENT:
Loans and Investments - First Bank...............................44
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SCHEDULE 2.21 TO THE CONSOLIDATION AGREEMENT:
Absence of Changes - First Bank..................................45
SCHEDULE 4.10 TO THE CONSOLIDATION AGREEMENT:
Proxies..........................................................46
SCHEDULE 4.11 TO THE CONSOLIDATION AGREEMENT:
Releases.........................................................47
SCHEDULE 5.5 TO THE CONSOLIDATION AGREEMENT:
Releases.........................................................48
SCHEDULE 8.3 TO THE CONSOLIDATION AGREEMENT:
Legal Opinion to be Delivered by First Bank......................49
SCHEDULE 9.2 TO THE CONSOLIDATION AGREEMENT:
Legal Opinion to be Delivered by Bancshares......................51
EXHIBIT A
PLAN OF MERGER BETWEEN BAYSHORE ACQUISITION CORPORATION AND FIRST
BANK OF DEER PARK....................................................A-1
EXHIBIT B
PLAN OF CONSOLIDATION BETWEEN FIRST BANK OF DEER PARK AND BAYSHORE
NATIONAL BANK........................................................B-1
EXHIBIT C
ESCROW AGREEMENT.....................................................C-1
EXHIBIT D
VOTING AGREEMENT AND IRREVOCABLE PROXY...............................D-1
EXHIBIT E
RELEASE OF CLAIMS....................................................E-1
EXHIBIT F
RELEASE OF CLAIMS....................................................F-1
EXHIBIT G
OUTLINE OF TERMS OF NON-COMPETITION AGREEMENT........................G-1
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<PAGE>
AGREEMENT AND PLAN OF CONSOLIDATION
This Agreement and Plan of Consolidation ("Agreement") dated as of
August 7, 1997, is by and among Bay Bancshares, Inc., a Texas corporation
("Bancshares"), Bayshore National Bank, a national banking association
("Bayshore"), and First Bank of Deer Park, a Texas banking association
located in Deer Park, Texas ("First Bank").
WHEREAS, First Bank desires to affiliate with Bancshares and Bayshore and
Bancshares and Bayshore desire to affiliate with First Bank in the manner
provided in this Agreement; and
WHEREAS, Bancshares, Bayshore, and First Bank believe that the
acquisition of First Bank 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;
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, Bayshore, and
First Bank, Bancshares will charter and organize as a wholly-owned subsidiary
a Texas corporation ("Acquisition") solely for the purpose of consummating
the consolidation transaction described herein. This Agreement provides for
(i) the merger of Acquisition with and into First Bank with First Bank as the
survivor (the "Initial Merger"), all pursuant to this Agreement and related
Plan of Merger by and between Acquisition and First Bank, a form of which is
attached hereto as Exhibit "A" and all terms of which are incorporated herein
by reference for all purposes and, immediately thereafter, (ii) the
consolidation of First Bank with and into Bayshore, with Bayshore as the
survivor (the "Final Consolidation"), all pursuant to this Agreement and the
Plan of Consolidation by and between First Bank and Bayshore, a form of which
is attached hereto as Exhibit "B" and all of the terms of which are
incorporated herein by reference for all purposes. The Initial Merger and
the Final Consolidation shall sometimes be referred to collectively as the
"Consolidations." In connection with the Consolidations, Bancshares will
acquire all issued and outstanding shares of common stock, $5.00 par value,
of First Bank ("First Bank Common Stock") in exchange for the payment in cash
to the shareholders of First Bank a total consideration of $7,970,000 or
approximately $69.0043 per share based on 115,500 shares of First Bank Common
Stock outstanding.
<PAGE>
I. THE CONSOLIDATIONS
Section 1.1. INITIAL MERGER. Acquisition shall merge with and into
First Bank (the resulting bank being herein referred to as the "First
Surviving Bank") as of the Initial Merger Effective Time, as defined in
Section 6.2, under the charter and Articles of Association of First Bank, as
determined by the Texas Department of Banking ("Banking Department") and each
of the outstanding shares of common stock of Acquisition 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 Acquisition 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 1.2. ARTICLES OF ASSOCIATION, BYLAWS AND FACILITIES OF FIRST
SURVIVING BANK. At the Initial Merger Effective Time and until thereafter
amended in accordance with law, the Articles of Association of the First
Surviving Bank shall be the Articles of Association of First Bank as in
effect at the Initial Merger Effective Time. 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
First Bank as in effect at the Initial Merger Effective Time. The main
office of the First Surviving Bank shall be the main office of First Bank as
of the Initial Merger Effective Time, and all corporate acts, plans,
policies, contracts, approvals and authorizations of First Bank and
Acquisition and their respective shareholders, boards of directors,
committees elected or appointed thereby, officers and agents, which were
valid and effective immediately prior to the Initial Merger Effective Time,
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 First Bank and
Acquisition respectively, as of the Initial Merger Effective Time.
Section 1.3. EFFECT OF INITIAL MERGER. At the Initial Merger Effective
Time, the corporate existence of First Bank and Acquisition 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 First Bank and
Acquisition. All rights, franchises and interests of First Bank and
Acquisition, respectively, in and to any type of property and chooses in
action shall be transferred to and vested in the First Surviving Bank by
virtue of the Initial Merger 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 First Bank and Acquisition, respectively,
as of the Initial Merger Effective Time.
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<PAGE>
Section 1.4. LIABILITIES OF THE FIRST SURVIVING BANK. At the Initial
Merger Effective Time, the First Surviving Bank shall be liable for all
liabilities of First Bank and Acquisition. All deposits, debts, liabilities
and obligations of First Bank and of Acquisition, respectively, accrued,
absolute, contingent or otherwise, and whether or not reflected or reserved
against on balance sheets, books of account or records of First Bank or
Acquisition, as the case may be, shall be those of the First Surviving Bank
and shall not be released or impaired by the Initial Merger. All rights of
creditors and other obligees and all liens on property of either First Bank
or Acquisition shall be preserved unimpaired.
Section 1.5. FINAL CONSOLIDATION. Immediately after the Initial Merger
Effective Time, the First Surviving Bank shall be consolidated with and into
Bayshore (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 6.3 of this Agreement)) under the charter and
Articles of Association of Bayshore, pursuant to the provisions of, and with
the effect provided in the National Bank Act, as amended.
Section 1.6. 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 Bayshore 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 Bayshore 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 Bayshore 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 Bayshore 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 the First
Surviving Bank and Bayshore, 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 Bayshore shall, as
provided in the provisions of law heretofore mentioned, be consolidated with
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 Bayshore.
All rights, franchises and interests of the First Surviving Bank and
Bayshore, respectively, in and to any type of property and chooses 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,
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<PAGE>
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 First Bank and
Bayshore, respectively, as of the Effective Date.
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 Bayshore. All deposits, debts, liabilities,
obligations and contracts of the First Surviving Bank and of Bayshore,
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 Bayshore
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 Bayshore shall be preserved
unimpaired subsequent to the Consolidations.
Section 1.9. CONSOLIDATION CONSIDERATION. The total consolidation
consideration payable for all of the capital stock of First Bank referenced
below shall be $7,970,600, or $69.0043 per share of First Bank Common Stock
(based on 115,500 shares issued and outstanding) to be payable in the
following manner:
At the Initial Merger Effective Time and upon and by reason of the
Initial Merger becoming effective, each of the 115,500 shares of First Bank
Common Stock issued and outstanding immediately prior to the Initial Merger
Effective Time, excluding any Dissenting Shares (as defined in Section 1.10
of this Agreement), and any and all rights arising out of the ownership of
such shares shall, without any action on the part of the holder thereof, be
canceled and converted into the right to receive $69.0043 in cash payable
upon tender of the stock certificates evidencing such shares as set forth in
the following paragraph. The aggregate consideration to be paid for all of
the shares of First Bank Common Stock shall hereafter sometimes be referred
to as the "Consolidation Price."
On or immediately prior to the Initial Merger Effective Time, Bancshares
or Bayshore shall have available cash in sufficient amount to pay the
aggregate Consolidation Price. At least ten (10) days in advance of the
Closing Date (as defined in Section 6.1 of this Agreement), Bancshares will
send to each shareholder of First Bank a letter of transmittal for use in
exchanging such holder's certificates for his pro rata amount of the
Consolidation Price. Commencing immediately after the Effective Date (as
defined in Section 6.3 of the Agreement), each shareholder of First Bank
shall be entitled to receive payment for his shares upon surrender of the
certificates representing his shares of First Bank 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 First Bank Common Stock certificate will be deemed for
all corporate purposes
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<PAGE>
to represent and evidence solely the right to receive the amount of the
Consolidation Price to be paid therefor pursuant to this Agreement without
interest thereon.
Upon the consummation of the Consolidations, the par value and number of
issued and outstanding shares of capital stock of the Continuing Bank shall
be the same as the par value and number of issued and outstanding shares of
capital stock of Bayshore as of the Effective Date.
Section 1.10. DISSENTING SHARES. Each share of First Bank Common Stock
issued and outstanding immediately prior to the Effective Date, the holder of
which has not voted in favor of the Initial Merger and who has properly
perfected his dissenters' rights of appraisal by following the procedures set
forth in the Texas Business Corporation Act ("TBCA") is referred to herein as
a "Dissenting Share." Dissenting Shares owned by each holder thereof who has
not exchanged his certificates representing shares of First Bank Common Stock
for the Consolidation Price and otherwise has not effectively withdrawn or
lost his dissenter's rights, shall not be converted into or represent the
right to receive the Consolidation Price pursuant to Section 1.9 hereof and
shall be entitled only to such rights as are available to such holder
pursuant to the applicable provisions of the TBCA. 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 TBCA, provided
such holder complies with the procedures contemplated by and set forth in the
applicable provisions of the TBCA. If any holder of Dissenting Shares shall
effectively withdraw or lose his dissenter's rights under the applicable
provisions of the TBCA, such Dissenting Shares shall be converted into the
right to receive the Consolidation Price in accordance with the provisions of
Section 1.9 hereof.
Section 1.11. RATIFICATION BY SHAREHOLDERS. This Agreement shall be
submitted to the shareholders of First Bank and, if required, to Bancshares
as the sole shareholder of Acquisition and Bayshore in accordance with
applicable provisions of law and the respective Articles of Association and
Bylaws of First Bank, Acquisition and Bayshore. First Bank and Bancshares
and Bayshore 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 Consolidations 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 Federal Deposit Insurance Corporation ("FDIC"), the Banking
Department and the Office of the Comptroller of the Currency ("OCC").
Section 1.12. EARNEST MONEY DEPOSIT.
(a) Upon the execution of this Agreement by First Bank, Bancshares
shall deliver One Hundred Fifty Thousand Dollars ($150,000) to First Bank as
an earnest money deposit and expression of Bancshares' good faith interest in
First Bank and as compensation for the standstill set forth in Section 4.6 of
this Agreement (the "Earnest Money"). First Bank will deliver the Earnest
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Money to an independent escrow agent ("Escrow Agent") who will hold it
pursuant to the terms of the Escrow Agreement ("Escrow Agreement") set forth
as Exhibit "C" to this Agreement. As set forth in the Escrow Agreement, the
Earnest Money will not become subject to the disbursement provisions of the
Escrow Agreement or this Agreement until First Bank has delivered to the
Escrow Agent and Bancshares evidence satisfactory to the Escrow Agent and
Bancshares that each of the directors, officers and owners of 5% or more of
the issued and outstanding First Bank Common Stock have executed the Voting
Agreement and Irrevocable Proxy set forth as Exhibit "D" to this Agreement.
If the Consolidations are completed, the Earnest Money will be credited
against the Consolidation Price at the Closing.
(b) In the event that despite the fact that all of Bancshares'
conditions to Closing set forth in Articles VIII and X of this Agreement have
been satisfied and Bancshares has not elected to terminate this Agreement
pursuant to Article VII of this Agreement, the Closing does not occur by
December 31, 1997, or such other later date mutually agreed to in writing by
the parties hereto, First Bank shall be entitled to retain the Earnest Money.
(c) Bancshares shall be entitled to a return of the Earnest Money
and both First Bank and Bancshares shall be relieved of any further
obligations pursuant to this Agreement if the Consolidations do not close as
a result of any of Bancshares' conditions to Closing set forth in Articles
VIII and X not being satisfied or if the Agreement is terminated under the
provisions of Sections 7.1(a), (c), (d) or (e). Any other failure to close
the transactions contemplated by this Agreement for any reason whatsoever
will entitle First Bank to retain the Earnest Money. It is specifically
provided, however, that First Bank shall not be entitled to retain the
Earnest Money if First Bank was the cause of or contributed to the failure of
a condition precedent or event of termination that serves as the basis for
Bancshares' claim of the Earnest Money.
II. REPRESENTATIONS AND WARRANTIES OF FIRST BANK
First Bank makes each of the following representations and warranties to
Bancshares and Bayshore. First Bank agrees that, at the Closing, it shall
provide Bancshares with supplemental Schedules reflecting any changes in the
information contained in the Schedules attached to this Agreement on the date
of its execution which have occurred in the period from the date of execution
of this Agreement to the date of Closing.
Section 2.1. ORGANIZATION. (a) First Bank is a Texas banking
association duly organized, validly existing and in good standing under the
laws of Texas. First Bank has full corporate power and authority to own and
lease its properties, to engage in the business and activities now conducted
by it and is duly licensed or qualified to do business in each jurisdiction
in which the nature of the business conducted by it or the character or
location of the properties and assets owned or leased by it makes such
licensing or qualification necessary.
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(b) True and complete copies of the Articles of Association and
Bylaws of First Bank, as amended to date, have been delivered or made
available to Bancshares.
(c) First Bank (i) does not have any subsidiaries or affiliates,
(ii) is not a general partner or material owner in any joint venture, general
partnership, limited partnership, trust or other non-corporate entity (other
than in the capacity as a participating lender in multi-bank loans in the
ordinary course of business) and (iii) 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 stockholders of First Bank.
(d) The deposit accounts of First Bank are insured by the FDIC
through the Bank Insurance Fund to the fullest extent permitted by law, and
all premiums and assessments required in connection therewith have been paid
by First Bank.
Section 2.2. CAPITALIZATION. The authorized capital stock of First Bank
consists of 115,500 shares of First Bank Common Stock, all of which shares
are issued and outstanding. As of the date of this Agreement, no shares of
other classes of stock or other securities of First Bank are authorized,
issued or outstanding. There are no shares of First Bank Common Stock or
other classes of stock or other securities of First Bank held in treasury.
All of the issued and outstanding shares of First Bank Common Stock are
validly issued, fully paid and non-assessable and, to the best knowledge of
First Bank, were not issued in violation of the securities laws of the United
States or any other applicable jurisdiction or in violation of the preemptive
rights of any person. There are no authorized or outstanding subscriptions,
options, warrants, calls, convertible securities or commitments of any kind
obligating First Bank to issue any shares of First Bank Common Stock or other
classes of stock or other securities of First Bank nor does First Bank have
any outstanding commitment or obligation to repurchase, reacquire or redeem
any shares of its outstanding capital stock. There are no voting trusts,
voting agreements, buy-sell agreements or other similar arrangements
affecting either the First Bank Common Stock or, to the best knowledge of
First Bank, any of the other shares of the common stock of First Bank.
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 First Bank as required by law, and,
other than shareholder approval, no further corporate proceedings of First
Bank are needed to deliver this Agreement and consummate the Consolidations.
Neither the execution and delivery of this Agreement nor the consummation of
the Consolidations contemplated hereby nor compliance by First Bank with any
of the provisions hereof will conflict with or result in a breach of any
provisions of its Articles of Association or By-laws. This Agreement has
been duly executed and delivered by First Bank and, when all requisite
regulatory and shareholder approvals have been obtained, it will be a binding
agreement of First Bank enforceable against First Bank in accordance with its
terms, subject to the effect of bankruptcy, insolvency, reorganization,
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moratorium or other similar laws relating to creditors' rights generally and
general equitable principles.
Section 2.4. FINANCIAL STATEMENTS. First Bank has furnished or made
available to Bancshares true and complete copies of First Bank's (i)
unaudited balance sheet (the "Balance Sheet) as of June 30, 1997 (the
"Balance Sheet Date") and the related statements of income and changes in
stockholders' equity for the six months then ended, together with the notes
thereto, (ii) audited balance sheets as of December 31, 1996, December
31,1995 and December 31,1994 and the related statements of income and changes
in stockholders' equity for the years then ended, together with the notes
thereto and (iii) First Bank's Call Report as filed with the FDIC as of and
for the period ended June 30, 1997. The financial information referred to in
this Section 2.4 is collectively referred to herein as the "Financial
Statements". The Financial Statements fairly present the financial position
and results of operations of First Bank at the dates and for the periods
indicated. First Bank had, as of the dates of the Financial Statements, no
liabilities, fixed or contingent, which were material and were not fully
disclosed or adequately provided for in the Financial Statements. No event
has occurred since the Balance Sheet Date which would have a material adverse
effect on First Bank.
Section 2.5. TITLE. True and complete copies of the deed and title
insurance policy for the real property owned by First Bank have been provided
to Bancshares and such real property is not subject to any mortgages, deeds
of trust and security agreements. Except as set forth on Schedule 2.5 of
this Agreement, First Bank has unencumbered, good, legal and indefeasible
title to all of its properties and assets, real and personal, including
without limitation all of the properties and assets reflected in the
Financial Statements, except (i) as noted in the Financial Statements or as
set forth in the documents delivered or made available to Bancshares referred
to above, (ii) statutory liens not yet delinquent, (iii) 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 (iv) those assets
and properties disposed of for fair value in the ordinary course of business
since the dates of the Financial Statements. First Bank owns no securities
of or interest in any commercial bank, financial institution or other entity
except as set forth in Schedule 2.5 of this Agreement.
Section 2.6. ENVIRONMENTAL LAWS. First Bank is in compliance with all
terms and conditions of all applicable federal, state and local environmental
statutes, regulations or ordinances required thereunder ("Environmental
Laws"), except to the extent that failure to comply would not have a material
adverse effect on First Bank. There is no legal, administrative or other
proceeding, claim or legal action of any nature pending, or to the best
knowledge of First Bank, threatened which seeks to impose on First Bank any
liability arising from (i) any violation of any Environmental Laws or (ii)
the release of Hazardous Materials (as hereinafter defined) under any
Environmental Laws. To the best knowledge of First Bank, First Bank is not
subject to any claim or lien under any Environmental Laws. To the best
knowledge of First Bank, no real estate currently owned, operated or leased
by First Bank, or owned, operated or leased by First Bank within ten years
preceding the date of this Agreement, has been designated by any federal,
state or local agency as requiring any
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environmental remediation or other response action to comply with
Environmental Laws, or to the best knowledge of First Bank, has been the site
of the release or discharge of any Hazardous Materials except as set forth in
Schedule 2.6 hereto. For purposes of this Section 2.6, First Bank shall not
be considered "owning" or "operating" real estate if it merely maintains a
security interest in that real estate. As used in this Agreement, the term
"Hazardous Materials" means petroleum and all petroleum products as well as
any pollutant, contaminant or hazardous substance under the Comprehensive
Environmental Response, Compensation and Liability Act, or any similar state
law.
Section 2.7. LITIGATION AND OTHER PROCEEDINGS. Except as otherwise
noted in Schedule 2.7 hereto, there are no legal, quasi judicial or
administrative proceedings of any kind or nature now pending or, to the best
knowledge of First Bank, threatened before any court or administrative body
in any manner against First Bank, or any of its properties or capital stock,
which could reasonably be expected to have a material adverse effect on First
Bank, its financial condition, assets, operations or earnings or the
transactions proposed by this Agreement. Except as previously disclosed to
Bancshares in writing, First Bank has no knowledge of any basis on which any
litigation or proceeding could be brought which could have a material adverse
effect on First Bank or which could question the validity of any action taken
or to be taken in connection with this Agreement and the transactions
contemplated hereby. Except for any uncompleted requirements of First Bank's
Cease and Desist Order issued by the FDIC (the "Cease and Desist Order"),
First Bank 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. There are no suits, actions, claims,
proceedings or investigations pending, or to the best knowledge of First
Bank, threatened, seeking to prevent or challenge the transactions
contemplated by this Agreement.
Section 2.8. TAXES. Except as set forth on Schedule 2.8, First Bank 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 therein to be due. Except as described in
Schedule 2.8 hereto, First Bank 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 First Bank 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 First Bank. First Bank has not waived any statute of limitations
with respect to any tax or other assessment or levy, and except as set forth
on Schedule 2.8, all such taxes and other assessments and levies which First
Bank 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 First Bank, as required by law.
True and complete copies of the federal income tax returns of First Bank
as filed with the Internal Revenue Service for the years ended December 31,
1996 (when available), December 31,
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1995, December 31, 1994 and December 31, 1993 have been delivered or made
available to Bancshares.
Section 2.9. CONTRACTS. Except as otherwise noted in Schedule 2.9
hereto, First Bank is not a party to or bound by any (i) employment contract
(including without limitation any collective bargaining contract or union
agreement), consulting or similar agreement which is not terminable by First
Bank on less than sixty (60) days notice without payment of any amount on
account of such termination; (ii) bonus, stock option, deferred compensation
or profit-sharing, pension or retirement plan or other employee benefit
arrangement; (iii) material lease or license with respect to any property,
real or personal, whether as landlord, tenant, licensor or licensee; (iv)
contract or commitment for capital expenditures in excess of $10,000 for any
one project; (v) contract or commitment for the purchase of materials or
supplies or for the performance of services over a period of more than sixty
(60) days from the date of this Agreement involving an annual expenditure in
excess of $50,000; (vi) contract or option to purchase or sell any real or
personal property other than in the ordinary course of business; (vii)
contract, order, memorandum, agreement or letter with respect to the
management of First Bank imposed by any Bank regulatory authority having
supervisory jurisdiction over First Bank, (viii) agreement, contract or
indenture related to the borrowing by First Bank of money other than those
entered into in the ordinary course of business; (ix) 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; (x) agreement with or extension of
credit to any executive officer or director of First Bank or holder of more
than ten percent (10%) of the First Bank 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
collectability or other unfavorable features; (xi) agreement between First
Bank and any present or former officer, director, employee or agent of First
Bank or any business in which any of such persons has an interest; or (xii)
material contracts, other than the foregoing, involving more than $25,000 not
made in the ordinary course of business and not otherwise disclosed in this
Agreement or in any schedule attached hereto. Complete and correct copies of
all contracts, commitments, leases, agreements and other documents described
in Schedule 2.9 have been delivered or made available to Bancshares. First
Bank has in all material respects performed all material obligations required
to be performed by it to date and is not in default under, and to the best
knowledge of First Bank, 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 First Bank is a party
or by which its properties or assets are bound or under any provision of its
Articles of Association or Bylaws.
Section 2.10. INSURANCE. Schedule 2.10 hereto is a true and complete
list of all insurance policies owned or held by or on behalf of First Bank
(other than credit-life policies), including policy numbers, retention
levels, insurance carriers and effective and termination dates. Such
policies are
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in full force and effect and contain standard cancellation or termination
clauses. First Bank has received no notice of cancellation or termination of
any such policies. Complete and correct copies of such policies have been
delivered or made available to Bancshares.
Section 2.11. NO CONFLICT WITH OTHER INSTRUMENTS. Neither the execution
and delivery of this Agreement nor the consummation of the purchase
contemplated thereby will conflict with or result in a breach of any
provision of First Bank's Articles of Association, Bylaws, or other
constituent documents, if applicable. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby,
subject to obtaining all 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 First 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
First Bank or upon the First Bank Common Stock.
Section 2.12. LAWS. Except as otherwise noted in Schedule 2.12 hereto,
First Bank is in compliance with all applicable federal, state and local
laws, rules, regulations and orders, except to the extent that failure to
comply would not have a material adverse effect on First Bank. First Bank
has filed all reports, registrations and statements, together with any
amendments required to be made thereto, that are required to be filed with
the Banking Department, the FDIC or any other regulatory authority having
jurisdiction over First Bank, and such reports, registrations and statements
are, to the best knowledge of First Bank, true and correct in all material
respects.
Section 2.13. CONDUCT. Since the Balance Sheet Date and except as
otherwise disclosed on Schedule 2.13 hereto, First Bank has not (i) issued or
sold any of its capital stock or corporate debt obligations (excluding
insured deposits) or granted any options for the purchase of its capital
stock; (ii) 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 its issued and outstanding capital stock;
(iii) 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); (iv) 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 Balance Sheet, accruals, accounts
and notes payable incurred since the Balance Sheet Date in the ordinary
course of business and accruals, accounts and notes payable incurred in
connection with the transactions contemplated by this Agreement; (v) sold,
exchanged or otherwise disposed of any of its capital assets other than in
the ordinary course of business; (vi) made any general or individual wage or
salary increase (except in the ordinary course of business and in accordance
with prior practices of First Bank), paid any bonus, entered into any
employment contract or made any accrual or arrangement for or payment of
bonuses or special compensation of any kind or any severance or
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termination pay to any present or former officer or salaried employee or
instituted or amended any employee welfare, retirement or similar plan or
arrangement; (vii) materially increased the rate of compensation payable or
to become payable by First Bank to any of its directors, officers, employees
or agents; (viii) made any significant change in any method of management,
operation or accounting of First Bank; (ix) suffered any damage, destruction
or casualty loss, whether or not covered by insurance, which had or could
have a material adverse effect on First Bank; (x) except in the ordinary
course of business, entered into any agreement or arrangement granting any
preferential rights to purchase any 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; or (xi) agreed to do any of the foregoing.
Section 2.14. ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for
possible loan losses of First Bank has been calculated in accordance with
regulatory accounting principles as applied to banking institutions and in
accordance with all applicable rules and regulations. At the Closing Date, no
material facts relevant to the adequacy of the allowance for possible loan
losses as of that date will have been withheld from Bancshares.
Section 2.15. EMPLOYMENT RELATIONS. The relations of First Bank with
its employees are satisfactory, and First Bank has not received any notice of
any controversies with, or organizational efforts or other pending actions
by, representatives of its employees. Except as disclosed on Schedule 2.15,
First Bank has complied in all material respects with all laws relating to
employment or labor concerning its employees, including any provisions
thereof relating to wages, hours, collective bargaining and the payment of
workers' compensation insurance and social security and similar taxes, and no
person has asserted that First Bank is liable for any arrearage of wages,
workers' compensation insurance premiums or any taxes or penalties for
failure to comply with any of the foregoing.
Section 2.16. ERISA. First Bank has no employee pension benefits plans
and welfare benefit plans that are subject to the provisions of ERISA.
Section 2.17. LOANS AND INVESTMENTS. First Bank is not aware of any
defense to or excuse for First Bank's enforcement of the documents and
instruments which evidence loans and investments of First Bank in accordance
with their terms (subject to bankruptcy, insolvency, moratorium or other laws
affecting creditors generally or by the exercise of judicial discretion, and
authorized under applicable federal and state laws and regulations) and First
Bank has no notice whatsoever of any claim or objection to the enforcement of
such documents and instruments by the obligors thereunder. For the purposes
of this Section 2.17, First Bank makes no representation or warranty of any
kind or nature concerning whether any borrower or other obligor of First Bank
has the financial ability to pay a loan or that the collateral is sufficient
in value to result in payment of the loan secured thereby.
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Section 2.18. ACCURATE AND COMPLETE RECORDS. The books, ledgers,
financial records and other records of First Bank for the period of time
which is not less than three years prior to the date hereof or any such
longer period as may be required by applicable laws or regulations:
(a) are, or will be prior to the Closing Date, in the possession of
First Bank;
(b) have been, in all material respects, maintained in accordance
with all applicable laws, rules and regulations and generally accepted
standards of practice; and
(c) are accurate and complete and do not contain or reflect any
material discrepancies.
Section 2.19. PERFORMANCE OF OBLIGATIONS. Except as otherwise noted in
Schedule 2.19 hereto, First Bank has performed in all material respects all
of the obligations required to be performed by it to date under, and First
Bank is not in default under or in breach of, any term or provision of any
covenant, contract, lease, indenture or any other covenant to which it is a
party, is subject or is otherwise bound, and no event has occurred that, with
the giving of notice or the passage of time or both, would constitute such
default or breach, where such default or breach or failure to perform would
have a material adverse effect on First Bank. To First Bank's knowledge, no
party with whom First Bank has an agreement that is of material importance to
the business of First Bank is in default thereunder.
Section 2.20. NO MISLEADING STATEMENTS. The representations and
warranties of First Bank contained in this Agreement, the schedules hereto
and all other documents and information furnished to Bancshares and its
representatives pursuant hereto are complete and accurate and do not and will
not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements made and to be made not
misleading.
Section 2.21. ABSENCE OF CHANGES. Since the Balance Sheet Date, except
as disclosed in Schedule 2.21 to this Agreement, there has not been any
material adverse change in the condition (financial or otherwise), assets,
liabilities, earnings or business of First Bank. Since such date, the
business of First Bank has been conducted only in the ordinary course
consistent with prior practices.
Section 2.22. BROKERS AND FINDERS. Neither First Bank 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 2.23. REGULATORY APPROVALS. First Bank has no reason to believe
that it will not be able to obtain all requisite regulatory approvals (if
any) necessary to consummate the Consolidations as set forth in this
Agreement.
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III. REPRESENTATIONS AND WARRANTIES OF
BANCSHARES AND BAYSHORE
Bancshares and Bayshore represent and warrant to First Bank 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, subject to all laws, rules and regulations applicable to
Bank holding companies. Bancshares owns 100% of the issued and outstanding
common stock of Bayshore. Bayshore is a national banking association duly
organized, validly existing and in good standing under the laws of the United
States. Bayshore is an insured Bank as defined in the Federal Deposit
Insurance Act. Upon the organization of Acquisition, Bancshares will own 100%
of the issued and outstanding capital stock of Acquisition. When organized,
Acquisition will be duly organized, validly existing and in good standing
under the laws of the State of Texas. Bancshares and Bayshore 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 and perform this Agreement.
Section 3.2. APPROVALS; AUTHORITY. The Boards of Directors of
Bancshares and Bayshore have each approved this Agreement and the
transactions contemplated herein subject to the approval thereof by the
shareholders of Bancshares and Bayshore as required by law, and, other than
shareholder approval required by law, no further corporate proceedings of
Bancshares or Bayshore are needed to deliver this Agreement and consummate
the Consolidations. This Agreement has been duly executed and delivered by
Bancshares and Bayshore and, when all requisite regulatory and shareholder
approvals have been obtained, it will be a binding agreement of Bancshares
and Bayshore 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 3.3. 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, Bayshore, or Acquisition, 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 or instrument to which Bancshares, Bayshore, or
Acquisition 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
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upon the assets or properties of Bancshares or Bayshore or upon the stock of
Bancshares or Bayshore.
Section 3.4. REGULATORY APPROVALS. Bancshares and Bayshore have no
reason to believe that they will not be able to obtain all requisite
regulatory approvals necessary to consummate the Consolidations as set forth
in this Agreement.
Section 3.5. LITIGATION. There is no pending or threatened litigation,
arbitration, or other action or proceeding to which Bancshares is a party
that seeks to prevent or delay the execution and delivery of this Agreement
or the completion of the transactions contemplated by this Agreement.
Section 3.6. DUE DILIGENCE. Bancshares has had, or by the Closing Date
will have had adequate opportunity to examine the books and records of First
Bank, including, without limitation, the loan records of First Bank, and as a
result of that examination, Bancshares has arrived at its own evaluation of
the quality of First Bank's loan portfolio and the adequacy of First Bank's
loan loss reserve. Consequently, in so far as the quality of First Bank's
loan portfolio and the adequacy of First Bank's loan loss reserve is
concerned, Bancshares is relying on its own evaluation and not upon any
statements, representations, or warranties of First Bank.
IV. COVENANTS OF FIRST BANK
First Bank covenants and agrees with Bancshares and Bayshore as follows:
Section 4.1. SHAREHOLDER APPROVAL AND BEST EFFORTS. First Bank will, as
soon as practicable, present for the approval of its shareholders this
Agreement and the transactions contemplated hereby. First Bank 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
Bancshares reasonably considers necessary, proper or advisable in connection
with filing applications or obtaining approvals from, all regulatory
authorities having jurisdiction over the transactions contemplated by this
Agreement.
Section 4.2. INVITATION TO MEETINGS. A designee of Bancshares (the
"Bancshares Designee") shall be entitled to attend as an invited guest all
regular and special meetings of the Boards of Directors of First Bank. The
Bancshares Designee shall also be entitled to prior notice of and attendance
as an invited guest at all meetings of the executive, loan and discount, and
any other committees of First Bank. In addition, the Bancshares Designee
shall be allowed to be present in First Bank from time to time in manner so
as not to interfere with the normal operation of First
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Bank to review all financial reports, watch loan lists, new loan lists and
other documents generated by First Bank in its day-to-day operations.
Section 4.3. CONDUCT OF BUSINESS PRIOR TO CLOSING. Without Bancshares'
prior written consent to the contrary, which consent shall not be
unreasonably withheld, prior to the date of the Closing, First Bank will
operate so as:
(a) To carry on its business in substantially the same manner as it
has been conducted since June 30, 1997;
(b) To 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) To maintain in full force and effect insurance comparable in
amount and scope of coverage to that currently maintained for
First Bank;
(d) To 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) To perform all of its material obligations under contracts,
leases and documents relating to or affecting its assets,
properties and business, except such obligations as First Bank
may in good faith reasonably dispute;
(f) To maintain and preserve its business organization intact, use
its best efforts to retain its present employees and maintain
relationships with depositors and customers of First Bank;
(g) To comply with and perform all obligations and duties imposed
upon First Bank by all federal, state and local laws, and all
rules, regulations and orders imposed by federal, state or local
governmental authorities; provided, however, that Bancshares
agrees that the current steps being taken by First Bank to
achieve compliance with the Cease and Desist Order shall
constitute compliance with this subsection;
(h) To notify Bancshares immediately upon commencement of any
compliance, safety and soundness or the other type of examination
conducted by the FDIC, the Banking Department or any other agency
having supervisory authority over First Bank;
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(i) Not to mortgage, pledge or encumber any asset, nor sell nor
transfer any of its assets, except in the ordinary course of
business;
(j) Not to declare or pay during 1997 any dividends in an amount in
excess of First Bank's earnings for the year, measured through
the end of the month prior to Closing if the Closing takes place
at any time before the sixteenth day of a given month, and
measured as of the fifteenth day of the month in which the
Closing takes place if the Closing occurs on or after the
sixteenth day of the month; provided that on the Closing Date
First Bank's total equity capital accounts shall be at least
$3,623,000. It is specifically provided that any increase or
decrease in the value of the securities held available-for-sale
will not affect the calculation of total equity capital for
purposes of this Section 4.3(j);
(k) Not to make or authorize any change in First Bank's authorized
stock or in its articles of association or bylaws;
(l) Not to make any capital expenditures in an amount greater than
$10,000.00;
(m) Not to make any investment portfolio transactions;
(n) Not to enter into or amend or allow First Bank to enter into or
amend any contract agreement or other instrument of any of the
types listed in Section 2.9 of this Agreement other than in the
ordinary course of business with prior notice to Bancshares;
(o) Not take or allow First Bank to take any action described or do
any of the things listed in Section 2.13 of this Agreement
(except with respect to Section 2.13(ix)) other than in the
ordinary course of business with prior notice to Bancshares;
(p) Not to increase the compensation paid or to be paid to any
officer or employee of First Bank;
(q) To take such action as may be reasonably necessary to maintain,
preserve, renew and keep in full force and effect their corporate
existence and rights; and
(r) Not to purchase from or sell a participation in any loan or other
extension of credit to First National Bank of Bellaire, Texas
National Bank of Baytown, Texas Coastal Bank or Mayde Creek Bank,
N.A.
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Section 4.4. LITIGATION AND CLAIMS. First Bank will promptly notify
Bancshares of (i) any litigation or any claim, controversy or contingent
liability that may become the subject of litigation against First Bank or
affecting First Bank's property, if such litigation or potential litigation
may, in the event of an unfavorable outcome, have a material adverse effect
on First Bank, (ii) any violation or alleged violation of any state or
federal environmental laws or regulations, or (iii) any correspondence from a
state or federal Bank regulatory authority severely criticizing First Bank
management or proposing a formal or informal regulatory enforcement action.
Section 4.5. CONFIDENTIALITY. Without the prior written consent of
Bancshares, First Bank shall not release, disseminate or transfer, either
verbally or by any other means, any part of the information regarding
Bancshares acquired as a result of the execution and performance of this
Agreement, to any party not a party hereto, other than as necessary to
consummate the Consolidations.
Section 4.6. STANDSTILL PROVISION. So long as this Agreement is in
effect, First Bank will not provide any information to or negotiate with any
other party with respect to the merger, acquisition, or sale of all or
substantially all of the assets or capital stock of First Bank. First Bank
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.
Section 4.7. ACCESS TO PROPERTIES AND RECORDS. To the extent permitted
by law, First Bank shall afford Bancshares and authorized representatives
(including legal counsel, accountants and consultants) of Bancshares full
access in a reasonable manner and at reasonable times to its properties,
books and records in order that Bancshares may have full opportunity to make
such reasonable investigation as it shall desire to make of First Bank's
affairs and officers of First Bank will furnish Bancshares with such
additional financial and operating data and other information as to its
business and properties as Bancshares shall, from time to time, request.
Bancshares shall not disclose any confidential information furnished by First
Bank to Bancshares except and to the extent required by law in the reasonable
judgment of Bancshares; the parties acknowledge that appropriate disclosure
must be made to governmental entities. In the event of termination of this
Agreement, Bancshares shall return to First Bank all documents and other
information obtained pursuant hereto and shall keep confidential and not use
any information obtained pursuant to this Agreement. This Section is not
applicable to any information that was or becomes generally available to the
public other than through a breach of this Agreement.
Section 4.8. INFORMATION FOR APPLICATIONS. First Bank shall, to the
extent permitted by law, furnish Bancshares with all information required for
inclusion in (i) any application, statement or document to be made or filed
by Bancshares or Bayshore with any governmental entity in connection with the
transactions contemplated by this Agreement during the pendency of this
Agreement ("Regulatory Applications"), and (ii) any registration statement
and amendments thereto
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("Registration Statement") to be filed by Bancshares with the Securities and
Exchange Commission ("SEC") or any state securities authorities in order to
register the shares of common stock of Bancshares ("Bancshares Common Stock")
to be sold in order to obtain the proceeds to pay the Consolidation Price
("Securities Filings"). First Bank represents and warrants to Bancshares
that all information to be furnished by First Bank for inclusion in any
Regulatory Applications or Securities Filings shall be true and correct in
all material respects and shall not contain any statement which, at the time
and in light of the circumstances under which it is made, is false or
misleading with respect to any material fact, or omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances in which they are made, not misleading. First Bank 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 First Bank contained in any application or filing referred to in Sections
4.1 or 4.8 of this Agreement, and confirming that the information with
respect to First Bank contained in such document or draft was furnished by
First Bank 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 First Bank expressly for use therein.
Section 4.9. ADDITIONAL DISCLOSURES AND INFORMATION. First Bank shall
give Bancshares prompt written notice if at any time on or prior to the
Closing there is a change in any state of facts, or there is the occurrence,
nonoccurrence or existence of any event subsequent to the date of this
Agreement (or any event prior to the date of this Agreement which First Bank
become aware of subsequent to the date of such Agreement), which change or
event is known to First Bank and which would (i) make any representation or
warranty (including the information set forth in the Schedules) made by First
Bank to Bancshares not true or correct in any material respect or (ii) have a
material adverse effect on First Bank, it being the intention of the parties
to this Agreement that First Bank shall engage in a continuous disclosure
process from the date of this Agreement through the Closing.
Section 4.10. PROXIES. First Bank acknowledges that to the best of its
knowledge the persons listed on Schedule 4.10 have agreed that they will vote
the shares of First Bank Common Stock owned by them in favor of this
Agreement and the transactions contemplated hereby, subject to required
regulatory approvals, and that they will retain the right to vote such shares
of First Bank Common Stock during the term of this Agreement and have given
E.D. Vickery a proxy to vote such shares of First Bank Common Stock in favor
of the Agreement if they should fail to do so, pursuant to a Voting Agreement
and Irrevocable Proxy substantially in the form attached hereto as EXHIBIT D.
Section 4.11. RELEASES. First Bank acknowledges that the persons listed
on Schedule 4.11 have agreed that they will release and discharge First Bank
from any action or claim that they may have against First Bank (except as to
deposits, accounts and loans with First Bank, any rights to indemnification
pursuant to the Articles and Bylaws of First Bank and any rights of such
person with respect to the Agreement) pursuant to the Release of Claims
substantially in the form attached hereto as EXHIBIT E.
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V. COVENANTS OF BANCSHARES AND BAYSHORE
Bancshares and Bayshore covenant and agree with First Bank as follows:
Section 5.1. BEST EFFORTS. If required, Bayshore and Acquisition will,
as soon as practicable, present for the approval of their respective
shareholders, this Agreement and the transactions contemplated thereby.
Bancshares and Bayshore will take all reasonable action to aid and assist in
the consummation of the Consolidations and the transactions contemplated
hereby, 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 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 including, but not limited to,
filing the Registration Statement with the SEC and having the Bancshares
Common Stock registered with the SEC.
Section 5.2. INFORMATION FOR APPLICATIONS AND PROXY SOLICITATION. To
the extent permitted by law, Bancshares will furnish First Bank with all
information concerning Bancshares and Bayshore required for inclusion in (a)
any application, statement or document to be made or filed by First Bank 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 (b) any proxy materials to be furnished to the shareholders of
First Bank in connection with their consideration of the Consolidations.
Each of Bancshares and Bayshore 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 First Bank from and
against any and all losses, claims, damages, expenses or liabilities to which
First Bank may become subject under applicable laws, rules and regulations
and will reimburse First Bank for any legal or other expenses reasonably
incurred by First Bank 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 First Bank, to furnish to First Bank a written letter or statement
confirming to the best of its knowledge the accuracy of the information with
respect to Bancshares and Bayshore 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
Bayshore 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.
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Section 5.3. CONFIDENTIALITY. Bancshares shall not release, disseminate
or transfer either verbally or by any other means any part of the information
regarding First Bank acquired as a result of execution and performance of
this Agreement, to any party not a party hereto, other than as necessary to
consummate the Consolidations or have the Bancshares Common Stock registered
with the SEC. Furthermore, Bancshares agrees (i) not to use any information
or forms of documentation obtained from First Bank in any way, directly or
indirectly, damaging to the interests of First Bank; (ii) not to use,
directly or indirectly, any of the information obtained from First Bank for
its own benefit or for the benefit of another, separate and apart from the
purposes of this Agreement; and (iii) not to disclose any of the information
obtained from First Bank to anyone without the express, prior, written
permission of First Bank. In the event this Agreement is terminated, any and
all copies of the books and records of First Bank in the possession of
Bancshares shall be returned to First Bank.
Section 5.4. NOTICES. Bancshares will promptly give notice to First
Bank of the occurrence of any event or the failure of any event to occur that
results in a breach of any representation or warranty by Bancshares or a
failure by Bancshares to comply with any covenant, condition or agreement
contained in this Agreement.
Section 5.5. RELEASES. Bancshares will release and discharge the
persons listed on Schedule 5.5 from any action or claim that they may have
against such persons (except as to deposits and accounts with First Bank and
any rights of Bancshares pursuant to the Agreement) pursuant to the Release
of Claims substantially in the form attached hereto as EXHIBIT F.
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:
(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 First Bank, 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 First Bank, to the consummation of the transactions
contemplated herein, or such prior date as each of Bancshares and First Bank
shall elect whether or not such proceeding has been brought to a conclusion;
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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. INITIAL MERGER EFFECTIVE TIME. 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 approval of the shareholders of Acquisition and First Bank and the
regulatory approvals of the Federal Reserve Board, the FDIC, Banking
Department, and any other federal or state regulatory agency whose approval
must be received in order to consummate the Initial Merger, the Initial
Merger shall become effective, and the effective time of the Initial Merger
shall occur, at the date and time specified in the certificate approving the
Initial Merger to be issued by the Banking Department and the Secretary of
State of Texas ("Initial Merger Effective Time"). It is anticipated by
Bancshares and First Bank that the Closing, the Initial Merger Effective Time
and the Effective Date will occur on the same day.
Section 6.3. 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 Bayshore and First Bank and the regulatory approvals of
the Federal Reserve Board, the OCC, the 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 First Bank that the Closing, the Initial Merger Effective
Time 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, Bayshore or First Bank at any time prior to
the Initial Merger Effective Time if:
(i) there shall be any actual or threatened action or proceeding
by or before any court or any other governmental body which shall seek
to restrain, prohibit or
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invalidate the transactions contemplated by this Agreement and which,
in the judgment of such Board or Boards of Directors, makes it
inadvisable to proceed with the Consolidations;
(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;
(iii) the Consolidations shall not have become effective on or
before December 31, 1997, or such later date as shall have been
approved in writing by the Boards of Directors of Bancshares, Bayshore
and First Bank; 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; or
(iv) Purchaser has not received all required regulatory approvals
as set forth in Section 10.1 of this Agreement by November 30, 1997;
provided however, that the right to terminate under this Section
7.1(a)(iv) 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 to obtain such approvals on
or before such date.
(b) This Agreement may be terminated at any time prior to the
Initial Merger Effective Time by the Board of Directors of First Bank if
Bancshares or Bayshore shall fail to comply in any material respect with any
of their covenants or agreements contained in this Agreement, or if any of
the representations or warranties of Bancshares or Bayshore contained herein
shall be defective in any material respect.
(c) This Agreement may be terminated any time prior to the
Effective Date by action of the Board of Directors of Bancshares or Bayshore
if (i) First Bank 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 First Bank contained herein shall be
defective in any material respect, (ii) there shall have been any change
after the Balance Sheet Date in the assets, properties, business or financial
condition of First Bank which individually or in the aggregate have
materially and adversely affected the financial condition, results of
operation or business of First Bank, or (iii) the Board of Directors
determines that necessary approval from a regulatory authority, including but
not limited to the registration of the Bancshares Common Stock with the SEC,
cannot reasonably be obtained or that the terms or conditions of a necessary
approval are unacceptable in its reasonable discretion.
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(d) This Agreement by Bancshares may be terminated within fifteen
(15) days of the date of execution of the Agreement in the event that the
executed Voting Agreement and Irrevocable Proxies described in Section 4.10
have not been obtained.
(e) This Agreement may be terminated at any time prior to the
Effective Date with the mutual written consent of Bancshares, Bayshore, and
First Bank and the approval of such action by their respective Boards of
Directors.
Section 7.2. RIGHT TO CURE. If either Bancshares, Bayshore or First
Bank shall elect to terminate this Agreement pursuant to Section 7.1, then
such party must notify the other party in writing of its intent to terminate
stating the reason therefor and such other party shall have fifteen days from
the receipt of such notice to cure the alleged breach, inaccuracy or change
or satisfy such condition subject to the approval of the party seeking to
terminate the Agreement.
VIII. CONDITIONS TO OBLIGATIONS OF BANCSHARES AND BAYSHORE
The obligations of Bancshares and Bayshore 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 and Bayshore in their sole
discretion:
Section 8.1. COMPLIANCE WITH REPRESENTATIONS AND COVENANTS. The
representations and warranties made by First Bank in this Agreement must have
been true 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 First Bank 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 First Bank 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 First Bank, nor shall any event have
occurred which, with the lapse of time, may cause or create any material
adverse change in the financial condition, business or operations of First
Bank 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 First Bank and dated as of the Closing
Date.
Section 8.3. LEGAL OPINION. Bancshares shall have received an opinion
of counsel to First Bank, 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.
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Section 8.4. REGISTRATION OF BANCSHARES COMMON STOCK. The Registration
Statement covering the Bancshares Common Stock to be issued to provide funds
for the Consolidation Price shall be effective under the Securities Act of
1933 and any applicable state securities or "blue sky" acts and no stop order
suspending the effectiveness of such Registration Statement shall be in
effect and no proceedings for such purpose, or any proceedings under the SEC
or applicable state securities authorities rules with respect to the
transactions contemplated hereby, shall be pending before or threatened by
the SEC or any applicable state securities or "blue sky" acts and no stop
order suspending the effectiveness of such Registration Statement shall be in
effect and no proceedings for such purpose, or any proceedings under the SEC
or applicable state securities authorities rules with respect to the
transactions contemplated hereby, shall be pending before or threatened by
the SEC or any applicable state securities or blue sky authorities.
Section 8.5. SUCCESSFUL INITIAL PUBLIC OFFERING. Through no fault of
either Bancshares or Hoefer & Arnett, the underwriter of Bancshares' proposed
public offering of common stock, Hoefer & Arnett fails to perform its firm
commitment to successfully underwrite and complete an initial public offering
of Bancshares Common Stock in which Bancshares shall have received from such
public offering net proceeds of at least $8,500,000 by purchasing the entire
issue as principal (whether or not they are able to subsequently resell the
securities to their institutional and retail clients).
Section 8.6. RELEASES. Bancshares shall have received all of the
releases referred to in Section 4.11.
Section 8.7. PROCEEDINGS AND DOCUMENTS. All actions, proceedings,
instruments and documents required to effectuate this Agreement or incidental
hereto shall be satisfactory in substance and form to Bancshares and its
counsel.
Section 8.8. LITIGATION. First Bank shall have furnished Bancshares
with certificates dated as of the Closing Date signed by an appropriate
officer of First Bank to the effect that to First Bank's knowledge, no
litigation, proceeding, investigation or inquiry, other than that which is
set forth in Schedule 2.7 of this Agreement, is pending or threatened that
might result in action to enjoin or prevent the consummation of the
transaction contemplated by this Agreement or is likely to result in a
material adverse change in First Bank or any of its assets, properties,
business, financial condition, or operations.
Section 8.9. RESIGNATION. Bancshares shall have received the written
resignations effective as of the Closing Date of any officers and directors
of First Bank as may be requested in writing by Bancshares.
Section 8.10. NO PENDING ACTIONS. No proceeding initiated by any person
or governmental authority seeking to restrain or enjoin the transaction shall be
pending.
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Section 8.11. NO DEFAULT. Except for any uncompleted requirements of
that certain Cease and Desist Order, First Bank shall not be in default under
any material order, judgment, award or decree of any court, arbitrator or
governmental authority binding upon or affecting First Bank or by which any
of First Bank's assets may be bound or affected, and no such order, judgment,
award or decree materially adversely affects the ability of First Bank to
carry on its business as now conducted. Bancshares shall have received a
certificate to the foregoing effect executed by First Bank and dated as of
the Closing Date.
Section 8.12. OCC LETTER. Bayshore shall have received an opinion from
the OCC, satisfactory in form and substance to Bancshares and its counsel,
that the loans to Jerry J. Moore and his affiliated interests which have been
deemed by the FDIC and Banking Department to have been issued in excess of
First Bank's lending limits, will not represent a violation of 12 U.S.C.
Section 84 to Bayshore and its directors.
Section 8.13. COVENANT NOT TO COMPETE. Each officer of First Bank shall
have executed a Covenant Not to Compete in the form substantially as set
forth as Exhibit G.
IX. CONDITIONS TO OBLIGATIONS OF FIRST BANK
The obligations of First Bank under this Agreement are subject to the
satisfaction, at or prior to the Closing Date, of the following conditions,
which may be waived by First Bank in its sole discretion:
Section 9.1. COMPLIANCE WITH REPRESENTATIONS AND COVENANTS. The
representations and warranties made by Bancshares and Bayshore in this
Agreement must have been true 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 and Bayshore shall have performed and complied with all covenants
and conditions required by this Agreement to be performed or complied with by
Bancshares and Bayshore prior to or at the Closing. First Bank shall be
furnished with a certificate, executed by appropriate representatives of
Bancshares and dated as of the Closing Date, to the foregoing effect.
Section 9.2. LEGAL OPINION. First Bank shall have received an opinion
of counsel to Bancshares, dated as of the Closing Date and in form and
substance satisfactory to counsel for First Bank, to the effect set forth in
Schedule 9.2 hereof.
Section 9.3. RELEASES. Bancshares shall have delivered all of the
releases referred to in Section 5.5.
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Section 9.4. PROCEEDINGS AND DOCUMENTS. All actions, proceedings,
instruments and documents required to effectuate this Agreement or incidental
hereto shall be satisfactory in substance and form to First Bank and its
counsel.
Section 9.5. PAYMENT OF CONSIDERATION. Bancshares shall pay the
Consolidation Price by cash, cashiers check, or wire transfer to the
shareholders of First Bank upon the proper surrender of the First Bank Common
Stock.
X. CONDITIONS TO RESPECTIVE OBLIGATIONS OF BANCSHARES,
BAYSHORE AND FIRST BANK
The respective obligations of Bancshares, Bayshore, and First Bank under
this Agreement are subject to the satisfaction of the following conditions
which may be waived by Bancshares, Bayshore and First Bank, respectively, in
their sole discretion:
Section 10.1. GOVERNMENT APPROVALS. Bancshares and First Bank 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 Federal Reserve Board 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 First Bank 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 First Bank and
Bancshares as the sole shareholder of Bayshore and Acquisition shall have
voted for the authorization and approval of, or given their respective
written consent to, this Agreement and the transactions contemplated by this
Agreement.
XI. MISCELLANEOUS
Section 11.1. NOTICES. Any notice, request, instruction or other
communication required hereunder shall be given in writing and shall be
deemed to be given and received when delivered personally, or forty-eight
hours after deposit in the United States mail, certified or registered,
return receipt requested, postage prepaid, as follows:
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If to First Bank then to: Mr. E. D. Vickery
Royston Rayzor Vickery & Williams
600 Travis Street, Suite 2200
Houston, Texas 77002
With a copy to: Mr. C. Thomas Scott
Chamberlain, Hrdlicka, White, Williams & Martin
1200 Smith Street, Suite 1400
Houston, Texas 77002
If to Bancshares then to: Mr. L. D. Wright
Bay Bancshares, Inc.
1001 Highway 146
La Porte, Texas 77571
With a copy to: Mr. William T. Luedke IV
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
Section 11.2. EFFECT OF TERMINATION. In the event of termination of this
Agreement and the abandonment of the transaction 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, stockholders
or agents, if any; provided, however, that the provisions of Sections 4.5 and
5.3 respecting confidentiality shall remain in force. Nothing contained in
this Section 11.2 shall relieve any party hereto of any liability for a
breach of this Agreement.
Section 11.3. ENTIRE AGREEMENT MODIFICATION; WAIVER. This Agreement
constitutes the entire agreement between the parties hereto pertaining to the
subject matter hereof and supersedes all prior contemporaneous agreements,
undertakings, negotiations and discussions, whether oral or written, and
there are no warranties, representations or agreements between the parties in
connection with the subject matter hereof, except as set forth or referred to
herein. No supplement, modification, waiver or termination of this Agreement
or any provision thereof shall be binding unless executed in writing by the
parties to be bound thereby. No waiver of any of the provisions of this
Agreement shall constitute a waiver of any other provisions (whether or not
similar) nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.
Section 11.4. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas, and to the
extent applicable, the laws of the United States.
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Section 11.5. LEGAL CONSTRUCTION. In case any one or more of the
provisions contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall- not affect any other provisions hereof, and this
Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
Section 11.6. ATTORNEY'S FEES. If any action at law or in equity,
including an action for declaratory relief, is brought to enforce or
interpret the provisions of this Agreement, the prevailing party shall be
entitled to recover reasonable attorney's fees from the other party, which
fees may be set by the Court in the trial of such action or may be enforced
in a separate action brought for that purpose, and which fees shall be in
addition to any other relief that may be awarded.
Section 11.7. COOPERATION. Bancshares and First Bank agree to cooperate
and work together to provide any information required by either party to
consummate this transaction and in negotiating and agreeing upon any other
matters that may arise in connection with the consummation of the
transactions contemplated by this Agreement, and obtaining approval of all
necessary regulatory authorities.
Section 11.8. ASSIGNABILITY. This Agreement and the obligations created
hereunder are assignable by Bancshares to any person or entity, subject to
prior notice to, and the approval of, First Bank, which approval shall not be
unreasonably withheld.
Section 11.9. SINGULAR, PLURAL, HEADINGS. Whenever the singular form of
any word is used in this Agreement, the same shall include the plural form of
such word, whenever appropriate, and vice versa. The headings contained in
this Agreement are for purposes of reference only and shall not limit or
otherwise affect the meaning of any of the provisions contained herein.
Section 11.10. COMMISSIONS. First Bank and Bancshares agree and
represent to each other that there are no commissions due to any broker or
any other persons related to the transaction that is the subject of this
Agreement, and each party hereto agrees to indemnify and hold harmless the
other party hereto from any commission due as a result of its actions with
respect to this transaction.
Section 11.11. EFFECTIVE DATE. The effective date of this Agreement
shall be the date a copy of this Agreement, fully executed by First Bank, is
returned to and received by Bancshares.
Section 11.12. EXPENSES. Whether or not the transactions provided for
herein are consummated, Bancshares and First Bank shall pay their own
expenses in connection with this Agreement and the transactions contemplated
hereby, including without limitation, all reasonable counsel fees; provided
that, Bancshares will pay up to $5,000 of First Bank's legal fees related to
the consummation of the transactions set forth in this Agreement.
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Section 11.13. BINDING EFFECT. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors and assigns as permitted by law.
Section 11.14. REPRESENTATION BY COUNSEL. Both parties acknowledge that
they have had the benefit of representation by legal counsel of their
choosing in negotiating the terms of this agreement, that they have executed
this agreement of their own free will with the intent to be bound hereby.
Section 11.15. NON-SURVIVAL OF REPRESENTATIONS. Bancshares and First
Bank shall satisfy themselves as to the accuracy of the representations and
warranties contained herein prior to Closing. None of the representations or
warranties contained herein shall survive the Closing.
Section 11.16. FACSIMILE SIGNATURES. The signature of any party hereto
transmitted by facsimile shall be effective in all respects to bind such
party in the same manner as an original signature.
Section 11.17. 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.
Section 11.18. 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 11.19. 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 11.20. GENDER. Any pronoun used herein shall refer to any
gender, either masculine, feminine or neuter, as the context requires.
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Section 11.21. 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 Consolidations
will occur upon, and be determined by, the mutual consent of Bancshares and
First Bank.
Section 11.22. 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 11.23. AGREEMENT REGARDING CERTAIN PARTICIPATIONS. At all times
prior to the Closing, and as required by the Cease and Desist Order, First
Bank and the other participating banks will attempt to sell their
participation interests in certain loans and extensions of credit originally
made to Jerry J. Moore and his affiliated interests and later assumed by what
is now CenterAmerica, Inc. (the "Moore Loans") and which loans are, inter
alia, the subject of the Cease and Desist Order. A list of the Moore Loans
and the participations of each bank participant are attached hereto as
Schedule 11.23. Such sale of the Moore Loans may be made individually or in
bulk, and may take place at a purchase price less than the face amount of the
loan or loans. In connection with any such sale of the Moore Loans, First
Bank agrees as follows:
(a) First Bank will use its best efforts to negotiate, and will use
its best efforts to persuade any of the other participants in the Moore Loans
to negotiate, a sale of the loans at the lowest possible discount, provided
however, that First Bank will not sell any Moore Loan participation for a
discount of greater than 10% without the prior written consent of Bancshares.
(b) At all times after the Closing, and for an indefinite period of
time thereafter, Bancshares and Bayshore agree as follows:
(i) Bancshares and Bayshore, and the other participating banks
as required by the Cease and Desist Order, will use their best efforts to
sell the Moore Loans at the lowest possible discount.
(ii) If a written offer to purchase all or any part of the Moore
Loans in which Bancshares and Bayshore have a participating interest is
received by Bancshares or Bayshore or any of the other financial
institutions who have participating interests in the Moore Loans at a
discount not to exceed 10%, and the holders of a majority interest in terms
of aggregate loan dollar amount outstanding with respect to those loans to
which the offer relates desire to accept such offer on the terms and
conditions stated in the written offer (as the same may thereafter be
negotiated in favor of the participating lenders), Bancshares and Bayshore
will sell their participating interest in and to the loans covered by the
written offer
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at the offered price and upon the same terms and conditions as may be
accepted by the holders of a majority interest in terms of aggregate loan
dollar amount outstanding with respect to the loans to which the offer
pertains.
(iii) If a written offer to purchase all or any part of the
Moore Loans at a discount in excess of 10% is received by Bancshares,
Bayshore or any of the other participating banks, all of the participating
banks will have to agree to the sale.
(c) Any purchaser of all or part of the Moore Loans from First
Bank, Bancshares or Bayshore or any of the participating banks will be
expressly required to be bound by the provisions of paragraphs (a) and (b) of
this Section 11.23.
(d) Without the prior written consent of all participating banks,
no sale of any Moore Loan participation at any discount will be made to any
person or entity other than a bona fide third party with no management or
ownership affiliation with any of the banks which own participations in the
Moore Loans.
Section 11.24. INDEMNIFICATION. In consideration for First Bank
entering into this Agreement and agreeing to the consolidation structure
rather than a stock purchase arrangement, Bancshares and Bayshore agree to
protect, defend, indemnify and hold First Bank, its agents, directors,
officers, and employees harmless from and against all losses, claims,
demands, liabilities or causes of action of every kind and character, in
favor of any person, entity or party, for any damages of whatsoever nature
sustained by any person, entity or party, which arises out of or is
incidental to, either directly or indirectly, their activities or work or
documentation in furtherance of the transactions set forth in this Agreement
and regardless of whether the damages, losses, claims, demands, liabilities
or causes of action of every kind or character were caused by or arose out of
the sole, concurrent, active or passive negligence or gross negligence of any
party or entity, strict liability, breaches of express or implied warranties,
and/or any other legal fault of any party or entity, including that of First
Bank, its agents, directors, officers and employees. Bancshares and Bayshore
shall fully defend any such claims, demands or suits at its sole expenses,
including all attorneys' fees, costs, and other related expenses, even if the
same are groundless. It is specifically provided, however, that the
indemnification set forth above shall only apply to actions taken as a result
of this transaction being structured as a consolidation rather than a stock
purchase agreement containing the usual representations, warranties,
covenants and conditions as are set forth in such a stock purchase agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
BAY BANCSHARES, INC.
By:
---------------------------------------
ATTEST:
By:
---------------------------
BAYSHORE NATIONAL BANK
By:
---------------------------------------
ATTEST:
By:
---------------------------
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FIRST BANK OF DEER PARK
By:
---------------------------------------
ATTEST:
By:
---------------------------
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SCHEDULE 2.5 TO THE CONSOLIDATION AGREEMENT:
TITLE - FIRST BANK
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SCHEDULE 2.6 TO THE CONSOLIDATION AGREEMENT:
ENVIRONMENTAL LAWS - FIRST BANK
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SCHEDULE 2.7 TO THE CONSOLIDATION AGREEMENT:
LITIGATION AND OTHER PROCEEDINGS - FIRST BANK
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SCHEDULE 2.8 TO THE CONSOLIDATION AGREEMENT:
TAXES - FIRST BANK
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SCHEDULE 2.9 TO THE CONSOLIDATION AGREEMENT:
CONTRACTS - FIRST BANK
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SCHEDULE 2.10 TO THE CONSOLIDATION AGREEMENT:
INSURANCE - FIRST BANK
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SCHEDULE 2.12 TO THE CONSOLIDATION AGREEMENT:
LAWS - FIRST BANK
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SCHEDULE 2.13 TO THE CONSOLIDATION AGREEMENT:
CONDUCT - FIRST BANK
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SCHEDULE 2.15 TO THE CONSOLIDATION AGREEMENT:
EMPLOYMENT RELATIONS - FIRST BANK
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SCHEDULE 2.17 TO THE CONSOLIDATION AGREEMENT:
LOANS AND INVESTMENTS - FIRST BANK
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SCHEDULE 2.21 TO THE CONSOLIDATION AGREEMENT:
ABSENCE OF CHANGES - FIRST BANK
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<PAGE>
SCHEDULE 4.10 TO THE CONSOLIDATION AGREEMENT:
PROXIES
The following list comprises individuals who are (i) directors, (ii) officers
or (iii) holders of 5% or more of the First Bank Common Stock, each of whom
has agreed to execute the Voting Agreement.
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<PAGE>
SCHEDULE 4.11 TO THE CONSOLIDATION AGREEMENT:
RELEASES
Directors and Officers of First Bank.
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<PAGE>
SCHEDULE 5.5 TO THE CONSOLIDATION AGREEMENT:
RELEASES
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SCHEDULE 8.3 TO THE CONSOLIDATION AGREEMENT:
LEGAL OPINION TO BE DELIVERED BY FIRST BANK
The legal opinion of counsel for First Bank which is called for by Section
8.3 of the Agreement shall be to the following effect:
(a) First Bank is a Texas banking association duly organized, validly
existing and in good standing under the laws of Texas and has full
power and authority (including all licenses, franchises, permits and
other governmental authorizations which are legally required) to own
its properties, to engage in the business and activities now conducted
by it and to enter into this Agreement.
(b) The authorized capital stock of First Bank consists of 115,500 shares
of Common Stock, $5.00 par value. As of the date hereof, 115,500
shares of First Bank Common Stock were issued and outstanding. All of
the shares which are issued and outstanding are validly issued, fully
paid and have not been issued in violation of the preemptive rights of
any person. There are no existing options, warrants, calls,
convertible securities or commitments of any kind enabling First Bank
to issue any authorized and unissued First Bank Common Stock nor does
First Bank have any commitment or obligation to repurchase, reacquire
or redeem any of its outstanding capital stock.
(c) The Board of Directors of First Bank has approved the Agreement and
the transactions contemplated thereby. All necessary corporate
proceedings, including all appropriate and legal actions by
shareholders of First Bank to approve and authorize the transactions
set forth in the Consolidation Agreement, have been taken. This
Agreement has been duly executed and delivered by First Bank and is a
binding agreement of First Bank enforceable against First Bank in
accordance with its terms.
(d) Except as otherwise noted in the Agreement, there are no legal,
quasi-judicial or administrative proceedings of any kind or nature now
pending or, to the knowledge of counsel to First Bank, threatened
before any court or administrative body in any manner against First
Bank or any of their properties or capital stock which might have a
material adverse effect on First Bank, its financial condition,
assets, operations or earnings or the transactions proposed by the
Agreement. First Bank 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.
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(e) The execution and delivery of the Agreement and the consummation of
the transactions contemplated thereby will not, to the best knowledge
of counsel to First Bank, 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 First 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 First Bank or upon the First Bank Common Stock.
Such opinion shall also cover such other matters incident to the transactions
contemplated by the Agreement as Bancshares may reasonably request. As to
questions of fact material to their opinion, such counsel may rely upon
certificates of officers of the First Bank. Such opinion may contain such
qualifications, exceptions and explanations as are satisfactory in form and
substance to Bancshares.
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SCHEDULE 9.2 TO THE CONSOLIDATION AGREEMENT:
LEGAL OPINION TO BE DELIVERED BY BANCSHARES
The legal opinion of counsel for Bancshares which is called for by Section
9.2 of the Agreement shall be to the following effect:
(a) Bancshares is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas, and has full power
and authority (including all licenses, franchises, permits and other
governmental authorizations which are legally required) to own its
properties, to engage in the business and activities now conducted by
it and to enter into this Agreement.
(b) Bayshore is a national banking association duly organized, validly
existing and in good standing under the laws of the United States of
America, and has full power and authority (including all licenses,
franchises, permits and other governmental authorizations which are
legally required) to own its properties, to engage in the business and
activities now conducted by it and to enter into this Agreement.
(c) The Board of Directors of Bancshares and Bayshore and the shareholder
of Bayshore have approved the Agreement and the transactions
contemplated thereby. The Agreement has been duly executed and
delivered by Bancshares and Bayshore and is a binding agreement of
Bancshares and Bayshore enforceable against Bancshares and Bayshore in
accordance with its terms.
(d) The execution and delivery of the Agreement and the consummation of
the transactions contemplated thereby, will not, to the best knowledge
of counsel to Bancshares, 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 either Bancshares or Bayshore is a party or by
which they are 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 of the assets or properties of Bancshares or Bayshore
or upon the stock of Bancshares or Bayshore.
Such opinion shall also cover such other matters incident to the transactions
contemplated by the Agreement as First Bank may reasonably request. As to
questions of fact material to their opinion, such counsel may rely upon
certificates of officers of Bancshares and Bayshore. Such opinion may
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contain such qualifications, exceptions and explanations as are satisfactory
in form and substance to First Bank.
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EXHIBIT A
PLAN OF MERGER
BETWEEN BAYSHORE ACQUISITION CORPORATION
AND FIRST BANK OF DEER PARK
This PLAN OF MERGER (the "Plan") is dated as of the ____ day of _________,
1997, by and between First Bank of Deer Park, a Texas banking association
located in Deer Park, Texas ("First Bank") and Bayshore Acquisition Corporation
("Acquisition"), a Texas corporation formed as a wholly-owned subsidiary of
Bayshore Bancshares, Inc. ("Bancshares") solely to facilitate the transactions
contemplated by the Consolidation Agreement, defined below. First Bank and
Acquisition are hereinafter sometimes collectively referred to as the "Merging
Institutions."
This Plan of Merger is being entered into pursuant to the Agreement and
Plan of Consolidation dated as of August __, 1997 (the "Consolidation
Agreement") by and among Bancshares, Bayshore National Bank, and First Bank.
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 merger
contemplated by this Plan of Merger becomes effective as determined by the
certificate approving the merger to be issued by the Texas Department of Banking
("Banking Department") and the Secretary of State of Texas.
Section 1.2. "Acquisition Common Stock" shall mean the common stock, par
value $10.00 per share, of Acquisition owned by Bancshares.
Section 1.3. "First Bank Common Stock" shall mean the common stock, par
value $5.00 per share, of First Bank.
<PAGE>
Section 1.4. "The Merger" shall refer to the merger of Acquisition with
and into First Bank as provided in Section 2.1 of this Plan.
Section 1.5. "Surviving Bank" shall refer to First Bank as the
institution surviving the Merger.
ARTICLE 2.
TERMS OF THE MERGER
Section 2.1. THE MERGER. Subject to the terms and conditions set forth
in the Consolidation Agreement, on the Effective Date, Acquisition shall be
merged with and into First Bank, with First Bank as the Surviving Bank, under
the charter and Articles of Association of First Bank, as determined by the
Banking Department, and each of the outstanding shares of common stock of
Acquisition shall and without any action on the part of Bancshares be canceled
and be converted into shares of common stock of the Surviving Bank. The shares
of common stock of the Surviving Bank into which such Acquisition Common Stock
is converted shall represent ownership of 100% of the issued and outstanding
capital stock of the Surviving Bank, all of which shall be owned by Bancshares.
Section 2.2. ARTICLES OF ASSOCIATION, BYLAWS AND FACILITIES OF SURVIVING
BANK. On the Effective Date and until thereafter amended in accordance with
law, the Articles of Association of the Surviving Bank shall be the Articles of
Association of First Bank as in effect on the Effective Date. Until altered,
amended or repealed as provided therein and in the Articles of Association of
the Surviving Bank, the Bylaws of the Surviving Bank shall be the Bylaws of
First Bank as in effect on the Effective Date. The main office of the Surviving
Bank shall be the main office of First Bank as of the Effective Date, and all
corporate acts, plans, policies, contracts, approvals and authorizations of
First Bank and Acquisition 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 Surviving Bank and shall be as effective and binding
thereon as the same were with respect to First Bank and Acquisition
respectively, as of the Effective Date.
Section 2.3. EFFECT OF CONSOLIDATION. On the Effective Date of the
Merger, the corporate existence of First Bank and Acquisition shall be merged
into and continued in the Surviving Bank, and the Surviving Bank shall be deemed
to be a continuation in entity and identity of First Bank and Acquisition. All
rights, franchises and interests of First Bank and Acquisition, respectively, in
and to any type of property and chooses in action shall be transferred to and
vested in the Surviving Bank
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by virtue of the Merger without any deed or other transfer. 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 First Bank and Acquisition, respectively,
as of the Effective Date.
Section 2.4. LIABILITIES OF THE SURVIVING BANK. On the Effective Date,
the Surviving Bank shall be liable for all liabilities of First Bank and
Acquisition. All deposits, debts, liabilities and obligations of First Bank and
of Acquisition, respectively, accrued, absolute, contingent or otherwise, and
whether or not reflected or reserved against on balance sheets, books of account
or records of First Bank or Acquisition, as the case may be, shall be those of
the Surviving Bank and shall not be released or impaired by the Merger. All
rights of creditors and other obligees and all liens on property of either First
Bank or Acquisition shall be preserved unimpaired.
ARTICLE 3.
CONVERSION OF SHARES
Section 3.1. CONVERSION OF FIRST BANK COMMON STOCK. On the Effective
Date, each share of First Bank Common Stock, issued and outstanding immediately
prior to the Effective Date (other than Dissenting Shares as hereinafter
defined) shall, by virtue of the Merger and without any action on the part of
the holder thereof, be converted into the right to receive $69.0043 in cash
based on 115,500 shares outstanding ("Consolidation Price").
Section 3.2. EXCHANGE OF SHARES. On or immediately prior to the
Effective Date, Bancshares shall have available cash in sufficient amount to pay
the aggregate Consolidation Price. At least ten (10) days in advance of the
Closing Date (as defined in Section 6.1 of the Agreement), Bancshares will send
to each shareholder of First Bank a letter of transmittal for use in exchanging
such holder's certificates for his pro rata amount of the Consolidation Price.
Each shareholder of First Bank shall be entitled to receive payment for his
shares only upon surrender of the certificates representing his shares of First
Bank 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 First Bank Common Stock
certificate will be deemed for all corporate purposes to represent and evidence
solely the right to receive the amount of the Consolidation Price to be paid
therefor pursuant to the Consolidation Agreement without interest thereon.
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Section 3.3. DISSENTING SHARES. Each share of First Bank Common Stock
issued and outstanding immediately prior to the Effective Date, the holder of
which has not voted in favor of the Merger and who has properly perfected his
dissenters' rights of appraisal by following the procedures set forth in the
Texas Business Corporation Act ("TBCA") is referred to herein as a "Dissenting
Share." Dissenting Shares owned by each holder thereof who has not exchanged
his certificates representing shares of First Bank Common Stock for the
Consolidation Price and otherwise has not effectively withdrawn or lost his
dissenter's rights, shall not be converted into or represent the right to
receive the Consolidation Price pursuant to Section 3.1 hereof and shall be
entitled only to such rights as are available to such holder pursuant to the
applicable provisions of the TBCA. 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 TBCA, provided such holder
complies with the procedures contemplated by and set forth in the applicable
provisions of the TBCA. If any holder of Dissenting Shares shall effectively
withdraw or lose his dissenter's rights under the applicable provisions of the
TBCA, such Dissenting Shares shall be converted into the right to receive the
Consolidation Price in accordance with the provisions of Section 3.1.
Section 3.4. ACQUISITION COMMON STOCK. On the Effective Date, the shares
of Acquisition 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 Surviving
Bank. The shares of common stock of the Surviving Bank into which such
Acquisition Common Stock are converted shall represent ownership of 100% of the
issued and outstanding capital stock of the Surviving Bank, all of which shall
be owned by Bancshares.
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 Consolidation Agreement.
Section 4.2. TERMINATION. This Plan shall be terminated upon the
termination of the Consolidation 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.
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Section 4.4. SUCCESSORS. This Plan shall be binding on the successors of
Acquisition and First Bank.
IN WITNESS WHEREOF, Acquisition and First Bank 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.
BAYSHORE ACQUISITION CORPORATION
Attest:
By:
- -------------------------------- ------------------------------------
FIRST BANK OF DEER PARK
Attest:
By:
- -------------------------------- ------------------------------------
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EXHIBIT B
PLAN OF CONSOLIDATION
BETWEEN
FIRST BANK OF DEER PARK
AND
BAYSHORE NATIONAL BANK
THIS PLAN OF CONSOLIDATION (the "Plan) is dated as of the ____ day of
________, 1997, by and between First Bank of Deer Park ("First Bank"), a Texas
banking association and the surviving bank of the Plan of Merger dated
__________, 1997 between Bayshore Acquisition Corporation and First Bank, and
Bayshore National Bank ("Bayshore").
W I T N E S S E T H:
WHEREAS, pursuant to the Agreement and Plan of Consolidation (the
"Consolidation Agreement") dated as of August __, 1997, by and among Bayshore
Bancshares, Inc. ("Bancshares"), Bayshore, and First Bank and the Plan of
Merger, dated as of __________, 1997, between First Bank and Bayshore
Acquisition Corporation ("Acquisition"), Acquisition will merge with and into
First Bank (the "First Merger"), with the result that First Bank will become a
wholly-owned subsidiary of Bancshares;
WHEREAS, the Consolidation Agreement provides that simultaneously with or
as soon as practicable after the First Merger, First Bank will be consolidated
with and into Bayshore;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, First Bank and Bayshore hereby
agree that, subject to the terms and conditions hereinafter set forth, and in
accordance with all applicable laws and regulations, First Bank shall be
consolidated with and into Bayshore 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 Consolidation Agreement, which conditions are incorporated
herein by reference, shall have been satisfied or waived.
2. IDENTITY OF RESULTING BANK. The resulting Bank as a result of the
Final Consolidation (the "Resulting Bank") shall be Bayshore.
<PAGE>
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 Resulting Bank shall be the Articles of Association
of Bayshore as in effect on the Effective Date. Until altered, amended or
repealed as therein provided and in the Articles of Association of Resulting
Bank, the Bylaws of Resulting Bank shall be the Bylaws of Bayshore as in effect
on the Effective Date. Unless and until changed by the Board of Directors of
Resulting Bank, the main office of Resulting Bank shall be the main office of
Bayshore as of the Effective Date. The established offices and facilities of
First Bank immediately prior to the Final Consolidation shall become established
offices and facilities of the Resulting Bank. Until thereafter changed in
accordance with law or the Articles of Association or Bylaws of Resulting Bank,
all corporate acts, plans, policies, contracts, approvals and authorizations of
First Bank and Bayshore 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 Resulting Bank and shall be as effective and binding thereon as the same were
with respect to First Bank and Bayshore, respectively, as of the Effective Date.
4. EFFECT OF FINAL CONSOLIDATION. On the Effective Date, the corporate
existence of the First Bank and Bayshore shall, as provided by law, be
consolidated into and continued in Resulting Bank, and Resulting Bank shall be
deemed to be a continuation in entity and identity of First Bank and Bayshore.
All rights, franchises and interests of First Bank and Bayshore, respectively,
in and to any type of property and chooses in action shall be transferred to and
vested in Resulting Bank by virtue of such Final Consolidation without any deed
or other transfer. Resulting 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 First Bank and Bayshore, respectively, as of the
Effective Date.
5. LIABILITIES OF CONTINUING BANK. On the Effective Date of the Final
Consolidation, Resulting Bank shall be liable for all liabilities of First Bank
and Bayshore. All deposits, debts, liabilities, obligations and contracts of
First Bank and of Bayshore, 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 Bank or
Bayshore shall be those of Resulting 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 First Bank or Bayshore shall be preserved unimpaired
subsequent to the Final Consolidation.
-2-
<PAGE>
6. EFFECTIVE DATE. The Final Consolidation shall become effective upon
the issuance of a certificate approving the Final Consolidation to be issued by
the Office of the Comptroller of the Currency. The term "Effective Date" shall
mean the date and time designated in the certificate approving the Final
Consolidation. 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 Consolidation
Agreement.
7. CANCELLATION OF STOCK. On the Effective Date, all of the outstanding
shares of capital stock of First Bank, 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
Consolidation Agreement.
9. TERMINATION. This Plan shall be terminated upon the termination of
the Consolidation 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 Agreement 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.
11. SUCCESSORS. This Agreement shall be binding on the successors of
First Bank and Bayshore.
IN WITNESS WHEREOF, First Bank and Bayshore have caused this Agreement to
be executed by their duly authorized officers as of the date first above
written.
FIRST BANK OF DEER PARK
ATTEST:
By:
- ------------------------------ ----------------------------------
-3-
<PAGE>
BAYSHORE NATIONAL BANK
ATTEST:
By:
- ------------------------------ ----------------------------------
-4-
<PAGE>
EXHIBIT C
ESCROW AGREEMENT
THIS ESCROW AGREEMENT dated as of August __, 1997 ("Agreement") is
entered into by and among Bay Bancshares, Inc. ("Bancshares") and First Bank of
Deer Park (the "Bank") who are parties to the Agreement and Plan of
Consolidation dated August __, 1997 ("Consolidation Agreement"), a copy of which
is attached as Exhibit "A" and _____________________ Bank (the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, Bancshares, Bayshore National Bank and the Bank have executed
and delivered the Consolidation Agreement; and
WHEREAS, the Agreement contemplates the acquisition of the Bank by
Bancshares; and
WHEREAS, pursuant to the Agreement, the parties desire to set aside in
escrow certain earnest money delivered by Bancshares in accordance with the
Agreement; and
WHEREAS, Bancshares and the Bank desire that the Escrow Agent act as
escrow agent hereunder, and the Escrow Agent is willing to act as escrow agent
hereunder;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS. Except as herein defined, capitalized terms used in this
Escrow Agreement have the meanings set forth in the Consolidation Agreement.
2. APPOINTMENT OF ESCROW AGENT. The Escrow Agent is hereby appointed as
escrow agent under this Escrow Agreement to perform the services described
herein, and the Escrow Agent hereby accepts such appointment.
3. ESCROW FUNDS.
a. EARNEST MONEY. Upon execution of this Agreement, Bancshares
shall deposit with the Escrow Agent the sum of $150,000 ("Earnest Money"). The
Escrow Agent shall hold the Earnest Money and will disburse the Earnest Money
and any accrued interest thereon in the following manner:
(1) The disbursement provisions set forth immediately below
shall not become effective unless and until the Bank has
delivered to the
<PAGE>
Escrow Agent and Bancshares evidence satisfactory to both
the Escrow Agent and Bancshares that each of the directors,
officers and the holders of 5% or more of the issued and
outstanding common stock of the Bank have executed the Voting
Agreement and Irrevocable Proxy set forth as Exhibit "D" to
the Consolidation Agreement.
(2) CREDIT TO PURCHASE PRICE. If the Consolidations as defined
in the Consolidation Agreement close, the Earnest Money will
be credited to the Consolidation Price as set forth in
Section 1.12(a) of the Consolidation Agreement.
(3) RETURN OF EARNEST MONEY. Bancshares will be entitled to a
return of the Earnest Money if:
(a) the Consolidations do not close because of a failure to
satisfy one or more of the conditions to Closing set
forth in Articles VIII or X of the Agreement, or
(b) Bancshares terminates the Agreement for any of the
reasons set forth in Sections 7.1(a), (c), (d) or (e)
of the Consolidation Agreement.
(4) LOSS OF EARNEST MONEY. Bancshares will forfeit the earnest
money and it will be distributed to Bank if:
(a) the Closing does not occur by December 31, 1997, or
such other date mutually agreed to in writing by the
parties to the Consolidation Agreement, despite the
fact that the Bank has satisfied all conditions to
Closing and Bancshares has not terminated the
Consolidation Agreement.
(b) the Agreement is terminated by the Bank because
Bancshares or Bayshore has breached or failed to
perform in any material respect any of Bancshares'
covenants or agreements contained in the Consolidation
Agreement and has not cured the alleged breach after
receiving proper notice as set forth in the
Consolidation Agreement.
-2-
<PAGE>
4. INVESTMENT OF EARNEST MONEY. The Earnest Money shall be invested and
reinvested in any certificate of deposit or acceptance, maturing not more than
30 days after the date of investment, issued by a commercial banking institution
that is a member of the Federal Reserve System and which has a combined capital
and surplus and undivided profits of not less than $2,000,000.
Notwithstanding the foregoing, no investment shall have a maturity greater than
30 days if such maturity extends past the termination date of this Escrow
Agreement. Without specific instructions, the Escrow Agent is not required to
invest the Earnest Money.
5. RESPONSIBILITY OF ESCROW AGENT. The Escrow Agent shall not be
responsible for the genuineness of any signature or document presented to it
pursuant to this Agreement and may rely conclusively upon and shall be protected
in acting upon any advice, judicial order or decree, certificate, notice,
request, consent, statement, instruction or other instrument believed by it in
good faith to be genuine or to be signed or presented by the proper person
hereunder, or duly authorized by such person or properly made. The Escrow Agent
shall not be responsible for any of the agreements contained herein except the
performance of its duties as expressly set forth herein. The Escrow Agent is
not responsible for investigating or assuring compliance with the Consolidation
Agreement or any amendments thereto or any other agreement or documents outside
of this Escrow Agreement. The Escrow Agent shall be entitled to retain counsel
and to act in reliance upon the advice of such counsel in all matters pertaining
to this Agreement, and shall not be liable for any action taken or omitted by it
in good faith in accordance with such advice. The duties and obligations of the
Escrow Agent hereunder shall be governed solely by the provisions of this
Agreement, and the Escrow Agent shall have no duties other than the duties
expressly imposed hereby and shall not be required to take any action other than
in accordance with the terms hereof. The Escrow Agent shall not be bound by any
notice of, or demand with respect to, any waiver, modification, amendment,
termination, cancellation, rescission or supersession of this Agreement, unless
in writing and signed by Bancshares and Bank, and, if the duties of the Escrow
Agent are affected thereby, unless it shall have given its prior written consent
thereto. In the event of any controversy or dispute hereunder or with respect
to any question as to the construction of this Agreement, or any action to be
taken by the Escrow Agent hereunder, the Escrow Agent shall incur no liability
for any action taken or suffered in good faith, its liability hereunder to be
limited solely to gross negligence or willful misconduct on its part. The
Escrow Agent's reliance on counsel shall be considered to be in good faith for
purposes of this Escrow Agreement.
6. INDEMNIFICATION OF ESCROW AGENT. BANCSHARES AND BANK HEREBY AGREE TO
INDEMNIFY THE ESCROW AGENT FOR, AND TO HOLD IT HARMLESS AGAINST, ANY LOSS,
LIABILITY OR EXPENSE INCURRED WITHOUT GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON
THE PART OF THE ESCROW AGENT, ARISING OUT OF OR IN CONNECTION WITH ITS ENTERING
INTO THIS
-3-
<PAGE>
ESCROW AGREEMENT, AND CARRYING OUT ITS DUTIES HEREUNDER, INCLUDING THE COSTS
AND EXPENSES OF DEFENDING ITSELF AGAINST ANY CLAIM OF LIABILITY.
7. RIGHT OF INTERPLEADER. Should any controversy arise between
Bancshares and Bayshore, and Bank, or any other person, firm or entity, with
respect to this Escrow Agreement, the Earnest Money, or any part thereof, or the
right of any party or other person to receive the Earnest Money, or Bancshares
and Bank fail to designate another Escrow Agent as provided in Section 9 hereof,
or if the Escrow Agent should be in doubt as to what action to take, the Escrow
Agent shall have the right (but not the obligation) to (i) withhold delivery of
the Earnest Money until the controversy is resolved, the conflicting demands are
withdrawn or its doubt is resolved or (ii) institute a bill of interpleader in
any court of competent jurisdiction to determine the rights of the parties
hereto (the right of the Escrow Agent to institute such bill of interpleader
shall not, however, be deemed to modify the manner in which the Escrow Agent is
entitled to make disbursements of the Earnest Money as hereinabove set forth
other than to tender the Earnest Money into the registry of such court). If a
bill of interpleader is instituted, or if the Escrow Agent is threatened with
litigation or becomes involved in litigation in any manner whatsoever on account
of this Escrow Agreement or the Earnest Money, then as between themselves and
the Escrow Agent, Bancshares and Bank, jointly and severally, hereby bind and
obligate themselves, their successors, heirs, executors and assigns to pay the
Escrow Agent its reasonable attorney's fees and any and all other disbursements,
expenses, losses, costs and damages of the Escrow Agent in connection with or
resulting from such threatened or actual litigation.
8. COLLECTED FUNDS; COLLECTION OF CHECKS OR INSTRUMENTS. Any check
included in the Earnest Money shall be collected by the Escrow Agent and the
proceeds held as part of the Earnest Money. No monies shall be disbursed by the
Escrow Agent until and unless it has collected the deposited funds. If any
check or instrument delivered to the Escrow Agent under this Escrow Agreement is
uncollectible and if the Escrow Agent has distributed funds represented by such
item pursuant to the terms hereof, the Escrow Agent shall notify the depositor
thereof and shall deliver the returned check or instrument to such depositor,
and such depositor shall immediately reimburse the Escrow Agent for the amount
of funds uncollectible. The Escrow Agent may pay out monies held in escrow by
its check. The Escrow Agent shall not be obligated to take any legal action to
enforce payment of any item deposited with it in escrow.
9. TERMINATION. This Escrow Agreement shall terminate as to the Earnest
Money on the date on which the Escrow Agent receives written notice from
Bancshares and Bank that the parties have fulfilled all of their obligations
under this Escrow Agreement. Upon receipt of such notice, the Escrow Agent
shall deliver to Bancshares any remaining portion of the Earnest Money, if any,
including all income earned on the Earnest Money.
-4-
<PAGE>
10. REIMBURSEMENT OF EXPENSES OF ESCROW AGENT. All such fees and related
expenses (including legal expenses, if necessary) shall be the responsibility
of Bancshares and Bank and shall be paid directly by the responsible party upon
delivery of an invoice by the Escrow Agent to Bancshares and Bank.
11. RESIGNATION, REMOVAL AND REPLACEMENT OF ESCROW AGENT. The Escrow
Agent or any successor Escrow Agent may resign at any time by giving not less
than 60 days' prior written notice of resignation to Bancshares and Bank, such
resignation to be effective on the date specified in such notice. Bancshares
and Bank may at any time remove the Escrow Agent with or without cause by any
instrument or instruments in writing signed by Bancshares and Bank and delivered
to the Escrow Agent. In case the office of the Escrow Agent shall become vacant
for any reason, including, without limitation, resignation or removal, the
parties hereto shall appoint as successor Escrow Agent such other person or
entity as Bancshares and Bank agree, by an instrument or instruments in writing
delivered to such successor Escrow Agent and the retiring Escrow Agent. Upon
the appointment of any successor pursuant to this Section 14, the Escrow Agent
shall deliver the Earnest Money to the successor Escrow Agent on the date of
resignation, and such successor Escrow Agent shall immediately and without
further act succeed the retiring Escrow Agent as if originally named herein. If
no successor escrow agent is appointed, the Escrow Agent may, in its sole
discretion, deliver the Earnest Money to Bancshares, as successor escrow agent,
who shall become bound by the terms and provisions of this Escrow Agreement, or
institute a bill of interpleader.
12. NOTICES AND COMMUNICATIONS; FINAL ACCOUNTING. The Escrow Agent shall
keep Bancshares and Bank advised in writing of all transactions pursuant to this
Escrow Agreement by monthly statement of account, which shall be sent by regular
mail to each of the parties listed below. In addition, the Escrow Agent shall
issue a final financial accounting of all transactions concerning the Ernest
Money, including investments, income from investments and distributions, to
Bancshares and Bank upon termination of this Escrow Agreement.
Any notice or other communication under this Escrow Agreement shall be
deemed to have been duly delivered on the earlier of (i) the date of receipt, if
delivered by hand or telecopy, or (ii) three days after the date when the same
shall have been posted by certified mail, return receipt requested, in any post
office in the United States of America, postage prepaid and addressed to the
party to whom such notice or other communication is to be given or made at such
party's address set forth below, or to such other address as such party shall
designate by written notice to the other parties (including the Escrow Agent),
as follows:
If to Bank: Mr. E. D. Vickery
Royston Rayzor Vickery & Williams
600 Travis Street, Suite 2200
Houston, Texas 77002
-5-
<PAGE>
With a copy to: Mr. C. Thomas Scott
Chamberlain, Hrdlicka, White, Williams & Martin
1200 Smith Street, Suite 1400
Houston, Texas 77002
If to Bancshares: Mr. L. D. Wright
Bay Bancshares, Inc.
1001 Highway 146
La Porte, Texas 77571
With a copy to: Mr. William T. Luedke IV
Bracewell & Patterson, L.L.P.
711 Louisiana, Suite 2900
Houston, Texas 77002-2781
If to Escrow Agent:
----------------------
----------------------
----------------------
With a copy to :
----------------------
----------------------
----------------------
13. GOVERNING LAW. The validity, enforceability and construction of this
Escrow Agreement shall be governed by the laws of the State of Texas applicable
to contracts to be made and wholly performed in such state.
14. AMENDMENTS; SUCCESSORS. This Agreement may be amended only by a
writing signed by Bancshares and Bank, and shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
assigns. The consent of the Escrow Agent shall be required for any such
amendment in which the duties of the Escrow Agent are involved.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, which may be separately executed by the parties hereto, each of
which shall be an original and all of which taken together shall constitute one
and the same instrument.
16. ENTIRE AGREEMENT. This Escrow Agreement and the Consolidation
Agreement contain the entire agreements and understanding of the parties with
respect to the transaction contemplated hereby. No prior agreement, either
written or oral, shall be construed to change, amend, alter, repeal or
invalidate this Escrow Agreement.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement
on the day and year first above written.
BAY BANCSHARES, INC.
--------------------------------------
L. D. WRIGHT
FIRST BANK OF DEER PARK
--------------------------------------
--------------------------------------
--------------------------------------
ESCROW AGENT
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<PAGE>
EXHIBIT D
VOTING AGREEMENT
AND IRREVOCABLE PROXY
This Voting Agreement and Irrevocable Proxy (the "Voting Agreement") dated
as of August __, 1997 is executed by and among Bay Bancshares, Inc., a Texas
corporation ("Bancshares"), First Bank of Deer Park, a Texas banking association
("First Bank"), and the other persons who are signatories hereto (referred to
herein individually as a "Shareholder" and collectively as the "Shareholders").
WHEREAS, Bancshares, Bayshore National Bank and First Bank have executed
that certain Agreement and Plan of Consolidation dated as August ___, 1997 (the
"Consolidation Agreement") whereby First Bank will merge into a Texas
corporation formed as a subsidiary of Bancshares solely to facilitate the
transactions contemplated by the Consolidation Agreement, and immediately
thereafter, First Bank will consolidate into Bayshore National Bank, a wholly
owned subsidiary of Bancshares (collectively, the "Consolidations"); and
WHEREAS, the Consolidation Agreement provides that the total consideration
payable for all of the issued and outstanding stock of First Bank will be
$7,970,000 or $69.0043 per share based on 115,500 shares issued and outstanding;
WHEREAS, Section 4.10 of the Consolidation Agreement requires that First
Bank deliver to Bancshares the irrevocable proxies of the Shareholders; and
WHEREAS, First Bank and Bancshares are relying on the irrevocable proxies
in incurring expenses in reviewing First Bank'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:
1. Each of the Shareholders hereby represents and warrants to Bancshares
and First Bank that he is the registered holder of and has the exclusive right
to vote the shares of common stock, $5.00 par value, of First Bank ("Stock")
set forth below his name on the signature pages hereto. Each Shareholder hereby
agrees to vote at the shareholders' meeting referred to in Section 1.11 of the
Consolidation Agreement (the "Meeting") the shares of Stock set forth below his
name on the signature pages hereto and all other shares of Stock such
Shareholder owns of record as of the date of the Meeting and to direct the vote
of all shares of Stock which such Shareholder
-8-
<PAGE>
holds beneficially and has the power and authority to direct the voting
thereof as of the date of the Meeting (the "Shares") in favor of the
authorization and approval of the Consolidation Agreement, and the other
agreements and transactions contemplated thereby.
2. In order better to effect the provisions of Section 1, each
Shareholder hereby revokes any previously executed proxies and hereby
constitutes and appoints E.D. Vickery (the "Proxy Holder"), with full power of
substitution, his true and lawful proxy and attorney-in-fact to vote at the
Meeting all of such Shareholder's Shares in favor of the authorization and
approval of the Consolidation Agreement and the other agreements and
transactions contemplated thereby, with such modifications to the Consolidation
Agreement and the other agreements and transactions contemplated thereby as the
parties thereto may make, in the event such Shareholder does not vote in favor
of the authorization and approval of the Consolidation Agreement and the other
agreements and transactions contemplated thereby.
3. Each Shareholder hereby covenants and agrees that until this Voting
Agreement is terminated in accordance with its terms, such Shareholder will not,
and will not agree to, without the consent of Bancshares, directly or
indirectly, sell, transfer, assign, pledge, hypothecate, cause to be redeemed or
otherwise dispose of any of the Shares or grant any proxy or interest in or with
respect to any such Shares or deposit such shares into a voting trust or enter
into another voting agreement or arrangement with respect to such Shares except
as contemplated by this Voting Agreement, unless the Shareholder causes the
transferee of such Shares to deliver to Bancshares an amendment to this Voting
Agreement whereby such transferee or other holder becomes bound by the terms of
this Voting Agreement.
4. This proxy shall be limited strictly and solely to the power to vote
the Shares in the manner set forth in Section 2 and shall not extend to any
other matters.
5. Each Shareholder acknowledges that Bancshares and First Bank are
relying on this Voting Agreement in incurring expenses in reviewing First Bank'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 Article 2.29C of the Texas Business
Corporation Act. Each Shareholder and First Bank acknowledge that the
performance of this Voting Agreement is intended to benefit Bancshares.
6. The irrevocable proxy granted pursuant hereto shall continue in effect
until the earlier to occur of (i) the termination of the Consolidation
Agreement, as it may be amended or extended from time to time, or (ii) the
consummation of the Consolidations.
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<PAGE>
7. 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 First Bank
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 Consolidation Agreement as set forth in Section 1 hereof.
8. 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 First Bank, Bancshares and the
Shareholder.
9. 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.
10. This Voting Agreement, together with the Consolidation 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.
11. 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.
12. 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.
BAYSHORE BANCSHARES, INC.
By:
----------------------------------
L. D. Wright
President
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<PAGE>
Address:
1001 Highway 146
LaPorte, Texas 77571
Attention: L. D. Wright
FIRST BANK OF DEER PARK
By:
-----------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Address:
1601 Center Street
Deer Park, Texas 77536
Attention: E. D. Vickery
SHAREHOLDER:
---------------------------------------
Printed Name:
--------------------------
Address:
------------------------------
---------------------------------------
________ shares of Common Stock
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<PAGE>
EXHIBIT E
RELEASE OF CLAIMS
THIS RELEASE OF CLAIMS ("Release") dated the ______ day of ____________,
1997, is executed and delivered by the undersigned individual to First Bank of
Deer Park ("Bank").
WHEREAS, Bay Bancshares, Inc. ("Bancshares") will acquire the Bank pursuant
to that certain Agreement and Plan of Consolidation dated as of August ___, 1997
by and between Bancshares, Bayshore National Bank and the Bank (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 the Bank;
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 the Bank 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, no has, or hereafter can, shall or may have against the
Bank, 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 the Bank 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 the Bank 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.
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
Bank 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 the Bank.
<PAGE>
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 _______ )
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:
-----------------
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<PAGE>
EXHIBIT F
RELEASE OF CLAIMS
THIS RELEASE OF CLAIMS ("Release") dated the _____ day of ____________
1997, is executed and delivered by the undersigned Bay Bancshares, Inc.
("Bancshares") and Bayshore National Bank ("Bayshore") to _____________________
("Person").
WHEREAS, Bancshares will acquire First Bank of Deer Park (the "Bank")
pursuant to that certain Agreement and Plan of Consolidation by and between
Bancshares, Bayshore National Bank and the Bank; and
WHEREAS, the Bank has required as a condition of the acquisition that
Bancshares and Bayshore execute and deliver this Release to confirm the absence
of any claims by Bancshares and Bayshore 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, or 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 the Bank
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.
Section 4. MODIFICATION. This Release may be modified only by a
written instrument executed by the Bancshares, Bayshore and Person.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Release effective
as of the date first above written.
BAY BANCSHARES, INC.
--------------------------------------
Signature
--------------------------------------
Printed Name
BAYSHORE NATIONAL BANK
---------------------------------------
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:
-----------------
-2-
<PAGE>
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:
-----------------
-3-
<PAGE>
EXHIBIT G
OUTLINE OF TERMS OF NON-COMPETITION AGREEMENT
Any officer who is offered and accepts employment with Bancshares or
Bayshore will be required to enter into a Non-Competition Agreement providing
that for a one year period following the date of execution of the
Non-Competition Agreement the undersigned Officer shall not, directly or
indirectly, either as an employee, employer, consultant, agent, principal,
partner, greater than 10% stockholder, 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 First Bank of Deer Park
and (ii) engage or participate in any business that is in competition in any
manner whatever with the business of Bay Bancshares, Inc. or Bayshore National
Bank within a five-mile radius of First Bank's facility located at 1601 Center
Street in Deer Park, Texas. Officers who are not offered employment or who are
offered employment but subsequently terminated by Bancshares or Bayshore shall
not be subject to the above restrictions. An officer who is offered employment
but subsequently voluntarily terminates his employment shall be subject to the
above restrictions.
<PAGE>
BAY BANCSHARES, INC.
1993 PHANTOM STOCK PLAN
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Bay Bancshares, Inc. (the "Company") previously established the
Bay Bancshares, Inc. Proposed 1989 Restricted Stock Plan (the "Restricted Stock
Plan") to encourage persons to remain with and devote their best efforts to the
business of the Company; and
WHEREAS, the Company has determined that it is in the best interest of the
Company and those employees selected to participate in the Restricted Stock Plan
(the "Participants") to amend the Restricted Stock Plan to create a phantom
stock plan;
NOW, THEREFORE, the Restricted Stock Plan is hereby amended and restated in
its entirety effective as of the date of execution hereof to provide as follows:
1. PURPOSES OF THE PLAN. Bay Bancshares, Inc. Phantom Stock Plan is
designed to attract, retain, and motivate officers of the Company and its
subsidiaries to provide a means whereby such persons may sustain a sense of
proprietorship and personal involvement in the continued development and
financial success of the Company, and to encourage such persons to remain with
and devote their best efforts to the business of the Company, thereby advancing
the interests of the Company and its stockholders. Accordingly, the Company
may, pursuant to this Plan, issue to certain officers and key employees shares
of Phantom Stock on the terms and conditions herein established.
2. DEFINITIONS. Unless the context otherwise indicates, the following
definitions shall apply to this Plan:
<PAGE>
(a) "Change of Control" shall mean the occurrence of one or more
of the following events:
(i) Any "person", including a "syndication" or "group" as
those terms are used in Section 13(d)(3) of the Securities Exchange
Act of 1934, is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 20% or more of
the combined voting power of the Company's then outstanding voting
securities;
(ii) The Company is merged or consolidated with another
corporation and immediately after giving effect to the merger or
consolidation either (1) less than 80% of the outstanding voting
securities of the surviving or resulting entity are then beneficially
owned in the aggregate by (x) the stockholders of the Company
immediately prior to such merger or consolidation, or (y) if a record
date has been set to determine the stockholders of the Company
entitled to vote on such merger or consolidation, the stockholders of
the Company as of such record date, or (2) the Board of Directors of
the Company, or similar governing body, of the surviving or resulting
entity does not have as a majority of its members the persons
specified in clause (iii)(1) and (2) below;
(iii) If at any time the following do not constitute a
majority of the Board of Directors of the Company (or any successor entity
referred to in clause (ii) above):
(1) persons who are directors of the Company on
December 31, 1993; and
-2-
<PAGE>
(2) persons who, prior to their election as a director
of the Company (or successor entity if applicable) were nominated,
recommended or endorsed by a formal resolution of the Board of
Directors of the Company;
(iv) If at any time during a calendar year a majority of the
directors of the Company are not persons who were directors at the
beginning of the calendar year; and
(v) the Company transfers substantially all of its assets
to another corporation which is a less than 80% owned subsidiary of
the Company.
(b) "Company" shall mean Bay Bancshares, Inc., a Texas
corporation.
(c) "Committee" shall mean the Executive Committee of the Board
of Directors of the Company, which shall consist of at least three
directors of the Company who shall not be employees or officers of the
Company or any Subsidiary. Members of the Committee shall be
appointed by and serve at the pleasure of the Board of Directors of
the Company.
(d) "Date of Award" shall mean the date specified in the award
on the date an Employee has been granted one or more shares of Phantom
Stock.
(e) "Employee" shall mean an officer of the Company or any of
its Subsidiaries. For purposes of this subparagraph, an officer shall
be an executive, professional, technical, or management employee who,
by virtue
-3-
<PAGE>
of his/her position and job responsibilities, in the opinion of the
Committee, has an opportunity to make a significant and measurable
contribution to the growth and prosperity of the Company. No director who
is not an employee of the Company or a Subsidiary shall be deemed an
Employee within the meaning of this subparagraph.
(f) "Fair Market Value" shall mean the fair market value of the
Common Stock of the Company as determined by the Board of Directors of
the Company.
(g) "Participant" shall mean an Employee selected by the
Committee to participate in the Plan.
(h) "Plan" shall mean Bay Bancshares, Inc. Phantom Stock Plan as
adopted by the Board of Directors.
(i) "Performance Test" shall mean the method to be used in
determining the number of shares of Phantom Stock to be granted based
on the conditions set forth in Exhibit A of the Plan.
(j) "Phantom Stock" shall mean a unit of participation entitling
the Employee to a monetary benefit, payable in cash or stock, equal to
the Fair Market Value of one share of Stock at the time a share of
Phantom Stock is redeemed by the Employee.
(k) "Stock" shall mean the Common Stock, par value $1.00 per
share, of the Company and may consist of authorized but unissued
shares of the Company or previously issued shares reacquired and held
by the Company or any of its subsidiaries.
-4-
<PAGE>
(l) "Subsidiary" shall mean any subsidiary corporation as
defined in Section 425(f) of the Internal Revenue Code of 1954, as
amended.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Committee. Members of the Committee shall not be eligible, and shall not have
been eligible at any time within one year prior to their appointment to the
Committee, to participate in the Plan or in any other stock plan of the Company
or any of its subsidiaries or affiliates. The Committee shall have sole
authority from time to time to select Participants to whom shares of Phantom
Stock shall be issued under Paragraph 6 of the Plan from among those eligible,
to establish the number of such shares which may be issued to each such
Participant and the date on which such shares shall be issued, to establish the
vesting requirements applicable to such shares and the times at which said
vesting requirements shall be satisfied. The Committee is authorized to
interpret the Plan and may from time to time adopt such rules, regulations,
forms, and agreements consistent with the provisions of the Plan, as it may deem
advisable to carry out the Plan. All decisions made by the Committee in
administering and interpreting the Plan shall be final.
4. ELIGIBILITY OF EMPLOYEES. Shares of Phantom Stock may be issued under
Paragraph 6 of the Plan only to individuals who are Participants. Shares may be
issued under the Plan to a Participant more than once.
5. SHARES OF PHANTOM STOCK SUBJECT TO THE PLAN. The aggregate number of
shares of Phantom Stock that may be issued under the Plan may not exceed 135,000
shares, subject to adjustment as set forth in paragraph 12 of this Plan. The
pool of authorized shares of Phantom Stock may be distributed, all or in part,
to those Employees of the Company selected to participate. Each share of
Phantom Stock will
-5-
<PAGE>
entitle the Participant to certain monetary benefits equal to the Fair Market
Value of a share of Common Stock, but will not represent any actual ownership
interest in the Company. All shares of Phantom Stock shall be outstanding until
forfeited by the Participant or redeemed by the Company. Shares of Phantom
Stock which are forfeited will be returned to the authorized pool and may be
awarded again. Shares of Phantom Stock redeemed by the Company are
extinguished. All shares of Phantom Stock are nontransferable, except by Will
or under the laws of descent and distribution.
6. ISSUANCE OF SHARES. The Committee shall cause to be issued shares of
Phantom Stock to Participants under this Paragraph 6 from time to time as shall
be determined by the Committee in accordance with the performance test defined
in Exhibit A attached hereto. The Committee shall notify in writing each
Participant selected to receive shares of Phantom Stock hereunder as soon as
practicable after he/she has been so selected and shall inform the Participant
of the number of shares he/she is entitled to receive, the approximate date on
which such shares will be issued, and the vesting requirements applicable to
such shares. Upon the grant of an award, the Committee will issue to the
Participant a certificate representing the number of shares of Phantom Stock
awarded, and a copy of this Plan.
7. RIGHT TO DISTRIBUTIONS. Once a share of Phantom Stock has been issued
to a Participant pursuant to paragraph 6, such Participant shall have the right
to receive all dividends or other distributions that are paid with respect to an
equal number of shares of the Company's Common Stock, in such manner and at such
time as the Participant would otherwise receive such payment if he were the
holder of record of an equal number of shares of the Company's Common Stock.
Provided, however, no such payment shall grant to the Employee the rights of a
stockholder of the Company.
-6-
<PAGE>
8. VESTING AND REDEMPTION OF PHANTOM STOCK. Once a share of Phantom
Stock has been issued to a Participant, it shall be subject to the vesting
requirements which the Committee shall establish. During each calendar year
that the Plan remains in effect, the Company shall redeem the lesser of 6,000
shares of Phantom Stock or the number of shares of Phantom Stock each
Participant is vested in as of the last day of such calendar year. Such shares
of Phantom Stock shall be redeemed by the Company at the then Fair Market Value
of the Company's Common Stock, and shall be payable either in cash or in the
equivalent number of shares of the Company's Common Stock, as shall be
determined from year to year by the Board of Directors of the Company. Such
payment by the Company shall take place as soon as administratively practicable
following completion of the Performance Test for the applicable year.
9. EVENTS OF FORFEITURE. Except in the event of the Participant's death,
total and permanent disability, or a Change of Control, if a Participant's
employment with the Company is terminated, whether by the Participant or the
Company, prior to his redemption of all vested shares of Phantom Stock awarded
to him, all shares of Phantom Stock then vested will be treated as though they
had been submitted for redemption on the day before his termination and all
other shares of Phantom Stock not then vested will be forfeited and be returned
to the pool of shares of Phantom Stock available for award under the Plan. Such
shares shall be redeemed in accordance with paragraph 7 above at the then Fair
Market Value of the Company's Common Stock, and shall be distributable to the
Participant, at the election of the Company, in cash or an equivalent number of
shares of the Company's Common Stock. In the event of the Participant's
termination of employment following a Change of Control, all shares of Phantom
Stock not then vested shall become fully vested and redeemed in
-7-
<PAGE>
accordance with the provisions of this paragraph 9. In the event of the
termination of employment as a result of the Participant's death or total and
permanent disability (as determined in the sole discretion of the Committee),
the Committee, in its sole discretion, may fully vest any unvested shares of
Phantom Stock then outstanding. Any such share of Phantom Stock shall be
redeemed in accordance with this paragraph 9.
10. PHANTOM STOCK LEDGER. The Committee will establish an appropriate
record which would at all times reflect the name of each Participant, the number
of shares of Phantom Stock awarded to each Participant, and the date on which
each share of Phantom Stock was awarded. Other than the payment of dividends or
other distributions pursuant to paragraph 7, no income will accrue to any share
of Phantom Stock prior to its redemption by the Company.
11. TERMS OF ALL REDEMPTIONS. The Company will redeem the shares of
Phantom Stock at the price determined under the formula set out in paragraph 7
in one lump sum in cash, or at the election of the Company, in an equivalent
number of shares of the Company's Common Stock. All payments, however, shall be
subject to all employment, income and other taxes imposed on this type of
compensation, and the Company, therefore, shall make all withholdings or other
deductions necessary under the circumstances. Provided further, that should the
Participant become incompetent, or should the Participant die and his shares of
Phantom Stock be inherited by Will or through the laws of descent and
distribution by a minor or an incompetent, the Company is authorized to redeem
the shares of Phantom Stock required to be redeemed under this Plan and to pay
the redemption price to the spouse or guardian of the incompetent Participant,
to the parent or guardian of any minor, or directly to the
-8-
<PAGE>
Participant or minor, or to apply the redemption price for the benefit of the
Participant or minor in any manner the Committee determines in its sole
discretion.
12. ADJUSTMENT IN SHARES. The existence of outstanding shares of Phantom
Stock will not effect in any way the right or power of the Company or its
stockholders to make or authorize any or all adjustments, recapitalizations
reorganizations, or other changes in the Company's structure or its business or
any merger or consolidation of the Company or any issue of bonds, debentures,
preferred or prior preference stock ahead of or affecting the Common Stock or
the rights thereof, or the dissolution or liquidation of the Company or any sale
or transfer of all or any part of its assets or business or any other corporate
act or proceeding whether of a similar character or otherwise.
If while there are outstanding shares of Phantom Stock the Company affects
a split-up or other subdivision or consolidation of shares of Common Stock or
other readjustment, the payment of a stock dividend or other increase or
reduction in the number of shares of Common Stock outstanding without receiving
compensation either in money, services or property, then (a) in the event of an
increase in the number of shares of Common Stock outstanding, the number of
shares of Phantom Stock will be proportionately increased and the value of the
shares of Phantom Stock will be proportionately reduced; and (b) in the event of
a reduction in the number of shares of Common Stock outstanding, the number of
shares of Phantom Stock will be proportionately reduced and the value of the
shares of Phantom Stock will be proportionately increased.
After a merger of one or more corporations into the Company or after
consolidation of the Company in one or more corporations in which the Company is
the
-9-
<PAGE>
surviving corporation, each Employee will be entitled to receive in lieu of the
number of shares of Phantom Stock previously awarded, a number of shares of
Phantom Stock which has been correspondingly adjusted in the value based upon
the value the holder would have been entitled to pursuant to the terms of the
agreement of merger or consolidation if immediately prior to the merger or
consolidation he had been the holder of record of a number of shares of Common
Stock equal to the number of shares of Phantom Stock he previously was entitled
to. Should the Company elect to dissolve, enter into a sale of its assets, or
enter into any reorganization in which it is not the surviving company, unless
the surviving or successor company formally adopts this Plan and agrees to
continue it, the Participant will be deemed to have become fully vested in all
shares of Phantom Stock, so as to be entitled to sell all shares as of the date
of the reorganization, sale, merger, etc., and will be entitled to receive the
sale proceeds in one lump sum immediately, subject, however, to the tax and
withholding requirements applicable under the circumstances. If, however, the
Company merges, consolidates or is otherwise a party to a reorganization and is
not the surviving corporation, but the surviving corporation adopts this Plan,
then the Plan will continue uninterrupted and the Participants' entitlement to
have their shares of Phantom Stock redeemed will continue according to the
schedule set out in this Plan as though there were no change in the employing
corporation; however, the shares of Phantom Stock, of course, will be adjusted,
if necessary, as above provided.
Except as specifically provided to the contrary in this Plan, the issue by
the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, for cash or profit or for labor or services either
upon direct sale or from the exercise of rights or warrants to subscribe to
them, or upon any conversion of
-10-
<PAGE>
shares or obligations of the Company convertible into shares or other securities
will not affect the shares of Phantom Stock then outstanding and no adjustment
will be made with respect to the number of shares of Phantom Stock then
outstanding under previous awards nor will it cause a change in their value.
13. LIMITATION OF RIGHTS. Nothing in this Plan is to be construed to:
(a) Pay: Give any Employee of the Company any right to be
awarded shares of Phantom Stock other than in the sole discretion of
the Committee;
(b) Terminating Employment: Limit in any way the right of the
Company to terminate an Employee's employment with the Company at any
time; or
(c) Specific Agreement: Evidence any agreement or
understanding, express or implied, that the Company will employ an
Employee in any particular position or for any particular
remuneration.
14. NONALIENATION OF BENEFITS. No right or benefit under this Plan will
be subject to anticipation, alienation, sale, assignment, pledge, encumbrance,
or charge and any attempt to anticipate, alienate, assign, sell, pledge,
encumber, or charge any right or benefit will be void. No right or benefit will
in any manner be liable for or subject to any debt, contract, liability or tort
of the person entitled to the benefit. If any Participant or any beneficiary
under this Plan becomes bankrupt or attempts to anticipate, alienate, assign,
pledge, sell, encumber or charge any right or benefit under this Plan then that
right or benefit will, in the discretion of the Committee, cease. In that
event, the Company will hold or apply the right or benefit or any part of it for
the benefit of the Participant, or his beneficiary, or his spouse, children or
other
-11-
<PAGE>
dependents, or any of them in any manner and in any proportion as the Committee
feels is proper.
15. GENERAL CREDIT OF THE COMPANY. This Plan providing for the awarding
of shares of Phantom Stock and the redemption of that Phantom Stock in
accordance with the Plan's terms is a general obligation of the Company only.
There are no specific assets nor any specific trusts or other security pledged
or set aside for the performance of this general obligation and none is intended
under this Plan.
16. AMENDMENT AND TERMINATION OF PLAN. The Board of Directors may amend
or terminate this Plan at any time. Provided, however, any amendment or
termination of this Plan will not affect the rights of any Participant in this
Plan as to the shares of Phantom Stock then standing to his credit at the time
of the amendment or termination, nor will it affect the appreciation or
depreciation that will accrue to those shares of Phantom Stock after that date
until the date of the payment of the benefit.
17. EFFECTIVE DATE. This Plan will become operative and effective as of
the date that is fixed by the Board of Directors of the Company.
18. EMPLOYMENT RELATIONSHIP. An Employee shall be considered to be in the
employment of the Company as long as he/she remains an employee of either the
Company or a Subsidiary of the Company. Any question as to whether and when
there has been a termination of such employment, and the cause of such
termination, shall be determined by the Committee and its determination shall be
final. Nothing herein shall confer on any Employee the right to continued
employment or affect the right of the Company or the employing Subsidiary to
terminate such employment.
-12-
<PAGE>
IN WITNESS WHEREOF, the Company has executed this agreement this ______ day
of _______________________ 19___.
BAY BANCSHARES, INC.
By
-------------------------------------
-13-
<PAGE>
EXHIBIT A
PERFORMANCE TEST
1993 PHANTOM STOCK PLAN
PURPOSE
The purpose of this performance test is to determine how many, if any, shares of
Phantom Stock shall be granted to Mr. Larry D. Wright under the Phantom Stock
Plan.
BASIS
The basis for this performance test is a comparison between the current
financial performance of Company's subsidiary, Bayshore National Bank,
hereinafter "BNB," in a calendar year with the financial performance of other
financial institutions in the preceding calendar year where such other financial
institutions have been determined to be similarly situated based on asset size
and designated as "Texas peer" organizations. The reason for this performance
comparison "time lag" is that required data, as referenced under Financial
Performance and Texas Peer Institutions, is not published until five months
after the close of BNB's calendar year. For reference, the 1990 target will be
based on 1989 data, published in the second quarter of 1990.
FINANCIAL PERFORMANCE AND TEXAS PEER INSTITUTIONS
Financial performance for purposes of this test shall be actual Return On Equity
(R.O.E.) as published for each calendar year by Sheshunoff Information Services,
Inc., in their annual report entitled "Sheshunoff Banks of Texas."
Specifically, the data from the above publication identified for specific
reference in this test shall be the data entitled "Balance Sheet and Income
Statement Analysis" found under the heading "Deposits, Loans, and Profits, III,"
in the Comprehensive Overview Section.
Line item identification for Texas peer group financial performance comparison
purposes shall be based on banks in the state of Texas, in the asset range
comparable to BNB, and the percent "Return On Average Equity" reported under the
major column heading titled "Rates of Return." BNB's R.O.E. rate, when
referenced back to asset range, will correspond to the designated Texas peer
bank performance percentile which will be used as the measure of the Company's
performance against its Texas peers.
Should Sheshunoff Information Services, Inc., cease publishing the
above-referenced data, the committee shall select an alternative source of the
same or similar data, comparable in credibility and timeliness to that provided
by Sheshunoff.
PERFORMANCE TARGETS AND SHARES AWARDED
The following table sets forth how this performance test will work in
determining the number of restricted shares granted under the plan by the
Company based on R.O.E. percentile performance comparisons between BNB and its
Texas peers.
-14-
<PAGE>
TABLE OF PERFORMANCE TESTS AND GRANT AMOUNTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If BNB's rank within its And BNB's actual Then the percent of
Texas peer group is in average ROE percentage outstanding shares of
the following for the preceding year Phantom Stock to be
performance percentile: was: granted to Mr. Wright
will be:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
60 thru 69 10% 1%
- --------------------------------------------------------------------------------
70 10% 1.3300%
- --------------------------------------------------------------------------------
71 10% 1.3635%
- --------------------------------------------------------------------------------
72 10% 1.3970%
- --------------------------------------------------------------------------------
73 10% 1.4305%
- --------------------------------------------------------------------------------
74 10% 1.4640%
- --------------------------------------------------------------------------------
75 10% 1.4975%
- --------------------------------------------------------------------------------
76 10% 1.5310%
- --------------------------------------------------------------------------------
77 10% 1.5645%
- --------------------------------------------------------------------------------
78 10% 1.5980%
- --------------------------------------------------------------------------------
79 10% 1.6315%
- --------------------------------------------------------------------------------
80 Any % 1.6650%
- --------------------------------------------------------------------------------
81 Any % 1.6985%
- --------------------------------------------------------------------------------
82 Any % 1.7320%
- --------------------------------------------------------------------------------
83 Any % 1.7655%
- --------------------------------------------------------------------------------
84 Any % 1.7990%
- --------------------------------------------------------------------------------
85 Any % 1.8325%
- --------------------------------------------------------------------------------
86 Any % 1.8660%
- --------------------------------------------------------------------------------
87 Any % 1.8995%
- --------------------------------------------------------------------------------
88 Any % 1.9330%
- --------------------------------------------------------------------------------
89 Any % 1.9665%
- --------------------------------------------------------------------------------
90 Any % 2.000%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-15-
<PAGE>
FIRST AMENDMENT TO THE
BAY BANCSHARES, INC. 1993 PHANTOM STOCK PLAN
THIS AGREEMENT by Bay Bancshares, Inc. (the "Sponsor"),
W I T N E S S E T H:
WHEREAS, the Sponsor has executed and maintains a phantom stock plan
entitled "Bay Bancshares, Inc. 1993 Phantom Stock Plan" (the "Plan"); and
WHEREAS, the Sponsor, acting through its Board of Directors retained
the right in Section 16 of the Plan to amend the Plan from time to time; and
WHEREAS, the Sponsor has determined to amend the Plan to eliminate the
restriction on redemption of shares contained in Section 8 of the Plan; and
WHEREAS, the Board of Directors of the Sponsor approved resolutions on
the ___ day of ____________________, 1997, authorizing adoption of the amendment
described above;
NOW, THEREFORE, the Sponsor declares that the Plan is hereby amended,
effective as of the date of execution hereof, as follows:
1. Section 8 of the Plan is hereby amended in its entirety to read
as follows:
8 VESTING AND REDEMPTION OF PHANTOM STOCK. Once a share of
Phantom Stock has been issued to a Participant, it shall be subject
to the vesting requirements which the Committee shall establish.
During each calendar year that the Plan remains in effect, the
Company shall redeem such number of shares of Phantom Stock each
Participant is vested in as of the last day of such calendar year
as the Board of Directors of the Company may in its sole discretion
determine from year to year. Provided, however, in all
circumstances such shares of Phantom Stock shall be redeemed not
later than ten years from the date the Participant vests in the
shares of Phantom Stock. Such shares of Phantom Stock shall be
redeemed by the Company at the then Fair Market Value of the
Company's Common Stock, and shall be payable either in cash or in
the equivalent number of shares of the Company's Common Stock, as
shall be determined from year to year by the Board of Directors of
the Company. Such payment by the
<PAGE>
Company shall take place as soon as administratively practicable
following completion of the Performance Test for the applicable
year in which the Board of Directors determines to redeem the
Phantom Stock.
IN WITNESS WHEREOF, the Sponsor has executed this Agreement this
_____ day of _______________________ 1997.
BAY BANCSHARES, INC.
By
---------------------------
-2-
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
----------------------
Name Jurisdiction of Incorporation
-------- -------------------------------
Bayshore National Bank of LaPorte United States
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 24, 1997 except for the last
sentence of the penultimate paragraph of Note I, as to which the date is
August 26, 1997, and the third sentence of the second paragraph of Note K as
to which the date is June 24, 1997, accompanying the financial statements of
Bay Bancshares, Inc. and Subsidiary contained in the Registration Statement
and Prospectus. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus, and to the use of our name as it
appears under the caption "Experts".
GRANT THORNTON LLP
Houston, Texas
September 23, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated September 10, 1997, accompanying the
financial statements of Texas Bank contained in the Registration Statement and
Prospectus. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus, and to the use of our name as it
appears under the caption "Experts".
/s/ McClelland Samuel & Fehnel, L.L.P
McCLELLAND, SAMUEL & FEHNEL, L.L.P
Beaumont, Texas
September 22, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated May 28, 1997, accompanying the financial
statements of Texas National Bank of Baytown contained in the Registration
Statement and Prospectus. We consent to the use of the aforementioned report
in the Registration Statement and Prospectus, and to the use of our name as
it appears under the caption "Experts".
/s/ Killingsworth & Company
KILLINGSWORTH & COMPANY
Houston, Texas
September 22, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated June 2, 1997, accompanying the financial
statements of First Bank of Deer Park contained in the Registration Statement
and Prospectus. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus, and to the use of our name as it appears
under the caption "Experts".
/s/ Killingsworth & Company
KILLINGSWORTH & COMPANY
Houston, Texas
September 22, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
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0
0
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</TABLE>
