SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Bay Bancshares, Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on
which the filing fee is calculated and state how it was
determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
BAY BANCSHARES, INC.
1001 HIGHWAY 146 SOUTH
LA PORTE, TEXAS 77571
NOTICE OF 1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY MAY 27, 1998
To the Shareholders of Bay Bancshares, Inc.:
The 1998 Annual Meeting of Shareholders (the "Meeting") of Bay
Bancshares, Inc. (the "Company") will be held at 1001 Highway 146 South, La
Porte, Texas, on Wednesday, May 27, 1998, beginning at 1:30 p.m. (local time),
for the following purposes:
1. To elect four directors of Class I to serve on the Board of
Directors of the Company until the Company's 2001 Annual Meeting of Shareholders
and until their successors are duly elected and qualified;
2. To consider and act upon a proposal to ratify the appointment of
Grant Thornton LLP as the independent auditors of the books and accounts of the
Company for the year ending December 31, 1998; and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The close of business on April 6, 1998 has been fixed as the record
date for the determination of shareholders entitled to notice of and to vote at
the Meeting or at any adjournments thereof. A list of shareholders entitled to
vote at the Meeting will be available for inspection by any shareholder at the
offices of the Company during ordinary business hours for a period of at least
ten days prior to the Meeting.
You are cordially invited and urged to attend the Meeting. If you are
unable to attend the Meeting, you are requested to sign and date the enclosed
proxy and return it promptly in the enclosed envelope. If you attend the
Meeting, you may vote in person, regardless of whether you have given your
proxy. Your proxy may be revoked at any time before it is voted.
By order of the Board of Directors,
/s/ L. D. WRIGHT
L. D. Wright
Chief Executive Officer
La Porte, Texas
April 27, 1998
YOUR VOTE IS IMPORTANT.
TO ENSURE YOUR REPRESENTATION AT THE MEETING, PLEASE COMPLETE, DATE,
AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ACCOMPANYING ENVELOPE AT YOUR
EARLIEST CONVENIENCE, REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE MEETING. NO
ADDITIONAL POSTAGE IS NECESSARY IF THE PROXY IS MAILED IN THE UNITED STATES. THE
PROXY IS REVOCABLE AT ANY TIME BEFORE IT IS VOTED AT THE MEETING.
BAY BANCSHARES, INC.
2
<PAGE>
1001 HIGHWAY 146 SOUTH
LA PORTE, TEXAS 77571
PROXY STATEMENT
FOR
1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, MAY 27, 1998
April 27, 1998
INTRODUCTION
This Proxy Statement is being furnished in connection with the
solicitation of proxies by the Board of Directors of Bay Bancshares, Inc. (the
"Company") for use at the 1998 Annual Meeting of Shareholders of the Company to
be held at 1001 Highway 146 South, La Porte, Texas, on Wednesday, May 27, 1998,
beginning at 1:30 p.m. (local time), and any adjournment thereof (the "Meeting")
for the purposes set forth in this Proxy Statement and the accompanying Notice
of 1998 Annual Meeting of Shareholders ("Notice of Meeting"). This Proxy
Statement, the Notice of Meeting and the enclosed form of proxy will first be
sent to shareholders on or about April 27, 1998.
PROXIES
This Proxy Statement is furnished to the shareholders of the Company for
solicitation of proxies on behalf of the Board of Directors of the Company for
use at the Meeting, and at any and all adjournments thereof. The purpose of the
Meeting and the matters to be acted upon are set forth herein and in the
accompanying Notice of Meeting.
Shares represented at the Meeting by an executed and unrevoked proxy in
the form enclosed will be voted in accordance with the instructions contained
therein. If no instructions are given on an executed and returned form of proxy,
the proxies intend to vote the shares represented thereby in favor of each of
the proposals to be presented to and voted upon by the shareholders as set forth
herein, and in accordance with their best judgment on any other matter which may
properly come before the Meeting.
Any proxy given by a shareholder may be revoked by such shareholder at
any time before it is exercised by submitting to the Secretary of the Company a
duly executed proxy bearing a later date, delivering to the Secretary of the
Company a written notice of revocation, or attending the Meeting and voting in
person.
The cost of this solicitation of proxies is being borne by the Company.
Solicitations will be made only by the use of the mail, except that, if deemed
desirable, officers and regular employees of the Company may solicit proxies by
telephone, telegraph or personal calls, without being paid additional
compensation for such services. Brokerage houses, custodians, nominees and
fiduciaries will be requested to forward the proxy soliciting material to the
beneficial owners of the common stock, par value $1.00 per share, of the Company
(the "Common Stock") held of record by such persons, and the Company will
reimburse them for their reasonable expenses incurred in this connection.
The Company's Annual Report to Shareholders, including financial
statements, for the year ended December 31, 1997, accompanies but does not
constitute part of this Proxy Statement.
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VOTING SHARES AND VOTING RIGHTS
Only holders of record of Common Stock at the close of business on
April 6, 1998 (the "Record Date"), are entitled to notice of and to vote at the
Meeting and any adjournments or postponements thereof. At that time, there were
outstanding 2,049,103 shares of Common Stock, which is the only outstanding
class of voting securities of the Company. A majority of the outstanding shares
of Common Stock must be represented at the Meeting in person or by proxy in
order to constitute a quorum for the transaction of business. Each holder of
Common Stock shall have one vote for each share of Common Stock registered, on
the Record Date, in such holder's name on the books of the Company.
The affirmative vote of the holders of a plurality of the outstanding
shares of Common Stock represented at the Meeting is required to elect the Class
I nominees to the Board of Directors. There will be no cumulative voting in the
election of directors. Abstentions and shares held of record by a broker or
nominee that are voted on any matter are included in determining whether a
quorum exists. An abstention, a non-vote or a withholding of authority to vote
with respect to one or more nominees for director will not have the effect of a
vote against such nominee or nominees.
The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock represented at the Meeting is required to approve the
appointment of the auditors. An abstention or a non-vote will have the effect of
a vote against the appointment.
ELECTION OF DIRECTORS
ELECTION PROCEDURES; TERM OF OFFICE
The Board of Directors currently consists of fourteen directors. In
accordance with the Company's Amended and Restated Bylaws, members of the Board
of Directors are divided into three classes; Class I, Class II and Class III.
The members of each class are elected for a term of office to expire at the
third succeeding annual meeting of shareholders following their election. The
term of office of the current Class I directors expires at the Meeting. The
terms of the current Class II and Class III directors expire at the annual
meetings of shareholders in 1999 and 2000, respectively. The four Class I
nominees, if elected at the Meeting, will serve until the annual meeting of
shareholders in 2001.
The Board of Directors has nominated Knox W. Askins, Albert D. Fields,
Ken Strum and L. D. Wright for election as Class I directors at the Meeting.
Messrs. Askins, Fields, Strum and Wright are currently serving as Class I
directors.
The Class I nominees receiving the affirmative vote of the holders of a
plurality of the shares of Common Stock represented at the Meeting will be
elected. Unless the authority to vote for the election of directors is withheld
as to any or all of the nominees, all shares of Common Stock represented by
proxy will be voted FOR the election of the nominees. If the authority to vote
for the election of directors is withheld for one or more but not all of the
nominees, all shares of Common Stock represented by any such proxy will be voted
FOR the election of the nominees as to whom such authority is not withheld. If a
nominee becomes unavailable to serve as a director for any reason before the
election, the shares represented by proxy will be voted for such other person,
if any, as may be designated by the Board of Directors. The Board of Directors,
however, has no reason to believe that any nominee will be unavailable to serve
as a director.
Any director vacancy occurring after the election may be filled only by
a majority of the remaining directors, even if less than a quorum of the Board
of Directors. A director elected to fill a vacancy will be elected for the
unexpired portion of the term of his predecessor in office.
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NOMINEES FOR ELECTION
The following table sets forth certain information with respect to each
nominee for election as a director of the Company.
NAME POSITION AGE
- ---- -------- ---
Knox W. Askins Class I Director of the Company 60
Albert D. Fields Class I Director and Treasurer of the Company 47
Ken Strum Class I Director of the Company 64
L. D. Wright Class I Director, Chief Executive Officer and President
of the Company 51
KNOX W. ASKINS. Mr. Askins has been a director of Bayshore National Bank
(the "Bank") since 1967. He became a director of the Company when it was formed
in 1982. He serves as a member of the Bank's Audit Committee, Asset/Liability
Committee and the Watchlist Committee. Mr. Askins also serves on the Company's
Audit Committee. 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.
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. He was named Treasurer of the
Company in 1982. 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 a B.B.A. from the 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.
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 Bank's Directors'
Loan Committee, and also serves on the Bank's 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.
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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS.
5
<PAGE>
CONTINUING DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Company's Class II and III directors, whose terms of office do not expire at the
Meeting, and certain officers of the Company (other than Messrs. Askins, Fields,
Strum and Wright):
NAME POSITION AGE
- ---- -------- ---
Emery Farkas Class II Director of the Company and the Bank 74
Eddie V. Gray Class III Director of the Company and the Bank 62
W.E. Gwaltney, Jr. Class III Director of the Company and the Bank 71
Doug Latimer Chairman of the Board of the Company and the
Bank, Class III Director 55
Kim E. Love Controller of the Company and Chief Financial 38
Officer of the Bank
Jay Marks Class III Director of the Company and the Bank 74
L.H. McKey Class II Director of the Company and the Bank 72
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, Class III Director 48
James N. Wallace Class III Director of the Company and the Bank 56
Ruede M. Wheeler, D.D.S. Class II Director of the Company and the Bank 64
Alice W. Worthington Executive Vice President and Secretary of the 44
Company, Chief Operating Officer of the Bank
and Class II Director of the Company and the Bank
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 Bank's Asset/Liability Committee and the Watchlist Committee and
on 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.
EDDIE V. GRAY. Mr. Gray became a director of both the Company and the
Bank in 1991. He has been a member of the Bank's 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 an 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. Additionally, in January of 1998, Mr. Gray was honored with
the dedication of the Eddie V. Gray Wetlands Education and Recreation Center in
Baytown, Texas.
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 Bank's Asset/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.
6
<PAGE>
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 Bank's Loan Committee, Internal
Credit Review Committee and Watchlist Committee, and on 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 an M.B.A.
from the University of Houston.
KIM E. LOVE, CPA. Ms. 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. Ms. Love began her banking career in 1977 at First
City Bank - Bellaire. She was promoted to Vice President and Cashier in 1984.
Next, Ms. 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 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.
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, and became a
Senior Advisory Director. He currently serves on the Bank's Audit Committee,
Asset/Liability Committee and 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 Bank's Loan Committee,
Watchlist Committee, Internal Credit Review Committee and Asset/Liability
Committee and on 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 contracting company, where he has 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.
JAMES N. WALLACE. Mr. Wallace became a director of both the Company and
the Bank in 1990. He is Co-Chairman of the Internal Credit Review Committee, and
also serves on the Bank's Directors' Loan Committee, Internal Credit Review
Committee and Watchlist Committee and on the Company's Compensation Committee.
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 University and an M.A. from Southwest Texas University.
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 Bank's Internal Credit Review Committee, and also
serves on the Bank's 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.
7
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ALICE W. WORTHINGTON. Mrs. Worthington joined the Bank in 1992 as
Executive Vice President and Chief Operating Officer, and became a 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 period until transferring to First
City Bank -Highland Village, Houston, Texas as Senior Vice President and Chief
Financial Officer in 1987.
OPERATION OF THE BOARD OF DIRECTORS
The Board of Directors of the Company held thirteen meetings during
1997. There were two Directors who attended less than 75% of the aggregate of
the (i) total number of meetings of the Board and (ii) total number of meetings
held by committees on which he served.
The Board of Directors has 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. During 1997, the Audit Committee held nine
meetings. 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. During 1997, the Compensation Committee held ten
meetings. The Compensation Committee is comprised of Messrs. Latimer, Jay Marks,
Gwaltney, Wallace and Lindsay Pfeiffer, each of whom is an outside director.
8
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the formation of the Compensation Committee in 1997, matters
related to compensation, employee benefits 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.
EXECUTIVE COMPENSATION AND OTHER MATTERS
SUMMARY COMPENSATION TABLE
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
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, 1997:
<TABLE>
<CAPTION>
Value of Securities All Other
NAME AND PRINCIPAL Other Annual Options Underlying Compensation
POSITION Year Salary Bonus Compensation Granted Options(#) (1)
- ------------------- ------- -------- ------- ------------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
L. D. Wright, Chief 1997 $ 165,000 $54,000 $50,237 (2) $249,248 (3) $35,411 $ 879
Executive
Officer of the 1996 156,000 52,500 51,583 110,868 18,478 3,120
Company and the Bank
Albert D. Fields,
Treasurer of the 1997 $ 108,000 $20,000 $ - $ - $ - $ 1,047
Company and
President of the 1996 97,500 11,375 850 - - 1,950
Bank
</TABLE>
- --------------------------------------------------------
(1) Consists of contributions by the Company to the Company's
401(k) Plan.
(2) Includes $36,000 as the fair market value of Common Stock issued to Mr.
Wright pursuant to the Bay Bancshares, Inc. 1993 Phantom Stock Plan
("Phantom Plan") and $7,937 received by Mr. Wright as dividends on the
shares of phantom stock granted under the Phantom Plan.
(3) Consists of shares of phantom stock granted under the Phantom Plan. As of
December 31, 1997, Mr. Wright held options for 66,630 shares of phantom
stock under the Phantom Plan, and the estimated value of these shares was
$1,315,943. At December 31, 1997, 39,538 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 Plan.
STOCK OPTION PLANS
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The Company has outstanding options to purchase 34,100 shares of Common
Stock issued pursuant to an incentive stock option plan approved by shareholders
in 1997 (the "1997 Stock Option Plan"). The 1997 Stock Option Plan authorizes
the issuance of options for up to 150,000 shares of Common Stock. Under the 1997
Stock Option 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 Option
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 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" 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 an optionee's
termination with the Company, if earlier. No options have been granted under the
1997 Incentive Plan.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION ("SFAS 123"). This statement established fair value based
accounting and reporting standards for all transactions in which a company
acquires goods or services by issuing its equity investments, which includes
stock-based compensation plans. Under SFAS 123, compensation cost is measured at
the grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. Fair value of stock options
is determined using an option-pricing model. This statement encourages companies
to adopt as prescribed the fair value based method of accounting to recognize
compensation expense for employee stock compensation plans. However, it does not
require the fair value based method to be adopted but a company must comply with
the disclosure requirements set forth in the statement. The Company has
continued to apply accounting in Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, ("APB 25") and related
Interpretations, and, accordingly, will in its annual reporting provide the pro
forma disclosures of net income and earnings per share.
OPTION GRANTS DURING 1997
The following table sets forth certain information concerning the number
and value of stock options granted in fiscal 1997 to each of the named executive
officers:
% of
Total
Number of Options
Securities Granted Fair
Underlying to Exercise Market
Options Employees of Base at Value
Name and Principal Granted in Fiscal Price Date of Expiration
Position (#) Year ($/Sh) Grant Date
- -------------------------------- -------- ------- -------- --------
L. D. Wright, Chief 35,411 (1) 100% $0.00 $7.05 10 Years
Executive Officer
of the Company and the
Bank
Albert D. Fields,
Treasurer of the 5,000 100% $7.05 $7.05 10 Years
Company and
President of the Bank
- -------------------------------------------
(1) Represents options granted under the Phantom Plan.
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STOCK OPTION EXERCISES AND FISCAL YEAR END VALUES
The following table sets forth certain information concerning stock
options exercised during fiscal 1997 and the number and value of unexercised
options held by each of the named executive officers at December 31, 1997:
<TABLE>
<CAPTION>
Number of
Number of Securities Underlying Value of Unexercised
Shares Dollar Unexercised Options at In-the-Money Options at
Acquired Upon Value December 31, 1997 December 31, 1997 (2)
Option Realized ----------------------- -----------------------
Name Exercise (1) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------ --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
L. D. Wright ..........6,000 $42,300 39,538 27,092 $502,133 $344,068
Albert D. Fields ...... 0 -- 1,000 4,000 12,700 50,800
- ------------------------------------
</TABLE>
(1) Market value of the underlying securities at exercise date, minus the
exercise price.
(2) Market value of the underlying securities at December 31, 1997, minus the
exercise price.
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 1997, 1996 and 1995 were approximately $58,000, $27,000
and $24,000, respectively. In addition, the Company elected to allow employees
to invest the matching portion in shares of Common Stock.
BENEFICIAL OWNERSHIP OF COMMON STOCK BY
MANAGEMENT OF THE COMPANY AND PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of December 31, 1997, (i)
each director and executive officer of the Company, (ii) each person who is
known by the Company to own beneficially 5% or more of the Common Stock and
(iii) all directors and executive officers as a group. Unless otherwise
indicated, each person has sole voting and dispositive power over the shares
indicated as owned by such person, and the address of each shareholder is the
same as the address of the Company.
11
<PAGE>
Percentage
Number Beneficially
Name of Shares Owned
- -------------------------- ---------- ------------
Knox W. Askins 8,402 0.41%
Emery Farkas 28,203 1.38%
Albert D. Fields 11,229 (1) 0.55%
Eddie V. Gray 29,321 (2) 1.43%
W.E. Gwaltney, Jr. 143,343 (3) 7.00%
Doug Latimer 83,563 (4) 4.08%
Kim E. Love 2,850 (5) 0.14%
Jay Marks 87,283 (6) 4.26%
L.H. McKey 65,620 3.20%
Harold P. Pfeiffer 149,615 7.30%
Lindsay R. Pfeiffer 39,470 (7) 1.93%
Ken Strum 25,051 (8) 1.22%
James N. Wallace 36,667 1.79%
Ruede M. Wheeler, D.D.S. 43,713 (9) 2.13%
Alice W. Worthington 1,250 (10) 0.06%
L. D. Wright 126,071 (11) 6.15%
- -----------------------------------------------------
(1) Includes 1,000 shares which may be acquired pursuant to options granted
under the 1997 Stock Option Plan.
(2) Includes 26,797 shares held of record by Grayco Development Co.
(3) Consists of 143,343 shares held of record by Gwaltney Interests, Limited, a
Texas limited partnership.
(4) Consists of 83,563 shares held of record by Douglas and Margaret Latimer
Family Trust.
(5) Includes 1,000 shares which may be acquired pursuant to options granted
under the 1997 Stock Option Plan.
(6) Consists of 87,283 shares held of record by JLSF Marks Investments, Limited,
a Texas limited partnership.
(7) Includes 17,525 shares held of record 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, 203 shares held of record by the
Philip Pfeiffer, Jr. Education Trust and 203 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.
(8) Includes 2,245 shares held of record by Ken Strum Insurance Agency, Inc.
(9) 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 the Ruede Wheeler, IRA and 450 shares held of
record by the Charlcya Wheeler IRA.
12
<PAGE>
(10)Includes 1,000 shares which may be acquired pursuant to options granted
under the 1997 Stock Option Plan.
(11) Includes 39,538 shares which may be acquired pursuant to the Phantom Plan.
PERFORMANCE GRAPH
The following Performance Graph compares the cumulative total
shareholder return on the Company's Common Stock for the period from November 6,
1997, when the Common Stock was first listed on the Nasdaq National Market, to
December 31, 1997, with S & P 500 Composite Index and the PHIL KBW Banks Index.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
11/6/97 12/31/97
---------------------------------
BAYB $100.00 $115.63
---------------------------------
S&P 500 $100.00 $103.45
---------------------------------
Bank Stocks $100.00 $104.28
---------------------------------
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") requires the Company's directors and executive officers and
persons who own more than ten percent of the outstanding Common Stock to file
with the Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Officers, directors and greater than ten-percent shareholders are
required by regulation to furnish the Company with copies of all Section 16(a)
forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company, during the year ended December 31, 1997, all
Section 16(a) reporting requirements applicable to the Company's officers,
directors and greater than ten-percent Shareholders were complied with exception
that Eddie V. Gray, Doug Latimer, Ruede M. Wheeler and Larry D. Wright were late
in filing their initial report of beneficial ownership on Form 3, which was due
on the effective day following the initial public offering.
PROPOSAL TO RATIFY APPOINTMENT OF INDEPENDENT AUDITORS
13
<PAGE>
The Board of Directors has appointed Grant Thornton LLP as the
independent auditors of the books and accounts of the Company for the year
ending December 31, 1998. Grant Thornton LLP has served as the Company's
independent audit firm continuously for five years. At the Meeting, the
shareholders will be asked to consider and act upon a proposal to ratify the
appointment of Grant Thornton LLP. The ratification of such appointment will
require the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock entitled to vote and present in person or represented by
proxy at the Meeting. Representatives of Grant Thornton LLP will be present at
the Meeting, will be given an opportunity to make a statement (if they desire to
do so) and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY SUCH
APPOINTMENT.
SHAREHOLDER PROPOSALS AT THE NEXT ANNUAL MEETING
OF SHAREHOLDERS
Proposals of shareholders intended to be presented at the 1999 Annual
Meeting of Shareholders must be received by the Company at its principal
executive office by December 28, 1998, in order for such proposals to be
included in the Company's proxy statement and form of proxy for such meeting.
Shareholders submitting such proposals are requested to address them to the
Secretary of the Company at 1001 Highway 146 South, La Porte, Texas 77571.
OTHER MATTERS
The Board of Directors does not intend to bring any other matter before
the Meeting. Additionally, no shareholder of the Company has complied with the
advance notice provisions contained in the Company's Bylaws, which preclude the
bringing of matters before a meeting of shareholders unless such provisions are
complied with. Accordingly, no other matter is expected to be brought before the
Meeting. However, if any other matter does properly come before the Meeting, the
proxies will be voted in accordance with the discretion of the person or persons
voting the proxies.
You are cordially invited to attend the Meeting. Regardless of whether
you plan to attend the Meeting, you are urged to complete, date, sign and return
the enclosed proxy in the accompanying envelope at your earliest convenience.
By order of the Board of Directors,
/s/ L. D. WRIGHT
L. D. Wright
Chief Executive Officer
14
<PAGE>
FRONT SIDE OF PROXY
- --------------------------------------------------------------------------------
REVOCABLE PROXY BAY BANCSHARES, INC.
1998 ANNUAL MEETING OF SHAREHOLDERS -- MAY 27, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The 1998 Annual Meeting of Shareholders of Bay Bancshares, Inc. (the
"Company") will be held at 1001 Highway 146 South, La Porte, Texas on
Wednesday, May 27, 1998, beginning at 1:30 p.m. (local time). The undersigned
hereby acknowledges receipt of the related notice of the 1998 Annual Meeting
of Shareholders and Proxy Statement dated April 27, 1998 accompanying this
proxy.
The undersigned hereby appoints Doug Latimer and Lindsay R. Pfeiffer each
of them, with or without the other, as attorneys and agents, with full power
of substitution, to vote as proxy all shares of Common Stock, $1.00 par value
per share, of the Company which the undersigned is to vote, and otherwise to
act on behalf of the undersigned at the 1998 Annual Meeting of Shareholders
and any adjournment thereof in accordance with the directions set forth
herein and with discretionary authority with respect to such other matters,
not known or determined at the time of the solicitation of this proxy, as may
properly come before such meeting or any adjournment thereof.
This proxy is solicited on behalf of the Board of Directors of the
Company and will be noted for the following proposals unless otherwise
indicated.
<TABLE>
<S> <C>
1. ELECTION OF DIRECTORS [ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary to vote for all nominees listed
below) below
</TABLE>
Nominees are Knox W. Askins, Albert D. Fields, Ken Strum and L. D. Wright.
(INSTRUCTION: To withhold authority to vote for any individual nominee,
draw a line through the name of such nominee in the list above.)
__________________________________________________________________________
2. RATIFICATION OF THE APPOINTMENT OF GRANT THORNTON LLP as the
independent auditors of the books and accounts of the Company for the
year ending December 31, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
(CONTINUED FROM OTHER SIDE)
- --------------------------------------------------------------------------------
BACK SIDE OF PROXY
- --------------------------------------------------------------------------------
This proxy will be voted as directed. If no direction is made, this proxy
will be voted FOR the election of all nominees for directors named herein to
serve on the Board of Directors until the 2001 Annual Meeting of Shareholders
and until their successors are duly elected and qualified, and FOR the
ratification of the appointment of Grant Thornton LLP as the independent
auditors of the books and accounts of the Company for the year ending December
31, 1998.
Please sign your name exactly as it appears below. If shares are held
jointly, all joint owners should sign. If shares are held by a corporation,
please sign the full corporate name by the president or any other authorized
corporate officer. If shares are held by a partnership, please sign the full
partnership name by an authorized person. If you are signing as attorney,
executor, administrator, trustee or guardian, please set forth your full title
as such.
Dated: _________________________________ , 1998
_______________________________________________
_______________________________________________
Signature(s) of shareholder(s)
PLEASE DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE.
- --------------------------------------------------------------------------------
