AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 13, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FVNB CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C>
TEXAS 6712 74-2871063
(STATE OR OTHER JURISDICTION OF PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
DAVID M. GADDIS
101 S. MAIN STREET 101 S. MAIN STREET
VICTORIA, TEXAS 77901 VICTORIA, TEXAS 77901
(512) 573-6321 (512) 573-6321
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
EXECUTIVE OFFICES)
</TABLE>
------------------------
COPIES TO:
CARY PLOTKIN KAVY
COX & SMITH INCORPORATED
112 E. PECAN STREET, SUITE 1800
SAN ANTONIO, TEXAS 78205
(210) 554-5500
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to rule 462 (b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering [ ]
If this form is a post-effective amendment filed pursuant to rule 462 (d)
under the Securities act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES TO BE OFFERING AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PRICE PER SHARE(1) OFFERING PRICE(1) FEE(1)
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share................................ 2,372,792 shares $42.00 $99,657,264 $29,399
- - ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee and
based, in accordance with Rule 457(f), upon the market value for the
outstanding common shares of First Victoria National Bank (based upon the
average of the bid and asked prices of such shares on the Nasdaq National
Market on March 10, 1998), of 2,372,792 shares of common stock, par value
$2.50 per share, as of March 10, 1998, of $42.00 per share and a maximum of
2,372,792 shares of such stock to be converted in the reorganization into
common stock of the Registrant with a par value of $.01 per share.
================================================================================
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF PART I OF FORM S-4
<TABLE>
<CAPTION>
ITEM
NO. CAPTION LOCATION IN PROSPECTUS
- - ------------------------------------------------- ----------------------------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus.............................. Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus..................... Inside Front Cover Page; Available Information;
Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information........... Outside Front Cover Page; Summary; Risk Factors;
Proposed Reorganization; Description of the Holding
Company; Description of the Bank; Description of the
Bank Common Stock -- Market Prices; Description of
the Holding Company Common Stock; Comparison of
Shareholder Rights; Beneficial Ownership of Bank
Common Stock
4. Terms of the Transaction................ Proposed Reorganization -- Plan of Reorganization
and Plan of Merger; Proposed Reorganization --
Reasons for the Proposed Reorganization; Description
of the Holding Company Common Stock; Comparison of
Shareholder Rights; Proposed
Reorganization -- Federal Income Tax Consequences;
Proposed Reorganization -- Rights of Dissenting
Shareholders; Legal Matters
5. Pro Forma Financial Information......... Description of the Bank Common Stock --
Capitalization
6. Material Contacts with the Company Being
Acquired................................ Not Applicable
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters...................... Not Applicable
8. Interests of Named Experts and
Counsel................................. Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Description of the Holding Company --
Indemnification for Securities Act Liabilities
10. Information with Respect to S-3
Registrants............................. Not Applicable
11. Incorporation of Certain Information by
Reference............................... Not Applicable
12. Information with Respect to S-2 or S-3
Registrants............................. Not Applicable
13. Incorporation of Certain Information by
Reference............................... Not Applicable
14. Information with Respect to Registrants
Other than S-3 or S-2 Registrants....... Description of the Holding Company; Description of
the Bank; Description of the Bank Common
Stock -- Market Prices; Dividends; Financial
Statements; First Victoria National Bank Selected
Historical Financial Data; First Victoria National
Bank Management's Discussion and Analysis of
Financial Condition and Results of Operations
15. Information with Respect to S-3
Companies............................... Not Applicable
16. Information with Respect to S-2 or S-3
Companies............................... Not Applicable
17. Information with Respect to Companies
Other than
S-2 or S-3 Companies.................... Description of the Bank; Financial Statements;
Beneficial Ownership of the Bank Common Stock;
Dividends; Description of the Bank Common Stock;
First Victoria National Bank Selected Historical
Financial Data; First Victoria National Bank
Management's Discussion and Analysis of Financial
Condition and Results of Operations
18. Information if Proxies, Consents or
Authorizations are to be Solicited...... Outside Front Cover Page; Summary; Annual Meeting;
Proposed Reorganization; Beneficial Ownership of
Bank Common Stock; Description of the Holding
Company; Description of the Bank; Certain
Transactions
19. Information if Proxies, Consents or
Authorizations are not to be Solicited
or in an Exchange Offer................. Not Applicable
</TABLE>
<PAGE>
FIRST VICTORIA NATIONAL BANK
101 S. MAIN ST.
VICTORIA, TEXAS 77901
(512) 573-6321
April , 1998
TO OUR SHAREHOLDERS:
The Board of Directors of First Victoria National Bank (the "Bank")
cordially invites you to attend the Annual Meeting of Shareholders (the
"Meeting") of the Bank to be held at 2:00 p.m., local time on Thursday, May
14, 1998, at the Main Office of the Bank, 101 S. Main St., Victoria, Texas
77901.
The accompanying Notice of Annual Meeting of Shareholders and Proxy
Statement address the formal business of the meeting. The formal business
includes a proposal to approve and adopt a Plan of Reorganization and Plan of
Merger pursuant to which the Bank would become a wholly-owned subsidiary of a
one-bank holding company, as well as the election of twelve (12) directors to
serve until the next Annual Meeting of Shareholders, a proposal to approve the
FVNB Corp. Stock Incentive Plan and the approval of the firm Arthur Andersen LLP
as the independent public accountants of the Bank (and, if the Plan of
Reorganization and Plan of Merger are approved, the holding company) for the
current fiscal year.
At the Meeting, the Board of Directors recommends that you vote in favor of
the proposal to approve and adopt the Plan of Reorganization and Plan of Merger.
The Board of Directors believes that the formation of a bank holding company at
this time is an important part of the Bank's plans for the future.
Under the proposed Plan of Reorganization and Plan of Merger, each
outstanding share of Common Stock of the Bank would be converted into one (1)
share of Common Stock of FVNB Corp., a Texas corporation (the "Holding
Company"), which would become a bank holding company in connection with the
reorganization and whose only substantial asset would be all of the Common Stock
of the Bank. If the Plan of Reorganization and Plan of Merger are approved and
adopted, the Bank's shareholders would automatically become shareholders of the
Holding Company. Since the Holding Company will own all of the outstanding
shares of the Bank, holders of shares of Common Stock of the Bank at the time of
the reorganization would maintain essentially the same relative ownership
interest in the Bank, except that it would be indirect rather than direct. The
conversion of Common Stock of the Bank into Common Stock of the Holding Company
is expected to be tax-free for federal income tax purposes.
THE BOARD OF DIRECTORS BELIEVES THAT THE PLAN OF REORGANIZATION AND PLAN OF
MERGER ARE IN THE BEST INTERESTS OF THE BANK AND ITS SHAREHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF THE BANK VOTE "FOR" THE APPROVAL
OF THE PLAN OF REORGANIZATION AND PLAN OF MERGER. THE APPROVAL AND ADOPTION OF
THE PLAN OF REORGANIZATION AND PLAN OF MERGER REQUIRE THE AFFIRMATIVE VOTE OF
THE HOLDERS OF AT LEAST TWO-THIRDS ( 2/3) OF THE OUTSTANDING SHARES OF THE
BANK'S COMMON STOCK. YOU ARE URGED TO SIGN, DATE AND RETURN YOUR ENCLOSED PROXY
AS SOON AS POSSIBLE IN THE PRE-ADDRESSED AND STAMPED ENVELOPE SUPPLIED FOR YOUR
CONVENIENCE.
We urge you to carefully review the enclosed Proxy Statement/Prospectus
that describes the Plan of Reorganization and Plan of Merger proposal in detail.
Again, your Board of Directors strongly recommends that you vote FOR the
proposal.
On behalf of the Board of Directors, thank you for your cooperation and
continued support.
Very truly yours,
David M. Gaddis
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
--------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 14, 1998
--------------------------------------------------------------------
TO THE SHAREHOLDERS OF FIRST VICTORIA NATIONAL BANK:
Notice is hereby given that the Annual Meeting of Shareholders (the
"Meeting") of First Victoria National Bank (the "Bank") will be held at 2:00
p.m., local time, on Thursday, May 14, 1998, at the Main Office of the Bank, 101
S. Main St., Victoria, Texas 77901, for the following purposes:
1. To consider and act upon the election of twelve directors to serve
until the next Annual Meeting of Shareholders of the Bank and until
their successors are elected and qualified;
2. To consider and act upon a proposal to approve and adopt that certain
Plan of Reorganization dated as of March 17, 1998 (the "Plan of
Reorganization"), by and between the Bank and FVNB Corp., a Texas
corporation (the "Holding Company"), and the related Plan of Merger
("Plan of Merger") to be entered into by and between the Bank and
FVNB Interim Bank, an interim national banking association to be formed
by the Holding Company under the laws of the United States (the
"Interim Bank"), providing for, among other things, the merger of the
Interim Bank with and into the Bank and the automatic conversion of
each share of the Common Stock of the Bank into one share of the Common
Stock of the Holding Company;
3. To consider and act upon a proposal to approve and adopt the FVNB Corp.
Stock Incentive Plan;
4. To consider and act upon the approval of the firm Arthur Andersen LLP
as the independent public accountants of the Bank (and, if the Plan of
Reorganization and Plan of Merger are approved, the Holding Company)
for the current fiscal year; and
5. To transact such other business as may properly come before the Meeting
and any adjournment or postponement thereof.
You are urged to mark, sign, date and promptly return your Proxy in the
enclosed envelope so that your shares may be voted in accordance with your
wishes and in order that the presence of a quorum may be assured. The prompt
return of your signed Proxy, regardless of the number of shares you hold, will
aid the Bank in reducing the expense of additional proxy solicitation. The
giving of such Proxy does not affect your right to vote in person if you attend
the Meeting. Any Proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted at the Meeting. Proxies may be
revoked by delivering to the Secretary to the Board of Directors, H. Allen
Jones, 101 S. Main Street, P.O. Box 1338, Victoria, Texas 77902, a written
notice of revocation bearing a later date than the Proxy, by duly executing and
delivering to the Secretary of the Board of Directors a subsequently dated Proxy
relating to the same shares or by attending the Meeting and voting in person
(although attendance at the Meeting will not in and of itself constitute
revocation of a Proxy).
Only those shareholders of record at the close of business on March 17,
1998, will be entitled to notice of and to vote at the Meeting and any
adjournment or postponement thereof.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST TWO-THIRDS ( 2/3) OF THE
OUTSTANDING SHARES OF THE BANK'S COMMON STOCK IS REQUIRED FOR APPROVAL AND
ADOPTION OF THE PLAN OF REORGANIZATION AND PLAN OF MERGER. THEREFORE, WHETHER OR
NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO SIGN, DATE AND
PROMPTLY RETURN THE ENCLOSED PROXY. A SELF-ADDRESSED STAMPED ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE.
By Order of the Board of Directors,
David M. Gaddis,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
April , 1998
<PAGE>
PROXY STATEMENT
OF
FIRST VICTORIA NATIONAL BANK
------------------------
PROSPECTUS
OF
FVNB CORP.
2,372,792 SHARES COMMON STOCK
($.01 PAR VALUE)
FVNB Corp., a newly formed Texas business corporation (the "Holding
Company"), proposes to issue 2,372,792 shares of its common stock to
shareholders of First Victoria National Bank (the "Bank") in a reorganization
whereby the Bank will become a wholly-owned subsidiary of the Holding Company
and shareholders of the Bank will become shareholders of the Holding Company.
This Proxy Statement/Prospectus includes this cover page and a Proxy
Statement of the Bank for use in connection with its Annual Meeting of
Shareholders to be held on Thursday, May 14, 1998. The proposed reorganization
and related matters to be acted upon at the shareholders' meeting are described
in this Proxy Statement/Prospectus.
If the proposed reorganization is approved and adopted, and certain other
conditions are met, each shareholder of the Bank will receive one (1) share of
Holding Company common stock in exchange for each share of common stock of the
Bank held by such shareholder as of the effective time of the merger. See
"PROPOSED REORGANIZATION -- Conversion of Stock."
The affirmative vote of the holders of at least two-thirds ( 2/3) of the
outstanding shares of the Bank's common stock is required under the National
Bank Act to approve and adopt the Plan of Reorganization and Plan of Merger.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 HEREOF FOR A DISCUSSION OF CERTAIN
RISKS THAT YOU SHOULD CONSIDER IN DETERMINING HOW TO VOTE UPON THE PROPOSAL TO
APPROVE THE PLAN OF REORGANIZATION AND PLAN OF MERGER.
------------------------
This Proxy Statement/Prospectus does not cover resales of shares of Holding
Company common stock upon consummation of the proposed reorganization, and no
person is authorized to make use of the Proxy Statement/Prospectus in connection
with any such resale.
The principal executive office of the Holding Company is located at 101 S.
Main St., Victoria, Texas 77901. The Holding Company's telephone number is (512)
573-6321.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION (THE "SEC"), THE OFFICE OF THE COMPTROLLER OF THE
CURRENCY (THE "OCC"), THE TEXAS DEPARTMENT OF BANKING, THE BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM (THE "FEDERAL RESERVE BOARD"), THE TEXAS STATE
SECURITIES BOARD OR ANY OTHER STATE SECURITIES COMMISSION. NONE OF THE
AFOREMENTIONED HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY. THE COMMON STOCK OFFERED HEREBY IS NOT GUARANTEED BY
THE BANK OR HOLDING COMPANY. THERE CAN BE NO ASSURANCE THAT THE TRADING PRICE OF
THE COMMON STOCK OFFERED HEREBY WILL NOT DECREASE AT ANY TIME.
------------------------
The date of this Proxy Statement/Prospectus is April , 1998.
<PAGE>
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE HOLDING COMPANY, THE BANK, OR ANY
OTHER PERSON. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION
OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL
TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE HOLDING COMPANY OR THE BANK SINCE THE DATE
HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
AVAILABLE INFORMATION
The Holding Company has filed with the Securities and Exchange Commission
in Washington, D.C. a Registration Statement under the Securities Act of 1933,
as amended (the "Securities Act"), for the registration of its common stock to
be issued and exchanged in the proposed reorganization.
The registration statement of which this Proxy Statement/Prospectus is a
part is on file with the Securities and Exchange Commission in Washington, D.C.
The registration statement, including the exhibits thereto, contains information
in addition to that contained herein. The registration statement and exhibits
may be examined during normal business hours at the Securities and Exchange
Commission's public reference room located at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, DC 20549 and also at the regional offices of the SEC located
at 75 Park Place, 14th Floor, New York, New York 10007; Curtis Center,
Independence Square West, 601 Walnut Street, Suite 1005E, Philadelphia,
Pennsylvania 19106; and Northwestern Atrium Center, 500 West Madison Street,
Suite 400, Chicago, Illinois 60661. Copies of such material may be obtained from
the public reference section of the SEC at Judiciary Plaza 450 Fifth Street,
N.W., Washington, DC 20549, at prescribed rates. The SEC maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. The address of the
SEC site is http://www.sec.gov.
The Bank is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, accordingly, does
file reports, proxy statements and other information with the Office of the
Comptroller of the Currency (the "OCC"). Documents filed with the OCC can be
inspected and copied at the OCC, 250 E Street, Washington, D.C. 20219 and at the
OCC's northeastern district office, 1114 Avenue of the Americas, Suite 3900, New
York, New York 10036. A copy of the Bank's Annual Report on Form 10-K including
the financial statements and the schedules thereto, for the year ended December
31, 1997, may be obtained at no cost by contacting H. Allen Jones, Secretary to
the Board of Directors, First Victoria National Bank, 101 S. Main Street, P. O.
Box 1338, Victoria, Texas 77902.
NOTE REGARDING FORWARD-LOOKING INFORMATION
This Proxy Statement/Prospectus includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. All statements other than statements of historical facts included
in this Prospectus, including, without limitation, those regarding the Holding
Company's and the Bank's financial position, business strategy, budgets and
plans and objectives of management for future operations, are forward-looking
statements. Although the Holding Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. Important
factors that could cause actual results to differ materially from the Holding
Company's expectations ("Cautionary Statements") are disclosed under "Risk
Factors" and elsewhere in this Proxy Statement/Prospectus including, without
limitation, in conjunction with the forward-looking statements included in this
Proxy Statement/Prospectus. All subsequent written and oral forward-looking
statements attributable to the Holding Company, or persons acting on behalf of
the Holding Company, are expressly qualified in their entirety by the Cautionary
Statements.
2
<PAGE>
TABLE OF CONTENTS
PAGE
----
SUMMARY................................. 5
RISK FACTORS............................ 10
ANNUAL MEETING.......................... 13
Date, Place and Time of Meeting.... 13
Purpose of the Meeting............. 13
Record Date; Quorum; Voting
Rights............................ 13
Solicitation of Proxies............ 14
Voting and Revocation of Proxies... 14
BENEFICIAL OWNERSHIP OF BANK COMMON
STOCK................................. 15
DIRECTORS AND EXECUTIVE OFFICERS........ 17
Election of Directors.............. 17
Executive Officers................. 19
COMPENSATION OF OFFICERS AND
DIRECTORS............................. 20
Compensation and Retirement
Committee Report.................. 20
Compensation and Retirement
Committee Interlocks and Insider
Participation..................... 21
Comparison of Five-Year Cumulative
Total Return...................... 22
Summary Compensation Table......... 23
Retirement Plan.................... 23
Directors' Compensation............ 24
PROPOSED REORGANIZATION................. 25
Plan of Reorganization and Plan of
Merger............................ 25
Reasons for the Proposed
Reorganization.................... 26
Shareholder Approval............... 26
Effective Date..................... 27
Effect of Reorganization on Bank's
Business and Shareholders......... 27
Conversion of Stock................ 27
Exchange of Stock Certificates..... 27
Failure To Surrender Stock
Certificates...................... 28
Trading and Resale of Holding
Company Common Stock.............. 28
Federal Income Tax Consequences.... 28
Rights of Dissenting
Shareholders...................... 29
Regulatory Approvals............... 30
Recommendation of the Bank's Board
of Directors...................... 30
DESCRIPTION OF THE HOLDING COMPANY...... 31
Organization....................... 31
Management......................... 31
Remuneration....................... 31
Indemnification for Securities Act
Liabilities....................... 31
Supervision and Regulation of the
Holding Company................... 32
Issuance of Additional
Securities........................ 34
FIRST VICTORIA NATIONAL BANK SELECTED
HISTORICAL FINANCIAL DATA............. 35
FIRST VICTORIA NATIONAL BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................ 36
DESCRIPTION OF THE BANK................. 45
Business........................... 45
Competition........................ 46
Supervision and Regulation of the
Bank.............................. 46
Legal Proceedings.................. 51
CERTAIN TRANSACTIONS.................... 51
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE.................. 51
3
<PAGE>
PAGE
----
DESCRIPTION OF THE BANK COMMON STOCK.... 51
The Bank Common Stock.............. 51
Market Prices...................... 52
Capitalization..................... 53
DESCRIPTION OF THE HOLDING COMPANY
COMMON STOCK.......................... 53
Holding Company Common Stock....... 53
Anti-Takeover Provisions........... 53
DIVIDENDS............................... 55
COMPARISON OF SHAREHOLDER RIGHTS........ 55
Cumulative Voting.................. 55
Classified Board................... 55
Preemptive Rights.................. 56
Dividends.......................... 56
Mergers............................ 56
Sale of Substantially All Assets... 57
Tender Offers...................... 57
Right to Call Special Meetings of
Shareholders...................... 57
Amendment of Articles.............. 57
Amendment of Bylaws................ 58
Repurchase of Shares............... 58
Dissenter's Rights................. 58
Provisions Affecting Control Share
Acquisitions and Business
Combinations...................... 58
Actions Without a Meeting.......... 59
Removal of Directors............... 59
Vacancies in Board of Directors.... 59
Inspection of Books and Records.... 59
Limitation on Director Liability... 60
Indemnification.................... 60
Status of Shares................... 60
APPROVAL OF THE FVNB CORP. STOCK
INCENTIVE PLAN........................ 61
General............................ 61
Options............................ 63
SARs............................... 63
Restricted Stock................... 64
Other Awards....................... 64
Federal Income Tax Consequences.... 64
Other Matters...................... 66
Approval........................... 66
RELATIONSHIP WITH INDEPENDENT PUBLIC
ACCOUNTANTS........................... 66
FINANCIAL STATEMENTS.................... 67
LEGAL MATTERS........................... 67
SHAREHOLDERS' PROPOSALS FOR THE 1999
ANNUAL MEETING OF SHAREHOLDERS........ 67
OTHER BUSINESS.......................... 67
ANNEX A -- PLAN OF REORGANIZATION WITH
FORM OF PLAN OF MERGER
ATTACHED THERETO AS EXHIBIT
A............................
ANNEX B -- ARTICLES OF INCORPORATION OF
FVNB CORP....................
ANNEX C -- BYLAWS OF FVNB CORP..........
ANNEX D -- EXCERPTS FROM SECTION 215a OF
THE NATIONAL BANK ACT
CONCERNING DISSENTERS'
RIGHTS.......................
ANNEX E -- FVNB CORP. STOCK INCENTIVE
PLAN.........................
4
<PAGE>
SUMMARY
The following summary of this Proxy Statement/Prospectus is provided for
your convenience and is not intended to be complete. This summary is qualified
in its entirety by the detailed information set forth elsewhere in this Proxy
Statement/Prospectus including the annexes hereto.
ANNUAL MEETING OF FIRST VICTORIA NATIONAL BANK
<TABLE>
<CAPTION>
<S> <C>
Date................................. May 14, 1998
Time and Place....................... 2:00 p.m., local time, at the Main Office of First Victoria
National Bank (the "Bank"), 101 S. Main Street, Victoria,
Texas 77901
Record Date.......................... March 17, 1998
Securities Entitled to Vote.......... Each share of the Bank's common stock, par value $2.50 per
share ("Bank Common Stock"), issued and outstanding on the
record date entitles its holder to one (1) vote with respect to
all matters presented at the meeting for shareholder action,
except with respect to the election of directors in which
shareholders have cumulative voting rights.
Shares Outstanding on the Record
Date............................... 2,372,792
Effects of Abstaining From Voting.... Assuming the presence of a quorum, the affirmative vote of at
least two-thirds ( 2/3) of the outstanding shares of Bank
Common Stock is required to approve and adopt the Plan of
Reorganization and Plan of Merger. Abstentions and broker
non-votes are not votes cast and therefore do not count either
for or against such approval and adoption. Although abstentions
and broker non-votes are not votes cast, and therefore do not
count either for or against such approval and adoption,
abstentions and broker non-votes have the practical effect of
reducing the number of affirmative votes received for each such X
matter. A Bank shareholder who abstains from voting with
respect to the approval of the Plan of Reorganization and Plan
of Merger (each as defined herein) does not perfect his or her
dissenter's rights. See "PROPOSED REORGANIZATION -- Rights of
Dissenting Shareholders." A shareholder who abstains from
voting is not included in the affirmative vote necessary to
approve and adopt the Plan of Reorganization and Plan of
Merger. A qualifying Bank shareholder who abstains from voting
will, if at least two-thirds ( 2/3) of the outstanding shares
of Bank Common Stock vote in favor of the Plan of Reorgan-
ization and Plan of Merger, automatically without any action on
his or her part, receive the number of shares of the Holding
Company's common stock, par value $.01 per share ("Holding
Company Common Stock"), to which such shareholder is entitled
under the Plan of Reorganization and Plan of Merger. See
"PROPOSED REORGANIZATION -- Conversion of Stock."
Matters to be Considered............. (1) the election of twelve directors to serve until the next
Annual Meeting of Shareholders of the Bank and until their
successors are elected and qualified; (2) a proposal to approve
and adopt that certain Plan of Reorganization dated as of March
17, 1998 (the "Plan of Reorganization"), by and between the
Bank and FVNB Corp., a Texas business corporation (the
"Holding Company"), and the related
5
<PAGE>
Plan of Merger ("Plan of Merger") to be entered into by and
between the Bank and FVNB Interim Bank, N.A., an interim
national banking association to be formed by the Holding
Company (the "Interim Bank"); (3) a proposal to approve and
adopt the FVNB Corp. Stock Incentive Plan; (4) the approval of
the firm Arthur Andersen LLP as the independent public
accountants of the Bank (and, if the Plan of Reorganization and
Plan of Merger are approved, the Holding Company) for the
current fiscal year; and (5) to act on such other matters as
may properly come before the Meeting and any adjournment or
postponement thereof.
PROPOSED REORGANIZATION
The Parties.......................... The Bank is a national banking association organized under the
laws of the United States of America. The Holding Company is a
Texas corporation recently formed at the direction of the Bank
for the purpose of becoming a bank holding company. Upon
consummation of the reorganization, the Bank will be a
wholly-owned subsidiary of the Holding Company. The principal
executive offices of the Bank and the Holding Company are
located at 101 S. Main St., Victoria, Texas 77901. The
telephone number for the Bank and the Holding Company is (512)
573-6321.
Conditions to the Consummation of the
Plan of Reorganization and Plan of
Merger............................. The affirmative vote of the holders of at least two-thirds
( 2/3) of the outstanding shares of Bank Common Stock is
required to approve and adopt the Plan of Reorganization and
Plan of Merger. In addition, the Plan of Reorganization and
Plan of Merger are subject to the approval of various
regulatory authorities, including, without limitation, the
Office of the Comptroller of the Currency ("OCC"). Any
approval granted by the OCC reflects only the OCC's view that
the transaction does not contravene the competitive standards
of the law and is consistent with regulatory concerns relating
to bank management and to the safety and soundness of the
subject banking organizations. Such approval is not to be
interpreted as an opinion by the OCC that the reorganization is X
favorable to the Bank's shareholders from a financial point of
view or that the OCC has considered the adequacy of the terms
of the exchange. THE OCC'S APPROVAL IS NOT AN ENDORSEMENT OR
RECOMMENDATION OF THE REORGANIZATION AND MERGER. The Holding
Company has filed a notice to become a bank holding company
with the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"). See "PROPOSED REORGANIZA-
TION -- Shareholder Approval" and "-- Regulatory Approvals."
Conversion of Stock.................. Upon the consummation of the transactions contemplated by the
Plan of Reorganization, all shareholders of the Bank, those who
exercise dissenting shareholders' rights, will become
shareholders of the Holding Company and will own one (1) share
of Holding Company Common Stock for each share of Bank Common
Stock theretofore owned by such shareholder. Each outstanding
share of the Bank Common Stock at the effective time of the
Merger will be
6
<PAGE>
converted into and become one (1) share of Holding Company
Common Stock. See "PROPOSED REORGANIZATION -- Conversion of
Stock."
Recommendation of Bank's Board of
Directors.......................... The Board of Directors of the Bank believes that the Plan of
Reorganization and Plan of Merger are in the best interests of
the Bank and its shareholders and unanimously recommends that
shareholders of the Bank vote "For" the approval of the Plan
of Reorganization and Plan of Merger. The Bank's Directors have
indicated that they will vote all of their shares of Bank
Common Stock in favor of the Plan of Reorganization and Plan of
Merger. As of February 28, 1998, the directors and executive
officers of the Bank beneficially owned, in the aggregate,
448,581 shares of Bank Common Stock, or approximately 18.91% of X
the total shares entitled to vote at the Meeting. See
"PROPOSED REORGANIZATION -- Reasons for the Proposed Reor-
ganization" and "-- Recommendation of the Bank's Board of
Directors."
Exchange of Stock Certificates....... Shareholders of the Bank may, at the option of the Holding
Company, be required to exchange their present stock
certificates (bearing the name "First Victoria National
Bank") for new stock certificates (bearing the name "FVNB
Corp."). In the event that the Board of Directors requires
shareholders to exchange their Bank stock certificates for
Holding Company stock certificates, the Board of Directors has
reserved the right to withhold any dividends from those
shareholders who do not exchange their certificates within a
reasonable period of time after notification of the exchange.
See "PROPOSED REORGANIZATION -- Exchange of Stock
Certificates."
Failure to Surrender Stock
Certificates....................... Although the Board of Directors does not anticipate that it
will require shareholders of the Bank to surrender their stock
certificates, shareholders of the Bank must surrender their
stock certificates within two (2) years of the date of any
notification to do so. In the event that any stock certificates
are not surrendered for exchange within such two (2) year
period, shares represented by appropriate certificates of the
Holding Company that would otherwise have been delivered in
such exchange, may be sold at the option of the Holding
Company. If sold, the net proceeds of the sale shall be held
for those shareholders of the unsurrendered certificates to be
paid to them upon surrender of their outstanding certificates.
FROM AND AFTER SUCH SALE, THE SOLE RIGHT OF THE HOLDERS OF THE
UNSURRENDERED OUTSTANDING CERTIFICATES SHALL BE THE RIGHT TO
COLLECT THE NET SALES PROCEEDS HELD FOR THEIR ACCOUNT. See
"PROPOSED REORGANIZATION -- Failure to Surrender Stock
Certificates."
Amendment............................ The Board of Directors of the Bank, the Holding Company and the
Interim Bank may amend the Plan of Reorganization and Plan of
Merger by mutual agreement either before or after approval by
the Bank's shareholders. However, no amendments can be made to
the provisions relating to the conversion of shares of the Bank
into shares of the Holding
7
<PAGE>
Company without proper shareholder approval. See "PROPOSED
REORGANIZATION -- Plan of Reorganization and Plan of Merger."
Termination.......................... The Plan of Reorganization and Plan of Merger may be terminated
by the mutual consent of the Boards of Directors of the Bank,
the Interim Bank and the Holding Company, even after the
approval of such plans by the Bank's shareholders. The Bank's
Board of Directors may terminate the Plan of Reorganization and
Plan of Merger at any time before it is consummated if the
Board of Directors believes the reorganization would be
inadvisable for any other proper reason. See "PROPOSED
REORGANIZATION -- Plan of Reorganization and Plan of Merger."
"Anti-Takeover" Provisions......... The Articles of Incorporation and Bylaws of the Holding Company
establish or contain certain provisions that may be deemed to
be "anti-takeover" in nature. The anti-takeover provisions
include, without limitation: (1) the authorization of twenty
million (20,000,000) shares of common stock, all of which may
be issued without shareholder approval; (2) the elimination of
cumulative voting in the election of directors; (3) the
requirement that holders of at least seventy-five percent (75%)
of the outstanding shares of Holding Company's outstanding
shares is required to approve any merger, consolidation,
dissolution or liquidation of the Holding Company or the sale
of all or substantially all of its assets; or the holders of at
least a majority of the outstanding shares of Holding Company
Common Stock when at least a majority of Directors have
approved such transaction; (4) the authorization for the Board
of Directors to oppose a tender offer on the basis of factors
other than economic benefit to shareholders; and (5) the
requirement that a special meeting of shareholders may only be
called by the Board of Directors, the Chairman, the President,
or one or more shareholders owning in the aggregate, not less
than 20% of the outstanding shares of the Holding Company.
THEREFORE, A VOTE IN FAVOR OF THE PLAN OF REORGANIZATION AND
PLAN OF MERGER IS A VOTE IN FAVOR OF THESE ANTI-TAKEOVER
PROVISIONS. See "DESCRIPTION OF THE HOLDING COMPANY COMMON
STOCK -- Anti-Takeover Provisions."
Rights of Dissenting Shareholders.... Shareholders of the Bank who: (1) vote against the Plan of
Reorganization and Plan of Merger at the Meeting or give notice
in writing to the Bank prior to or at the Meeting that they
dissent from the Plan of Reorganization and Plan of Merger; and
(2) comply with the procedures described in "PROPOSED
REORGANIZATION -- Rights of Dissenting Shareholders" will be
entitled to receive cash for the fair value of their shares.
Merely voting against the Plan of Reorganization and Plan of
Merger at the Annual meeting will not perfect a shareholder's
dissenters' rights. Shareholders are urged to review carefully
the section of this Proxy Statement/Prospectus entitled
"PROPOSED REORGANIZATION -- Rights of Dissenting
Shareholders" and the statutory excerpts concerning
dissenters' rights attached to this Proxy Statement/Prospectus
as Annex D. FAILURE TO FOLLOW THE PROCEDURES SET FORTH IN 12
U.S.C. SECTION 215a REGARDING DISSENTERS'
8
<PAGE>
RIGHTS WILL CONSTITUTE A WAIVER OF APPRAISAL RIGHTS.
Federal Income Tax Consequences...... Under the current provisions of the Internal Revenue Code of
1986, as amended (the "Code"), no gain or loss is expected to
be recognized for federal income tax purposes by shareholders
of the Bank who are individual U.S. citizens and residents by
reason of the conversion of their shares of Bank Common Stock
into shares of Holding Company Common Stock in connection with
the consummation of the transactions contemplated by the Plan
of Reorganization and Plan of Merger. See "PROPOSED
REORGANIZATION -- Federal Income Tax Consequences."
Markets for Shares................... The Bank Common Stock is currently listed and traded on the
Nasdaq National Market under the symbol "FVNB." The closing
sale price of the Bank Common Stock on the Nasdaq National
Market on March 10, 1998, was $42.00 per share. As the Holding
Company was recently formed, there is currently no active
trading market for its shares. However, following the
reorganization, the Holding Company Common Stock is expected to
be listed and traded on the Nasdaq National Market under the
Bank's current trading symbol. For additional information, see
"DESCRIPTION OF THE BANK COMMON STOCK -- Market Prices."
</TABLE>
PER SHARE DATA
The following table sets forth certain per share data relating to the
historical book value per common share, cash dividends declared per common share
and earnings per share of the Bank Common Stock. The following historical per
share data are derived from, and qualified by reference to, the Bank's
Consolidated Financial Statements and the notes thereto included in the Bank's
1997 Annual Report, which is being mailed to shareholders along with this Proxy
Statement/Prospectus. The historical per share information should be read in
conjunction with the Consolidated Financial Statements of the Company and the
notes thereto included in the Bank's 1997 Annual Report, "FIRST VICTORIA
NATIONAL BANK SELECTED HISTORICAL FINANCIAL DATA," and "FIRST VICTORIA
NATIONAL BANK MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
The following information is not necessarily indicative of the results of
operations of future periods or the future combined financial position of the
Holding Company.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Book value per share................. $ 23.63 $ 22.37 $ 21.62 $ 18.77 $ 18.96
Earnings per share................... $ 2.10 $ 1.67 $ 1.95 $ 1.94 $ 1.86
Dividends per share.................. $ .820 $ .640 $ .730 $ .625 $ .625
</TABLE>
9
<PAGE>
RISK FACTORS
PRIOR TO VOTING ON THE PROPOSAL TO APPROVE THE PLAN OF REORGANIZATION AND
PLAN OF MERGER DESCRIBED HEREIN, SHAREHOLDERS OF THE BANK SHOULD CAREFULLY
CONSIDER THE RISK FACTORS DISCUSSED BELOW AS WELL AS ALL OF THE INFORMATION
CONTAINED ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS, INCLUDING THE ANNEXES
HERETO. SEE ALSO "NOTE REGARDING FORWARD-LOOKING INFORMATION." ANY OR ALL OF
THE RISK FACTORS DISCUSSED BELOW COULD HAVE A MATERIAL ADVERSE EFFECT ON THE
BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS, AND PROSPECTS OF THE
HOLDING COMPANY AND ITS SUBSIDIARIES, AND/OR ON THE PRICE AT WHICH SHARES OF
HOLDING COMPANY COMMON STOCK MAY TRADE.
REGULATION AND SUPERVISION
The Holding Company and the Bank are subject to extensive government
regulation and supervision under various state and federal laws, rules and
regulations, including rules and regulations promulgated by the Federal Reserve,
the FDIC and the Office of the Comptroller of the Currency. These laws and
regulations are designed primarily for the protection of depositors and,
consequently, may impose limitations on the Holding Company and the Bank that
may not be in the best interests of the Holding Company or its shareholders. The
Holding Company and the Bank are subject to changes in federal and state laws,
as well as changes in rules and regulations, governmental policies and changes
in accounting principles. The effects of any such potential changes cannot be
predicted, but they could have an adverse effect on the business and operations
of the Holding Company and the Bank.
RESTRICTIONS ON PAYMENT OF DIVIDENDS BY THE BANK TO THE HOLDING COMPANY
The ability of the Holding Company to pay dividends will depend on the
ability of the Bank to pay dividends to the Holding Company as the Holding
Company has no other source of significant income. As set forth above, the Bank
is subject to federal law and regulations which limit the amount of dividends
the Bank may pay to the Holding Company. For example, the payment of dividends
by the Bank as a national banking association is affected by the requirement to
maintain adequate capital pursuant to the capital adequacy guidelines issued by
the OCC. All banks and bank holding companies are required to have a minimum
total capital to risk-weighted assets (total capital) ratio of 8.00% and a
minimum Tier 1 capital to risk-weighted assets (Tier 1) ratio of 4.00%.
Additionally, banking organizations must maintain a minimum Tier 1 capital to
total assets (leverage) ratio of 3.00%. This 3.00% leverage ratio is a minimum
for banking organizations without any supervisory, financial or operational
weaknesses or deficiencies. However, most banking organizations, including the
Bank, are expected to maintain a leverage ratio of 100 to 200 basis points above
this minimum depending on their financial condition. As of December 31, 1997,
the Bank's leverage ratio was 11.99%, its total risk-based capital ratio was
19.65%, and its Tier 1 risk-based ratio was 18.67%. If (i) the OCC increases any
of these required ratios; (ii) the total of risk-weighted assets of the Bank
increases significantly; and/or (iii) the Bank's income decreases significantly,
the Bank's Board of Directors may decide or be required to retain a greater
portion of the Bank's earnings to achieve and maintain the required capital or
asset ratios. This will reduce the amount of funds available for the payment of
dividends by the Bank to the Holding Company. Further, in some cases, the OCC
could take the position that it has the power to prohibit the Bank from paying
dividends if, in its view, such payments would constitute unsafe or unsound
banking practices. In addition, whether dividends are paid and their frequency
and amount will depend on the financial condition and performance, and the
discretion of management, of the Bank. The foregoing restrictions on dividends
paid by the Bank may limit the Holding Company's ability to obtain funds from
such dividends for its cash needs, including funds for the payment of dividends
and operating expenses. The amount of dividends the Bank could pay to the
Holding Company as of December 31, 1997 without prior regulatory approval, which
is limited by statute to the sum of undivided profits for the current year plus
net profits for the preceding two years, was approximately $8,372,000. See
"DESCRIPTION OF THE BANK -- Supervision and Regulation of the Bank."
10
<PAGE>
IMPACT OF INTEREST RATES AND ECONOMIC CONDITIONS
The results of operations for financial institutions, including the Bank
and the Holding Company, may be materially and adversely affected by changes in
prevailing economic conditions, including changes in interest rates, declines in
real estate market values and the monetary and fiscal policies of the federal
government. The profitability of the Holding Company and the Bank is in part a
function of the spread between the interest rates earned on loans and interest
rates paid on deposits and other interest-bearing liabilities. Like most banking
institutions, the Bank's net interest margin will continue to be affected by
general economic conditions and other factors that influence market interest
rates and the Bank's ability to respond to changes in such rates. At any given
time, the Bank's assets and liabilities will be such that they are affected
differently by a given change in interest rates, and, as a result, an increase
or decrease in rates could have a positive or negative affect on the Bank's net
income, capital and liquidity. See "FIRST VICTORIA NATIONAL BANK MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
POTENTIAL DILUTION
Because the Holding Company has authorized common stock substantially in
excess of the number of shares that will be issued in connection with the
Merger, the Board of Directors of the Holding Company will have the flexibility
to raise additional capital and to make acquisitions through the issuance of
Holding Company Common Stock without further approval by the Holding Company's
shareholders. The Holding Company shareholders will not have preemptive rights
to subscribe for additional shares. Therefore, such issuance could result in a
dilution of voting rights and book value per share as to the Holding Company
Common Stock. Other than in connection with the proposed FVNB Corp. Stock
Incentive Plan, the Board of Directors of the Holding Company has no present
plans for issuing additional shares of Holding Company Common Stock, but it may
determine to do so in the future. See "APPROVAL OF THE FVNB CORP. STOCK
INCENTIVE PLAN."
DEREGULATION
There have been significant changes in the banking industry in past years.
Many of the changes have resulted from federal legislation intended to
deregulate the banking industry. This legislation has, among other things,
increased the power of non-banks to offer traditional banking services.
Legislation currently in Congress proposes modifications of some of the
prohibitions on the type of businesses in which bank holding companies may
engage. In addition, other types of financial institutions, including securities
brokerage companies, insurance companies, and investment banking firms, have
been given and may continue to be given powers to engage in activities which
traditionally have been engaged in only by banks. Such changes may continue to
place the Holding Company and the Bank in more direct competition with other
financial institutions. See "DESCRIPTION OF THE BANK -- Supervision and
Regulation of the Bank."
ALLOWANCE FOR LOAN AND LEASE LOSSES
The allowance for loan and lease losses represents the Bank's estimate of
the amount of the loan and lease portfolio that will not be repaid and
consequently will have to be written off. The allowance is established by
management using historical experience and by making various assumptions and
judgments about the ultimate collectability of the loan and lease portfolio. The
Bank's allowance for loan and lease losses as of December 31, 1997 and 1996 was
approximately $2,861,000 and $2,475,000, respectively, which represented 1.08%
and 1.23%, respectively, of the total amount of loans and leases. There can be
no assurance that the allowance will prove to be sufficient to cover future loan
and lease losses. The Holding Company's profitability and financial condition
could be adversely affected to the extent that the estimated allowance is
insufficient to cover future loan and lease losses incurred. See "FIRST
VICTORIA NATIONAL BANK MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Allowance for Loan and Lease Losses."
11
<PAGE>
COMPETITION; DEPENDENCE ON ECONOMIC CONDITIONS
The Holding Company's profitability is dependent on the profitability of
the Bank. The Bank is engaged in the highly competitive business of commercial
banking. The Bank's competitors include local, regional and national commercial
banks, savings and loan associations, credit unions, and non-bank entities, many
of which are not subject to the same regulatory standards or restrictions as the
Bank. Many of these competitors have substantially greater resources and lending
limits than the Bank, and some of these competitors may offer services that the
Bank does not currently provide. In addition, every bank, including the Bank, is
affected by the economic conditions and the economy of the area in which it
operates. The Bank has full service bank facilities in Victoria, Calhoun and San
Patricio Counties, Texas. Therefore, the Bank and the Holding Company remain
vulnerable to downturns in the economy of those communities as well as to
downturns in the economy in general. Adverse economic conditions could have a
serious negative impact upon the operations and prospects of the Bank and the
Holding Company, the quality of the Bank's loan portfolio, the Bank's ability to
pay dividends to the Holding Company, and the Holding Company's earnings.
LACK OF DIVERSIFICATION
The Holding Company's business activity will consist of its ownership of
the Bank. As a result, the Holding Company will lack diversification as to
business activities and market area, and any event affecting the Bank will have
a direct effect on the Holding Company.
12
<PAGE>
ANNUAL MEETING
This Proxy Statement which also constitutes a Prospectus (the "Proxy
Statement/Prospectus") is being furnished for the solicitation by the Board of
Directors of First Victoria National Bank, a national banking association
organized under the laws of the United States of America (the "Bank"), of
proxies to be voted at an Annual Meeting of Shareholders of the Bank (the
"Meeting") to be held at 2:00 p.m., local time, on Thursday, May 14, 1998, at
the Main Office of the Bank, 101 S. Main St., Victoria, Texas 77901, and at any
adjournment or postponement of the Meeting. This Proxy Statement/Prospectus also
constitutes a prospectus of FVNB Corp., a Texas corporation (the "Holding
Company"), in offering shares of its common stock to the Bank's shareholders in
accordance with a Plan of Reorganization and Plan of Merger. The principal
executive offices of the Bank and the Holding Company are located at 101 S. Main
St., Victoria, Texas 77901. The telephone number for the Bank and the Holding
Company is (512) 573-6321. All inquiries should be directed to David M. Gaddis,
President. This Proxy Statement/Prospectus and the enclosed form of proxy (the
"Proxy") are first being sent to shareholders of the Bank on or about April
, 1998.
DATE, PLACE AND TIME OF MEETING
The Annual Meeting of Shareholders of First Victoria National Bank will be
held at 2:00 p.m., local time, on Thursday, May 14, 1998, at the Main Office of
the Bank, at 101 S. Main St., Victoria, Texas 77901.
PURPOSE OF THE MEETING
At the Meeting, shareholders of the Bank will be requested: (1) to consider
and act upon the election of twelve directors to serve until the next Annual
Meeting of Shareholders of the Bank and until their successors are elected and
qualified; (2) to consider and act upon a proposal to approve and adopt that
certain Plan of Reorganization dated as of March 17, 1998 (the "Plan of
Reorganization"), by and between the Bank and the Holding Company, and the
related Plan of Merger ("Plan of Merger") to be entered into by and between
the Bank and FVNB Interim Bank, an interim national banking association to be
formed by the Holding Company under the laws of the United States (the "Interim
Bank"), providing, among other things, for the merger of the Interim Bank with
and into the Bank and the automatic conversion of each share of the Common Stock
of the Bank into one share of the Common Stock of the Holding Company; (3) to
consider and act upon a proposal to approve and adopt the FVNB Corp. Stock
Incentive Plan; (4) to consider and act upon the approval of the firm Arthur
Andersen LLP as the independent public accountants of the Bank (and, if the Plan
of Reorganization and Plan of Merger are approved, the Holding Company) for the
current fiscal year; and (5) to transact such other business as may properly
come before the Meeting and any adjournment or postponement thereof.
RECORD DATE; QUORUM; VOTING RIGHTS
The Board of Directors of the Bank has fixed the close of business on March
17, 1998, as the record date for the determination of shareholders of the Bank
entitled to notice of and to vote at the Meeting (the "Record Date"). On the
Record Date, the Bank had outstanding 2,372,792 shares of its common stock, par
value $2.50 per share ("Bank Common Stock"), which was held by approximately
657 shareholders of record.
The presence of a quorum, in person or by proxy, is required for each
matter to be acted upon at the Meeting. The presence, in person or by proxy, of
shareholders entitled to cast at least a majority of the votes which all
shareholders are entitled to cast, shall constitute a quorum for the transaction
of business at the Meeting. Votes withheld and abstentions will be counted in
determining the presence of a quorum for the particular matter. Broker non-votes
will not be counted in determining the presence of a quorum for the particular
matter as to which the broker withheld authority.
Assuming the presence of a quorum, the affirmative vote of at least
two-thirds (2/3) of the outstanding shares of Bank Common Stock is required to
approve and adopt the Plan of Reorganization and Plan of Merger. Abstentions and
broker non-votes are not votes cast and therefore do not count either for or
against such approval and adoption. Although abstentions and broker non-votes
are not votes cast, and therefore do
13
<PAGE>
not count either for or against such approval and adoption, abstentions and
broker non-votes have the practical effect of reducing the number of affirmative
votes received for each such matter.
Cumulative voting rights exist with respect to the election of directors,
which means that each shareholder has the right, in person or by proxy, to
multiply the number of votes to which he is entitled by the number of directors
to be elected, and to cast the whole number of such votes for one candidate or
to distribute them among two or more candidates.
On all other matters to come before the Meeting, including the proposal to
approve and adopt the Plan of Reorganization and Plan of Merger, each share of
Bank Common Stock is entitled to one (1) vote.
SOLICITATION OF PROXIES
This Proxy Statement/Prospectus and the enclosed form of Proxy are first
being sent to shareholders of the Bank on or about April , 1998.
The cost of preparing, assembling, printing, mailing and soliciting
proxies, and any additional material that the Bank may furnish shareholders in
connection with the Meeting, will be borne by the Bank. In addition to
solicitation by mail, directors, officers and employees of the Bank, who will
not be additionally compensated therefor, may solicit Proxies from the
shareholders of the Bank personally or by telephone, telegram or telecopier.
Arrangements will be made with brokerage houses and other custodians, nominees
and fiduciaries to forward proxy solicitation materials to the beneficial owners
of the Bank Common Stock held of record by these persons, and, upon request
therefor, the Bank will reimburse them for their reasonable forwarding expenses.
VOTING AND REVOCATION OF PROXIES
Shares represented by Proxies properly signed, executed and returned,
unless subsequently revoked, will be voted at the Meeting in accordance with the
instructions made thereon by the shareholders. If a Proxy is signed, executed
and returned without indicating any voting instructions, the shares represented
by the Proxy will be voted FOR (1) the election of the twelve nominees for
director, (2) the approval and adoption of the Plan of Reorganization and Plan
of Merger, (3) the approval of the FVNB Corp. Stock Incentive Plan and (4) the
approval of the firm Arthur Andersen LLP as the independent public accountants
for the current fiscal year. Execution and return of the enclosed Proxy will not
affect a shareholder's right to attend the Meeting and vote in person, after
giving notice to the Secretary to the Board of Directors of the Bank. Persons
empowered as proxies will also be empowered to vote in their discretion for such
matters as may properly come before the Meeting or any adjournment thereof.
A shareholder of the Bank who returns a Proxy may revoke the Proxy prior to
the time it is voted: (1) by giving written notice of revocation bearing a later
date than the Proxy to H. Allen Jones, Secretary to the Board of Directors of
the Bank, 101 S. Main St., Victoria, Texas 77901; (2) by duly executing and
delivering to the Bank a later-dated proxy relating to the same shares and
giving written notice thereof to the Secretary to the Board of Directors of the
Bank; or (3) by voting in person after giving written notice of such intention
to the Secretary to the Board of Directors of the Bank. Attendance by a
shareholder at the Meeting will not itself be deemed or constitute a revocation
of the Proxy.
14
<PAGE>
BENEFICIAL OWNERSHIP OF BANK COMMON STOCK
The following table sets forth, as of February 28, 1998, the name and
address of each person who owns of record or who is known by the Board of
Directors to be the beneficial owner of more than five percent (5%) of the
outstanding shares of Bank Common Stock, each director of the Bank and all
officers and directors of the Bank as a group, together with the number of
shares beneficially owned by each such person and the percentage of the
outstanding Bank Common Stock so owned.
PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER NO. OF SHARES (1) OF CLASS
- - ------------------------------------- ----------------- ----------
Oster & Co........................... 246,140(2) 10.37%
c/o First Victoria National Bank
101 S. Main St.
Victoria, Texas 77901
Michael S. Anderson.................. 140,902(3) 5.94%
P. O. Box 2549
Victoria, Texas 77902
D. H. Braman, Jr..................... 134,660(4) 5.68%
One O'Connor Plaza, Suite 1100
Victoria, Texas 77901
R. L. Keller......................... 141,380(5) 5.96%
P. O. Box 2549
Victoria, Texas 77902
O. D. Edwards, Jr.................... 29,424(6) 1.24%
David P. Engel....................... 2,900 *
David M. Gaddis...................... 2,184(7) *
Robert L. Halepeska.................. 17,900(8) *
Thomas Lane Keller................... 1,000 *
James Robert (Bob) McCan............. 1,200(9) *
J. E. McCord......................... 8,304 *
Thomas M. O'Connor................... 83,624(10) 3.52%
Billy W. Ruddock..................... 3,240 *
Roger Welder......................... 2,500 *
W. L. Zirjacks....................... 12,804(11) *
John E. Billups...................... 200 *
C. Dee Harkey........................ 100 *
M. Russell Marshall.................. -- --
Kenneth L. Vickers................... 154 *
Allen Jones.......................... 560 *
Sue Jurischk......................... 125 *
John E. Zacek........................ 80 *
All Directors and Executive Officers 448,581 18.91%
as a group (20 persons)............
- - ------------
* Less than 1%.
(1) "Beneficial ownership" is determined in accordance with the definitions
therefor set forth in the regulations of the OCC and the Securities and
Exchange Commission and may include securities owned by or for the
individual's spouse and minor children and any other relative who has the
same home, as well as securities to which the individual has or shares
voting or investment power or has the right to acquire beneficial ownership
within sixty (60) days. Unless otherwise indicated, all shares are owned by
the reporting person individually or jointly with his spouse.
(2) Oster & Co. is a Texas partnership composed of David M. Gaddis, C. Dee
Harkey and Dana K. Fowler, all officers of First Victoria National Bank,
and is the nominee for stock held in trust by the Trust and Investment
Management Department of First Victoria National Bank. The Trust and
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
15
<PAGE>
Investment Management Department of the Bank has limited voting power with
regard to all shares of common stock held in the name of Oster & Co.
(3) Includes 138,902 shares owned directly by Mr. Anderson and 2,000 shares
owned by his spouse.
(4) Includes 112,580 shares owned directly by Mr. Braman and 22,080 shares as
to which he has voting rights as trustee of the Kate S. O'Connor Trust for
the benefit of Thomas E. Braman.
(5) Includes 3,990 shares owned directly by Mr. Keller, 110 shares owned by his
spouse, and 137,280 shares as to which he shares voting rights as
co-trustee of the Ann O'Connor Harithas Liquid Assets Trust.
(6) Includes 5,824 owned by Mr. Edwards, 17,280 shares owned by the Patti
Welder Edwards Estate, of which he is co-executor, and 6,320 shares owned
by the Edwards Children Trust, of which he is trustee.
(7) Includes 2,144 shares owned directly by Mr. Gaddis and 40 shares owned by
his children.
(8) Includes 1,000 shares owned by Mr. Halepeska and 16,900 shares as to which
he has sole voting rights as Executive Vice President of the M. G. and
Lillie Johnson Foundation, Inc.
(9) Includes 1,200 shares owned by Mr. McCan in a management trust to which he
holds sole voting rights.
(10) Includes 66,336 shares owned by Mr. O'Connor, 2,336 shares held in the
Madeline F. O'Connor Trust, and 14,952 shares in the name of Greta
Investment Company as to which he has sole voting rights.
(11) Includes 12,404 shares owned directly by Mr. Zirjacks and 400 shares owned
by his spouse.
16
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
ELECTION OF DIRECTORS -- (PROPOSAL 1)
At the Meeting twelve directors, which will constitute the entire Board of
Directors of the Bank, are to be selected, each to hold office until the next
Annual Meeting of Shareholders of the Bank and until his successor is elected
and qualified. If the Plan of Reorganization and Plan of Merger are approved and
the Merger consummated, the Bank will become a wholly-owned subsidiary of the
Holding Company. In such event, the directors of the Bank would thereafter be
selected by the Holding Company and current shareholders of the Bank, who would
become shareholders of the Holding Company upon consummation of the Merger,
would be entitled to vote on the election of directors of the Holding Company.
The directors of the Holding Company, each of whom is a nominee for director of
the Bank, are Michael S. Anderson, O. D. Edwards, Jr., David P. Engel, David M.
Gaddis, Robert L. Halepeska, R. L. Keller, Thomas Lane Keller, James Robert
(Bob) McCan, J. E. McCord, Thomas M. O'Connor, Billy W. Ruddock and Roger
Welder. If the Merger is consummated, at the next Annual Meeting of Shareholders
the shareholders of the Holding Company would be entitled to vote on the
election of directors of the Holding Company. See "DESCRIPTION OF THE HOLDING
COMPANY -- Management."
The proxies named in the accompanying Proxy, who have been designated by
the Board of Directors, intend to vote for the twelve nominees set forth below,
unless otherwise instructed in such Proxy. Although the Board of Directors does
not contemplate that any of the nominees will be unable to serve, if any vacancy
in the proposed slate of directors should be caused by an unexpected occurrence
before the holding of the election, proxies received by the Board of Directors
will be deemed to authorize the Proxies' attorneys and agents acting thereunder
to vote as they, in their discretion, may determine, or to vote for such other
nominee for director, if any, as the Board of Directors may select. All of the
executive officers and directors have indicated their intention to vote in favor
of each of the twelve nominees for director of the Bank.
The name of each director or nominee for director, his present address, age
as of February 28, 1998, the year he first became a director of the Bank, his
principal occupation or employment, and executive offices with the Bank, are set
forth below.
<TABLE>
<CAPTION>
SERVED AS
DIRECTOR EXECUTIVE OFFICES WITH THE BANK,
NOMINEE AGE SINCE(1) PRINCIPAL OCCUPATION OR EMPLOYMENT(2)
- - ------------------------------------- --- --------- -------------------------------------
<S> <C> <C>
Michael S. Anderson.................. 35 1989 Chairman of the Board, First Victoria
National Bank; Attorney at Law
O. D. Edwards, Jr.................... 58 1973 Ranching, farming, oil & gas;
Formerly General Manager,
Welder-Edwards
Cattle Co.
David P. Engel....................... 47 1994 President, Airgas Texas, Inc.
(successor to Welders Equipment
Company, Inc.)
David M. Gaddis...................... 48 1989 President and Chief Executive
Officer, First Victoria National Bank
Robert L. Halepeska.................. 44 1993 Executive Vice President, M. G. and
Lillie A. Johnson Foundation, Inc.
R. L. Keller(3)...................... 72 1971 Certified Public Accountant; Purebred
cattle breeder
Thomas Lane Keller(4)................ 40 1994 Certified Public Accountant; Owner,
Keller & Associates, Certified Public
Accountants
James Robert (Bob) McCan............. 40 1997 McFaddin Enterprises, Inc. (Ranching)
J. E. McCord......................... 81 1951 Retired (Previous partner, McCord
Partnership -- real estate
development)
Thomas M. O'Connor................... 75 1951 Sole Proprietor (Ranching and
farming)
Billy W. Ruddock..................... 65 1990 Retired (Formerly Executive Assistant
to the President, First Victoria
National Bank)
Roger Welder......................... 39 1992 Vice-Chairman of the Board, First
Victoria National Bank; J. F. Welder
Heirs (Ranching, mineral holdings)
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
17
<PAGE>
- - ------------
(1) The year indicated is the year each person first became a director of the
Bank.
(2) All nominees have been actively engaged in the business identified as their
principal occupation for at least five years. All nominees except David P.
Engel, David M. Gaddis and Robert L. Halepeska are self-employed. Except as
indicated in the following notes to this table, none of the nominees are
related.
(3) R. L. Keller is the father of Thomas Lane Keller.
(4) Thomas Lane Keller is the son of R. L. Keller.
None of the directors is a director of any other company which has a class
of securities registered under, or is required to file reports under, the
Securities and Exchange Act of 1934, or of any company registered under the
Investment Company Act of 1940.
During 1997, the Board of Directors held twelve regular meetings. Except
for David P. Engel, who attended fewer than 75% of the total board meetings and
the meetings held by the committees of the Board of Directors on which he served
during 1997, no directors attended fewer than 75% of the total board meetings
and the meetings held by the committees of the Board of Directors on which they
served during 1997.
The Audit Committee of the Board of Directors met four times during 1997.
The function of the committee, which meets quarterly, is to insure compliance
with accepted audit procedures. The members of the Audit Committee are outside
directors who are independent of management. The Audit Committee is required to
review the basis for all financial reports with management and the independent
public accountant. The committee is composed of Thomas Lane Keller, Chairman,
Roger Welder, Vice-Chairman, O. D. Edwards, Jr., James R. "Bob" McCan, and J.
E. McCord.
The Trust Audit Committee of the Board of Directors met one time during
1997. The function of the committee, which meets at least once during each
calendar year within fifteen months of the last examination of fiduciary
activities by the Bank, is to determine whether appropriate fiduciary powers
have been administered. The Committee is composed of Thomas Lane Keller,
Chairman, David P. Engel, Vice-Chairman, and James R. "Bob" McCan.
The Compensation and Retirement Committee met five times during 1997. The
function of this committee, which meets on a call basis, is to approve
compensation policies of the Bank which include: setting of salaries, incentive
compensation plans, and other matters concerning compensation and retirement of
Bank staff and members of the Board. The committee is composed of David P.
Engel, Chairman, O. D. Edwards, Jr., Vice-Chairman, R. L. Keller, James R.
"Bob" McCan and Thomas M. O'Connor.
The Executive and Nominating Committee of the Board of Directors met six
times during 1997. The committee, which meets on a call basis, serves two
functions: to establish executive policy and to consider nominations for
directors. The committee is composed of Roger Welder, Chairman, David P. Engel,
Vice-Chairman, Michael S. Anderson, R. L. Keller, J. E. McCord and Thomas M.
O'Connor.
18
<PAGE>
EXECUTIVE OFFICERS
The following lists the executive officers of the Bank as of February 28,
1998, the positions in which they served as executive officers and their
principal occupation for the past five years:
<TABLE>
<CAPTION>
SERVED IN
NAME AGE TITLE CAPACITY SINCE
- - ---------------------------------------- --- ------------------------------- --------------
<S> <C> <C>
Michael S. Anderson..................... 35 Chairman of the Board(1) 05/97
Vice-Chairman of the Board 08/96
David M. Gaddis......................... 48 President and Chief Executive 07/89
Officer
Acting President and Chief 02/89
Executive Officer
Executive Vice President and 07/86
Chief Operating Officer
Senior Vice President -- 05/81
Operations Division
John E. Billups......................... 48 Executive Vice President and 05/96
Business Development Manager(2)
C. Dee Harkey........................... 45 Executive Vice President and 08/96
Chief Operating Officer(3)
Executive Vice President and 02/95
Senior Trust Officer
M. Russell Marshall..................... 39 Executive Vice President and 08/96
Senior Trust Officer(4)
Senior Vice President and Trust 07/94
Officer
Kenneth L. Vickers...................... 51 Executive Vice President and 04/94
Chief Lending Officer
Senior Vice President and Chief 08/93
Lending Officer(5)
Allen Jones............................. 57 Senior Vice President 06/90
Sue Jurischk............................ 52 Senior Vice President 04/87
John E. Zacek........................... 38 Senior Vice President(6) 04/93
Vice President 01/86
</TABLE>
- - ------------
(1) Michael S. Anderson was elected Chairman of the Board of First Victoria
National Bank on May 20, 1997. Mr. Anderson has also been an Attorney at Law
for the past five years.
(2) Prior to May 1995, John E. Billups was employed by Victoria Bank & Trust in
the capacity of Senior Vice President and Victoria Regional Manager.
(3) Prior to February 1995, C. Dee Harkey was employed by International Bank of
Commerce as Executive Vice President and Cashier from August 31, 1994 to
February 15, 1995. He was employed in the capacity of Vice President and
Trust Officer from December 1, 1985 to December 31, 1991 and President and
Chief Operating Officer from January 1, 1992 to August 31, 1994 at First
State Bank and Trust Company, Port Lavaca.
(4) Prior to July 1994, M. Russell Marshall was employed by Victoria Bank &
Trust in the capacity of Senior Vice President and Trust Officer.
(5) Prior to August 1993, Kenneth L. Vickers was employed by Victoria Bank &
Trust in the capacity of Senior Vice President.
(6) John E. Zacek was designated an executive officer of the Bank on January 21,
1997.
19
<PAGE>
COMPENSATION OF OFFICERS AND DIRECTORS
COMPENSATION AND RETIREMENT COMMITTEE REPORT
Under rules established by the Securities and Exchange Commission and
adopted by the Office of the Comptroller of the Currency, the Bank is required
to provide certain data and information in regard to the compensation and
benefits provided to the Bank's Chief Executive Officer ("CEO") and the other
four most highly compensated executive officers providing that their aggregate
compensation exceeded $100,000 in 1997. The disclosure requirements for these
individuals (the "named executive officers") include the use of tables and a
report explaining the rationale and considerations that led to fundamental
executive compensation decisions affecting all executive officers. In
fulfillment of this requirement, the Compensation and Retirement Committee, at
the direction of the Board of Directors, has prepared the following report for
inclusion in this Proxy Statement.
COMPENSATION PHILOSOPHY
The executive compensation program is administered by the Compensation and
Retirement Committee of the Board of Directors (the "Committee") which is
composed of the individuals listed below who are outside directors of the Bank
with responsibility for all compensation matters for the Bank's senior
management. The program has been designed to enable the Bank to attract,
motivate and retain officers by providing a fully competitive total compensation
opportunity based on performance. As an executive's level of responsibility
increases, a greater portion of his or her potential total compensation
opportunity is based on performance incentives and less on salary, causing
greater variability in the individual's absolute compensation level from year to
year. The Committee is accountable for the approval of responsible executive
compensation programs which relate the pay levels of executives to the
performance of the Bank, while providing appropriate incentives to deliver the
maximum short and long-term financial results for the benefit of the
shareholders. The program provides for incentive opportunities for the
achievement of financial performance goals established by the Committee in the
form of short-term awards which recognize current achievements and long-term
awards which strengthen the mutuality of interests between management and the
Bank's shareholders. Long-term incentives reward executives for delivering
long-term value to the Bank's shareholders. The Committee makes recommendations
to the Board of Directors on compensation actions involving executive officers
of the Bank. It also approves compensation actions involving all other elected
officers of the Bank, and annually reviews and recommends to the Board of
Directors the salaries (effective April 15) of all officers.
With respect to the CEO, the Committee recommends to the Board of Directors
the CEO compensation. In determining the CEO salary, the Committee considers
such factors and criteria as objectives of the Bank and the attainment thereof,
the ability of the CEO to develop, train, and motivate a competent management
team, the success of the CEO of promoting and growing the Bank in the
communities served, the ability to work with and carry-out the directives of the
Board of Directors, and the success of the CEO in rewarding shareholders with a
satisfactory return on their investment. Finally, the Committee considers the
success of managing the Bank in a safe and sound manner. The base salary is
determined based on the aforementioned criteria after consideration of the
compensation of CEOs in other comparable financial institutions and the supply
and demand in the market place.
The Bank's Incentive Compensation Plan is administered by the Committee.
The Committee determines which officers may participate in the plan and the
extent of their participation. All awards are contingent upon the Bank's
attaining certain financial objectives established annually by the Committee.
Prior to 1997, the plan provided for a portion of an annual award to be
distributed in cash with the remainder in the form of performance units
entitling the holder to receive a future cash payment equal to the book value of
the Bank common stock at the date of redemption. As of January 1, 1997, no
further awards will be made pursuant to the Incentive Compensation Plan.
Accruals of additional expense for each unredeemed performance award will
continue to be made in future years to reflect increases in the book value per
share of the Bank common stock.
20
<PAGE>
On July 15, 1997, the Committee approved an Officer Annual Incentive Plan
effective as of January 1, 1997. The plan is administered by the Committee and
all awards are payable entirely in cash and are contingent upon the Bank's
attaining various growth and financial objectives to be determined annually.
Following is a discussion of the executive compensation program along with
a description of the decisions and actions taken by the Committee with regard to
1997 compensation.
COMPENSATION PROGRAM
Total annual cash compensation for executive management consists of base
salary and the cash incentive earned under the Officer Annual Incentive Plan. At
the senior executive levels, base salaries, the fixed regular period component
of pay, are determined by comparison to salary ranges for equivalent positions
in peer groups of banks with similar characteristics. Annual awards, which are
directly linked to the short-term growth and financial performance of the Bank
as a whole, are designed to provide better-than-competitive pay only for
better-than-competitive performance. Total annual cash compensation varies each
year based on achievement of Bank growth and financial performance goals
established by the Committee and changes in base salary.
Based on the growth and financial objectives which the Committee
established for 1997, the Bank accrued approximately $310,000 under the Officer
Annual Incentive Plan for the year ended December 31, 1997. The resulting annual
compensation is reported in various columns in the Summary Compensation Table
below for the named executive officers. No other executive officers of the Bank
earned in excess of $100,000 during 1997.
The Compensation Committee has considered the limitations on deductibility
of certain compensation under Section 162(m) of the Internal Revenue Code. The
Committee's current policy is to ensure that all compensation is deductible
under Section 162(m) when paid.
The Compensation and Retirement
Committee,
David P. Engel, Chairman
O. D. Edwards, Jr., Vice-Chairman
R. L. Keller
James R. "Bob" McCan
Thomas M. O'Connor
COMPENSATION AND RETIREMENT COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
O. D. Edwards, Jr., James R. "Bob" McCan and Thomas M. O'Connor each have
indebtedness outstanding with the Bank in an amount which exceeds $60,000, which
indebtedness is fully performing and is included in the summary disclosure
regarding the aggregate amounts receivable to the Bank from certain related
parties of the Bank set forth under "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
21
<PAGE>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
The following graph compares the five-year cumulative total return of the
Bank's common stock with that of the Russell 2000 major market index and the
NASDAQ Banks index. Cumulative total return is calculated assuming an initial
$100 investment and subsequent reinvestment of dividends paid over the five year
period. The NASDAQ Banks index includes banks of various size and value. The
Russell 2000 index is used as the major market index that most closely
approximates the Bank's size for a variety of industries not restricted to
banking.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
AMONG FIRST VICTORIA BANK, THE RUSSELL 200 INDEX
AND THE NASDAQ BANK INDEX
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
12/92 12/93 12/94 12/95 12/96 12/97
----- ----- ----- ----- ----- -----
FIRST VICTORIA NATIONAL BANK ......... 100 134 191 252 259 420
RUSSELL 2000 ......................... 100 114 114 150 175 214
NASDAQ BANK .......................... 100 119 117 169 223 377
- - ----------
* $100 INVESTED ON 12/31/92 IN STOCK OR INDEX - INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
22
<PAGE>
SUMMARY COMPENSATION TABLE
The following compensation table sets forth all compensation for services
in all capacities paid by the Bank to the President and Chief Executive Officer
of the Bank and the three other executive officers of the Bank whose aggregate
compensation exceeded $100,000 for 1997.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
ANNUAL COMPENSATION RESTRICTED ALL OTHER
--------------------------------- STOCK AWARDS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY(A) BONUS(B) (C) (D)
- - ------------------------------------- --------- --------- -------- ------------- ------------
<S> <C> <C> <C> <C>
David M. Gaddis...................... 1997 $ 182,500 $ 36,120 $4,000
President & 1996 $ 180,501 $ -- $3,750
Chief Executive Officer 1995 $ 167,583 $ 24,193 750.53 $4,011
C. Dee Harkey........................ 1997 $ 99,337 $ 13,429 $2,208
Executive Vice President 1996 $ 84,479 $ -- $1,729
& Chief Operating Officer 1995 $ 69,077 $ -- $--
Billy W. Ruddock..................... 1997 $ 89,468 $ 11,876 $1,962
Executive Assistant 1996 $ 87,286 $ -- $1,905
to the President 1995 $ 81,837 $ 8,700 269.89 $1,771
Kenneth Vickers...................... 1997 $ 99,344 $ 13,376 $2,209
Executive Vice President 1996 $ 95,602 $ -- $2,128
& Chief Lending Officer 1995 $ 88,621 $ 9,583 297.28 $1,941
</TABLE>
- - ------------
(a) Represents the annual wages earned by the named executive officer plus any
fees received for service in the capacity of director. Messrs. Gaddis,
Ruddock and Vickers received compensation as directors during each of the
three years shown in the table above.
(b) Represents the short-term cash award described in the Incentive Compensation
Plan. Amounts are payable by March 1st in the year following the year in
which the award was earned.
(c) Represents the long-term portion of the Bank's incentive award expressed in
performance share units. Performance share units are determined by dividing
the portion of the award identified as long-term by the book value per share
of common stock at the end of the year in which the award is earned. The
value of these performance share units at December 31, 1997 was $23.80 per
unit. No dividends are paid on the performance share units. Future payouts
are not conditioned upon meeting any predetermined targets or financial
objectives. As of December 31, 1997, all of the outstanding performance
share units became fully vested.
(d) Includes portions relating to the Bank's matching of the officer's 401(k)
contribution to the Employees' Profit Sharing Plan.
RETIREMENT PLAN
The retirement plan for employees of the Bank is a non-contributory,
trustee retirement plan, providing retirement and death benefits to all Bank
employees who have completed one year of service. Benefits accrue to the
participants based upon years of service and salary. The funding is limited to
the maximum amounts that are available for deduction for federal income tax
purposes. No contributions were made to the plan during 1996 or 1997 due to the
over-funding of the retirement plan.
Prior to 1996, annual retirement benefits under the plan were based upon
the greater of several specified optional calculations - normally, the highest
benefit being based upon length of service and the average of the highest five
consecutive years of salary during the ten years preceding retirement. Effective
January 1, 1996, the benefit formula was amended to provide for a single benefit
formula that is based on the participant's final adjusted monthly compensation.
Employees are required to complete five years of service for their retirement to
vest. During 1996 and 1997, no amounts were paid or distributed to executive
officers pursuant to the plan.
23
<PAGE>
The following table shows estimated annual benefits under the plan for
various salaries and years of service classifications calculated on a
life-of-participant basis with 120 guaranteed monthly payments. The amounts are
shown net of Social Security offsets that apply according to the requirements of
the plan document.
YEARS OF SERVICE
5 YEAR AVERAGE -----------------------------------------------------
ANNUAL SALARY 15 20 25 30 35
- - -------------------------- --------- --------- --------- --------- ---------
$ 50,000.................. $ 12,665 $ 16,877 $ 21,109 $ 25,331 $ 29,553
75,000.................. 20,165 26,877 33,609 40,331 47,053
100,000.................. 27,665 36,887 46,109 55,331 64,553
125,000.................. 35,165 46,887 58,609 70,331 82,053
150,000.................. 42,665 56,887 71,109 85,331 99,553
175,000.................. 45,665 60,887 76,109 91,331 106,553
200,000.................. 45,665 60,887 76,109 91,331 106,553
As of December 31, 1997, the most highly compensated executive officers of
the Bank whose aggregate compensation exceeded $100,000 had years of credited
service as follows: David M. Gaddis -- 18 years; C. Dee Harkey -- 3 years; Billy
W. Ruddock -- 43 years and Kenneth Vickers -- 4 years.
DIRECTORS' COMPENSATION
During 1997, directors of the Bank received an annual retainer fee of
$5,000. All members of the Board of Directors received $500 per meeting for each
board meeting attended. Directors not employed by the Bank received an
additional $300 per meeting for each committee meeting attended. It is not
anticipated that members of the Board of Directors of the Holding Company will
receive any compensation for their services as such during the 1998 fiscal year.
Changes to the amount and manner of payment of the annual retainer paid to
members of the Board of Directors of the Bank are currently being considered.
The Bank maintains the First Victoria National Bank Board of Directors
Deferred Compensation Plan pursuant to which directors may elect to have their
director fees deferred. Distribution of the amount owing under the plan to each
director commences on the later of January 1 of the year subsequent to the year
in which the director reaches the age of sixty-five or on January 1 of the year
subsequent to the year in which the director ceases to be a director. The method
of distribution of the amount owing, which is determined at the time the
director elects to participate, may be in one lump sum or in any number of equal
annual installments, not to exceed ten. The plan provides for alternative
investment options for plan participants. During 1997, four directors
participated in the plan with total deposits to the plan of approximately
$57,200.
24
<PAGE>
PROPOSED REORGANIZATION
(PROPOSAL 2)
PLAN OF REORGANIZATION AND PLAN OF MERGER
Under the terms of the Plan of Reorganization and Plan of Merger, the
Interim Bank, which will be a subsidiary of the Holding Company, will merge (the
"Merger") with, into and under the Charter of the Bank and each outstanding
share of the Bank's Common Stock (other than shares as to which dissenters'
rights have been perfected) will be converted into the right to receive one (1)
share of the Holding Company's common stock, par value $.01 per share ("Holding
Company Common Stock").
The Interim Bank will be an interim national banking association organized
under the National Bank Act for the sole purpose of merging with the Bank to
effect the proposed reorganization. The Interim Bank will conduct no banking
business prior to the Merger. After the merger, the surviving bank will conduct
business under the name "First Victoria National Bank."
If the Merger is consummated, the Bank will become a wholly-owned
subsidiary of the Holding Company, and shareholders of the Bank will become
shareholders of the Holding Company. The Bank will continue its banking business
substantially unchanged, under the same management. Further, if the Merger is
consummated, the Holding Company intends to transfer the capital stock of the
Bank to a wholly-owned subsidiary of the Holding Company in an inter-company
reorganization transaction for the purpose of increasing the flexibility of the
corporate structure of the Holding Company as well as certain tax advantages. It
is expected that the Holding Company will make a capital contribution of twenty
percent of the capital stock of the Bank to the subsidiary and transfer the
remaining eighty percent of the capital stock of the Bank in consideration for a
promissory note from the subsidiary in the amount of the value of eighty percent
of the Bank capital stock. The creation of a second-tier holding company would
not affect the rights of shareholders of the Holding Company.
On March 17, 1998, the Boards of Directors of the Bank and the Holding
Company each unanimously approved the Plan of Reorganization and Plan of Merger.
The Plan of Reorganization and Plan of Merger may be amended by mutual agreement
of such parties either before or after approval and adoption thereof by the
Bank's shareholders except for provisions relating to the conversion of shares
of Common Stock of the Bank into shares of common stock of the Holding Company.
THE PLAN OF REORGANIZATION AND PLAN OF MERGER MUST BE APPROVED AND ADOPTED
BY THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST TWO-THIRDS (2/3) OF THE
OUTSTANDING SHARES OF THE BANK'S COMMON STOCK.
Consummation of the transactions contemplated by the Plan of Reorganization
and Plan of Merger is also subject to the consent and approval of various
governmental authorities, including the Federal Reserve Board and the OCC. The
Holding Company is required to register with the Federal Reserve Board as a bank
holding company under the Bank Holding Company Act of 1956, as amended.
The Plan of Reorganization and Plan of Merger may be terminated by the
mutual consent of the Boards of Directors of the Bank, the Interim Bank and the
Holding Company even after they are approved by the Bank's shareholders. The
Board of Directors, however, may not amend any provisions relating to the
conversion of shares of the Bank into shares of the Holding Company without
shareholder approval. The Board of Directors of the Bank may also terminate the
Plan of Reorganization and Plan of Merger at any time before the consummation of
the Merger, if the Board of Directors believes that the reorganization would be
inadvisable for any reason.
Pursuant to generally accepted accounting principles, the Merger may be
accounted for as a pooling of interests.
For additional information, see the Plan of Reorganization attached as
Annex A and the form of Plan of Merger attached thereto as Exhibit A, and
incorporated by reference herein.
25
<PAGE>
REASONS FOR THE PROPOSED REORGANIZATION
In the opinion of the Board of Directors of the Bank, the formation of a
bank holding company of which the Bank would operate as a wholly-owned
subsidiary will provide greater flexibility in financing, in engaging in
non-banking activities, in protecting against an unfriendly takeover, and in
responding to opportunities for growth.
FLEXIBILITY IN FINANCING. Flexibility in financing by the Holding Company
is provided by the authorized capitalization of the Holding Company, the
Articles of Incorporation of which authorize twenty million (20,000,000) shares
of Holding Company Common Stock. If the Plan of Reorganization and Plan of
Merger are approved, approximately 2,372,792 shares of Holding Company Common
Stock will be issued in connection with the consummation of the Merger, leaving
approximately 17,627,208 authorized but unissued shares of Holding Company
Common Stock. The authorized but unissued shares of Holding Company Common Stock
would be available for issuance from time to time by action of the Board of
Directors of the Holding Company to raise additional capital, for acquisitions,
or for other corporate purposes without further action by the shareholders of
the Holding Company, unless otherwise required by law. Such issuance could
result in a dilution of voting rights and book value per share as to the Holding
Company Common Stock. Other than in connection with the FVNB Corp. Stock
Incentive Plan, there are no present plans, arrangements or commitments for the
issuance of any such shares. Flexibility would also be provided by the Holding
Company's ability to incur indebtedness and to contribute the proceeds to the
Bank as equity capital.
NON-BANKING ACTIVITIES. Under the Bank Holding Company Act of 1956, as
amended, with the prior approval of the Federal Reserve Board, the Holding
Company may organize or acquire other financially oriented businesses without
shareholder approval. The Holding Company has no present plans for any such
activity. Subsidiaries of the Holding Company not engaged in banking, but in
activities related to banking, are not subject to geographic restrictions. See
"DESCRIPTION OF THE HOLDING COMPANY -- Supervision and Regulation of the
Holding Company."
PROTECTION AGAINST AN UNFRIENDLY TAKEOVER. The Articles of Incorporation
and Bylaws of the Holding Company establish or contain certain provisions that
may be deemed to be "anti-takeover" in nature. The anti-takeover provisions
include, without limitation: (1) the authorization of twenty million
(20,000,000) shares of Holding Company Common Stock, all of which may be issued
without shareholder approval; (2) the elimination of cumulative voting in the
election of directors (3) the requirement that holders of at least seventy-five
percent (75%) of the outstanding shares of the Holding Company's outstanding
shares is required to approve any merger, consolidation, dissolution or
liquidation of the Holding Company or the sale of all or substantially all of
its assets; or the holders of at least a majority of the Holding Company's
outstanding shares when at least a majority of the Holding Company's Directors
have approved such transaction; (4) the authorization for the Board of Directors
to oppose a tender offer on the basis of factors other than economic benefit to
shareholders; (5) the requirement that a special meeting of shareholders may
only be called by the Board of Directors, the Chairman, the President, or one or
more shareholders owning in the aggregate, not less than 20% of the outstanding
shares of the Holding Company. See "DESCRIPTION OF THE HOLDING COMPANY COMMON
STOCK -- Anti-Takeover Provisions."
FLEXIBILITY IN GROWTH. Currently, if the Bank pursues an acquisition
transaction which involves the merger of the Bank, the merger must be approved
by the holders of two-thirds of the outstanding shares of Bank Common Stock. The
shareholder approval process is time-consuming and expensive. The Holding
Company structure would allow the Holding Company and the Bank to acquire
another bank through a merger of the Bank without the approval of the
shareholders of the Holding Company.
SHAREHOLDER APPROVAL
The affirmative vote of two-thirds (2/3) of the issued and outstanding
shares of Bank Common Stock is necessary to approve and adopt the Plan of
Reorganization and Plan of Merger.
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<PAGE>
EFFECTIVE DATE
The reorganization and the merger of the Interim Bank with, into and under
the Charter of the Bank shall be effective at the time and on the date specified
on the certificate to be issued by the OCC (the "Effective Date"). Presently,
the Bank plans to request that the OCC issue a certificate as soon as
practicable after the Meeting. The OCC will not issue a certificate until it
approves the proposed merger of the Interim Bank with, into and under the
Charter of the Bank. The final approval will not be considered and given until
the Holding Company and the Bank give notice to the OCC that holders of at least
two-thirds of the issued and outstanding shares of Bank Common Stock have
approved and adopted the Plan of Reorganization and Plan of Merger.
The approval of the OCC reflects only the OCC's view that the transaction
does not contravene the competitive standards of the law and is consistent with
regulatory concerns relating to bank management and to the safety and soundness
of the subject banking organizations. Such approval is not to be interpreted as
an opinion by the OCC that the reorganization is favorable to the shareholders
from a financial point of view or that the OCC has considered the adequacy of
the terms of the exchange. THE OCC'S APPROVAL IS NOT AN ENDORSEMENT OR
RECOMMENDATION OF THE REORGANIZATION AND MERGER.
EFFECT OF REORGANIZATION ON BANK'S BUSINESS AND SHAREHOLDERS.
The Interim Bank will be an interim national banking association organized
by the Holding Company under the National Bank Act for the sole purpose of
effecting the reorganization and holding company formation. Upon its formation,
the Interim Bank will be a subsidiary of the Holding Company. The Interim Bank
will conduct no banking business prior to the proposed merger. On the Effective
Date, the Interim Bank will merge with, into and under the Charter of the Bank.
The Bank will survive under the name "First Victoria National Bank." The
Articles of Association of the Bank upon consummation of the Merger will be
identical in all material respects to the current Articles of Association of the
Bank, except that Article Sixth will be revised to delete the requirement that
at least one Vice President of the Bank serve on the Board of Directors. A vote
in favor of the Plan of Reorganization and Plan of Merger is a vote in favor of
this change to the Articles of Association of the Bank as the resulting bank in
the Merger.
On the Effective Date, shareholders of the Bank will cease to have any
rights as shareholders of the Bank and their rights will relate solely to the
shares of Holding Company Common Stock, or, if demanded in accordance with
Section 215a of the National Bank Act, they will have the right to receive cash
in the amount of the appraised value of their shares of Bank Common Stock. See
"PROPOSED REORGANIZATION -- Rights of Dissenting Shareholders" and Annex D,
excerpts from Section 215a of the National Bank Act, relating to dissenters'
rights.
CONVERSION OF STOCK
On the Effective Date, shareholders of the Bank who do not perfect
dissenters' rights will become shareholders of the Holding Company by reason of
the merger of the Interim Bank with, into and under the Charter of the Bank.
They will own the same number of shares of Holding Company Common Stock as they
previously owned of Bank Common Stock. Each outstanding share of the Bank Common
Stock will automatically be converted into and become the right to receive one
(1) share of Holding Company Common Stock.
EXCHANGE OF STOCK CERTIFICATES
The outstanding stock certificates that represent shares of Bank Common
Stock will be deemed automatically to represent an equal number of shares of
Holding Company Common Stock. The shareholders of the Holding Company may be
required, at the option of the Holding Company, to exchange their present stock
certificates (bearing the name "First Victoria National Bank") for new stock
certificates (bearing the name "FVNB Corp."). The Holding Company does not
currently anticipate that it will require shareholders to exchange their
certificates. In the event that the shareholders are required to exchange their
present stock certificates of the Bank for stock certificates of the Holding
Company, the Board of Directors
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<PAGE>
has reserved the right to withhold any dividends from those shareholders who do
not exchange their present stock certificates for new stock certificates within
a reasonable period of time after being advised by the Board of Directors of
such exchange of share certificates.
FAILURE TO SURRENDER STOCK CERTIFICATES
In addition to the right of the Board of Directors of the Holding Company
to withhold dividends from those shareholders who do not exchange their present
stock certificates within a reasonable period of time, shareholders may be
required, at the option of the Holding Company, to surrender their stock
certificates within two (2) years of the date of notification to do so. In the
event that any stock certificates are not surrendered for exchange within such
two (2) year period, the shares represented by appropriate certificates of the
Holding Company that would otherwise have been delivered in exchange for the
unsurrendered certificates, may be sold at the option of the Holding Company.
The net proceeds of the sale shall be held for the shareholders of the
unsurrendered certificates and will be paid to them upon surrender of their
outstanding certificates. FROM AND AFTER SUCH SALE, THE SOLE RIGHT OF THE
HOLDERS OF THE UNSURRENDERED OUTSTANDING CERTIFICATES SHALL BE THE RIGHT TO
COLLECT THE NET SALES PROCEEDS HELD FOR THEIR ACCOUNT.
TRADING AND RESALE OF HOLDING COMPANY COMMON STOCK
The Bank Common Stock is currently listed and traded on the Nasdaq National
Market under the symbol "FVNB." Following the Merger, the Holding Company
Common Stock is expected to be listed and traded on the Nasdaq National Market
under the same symbol.
The shares of Holding Company Common Stock to be received in connection the
Merger will not require registration under the Securities Act of 1933, as
amended (the "Securities Act"), for their subsequent transfer, except that
shares of the Holding Company Common Stock to be received by persons who are
deemed to be "affiliates" of the Bank (directors, certain officers and
shareholders owning five percent (5%) or more of the outstanding shares of
Common Stock), within the meaning of Rule 145 under the Securities Act, may be
resold by affiliates without further registration only in transactions permitted
under certain sections of Rule 144 under the Securities Act or pursuant to other
exemptions under the Securities Act. Rule 144, among other things, will operate
generally to limit the number of shares of Holding Company Common Stock that may
be sold in any three-month period by any one affiliate not acting in concert
with others to one percent (1%) of the outstanding shares of the Holding Company
Common Stock.
FEDERAL INCOME TAX CONSEQUENCES
Under the current provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), and subject to certain exceptions, it is anticipated
that: (1) no gain or loss will be recognized by the Bank, the Holding Company or
the Interim Bank by reason of the reorganization; (2) no gain or loss will be
recognized by shareholders of the Bank upon the conversion of shares of Bank
Common Stock into shares of Holding Company Common Stock pursuant to the Merger,
except for any shareholder of the Bank who receives payment in cash as a
dissenting shareholder; (3) the tax basis of the Holding Company Common Stock to
be owned by each shareholder of the Bank upon the conversion of shares of Bank
Common Stock into shares of Holding Company Common Stock pursuant to the Merger
will be the same as the tax basis of the Bank Common Stock theretofore owned by
such shareholder; (4) the holding period of the Holding Company Common Stock
into which the Bank Common Stock has been converted will include the holding
period of the Bank Common Stock, provided that the Bank Common Stock was held as
a capital asset on the date of the conversion; and (5) the Interim Bank will
carry-over and take into account all accounting items of the Bank such as
earnings and profits, method of accounting, inventories, etc.
In general, cash received by dissenting shareholders of the Bank will be
treated as amounts distributed in redemption of their Bank Common Stock and will
be taxable under Section 302(a) of the Code, that is as a capital gain or loss,
if the shares are held as a capital asset and as ordinary income otherwise. It
is possible, however, that the provisions of Section 302(a) will not apply to a
particular shareholder due to
28
<PAGE>
Code rules that require that certain shareholders be treated as owning shares
actually owned by other individuals and entities (i.e., certain individuals
related to the shareholder and certain partnerships, trusts and corporations in
which the shareholder has an interest); if so, the amounts paid to the
shareholder may be taxable as dividends because they would be treated as
distributions to which Code Section 301 applies and not as a redemption under
Code Section 302(a).
THE ABOVE DISCUSSION PROVIDES A SUMMARY OF THE FEDERAL INCOME TAX
CONSEQUENCES APPLICABLE TO INDIVIDUAL U.S. CITIZENS AND RESIDENTS. ALL
SHAREHOLDERS WHO ARE NOT INDIVIDUAL U.S. CITIZENS OR RESIDENTS (E.G. NONRESIDENT
ALIENS, CORPORATIONS, TRUSTS AND OTHER ENTITIES) ARE URGED TO CONSULT THEIR TAX
ADVISORS. THE ABOVE DISCUSSION ALSO DOES NOT ADDRESS ANY STATE OR LOCAL TAX
CONSEQUENCES. SHAREHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS IN
ORDER TO MAKE AN INDIVIDUAL APPRAISAL OF THE FEDERAL, STATE AND LOCAL INCOME TAX
AND PERSONAL PROPERTY AND OTHER TAX CONSEQUENCES OF THE CONSUMMATION OF THE
MERGER AND THE EXERCISE OF DISSENTERS' RIGHTS.
RIGHTS OF DISSENTING SHAREHOLDERS
As required by the national banking laws, any shareholder of the Bank who
has voted against the Plan of Reorganization and Plan of Merger at the Meeting,
or has given written notice at or prior to the Meeting to the Cashier of the
Bank or presiding officer that he dissents from the Plan of Reorganization and
Plan of Merger, will be entitled to receive the value of the shares of Bank
Common Stock held by him at the effective time of the Merger upon written
request made to the Bank at any time before thirty (30) days after the date of
consummation of the Merger, accompanied by the surrender of his share
certificates. Any shareholder of the Bank who votes against the Plan of
Reorganization and Plan of Merger at the Meeting, or who gives notice in writing
at or prior to the Meeting to the Cashier of the Bank or presiding officer that
he dissents, will be notified in writing of the date of consummation of the
Merger.
The value of the shares of any dissenting shareholder will be ascertained,
as of the Effective Date, by an appraisal made by a committee of three persons.
The committee shall be comprised of one person selected by the vote of the
holders of the majority of the shares whose owners are entitled to payment in
cash (by reason of such requests for appraisal), one person selected by the
Board of Directors of the Bank and one person selected by the two so selected.
The valuation agreed upon by any two of the three appraisers will govern. If the
value so fixed is not satisfactory to any dissenting shareholder who has duly
requested payment, that shareholder may, within five (5) days after being
notified of the appraisal value of his shares, appeal to the OCC. The OCC is
required to cause a reappraisal to be made which will be final and binding as to
the value of the shares of the dissenting shareholder. If, for any reason, one
or more of the appraisers is not selected as provided above within ninety (90)
days from the Effective Date or, if the appraisers fail to determine the value
of such shares within the ninety (90) days, the OCC is required, upon written
request of any interested party, to cause an appraisal to be made that will be
final and binding on all parties. The expenses of the OCC in making the
reappraisal or the appraisal, as the case may be, will be paid by the Bank. The
ascertained value of the shares must be paid promptly to the dissenting
shareholders, if any. The shares of Holding Company Common Stock that would have
been allocated to a dissenting shareholder will be sold at public auction and
any excess received therefrom will be paid to the dissenting shareholder in
accordance with the requirements of the national banking laws.
The foregoing summary does not purport to be a complete statement of the
appraisal rights of dissenting shareholders, and such summary is qualified in
its entirety by reference to the Plan of Reorganization attached hereto as Annex
A and the form of Plan of Merger attached thereto as Exhibit A, and to the
applicable provisions of 12 U.S.C. Section 215a, which are reproduced and
attached hereto as Annex D. Moreover, a shareholder will not be permitted to
split his or her vote; if a shareholder intends to vote, he or she must vote all
of his or her shares either for or against the Plan of Reorganization and Plan
of Merger.
29
<PAGE>
FAILURE TO FOLLOW THE PROCEDURES SET FORTH IN 12 U.S.C. Section 215a,
REGARDING DISSENTERS' RIGHTS WILL CONSTITUTE A WAIVER OF APPRAISAL RIGHTS.
SHAREHOLDERS MAY WISH TO CONSULT INDEPENDENT LEGAL COUNSEL BEFORE EXERCISING
DISSENTERS' RIGHTS.
Except as set forth herein, notification of the beginning or end of any
statutory period will not be given by the Bank to any dissenting shareholders.
REGULATORY APPROVALS
Consummation of the Merger is subject to the approval of the Federal
Reserve Board and the OCC (hereinafter collectively referred to as the "Bank
Regulatory Authorities").
In general, the Bank Regulatory Authorities may disapprove this transaction
if the reorganization and merger of the Interim Bank with and into the Bank and
the reorganization of the Bank into a one-bank holding company would not be
consistent with adequate sound banking practices and would not be in the public
interest.
In addition, the merger of the Interim Bank with and into the Bank may not
be consummated for fifteen (15) days from the date of the later approval by the
OCC or approval by the Federal Reserve Board, if there has been no challenge
issued by the United States Department of Justice on anti-trust grounds in which
case the period of time before which consummation may occur may be extended. The
merger of the Interim Bank with and into the Bank and the reorganization of the
Bank into a one-bank holding company cannot proceed in the absence of requisite
regulatory approvals. The approval of the OCC reflects only the OCC's view that
the transaction does not contravene the competitive standards of the law and is
consistent with regulatory concerns relating to bank management and to the
safety and soundness of the subject banking organizations. Such approval is not
to be interpreted as an opinion by the OCC that the reorganization is favorable
to the shareholders from a financial point of view or that the OCC has
considered the adequacy of the terms of the exchange. THE OCC'S APPROVAL IS NOT
AN ENDORSEMENT OR RECOMMENDATION OF THE REORGANIZATION AND MERGER.
There can be no assurance that the Bank Regulatory Authorities will approve
the reorganization and the merger of the Interim Bank with and into the Bank,
and if approvals are granted, there can be no assurance as to the grant date of
such approvals.
RECOMMENDATION OF BANK'S BOARD OF DIRECTORS
The Board of Directors of the Bank believes that the Plan of Reorganization
and Plan of Merger are in the best interests of the Bank and its shareholders
and unanimously recommends that shareholders of the Bank vote "For" the
approval of the Plan of Reorganization and Plan of Merger. The Bank's Directors
have indicated that they will vote all of their shares of Bank Common Stock in
favor of the Plan of Reorganization and Plan of Merger.
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<PAGE>
DESCRIPTION OF THE HOLDING COMPANY
ORGANIZATION
The Holding Company was incorporated as a Texas business corporation on
March 9, 1998, at the direction of the Board of Directors of the Bank for the
purpose of becoming a bank holding company. The Holding Company has authorized
twenty million (20,000,000) shares of common Stock, par value $.01 per share.
Currently, there are two (2) shares of Holding Company Common Stock
outstanding and held by David M. Gaddis, President and Chief Executive Officer
of the Bank.
The Holding Company expects to function primarily as the holder of all of
the outstanding shares of Bank Common Stock. It may, in the future, perform
other functions and/or acquire or form additional subsidiaries, including other
banks to the extent permitted by law.
At present, the Holding Company does not own or lease any property and has
no paid employees. It will not actively engage in business until after the
consummation of the Merger.
Copies of the Articles of Incorporation and Bylaws of the Holding Company
are attached to this Proxy Statement/Prospectus as Annexes B and C,
respectively.
MANAGEMENT
The directors of the Holding Company are Michael S. Anderson, O. D.
Edwards, Jr., David P. Engel, David M. Gaddis, Robert L. Halepeska, R. L.
Keller, Thomas Lane Keller, James Robert (Bob) McCan, J. E. McCord, Thomas M.
O'Connor, Billy W. Ruddock and Roger Welder, all of whom are also currently
members of the Board of Directors of the Bank. Biographical information for each
of the directors of the Holding Company is set forth under "DIRECTORS AND
EXECUTIVE OFFICERS -- Election of Directors." If the Plan of Reorganization and
Plan of Merger are approved and the Merger consummated, the Bank will become a
wholly-owned subsidiary of the Holding Company. In such event, the directors of
the Bank would thereafter be selected by the Holding Company and current
shareholders of the Bank, who would become shareholders of the Holding Company
upon consummation of the Merger, would be entitled to vote on the election of
directors of the Holding Company.
The officers of the Holding Company are currently, and upon consummation of
the Merger will be, as follows:
NAME POSITIONS
- - --------------------------------- --------------------------------------------
David M. Gaddis.................. President and Chief Executive Officer
C. Dee Harkey.................... Secretary and Principal Accounting Officer
Biographical information for each of the executive officers of the Holding
Company is set forth under "DIRECTORS AND EXECUTIVE OFFICERS -- Executive
Officers."
REMUNERATION
Because the Holding Company was not in existence in 1997, it paid no
remuneration to its directors and officers for that year. Further, the Holding
Company has paid no remuneration to its officers to date during 1998. It is not
currently anticipated that the officers of the Holding Company will receive any
compensation for their services as officers of the Holding Company. In the
future, the Holding Company may pay a nominal sum to each of its directors for
attendance at meetings of the Board of Directors; however, the Holding Company
has no present intention of paying any fees to directors of the Holding Company
for their services as such.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Bank expects to extend its present directors, and officers, liability
insurance policy to cover the Holding Company's directors and officers without
significant additional cost. This liability policy would
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<PAGE>
cover the typical errors and omissions liability associated with the activities
of the Holding Company. The provisions of the insurance policy would probably
not indemnify any of the Holding Company's officers and directors against
liability arising under the Securities Act.
Texas Law and the Bylaws of the Holding Company provide, and those of the
Interim Bank will provide, for broad indemnification of officers and directors
against liabilities and expenses incurred in legal proceedings. In addition, the
Articles of Incorporation of the Holding Company limit, and the Articles of
Association of the Interim Bank will limit, the liability of directors for
monetary damages under certain conditions.
In the opinion of the SEC, indemnification of officers, directors or
persons controlling the Holding Company for liabilities arising under the
Securities Act is against public policy as expressed in the Securities Act and
is therefore unenforceable.
SUPERVISION AND REGULATION OF THE HOLDING COMPANY
GENERAL
The Holding Company will be subject to the jurisdiction of the SEC and of
state securities commissions for matters relating to the offering and sale of
its securities. Presently, the Bank is exempt from such registration
requirements with these agencies. Accordingly, additional issuances of Holding
Company stock to raise capital and for dividend reinvestment, stock option and
other plans will be subject to such registration (absent any exemption from
registration). Registration will require the incursion of additional costs by
the Holding Company.
On the Effective Date, the Holding Company will become subject to the
provisions of the Bank Holding Company Act of 1956, as amended, ("BHCA") and
to supervision by the Federal Reserve Board ("FRB") and to a certain extent
the Texas Department of Banking. The Holding Company will be required to file
with the FRB annual reports and other information regarding the business
operations of itself and its subsidiaries. It will also be subject to
examination by the FRB. Under the BHCA, a bank holding company is, with limited
exceptions, prohibited from acquiring direct or indirect ownership or control of
any voting stock of any company which is not a bank or bank holding company, and
must engage only in the business of banking, managing, controlling banks, and
furnishing services to or performing services for its subsidiary banks. One of
the exceptions to this prohibition is the ownership of shares of any company
provided such shares do not constitute more than 5% of the outstanding voting
shares of the company and so long as the FRB does not disapprove such ownership.
Another exception to this prohibition is the ownership of shares of a company
the activities of which the FRB has specifically determined to be so closely
related to banking, managing or controlling banks as to be a proper incident
thereto.
The BHCA and the Change in Bank Control Act of 1978 require that, depending
on the circumstances, either FRB approval must be obtained or notice must be
furnished to the FRB and not disapproved prior to any person or company
acquiring "control" of a bank holding company. Control is conclusively
presumed to exist if an individual or company acquires 25% or more of any class
of voting securities of the bank holding company. Control is rebuttably presumed
to exist if a person acquires 10% or more but less than 25% of any class of
voting securities where the bank holding company, such as the Holding Company,
has registered Securities under Section 12 of the Exchange Act of 1934 (the
"Exchange Act").
As a bank holding company, the Holding Company is required to obtain
approval prior to merging or consolidating with any other bank holding company,
acquiring all or substantially all of the assets of any bank or acquiring
ownership or control of shares of a bank or bank holding company if, after the
acquisition, the Holding Company would directly or indirectly own or control 5%
or more of the voting shares of such bank or bank holding company.
DEREGULATION
The restrictions on the activities of bank holding companies could change
significantly if the Glass-Steagall Act is reformed. Current congressional
debate over reforming the Glass-Steagall Act is centered around whether enhanced
bank powers should be conducted within a holding company or through affiliates.
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<PAGE>
It is impossible to predict at this time whether any of the reform proposals
will pass, or what effect the proposals would have on the Holding Company or the
Bank.
INTERSTATE BANKING
In 1994, Congress enacted the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 ("Interstate Banking Act"), which rewrote federal law
governing the interstate expansion of banks in the United States. Effective as
of September 29, 1995, adequately capitalized, well managed bank holding
companies with FRB approval may acquire banks located in any State in the United
States, provided that the target bank meets the minimum age (up to a maximum of
five years, which is the amount Texas has adopted) established by the host
State. Under the Interstate Banking Act an anti-concentration limit will bar
interstate acquisitions that would give a bank holding company control of more
than ten percent (10%) of all deposits nationwide or thirty percent (30%) of any
one State's deposits, or such higher or lower percentage established by the host
State. The anti-concentration limit in Texas has been set at twenty percent
(20%) of all federally insured deposits in Texas. As of December 31, 1997, many
of Texas' largest bank holding companies had either merged with or been acquired
by out-of-state banking concerns. To date, many out-of-state banking concerns
continue to purchase Texas financial institutions.
In addition to providing for interstate acquisitions of banks by bank
holding companies, the Interstate Banking Act provides for interstate branching
by permitting mergers between banks domiciled in different States beginning June
1, 1997. The Interstate Banking Act provides that States may opt out of
interstate branching by enacting non-discriminatory legislation prohibiting
interstate bank mergers before June 1, 1997. If a State opts out, no bank in any
other state may establish a branch in that State either through merger or
formation. A bank whose home State opts out of interstate branching may not
participate in any interstate merger transaction. In 1995, Texas passed
legislation opting out of the interstate branching provisions of The Interstate
Banking Act until September 1999. No accurate prediction can be made at this
time as to how this legislation will affect the Holding Company and/or the Bank.
FRB ENFORCEMENT POWERS
The FRB has certain cease-and-desist and divestiture powers over bank
holding companies and non-banking subsidiaries where their actions would
constitute a serious threat to the safety, soundness or stability of a
subsidiary bank. These powers may be exercised through the issuance of
cease-and-desist orders or other actions. In the event a bank subsidiary
experiences either a significant loan loss or rapid growth of loans or deposits,
a bank holding company may be compelled by the FRB to invest additional capital
in the bank subsidiary. The FRB is also empowered to assess civil penalties
against companies or individuals who violate the BHCA in amounts up to
$1,000,000 per day, to order termination of non-banking activities of
non-banking subsidiaries of bank holding companies and to order termination of
ownership and control of a non-banking subsidiary. Under certain circumstances
the Texas Banking Commissioner may bring enforcement proceedings against a bank
holding company in Texas.
HOLDING COMPANY DIVIDENDS
The FRB's policy discourages the payment of dividends from borrowed funds
and discourages payments that would affect capital adequacy. The FRB has issued
policy statements which generally state that bank holding companies should serve
as a source of financial and managerial strength to their bank subsidiaries, and
generally should not pay dividends except out of current earnings, and should
not borrow to pay dividends if the bank holding company is experiencing capital
or other financial problems.
HOLDING COMPANY CAPITAL
In addition, the FRB has established minimum leverage ratio guidelines for
bank holding companies. These guidelines provide for a minimum leverage ratio of
Tier 1 capital to adjusted average quarterly assets ("leverage ratio") equal
to three percent for bank holding companies that meet certain specified
criteria, including having the highest regulatory rating. All other bank holding
companies will generally be required to maintain a leverage ratio of at least
four to five percent. The guidelines also provide that bank holding companies
experiencing internal growth or making acquisitions will be expected to maintain
strong capital
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<PAGE>
positions substantially above the minimum supervisory levels without significant
reliance on intangible assets. Furthermore, the guidelines indicate that the FRB
will continue to consider a "tangible tier 1 leverage ratio" (deducting all
intangibles) in evaluating proposals for expansion or new activity.
ISSUANCE OF ADDITIONAL SECURITIES
Because the Holding Company has authorized common stock substantially in
excess of the number of shares that will be issued in connection with the
Merger, the Board of Directors of the Holding Company will have the flexibility
to raise additional capital and to make acquisitions through the issuance of
Holding Company Common Stock without further approval by the Holding Company's
shareholders. The Holding Company shareholders will not have preemptive rights
to subscribe for additional shares. Therefore, such issuance could result in a
dilution of voting rights and book value per share as to the Holding Company
Common Stock. Other than in connection with the FVNB Corp. Stock Incentive Plan,
the Board of Directors of the Holding Company has no present plans for issuing
additional shares of Holding Company Common Stock, but it may determine to do so
in the future.
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FIRST VICTORIA NATIONAL BANK
SELECTED HISTORICAL FINANCIAL DATA
The following historical selected consolidated financial data are derived
from, and qualified by reference to, the Bank's Consolidated Financial
Statements and the notes thereto included in the Bank's 1997 Annual Report,
which is being mailed to shareholders along with this Proxy
Statement/Prospectus. The selected historical consolidated financial information
should be read in conjunction with the Consolidated Financial Statements of the
Company and the notes thereto included in the Bank's 1997 Annual Report and
"First Victoria National Bank Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Total interest income*............... $ 33,089 $ 31,688 $ 31,204 $ 28,808 $ 29,197
Total interest expense............... 15,482 15,742 14,804 12,308 12,464
----------- ----------- ----------- ----------- -----------
Net interest income............. 17,607 15,946 16,400 16,500 16,733
(Credit) provision for loan and lease
losses............................. (300) 0 (300) (350) 0
----------- ----------- ----------- ----------- -----------
Net interest income after
(credit) provision............ 17,907 15,946 16,700 16,850 16,733
Non-interest income.................. 4,925 4,454 4,156 3,817 3,273
Securities (losses) gains............ (58) (9) 0 (18) (25)
Non-interest expense................. 15,180 14,279 13,882 13,778 13,253
----------- ----------- ----------- ----------- -----------
Income before income taxes...... 7,594 6,112 6,974 6,871 6,728
Taxable-equivalent adjustment*....... 116 194 154 270 369
Income tax expense................... 2,487 1,961 2,200 2,003 1,948
----------- ----------- ----------- ----------- -----------
Net Income...................... $ 4,991 $ 3,957 $ 4,620 $ 4,598 $ 4,411
=========== =========== =========== =========== ===========
Per share data:
Dividends payout ratio.......... 38.99% 38.39% 37.51% 32.25% 33.62%
Earnings per share.............. $ 2.10 $ 1.67 $ 1.95 $ 1.94 $ 1.86
Dividends per share............. $ .820 $ .640 $ .730 $ .625 $ .625
Total assets......................... $ 500,273 $ 462,265 $ 430,795 $ 415,498 $ 429,384
Weighted average number of shares
outstanding........................ 2,372,792 2,372,792 2,372,792 2,372,792 2,372,792
Return on average assets............. 1.10% .89% 1.10% 1.08% .99%
Return on average equity............. 9.16% 7.67% 9.57% 10.19% 10.13%
</TABLE>
- - ------------
* Tax exempt income is recorded on a fully taxable-equivalent basis.
35
<PAGE>
FIRST VICTORIA NATIONAL BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides additional detail on the
operating results and financial condition of the Bank for the periods indicated.
The discussion should be read in conjunction with the audited consolidated
financial statements and notes of First Victoria National Bank which present the
bank's results of operations for the years 1995 through 1997 and its financial
condition as of December 31, 1997 and 1996. Taxable-equivalent adjustments
assume a 34% federal income tax rate.
RESULTS OF OPERATIONS
Net income of the Bank for 1997 was approximately $4.99 million, or $2.10
per share. This compares to $3.96 million, or $1.67 per share, for 1996 and
$4.62 million, or $1.95 per share, for 1995. The return on average assets of
1.10% and return on average equity of 9.16% for 1997 compare to .89% and 7.67%
for 1996 and 1.10% and 9.57% for 1995, respectively. The earnings summary for
the years ended December 31, is as follows (in thousands, except per share
amounts):
1997 1996 1995
--------- --------- ---------
Total interest income*............... $ 33,089 $ 31,688 $ 31,204
Total interest expense............... 15,482 15,742 14,804
--------- --------- ---------
Net interest income.................. 17,607 15,946 16,400
(Credit) provision for loan and lease
losses............................. (300) 0 (300)
Non-interest income.................. 4,867 4,445 4,156
Non-interest expense................. 15,180 14,279 13,882
--------- --------- ---------
Income before income taxes........... 7,594 6,112 6,974
Taxable-equivalent adjustment*....... 116 194 154
Income tax expense.............. 2,487 1,961 2,200
--------- --------- ---------
Net income................. $ 4,991 $ 3,957 $ 4,620
========= ========= =========
Net income per share................. $ 2.10 $ 1.67 $ 1.95
Return on average assets............. 1.10% .89% 1.10%
Return on average equity............. 9.16% 7.67% 9.57%
- - ------------
* Tax-exempt income is recorded on a fully taxable-equivalent (FTE) basis.
NET INTEREST INCOME
Net interest income on a taxable equivalent basis amounted to approximately
$17,607,000 in 1997 compared to $15,946,000 and $16,400,000 in 1996 and 1995,
respectively. The increase in net interest income of approximately $1,661,000,
or 10.42%, from 1996 to 1997 is due primarily to overall growth in the volume of
earning assets, specifically loans. In addition to general growth, a shift in
the balance sheet mix from investment securities to loans further added to the
growth in interest income as well as improved yields on total earning assets.
Average earning assets increased approximately $8,228,000, or 1.98%, from 1996
to 1997 while average interest bearing liabilities decreased approximately
$850,000, or .25%, over the same period. Yields on earning assets increased
approximately 19 basis points from 7.64% in 1996 to 7.83% in 1997 while the cost
of interest bearing liabilities decreased approximately 7 basis points from
4.61% to 4.54% over the same period. Interest foregone on nonperforming loans
increased from approximately $62,000 in 1996 to $114,000 in 1997. The effect of
the reversal of previously accrued interest on non-accrual loans decreased from
approximately $46,000 in 1996 to $39,000 in 1997.
INTEREST RATE SENSITIVITY
The Bank's general strategy with regard to asset/liability and interest
rate risk management is to match maturities and amounts of interest rate
sensitive assets with maturities and amounts of interest rate sensitive
36
<PAGE>
liabilities in such a manner as to minimize risk exposure resulting from changes
in market rates. While matching interest rate sensitivity will provide some
insulation from adverse changes in market rates, it will not assure a stable net
interest spread, as yields and rates may change simultaneously but in varying
degrees. Such changes in market rates and spreads could materially affect the
overall net interest income spread even in situations where asset/liability
sensitivities are perfectly matched.
The Bank calculates and monitors interest rate sensitivity in various ways.
One method of calculating interest rate sensitivity is through gap analysis. A
gap is the difference between the amount of interest rate sensitive assets and
interest rate sensitive liabilities that reprice or mature in a given time
period. Positive gaps occur when interest rate sensitive assets exceed interest
rate sensitive liabilities, and negative gaps occur when interest rate sensitive
liabilities exceed interest rate sensitive assets. A positive gap position in a
period of rising interest rates should normally have a positive effect on net
interest income since assets will generally reprice faster than liabilities.
Conversely, net interest income should normally contract somewhat in a period of
declining interest rates. This type of analysis should be used with caution,
however, since gap positions at any given time may be quickly changed by
management in response to market conditions. At December 31, 1997, the Bank's
cumulative one year gap position was a positive $28 million, or 6.62% of total
average earning assets.
Since market rate changes do not affect all categories of assets and
liabilities equally or at the same time, simulation analysis is also employed by
the Bank to supplement its gap analysis and further quantify interest rate risk
exposure in various rate environments. On an ongoing basis, the Bank reviews its
internal pricing strategies in conjunction with its gap position in order to
appropriately price deposit and loan products in response to anticipated market
rate conditions. In addition, various investment securities are considered for
purchase that include a balance of short term fixed rate instruments to limit
exposure in a stable rate environment as well as variable rate instruments to
guard against exposure to falling interest margins in a rising rate environment.
Based on the current structure of the balance sheet as well as long term
objectives established by management, the Bank's Board of Directors has
determined policy guidelines within which changes in net interest income and
market value of portfolio equity may fall with respect to changes in interest
rate risk. (Market value of portfolio equity is defined as the difference
between the fair values of financial assets and liabilities resulting from the
discounting of their respective future cash flows at current market rates.)
Based on simulation analysis performed as of December 31, 1997, the Bank would
experience an increase in net interest income of approximately $1,778,000, or
9.25%, and a decrease in market value of portfolio equity of approximately
$3,825,000, or 6.88%, in the event of a 200 basis point rise in interest rates.
Conversely, the Bank would experience a decrease in net interest income of
approximately $1,744,000, or 9.07%, and an increase in market value of portfolio
equity of approximately $4,043,000, or 7.27%, in the event of a 200 basis point
decline in interest rates. These results are well within established limits.
While future interest rates and their effects on portfolio equity cannot be
accurately predicted, it is not expected that future changes in rates will have
a material adverse impact on the Bank's net interest income or portfolio equity.
Calculations of the potential impact of hypothetical interest rate changes are
based on numerous assumptions including levels of market rates, prepayments and
deposit runoffs and should not be considered indicative of actual results.
Although certain assets and liabilities may have similar maturity or periods of
repricing they may react at different times and in different degrees to changes
in the market interest rates. The interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
rates on other types of assets and liabilities may lag behind changes in market
interest rates. Certain assets, such as adjustable rate mortgage loans,
generally have features which restrict changes in interest rates on a short term
basis and over the life of the asset. In the event of a change in interest
rates, prepayments and early withdrawal levels could deviate from those assumed
in making the calculations set forth above. Additionally, an increased credit
risk may result as the ability of many borrowers to service their debt may
decrease in the event of an interest rate increase.
37
<PAGE>
LIQUIDITY
Liquidity is the Bank's ability to meet potential depositor withdrawals, to
provide for customer credit needs, to maintain adequate statutory reserve
levels, and to take full advantage of investment opportunities as they arise.
The liquidity position of the Bank is continuously monitored and adjustments are
made to the balance between sources and uses of funds as deemed appropriate by
management.
Asset liquidity is provided by cash and assets which are readily marketable
or which will mature in the near future ("liquid assets"). These include
federal funds sold, time deposits with banks, and investment securities and
loans which are nearing maturity. At December 31,1997, the bank's liquidity
ratio, defined as liquid assets as a percentage of deposits, was 40.86% compared
to 49.86% at December 31, 1996. Liability liquidity is provided by access to
funding sources, principally core depositors and correspondent banks which
maintain accounts with and sell federal funds to the Bank. Interest-bearing
deposits (excluding certificates of deposit of $100,000 or more) totaled
approximately $282,382,000, or 67.88%, of total deposits, at December 31, 1997
compared to $266,765,000, or 69.65%, of total deposits, at December 31, 1996.
The Bank had approximately $191,000 in brokered deposits as of December 31,
1996. The Bank had no brokered deposits as of December 31, 1997.
NON-INTEREST INCOME
Non-interest income was approximately $4,867,000 for the year ended
December 31, 1997 compared to $4,445,000 and $4,156,000 for the years ended
December 31, 1996 and 1995, respectively.
During 1997, the Bank sold various fixed rate securities with a total book
value of approximately $53,160,000. These securities were sold primarily for
liquidity purposes and resulted in a net loss of approximately $58,000. In June,
1996, the Bank sold a fixed rate security with a book value of approximately
$5,000,000. The security was designated available-for-sale and was sold for
liquidity purposes resulting in a loss of approximately $1,000. In October,
1996, the Bank sold two additional fixed rate securities with a combined book
value of approximately $10,000,000. These securities were also designated
available-for-sale and were sold in an effort to restructure the portfolio and
improve corresponding yields resulting in a net loss of approximately $8,000. No
investment securities were sold during 1995.
Trust service fees increased approximately $333,000, or 30.83%, from 1996
to 1997 due primarily to the collection of nonrecurring oil and gas related fees
as well as continued growth in both asset and account volume. Trust service fees
increased approximately $210,000, or 24.14%, from 1995 to 1996. The increase was
due primarily to an overall increase in fees assessed for services performed as
well as growth in the volume of accounts serviced.
Service charges and fees on deposit accounts increased approximately
$204,000, or 7.33%, from 1996 to 1997. This change was due primarily to
continued increases in fee collections related to insufficient funds charges as
well as increased ATM transaction activity. Service charges and fees on deposit
accounts increased approximately $293,000, or 11.76%, from 1995 to 1996 due
primarily to increased ATM transaction fees resulting from increased surcharges
on foreign transactions as well as increased fees recorded as the result of
continued improved collection practices regarding insufficient funds charges.
Income related to insufficient funds charges represented approximately 32.69%,
30.98% and 26.28% of total non-interest income for 1997, 1996 and 1995,
respectively.
Gains on sales of assets decreased approximately $37,000, or 336.36%, from
1996 to 1997 due primarily to the loss on sale of assets during 1997 held by
First Victoria Community Development Corporation, a wholly owned operating
subsidiary of the Bank. Gains on sales of assets decreased approximately
$272,000, or 96.11%, from 1995 to 1996 due to the non-recurrence of a gain on
the sale of other real estate owned during 1995 of approximately $283,000.
NON-INTEREST EXPENSE
The Bank reported non-interest expense of approximately $15,180,000 for the
year ended December 31, 1997 compared to $14,279,000 and $13,882,000 in 1996 and
1995, respectively. This
38
<PAGE>
represents on increase of approximately $901,000, or 6.31%, for 1996 to 1997 and
an increase of approximately $397,000, or 2.86%, from 1995 to 1996.
Salaries and wages increased approximately $631,000, or 9.73%, from 1996 to
1997. This increase was due primarily to the addition of the full Calhoun County
Office staff that was not present during all of 1996 as well as the accrual of
expenses related to the Bank's Incentive Compensation Plan. Salaries and wages
decreased approximately $98,000, or 1.49%, from 1995 to 1996. The decrease in
1996 was primarily the result of the Bank's Incentive Compensation Plan not
funding for the year. This was offset somewhat by increased staff costs related
to the opening of the Calhoun County Office during the year as well as various
other staff additions. Employee benefits decreased approximately $24,000, or
2.35%, from 1996 to 1997 due primarily to lower costs associated with group
medical insurance claims. Employee benefits increased in 1996 by approximately
$238,000, or 30.32%, due primarily to increased medical insurance cost as well
as increased expense related to changes in the Bank's Pension Plan.
Net occupancy expense increased approximately $78,000, or 7.81%, from 1996
to 1997 due primarily to additional utility costs and depreciation expense
related to the operation of the Calhoun County Office as well as increased
property tax expense related to property placed in service during the first
quarter of 1997. Net occupancy expense increased approximately $33,000, or
3.42%, from 1995 to 1996 due in part to expenses related to the opening of the
Calhoun County Office in August 1996. In addition, costs related to light and
power expense were higher due to the non-recurrence of a $22,000 rebate recorded
in 1995. Furniture and equipment expense decreased approximately $64,000, or
8.98%, due to nonrecurring expenses recorded in the first quarter of 1996
related to the remodeling and relocation of various departments throughout the
Bank including the Trust and Investment Management Department. Furniture and
equipment expense increased approximately $37,000, or 5.47%, in 1996 due
primarily to depreciation and small equipment expenses related to the opening of
the Calhoun County Office and remodeling of the Bank's Trust and Investment
Management Department. Expenses related to communication and supplies increased
approximately $102,000, or 11.42%, in 1997 due primarily to the write-off of
various obsolete inventory items during the year as well as the presence of the
Calhoun County Office. Communication and supplies expense increased
approximately $124,000, or 16.12%, from 1995 to 1996 due primarily to additional
expense related to the operation of the Calhoun County Office as well as postage
expense related to various promotional and shareholder mailings. Data processing
expense increased in 1997 by approximately $40,000, or 4.33%, over 1996 due to
increases in depreciation expenses related to various equipment purchases late
in 1996 and into 1997. Data processing costs increased only $12,000, or 1.32%,
in 1996 as the result of normal depreciation fluctuations related to various
data processing equipment. During 1997, marketing and advertising expense
decreased approximately $146,000, or 20.00%, due primarily to nonrecurring
advertising expense incurred in 1996 related to new products and facilities.
Marketing and advertising expense increased approximately $201,000, or 38.00%,
from 1995 to 1996 due to an increase in overall advertising including the
Community Banker, Free Checking and Summer Sale on Service campaigns as well as
the grand opening of the Calhoun County Office and Trust and Investment
Management facilities. Professional fees increased approximately $131,000, or
21.37%, from 1996 to 1997 due to consulting and legal expenses related to
various employee benefit plans and other issues. Professional fees also
increased approximately $126,000, or 25.87%, from 1995 to 1996 due primarily to
consulting expense related to re-engineering studies and other efforts related
to improved productivity and efficiency. Costs associated with the operation of
other real estate have declined steadily over the last three years as the amount
of property held by the Bank has decreased.
FDIC premiums increased approximately $45,000, or 4,400.00%, in 1997 due to
an overall change in the fee structure for determining deposit assessments. FDIC
premiums decreased approximately $385,000, or 99.74%, in 1996 also due to a
change in the fee structure used in determining premium assessments. During both
1997 and 1996, the Bank paid the minimum premium assessment available under each
fee structure.
39
<PAGE>
FEDERAL INCOME TAX
The Bank recorded current federal income tax expense of approximately
$1,209,000, $1,998,000 and $2,145,000 for 1997, 1996, and 1995, respectively. In
addition, the Bank recognized deferred tax expense of approximately $1,278,000
and $55,000 for 1997 and 1995, respectively. The Bank recognized a deferred tax
benefit of approximately $37,000 for the year ended December 31, 1996.
The Bank accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". The statement requires the use of the asset and
liability approach for financial accounting and reporting for income taxes. As
of December 31, 1997 and 1996, the Bank had net deferred tax liabilities of
approximately $1,509,000 and $266,000, respectively, which are reflected in
other liabilities on the consolidated financial statements.
INVESTMENT SECURITIES
During 1997, the Bank sold various fixed rate securities with a total book
value of approximately $53,160,000. These securities were sold primarily for
liquidity purposes and resulted in a net loss of approximately $58,000. In June,
1996, the Bank sold a fixed rate security with a book value of approximately
$5,000,000. The security was designated available-for-sale and was sold for
liquidity purposes resulting in a loss of approximately $1,000. In October,
1996, the Bank sold two additional fixed rate securities with a combined book
value of approximately $10,000,000. These securities were also designated
available-for-sale and were sold in an effort to restructure the portfolio and
improve corresponding yields resulting in a net loss of approximately $8,000. No
investment securities were sold during 1995.
The average yield of the securities portfolio for the year ended December
31, 1997 was 6.34%, compared with 6.42% for 1996. A comparison of investment
securities by category at amortized cost and approximate market value as of
December 31, is as follows (in thousands):
1997
----------------------
AMORTIZED
COST MARKET
--------- ----------
Available-for-sale:
U.S. Treasuries.................... $ 15,003 $ 15,103
U.S. Government Agencies........... 76,957 76,829
Mortgage-backed securities and
collateralized mortgage
obligations....................... 74,304 73,668
State and political subdivisions... 2,749 2,790
Other.............................. 1,970 1,970
--------- ----------
Total......................... $ 170,983 $ 170,360
========= ==========
1996
----------------------
AMORTIZED
COST MARKET
--------- ----------
Available-for-sale:
U.S. Treasuries.................... $ 39,711 $ 39,993
U.S. Government Agencies........... 80,024 79,890
Mortgage-backed securities and
collateralized mortgage
obligations....................... 72,605 71,873
State and political subdivisions... 7,415 7,480
Other.............................. 1,970 1,970
--------- ----------
Total......................... $ 201,725 $ 201,206
========= ==========
The Bank accounts for its investment securities in accordance with SFAS No.
115 "Accounting for Certain Investments in Debt and Equity Securities".
Available-for-sale securities are reported at fair value and any unrealized
gains and losses are recorded as a separate component of shareholders' equity
(net of tax effect). As of December 31, 1997, the classification resulted in an
unrealized loss of approximately $623,000. This was reflected as a decrease to
available-for-sale securities of approximately $623,000 and a corresponding
decrease to shareholders' equity and a deferred tax asset of approximately
$411,000 and
40
<PAGE>
$212,000, respectively. As of December 31, 1996, the classification resulted in
an unrealized loss of $519,000. This was reflected as a decrease in
available-for-sale securities of approximately $519,000 and a corresponding
decrease in shareholders' equity and a deferred tax asset of approximately
$343,000 and $176,000, respectively.
Securities with a par value of approximately $65,250,000 and $69,200,000 at
December 31, 1997 and 1996, respectively, were pledged to secure public and
trust deposits as required or permitted by law.
LOANS AND LEASES
Average loans and leases increased approximately $47,861,000, or 25.87%,
from 1996 to 1997. This was due primarily to strong business development efforts
primarily in the commercial and agriculture portfolios as well as continued
steady growth in the mortgage and consumer loan areas. Included in commercial
and financial loans is a net lease receivable totaling approximately $6,165,000
as of December 31, 1997. In addition, in December 1997 the Bank purchased a
branch of the Frost National Bank located in Taft, Texas. This transaction added
approximately $2,930,000 to the existing loan portfolio. The following table
classifies loans and leases, by type, as of December 31, (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995 1994
-------------------- -------------------- -------------------- --------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
--------- --- --------- --- --------- --- --------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and financial............. $ 57,648 22% $ 34,471 17% $ 29,914 17% $ 25,444 15%
Real estate --
Mortgage......................... 91,075 34 79,233 39 69,377 39 65,334 39
Construction..................... 3,738 1 4,101 2 2,008 1 2,922 2
Agriculture.......................... 74,671 28 55,647 28 56,074 31 54,342 32
Consumer............................. 38,996 15 28,187 14 21,854 12 20,167 12
--------- --- --------- --- --------- --- --------- ---
Total loans and leases........... 266,128 100% 201,639 100% 179,227 100% 168,209 100%
Less --
Unearned income.................. (126) (185) (372) (917)
Allowance for loan and lease
losses......................... (2,861) (2,475) (2,182) (2,470)
--------- --------- --------- ---------
Net loans and leases............. $ 263,141 $ 198,979 $ 176,673 $ 164,822
========= ========= ========= =========
</TABLE>
1993
--------------------
AMOUNT %
--------- ---
Commercial and financial............. $ 27,900 17%
Real estate --
Mortgage......................... 58,614 37
Construction..................... 3,681 2
Agriculture.......................... 50,277 31
Consumer............................. 19,872 13
--------- ---
Total loans and leases........... 160,344 100%
Less --
Unearned income.................. (1,212)
Allowance for loan and lease
losses......................... (4,504)
---------
Net loans and leases............. $ 154,628
=========
ALLOWANCE FOR LOAN AND LEASE LOSSES
The allowance for loan and lease losses is maintained at a level considered
appropriate by management and is based on the ongoing assessment of the risks
inherent in the loan and lease portfolio, as well as on the possible impact of
known and potential problems in certain off-balance sheet financial instruments
and uncertainties. In evaluating the adequacy of the allowance, management
incorporates such factors as local and national economic trends, volume of past
due and seriously delinquent loans, non-performing loans, loan concentrations,
and other similar factors. These considerations are not limited to previous
collection experience but also include estimates of the effect of changing
business trends and other environmental conditions. The determination of the
adequacy of the allowance for loan and lease losses can be made only on a
judgmental basis. Management of the Bank believes that the allowance for loan
and lease losses at December 31, 1997 was adequate to cover expected losses
based on economic circumstances known or anticipated at that time. As conditions
are continually changing, it is necessary for management to regularly review the
loan and lease portfolio and market conditions and make appropriate adjustments
to the allowance. Any necessary changes to the allowance resulting from revised
loss estimates will be reflected in future earnings.
The allowance for loan and lease losses at December 31, 1997, was
approximately $2,861,000, or 1.08%, of outstanding loans and leases. This
compares to $2,475,000, or 1.23%, of outstanding loans at December 31, 1996. The
allowance increased approximately $386,000, or 15.60%, while total loans and
leases increased approximately $64,489,000, or 31.98%, over the same period. The
net increase in the allowance during 1997 was due primarily to a credit to the
provision expense of $300,000 offset by an increase in net recoveries during the
year. Net recoveries of approximately $686,000 in 1997 compare to net recoveries
of $293,000 and $12,000 in 1996 and 1995, respectively.
41
<PAGE>
Pursuant to regulatory guidelines and as a further refinement of the
allocation process, the Bank allocates the total allowance for loan and lease
losses to specific categories; however, the total allowance for loan and lease
losses was available to absorb any losses on all loans and leases in the
portfolio. The allowance for loan and lease losses was allocated to the
following categories as of December 31, (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
--------------- --------------- --------------- --------------- ---------------
AMOUNT %(1) AMOUNT %(1) AMOUNT %(1) AMOUNT %(1) AMOUNT %(1)
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and financial............. $ 195 .1 % $ 85. 0 % $ 317 .2 % $ 991 .6 % $ 1,171 .7 %
Real estate.......................... 175 .1 521 .3 308 .2 552 .3 1,147 .7
Agriculture.......................... 1,753 .7 1,634 .8 1,285 .7 761 .5 2,027 1.3
Consumer............................. 738 .2 235 .1 272 .1 166 .1 159 .1
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
$ 2,861 1.1 % $ 2,475 1.2 % $ 2,182 1.2 % $ 2,470 1.5 % $ 4,504 2.8 %
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
</TABLE>
- - ------------
(1) Percent of allowance in each category to total loans and leases.
Following is an analysis of the allowance for loan and lease losses for the
years ended December 31, (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year............ $ 2,475 $ 2,182 $ 2,470 $ 4,504 $ 3,771
(Credit) provision charged to operating
expense............................... (300) 0 (300) (350) 0
Loans and leases charged off:
Commercial and financial........... (42) (112) (5) (342) (121)
Real estate........................ (11) (23) (231) (1,093) (6)
Agriculture........................ 0 (9) (309) (1,063) (33)
Consumer........................... (213) (78) (151) (120) (138)
--------- --------- --------- --------- ---------
Total charged off............. (266) (222) (696) (2,618) (298)
--------- --------- --------- --------- ---------
Recoveries of loans and leases
previously charged off:
Commercial and financial........... 270 327 377 507 681
Real estate........................ 619 125 161 65 240
Agriculture............................. 16 23 96 183 26
Consumer........................... 47 40 74 179 84
--------- --------- --------- --------- ---------
Total recoveries.............. 952 515 708 934 1,031
--------- --------- --------- --------- ---------
Net loans and leases recovered (charged
off).................................. 686 293 12 (1,684) 733
--------- --------- --------- --------- ---------
Balance at year end..................... $ 2,861 $ 2,475 $ 2,182 $ 2,470 $ 4,504
========= ========= ========= ========= =========
Allowance for loan and lease losses as a
percentage of total loans............. 1.08% 1.23% 1.22% 1.48% 2.83%
Net charge-offs or recoveries as a
percentage of average loans and leases
outstanding........................... .29% .16% .01% 1.04% .46%
</TABLE>
NON-PERFORMING ASSETS
The Bank accounts for impaired loans and leases in accordance with SFAS No.
114 "Accounting by Creditors for Impairment of a Loan" as amended by SFAS No.
118 "Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosure". These standards address the accounting by creditors for the
impairment of certain loans and leases as well as the accounting for troubled
debt restructurings. A loan and lease is impaired when, based on current
information and events, it is probable that a creditor will be unable to collect
all amounts due according to the original contractual terms of the loan or lease
agreement. The standards require that impaired loans that fall within the scope
of SFAS No. 114, as amended by SFAS No. 118, be measured based on the present
value of expected future cash flows for each loan or lease discounted at the
effective interest rate or, as a practical expedient, at the observable market
price or the fair value of the collateral if the loan is collateral dependent.
Total impaired loans and leases on the Bank's books amounted to approximately
$3,373,000 and $3,193,000 as of December 31,
42
<PAGE>
1997 and 1996, respectively. Approximately $234,000 and $96,000 of the allowance
for loan and lease losses was allocated specifically to these loans as of
December 31, 1997 and 1996, respectively. The average balance of impaired loans
and leases outstanding was approximately $3,169,000 and $2,711,000 during 1997
and 1996, respectively.
Foreclosed assets are carried in other assets at the lower of the loan
balance or estimated fair value less estimated selling costs and totalled
approximately $13,000 and $39,000 at December 31, 1997 and 1996, respectively.
The Bank recorded gains on sales of foreclosed assets of approximately $29,000,
$5,000 and $280,000 in 1997, 1996 and 1995, respectively.
Non-performing assets at December 31, 1997 totaled approximately
$3,386,000, an increase of approximately $154,000 or 4.76% from the amount
reported in 1996. The following table presents a breakdown of past due and
non-performing assets as of December 31, (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Past due 90 days or more and still
accruing:
Commercial and financial... $ 51 $ 34 $ 0 $ 5 $ 0
Real estate................ 2 118 43 32 0
Agriculture................ 18 12 0 20 0
Consumer................... 70 11 5 20 3
--------- --------- --------- --------- ---------
Total past due 90 days
or more............... $ 141 $ 175 $ 48 $ 77 $ 3
========= ========= ========= ========= =========
Non-Performing Assets:
Non-accrual:
Commercial and financial... $ 77 $ 163 $ 0 $ 0 $ 68
Real estate................ 898 598 757 1,287 1,774
Agriculture................ 853 871 505 1,147 2,082
Consumer................... 6 0 0 0 0
--------- --------- --------- --------- ---------
Total non-accrual..... 1,834 1,632 1,262 2,434 3,924
--------- --------- --------- --------- ---------
Restructured Loans and Leases:
Commercial and financial... 0 0 0 0 0
Real estate................ 750 750 0 2,631 2,886
Agriculture................ 789 811 0 0 38
Consumer................... 0 0 0 0 0
--------- --------- --------- --------- ---------
Total restructured
loans and leases...... 1,539 1,561 0 2,631 2,924
--------- --------- --------- --------- ---------
Real estate and other collateral
acquired through foreclosure....... 13 39 239 74 42
--------- --------- --------- --------- ---------
Total non-performing
assets................ $ 3,386 $ 3,232 $ 1,501 $ 5,139 $ 6,890
========= ========= ========= ========= =========
Non-performing assets as a percentage
of loans and leases and other
non-performing assets.............. 1.27% 1.60% .84% 3.07% 4.33%
</TABLE>
DEPOSITS
Total average deposits increased approximately $11,936,000 or 3.29% from
1996 to 1997 and approximately $17,921,000 or 5.20% from 1995 to 1996. The
average amounts outstanding and average rates paid on deposits for the years
ended December 31, are set forth below (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
AMOUNT RACE AMOUNT RACE AMOUNT RACE
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Demand deposits...................... $ 54,642 0.00% $ 48,283 0.00% $ 46,277 0.00%
Savings accounts..................... 12,809 2.47 12,433 2.50 12,005 2.50
NOW accounts......................... 67,579 3.34 72,349 3.53 63,396 3.49
Money market accounts................ 52,177 3.19 51,022 3.20 52,509 3.19
Time deposits........................ 187,399 5.33 178,583 5.41 170,562 5.34
-------- ----- -------- ----- -------- -----
Total average deposits..... $374,606 3.77% $362,670 3.90% $344,749 3.86%
======== ===== ======== ===== ======== =====
</TABLE>
43
<PAGE>
SHORT-TERM BORROWINGS
The Bank's primary source of short-term borrowings is federal funds
purchased from correspondent banks and securities sold under agreements to
repurchase.
DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
Balance at end of period............. $ 10,300 $ 9,700 $ 6,225
Daily average amount outstanding..... 7,974 13,990 10,695
Highest month-end balance............ 10,300 18,550 9,525
Weighted average interest rate....... 5.24% 5.07% 5.57%
Weighted average interest rate on
balance outstanding at end of
period............................. 5.62% 6.00% 5.33%
CAPITAL
In March 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128 "Earnings Per Share" and No. 129 "Disclosure of Information
About Capital Structure". These statements established standards for
calculating earnings per share and the reporting requirements for earnings per
share and the company's capital structure. The Bank adopted these standards
effective for the year ended December 31, 1997 for all periods shown in the
consolidated financial statements. The adoption of the standards had no material
impact on the bank's calculation or presentation of earnings per share.
On January 20, 1998, the Bank's Board of Directors declared a regular cash
dividend of $.25 per share payable on February 12, 1998 to shareholders of
record as of January 29, 1998. As of December 31, 1997 and 1996, the Bank had
approximately $8,372,000 and $8,441,000, respectively, available for the payment
of dividends. The weighted average number of shares outstanding during 1997,
1996 and 1995 was 2,372,792.
The Office of the Comptroller of the Currency ("OCC") and the Federal
Deposit Insurance Corporation ("FDIC") have issued comprehensive guidelines
implementing risk-based capital requirements. The guidelines make regulatory
capital requirements more sensitive to differences in risk profiles among
banking organizations, take off-balance sheet exposure into account in assessing
capital adequacy and encourage the holding of liquid, low-risk assets. Under
these guidelines, at December 31, 1997 and 1996, the Bank was required to
maintain a minimum ratio of total capital-to-risk-weighted assets of 8.00% of
which at least 4.00% must be in the form of Tier I capital. Tier I capital is
comprised of the Bank's common stock, surplus and retained earnings. At December
31, 1997 and 1996, the percent of total capital-to-risk-weighted assets was
19.65% and 24.17%, respectively. The Bank's Tier I capital ratio as of December
31, 1997 and 1996 was 18.67% and 23.10%, respectively, well in excess of the
required ratios.
Tier I leverage ratio is defined as a Bank's Tier I capital divided by its
adjusted average total assets (net of allowance for loan and lease losses). The
minimum leverage ratio is 3.00% for banking organizations carrying the highest
regulatory rating. Other institutions are expected to maintain a leverage ratio
of at least 4.00% to 5.00% depending upon their particular condition. At
December 31, 1997 and 1996, the Bank's Tier I leverage ratio was 11.99% and
11.98%, respectively, and exceeds the regulatory minimum.
44
<PAGE>
DESCRIPTION OF THE BANK
BUSINESS
First Victoria National Bank, located in Victoria, Texas was chartered as a
national bank in 1890 and prior to that time was a private bank formed in 1867,
and offers all usual commercial banking services. The Bank currently has three
locations in Victoria as well as a full service branch in Calhoun County and a
full service branch in Taft, Texas acquired in the fourth quarter of 1997. In
addition, the Bank has three wholly owned subsidiaries. PMV, Inc., which is
currently inactive, was established for the purpose of acquiring, managing and
liquidating assets acquired in satisfaction of debts previously contracted.
First Victoria Community Development Corporation was established for the purpose
of acquiring, developing, rehabilitating, managing, renting, and selling housing
units primarily to benefit low and moderate income residents of the local area
and to promote and invest in such community development projects. First Victoria
Leasing, Inc. was established for the purpose of conducting leasing activities.
As of December 31, 1997, the Bank had total assets of approximately
$500,273,000; loans and leases, net of unearned discount, of approximately
$266,002,000; and total deposits of approximately $416,029,000. The Bank
employed 224 people on a full-time basis and 38 people on a part-time basis as
of December 31, 1997.
The Bank provides general commercial banking services to a variety of
businesses and individuals located in Victoria County, Texas and the surrounding
areas. Some of the loan services available to customers include: agriculture,
commercial, real estate, home improvement, automobile, and personal loans. Loan
classifications as of December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
AMOUNT % AMOUNT %
---------- --------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial and financial............. $ 57,648 22% $ 34,471 17%
Mortgage real estate................. 91,075 34 79,233 39
Construction real estate............. 3,738 1 4,101 2
Agriculture.......................... 74,671 28 55,647 28
Consumer............................. 38,996 15 28,187 14
---------- --------- ---------- ---------
Total Loans..................... 266,128 100% 201,639 100%
========= =========
Less
Unearned income................. (126) (185)
Allowance for loan losses....... (2,861) (2,475)
---------- ----------
Net Loans....................... $ 263,141 $ 198,979
========== ==========
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
that may require payment of a fee. The total commitment amounts do not
necessarily represent future cash requirements, since the commitments may expire
without being drawn upon. The Bank evaluates each customer's credit-worthiness
on a case-by-case basis. The amount of collateral obtained if deemed necessary
by the Bank upon extension of credit is based on management's credit evaluation
of the counterparty. Standby letters of credit are conditional commitments
issued by the Bank to guarantee performance of a customer to a third party. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. Collateral held varies,
but may include accounts receivable, inventory, equipment or real estate. The
prices and interest rates of the commitments are determined by the market
conditions prevailing at the time the commitments are exercised.
The Bank's exposure to credit loss, in the event of non-performance by the
customer, for commitments to extend credit and standby letters of credit is
limited to the contractual amount of those instruments. As of December 31, 1997
and 1996, the Bank had commitments to extend credit of $93,148,000 and
$81,770,000,
45
<PAGE>
respectively, and standby letters of credit of approximately $866,000 and
$404,000, respectively. The following is a breakdown of commitments by type as
of December 31, 1997 and 1996 (in thousands):
1997 1996
--------- ---------
Commercial and Financial............. $ 32,699 $ 25,401
Real Estate.......................... 4,437 5,758
Agriculture.......................... 34,939 31,293
Consumer............................. 21,073 19,318
--------- ---------
Total........................... $ 93,148 $ 81,770
========= =========
While the Bank's loan and lease portfolio is diversified, a significant
portion of the portfolio is in agriculture loans (28% of total loans) and
therefore, may be deemed seasonal with regard to funding requirements. Also, the
Bank has substantially no deposits from or loans to foreign customers.
The Bank does not anticipate that compliance with federal, state, and local
provisions relating to the protection of the environment will have a material
effect upon the capital expenditures, earnings, or competitive position of the
Bank.
In addition to loan services, the Bank also offers deposit facilities and
certificates of deposit for commercial customers and various checking, wire
transfers, safekeeping, safe deposit, credit card, and savings and time deposit
services for individuals.
The Bank's Trust and Investment Management Department also offers extensive
trust services including estates, guardianships, personal trust and investment
services, and pension retirement plans. Trust assets and other properties,
except cash deposits, held by the Bank in agency or other fiduciary capacities
for its customers are not included in the Bank's financial statements. The book
value of trust assets (unaudited) was approximately $164,907,000 at December 31,
1997.
COMPETITION
The Bank competes actively with other area commercial banks and savings and
loan associations, many of which are larger than the Bank, as well as with major
regional banking and financial institutions headquartered in other areas of
Texas and the United States. There are nine other financial institutions in
Victoria County, including branches or subsidiaries of out-of-state multi-bank
holding companies, branches of Texas banks and savings institutions. Deposit
deregulation has intensified the competition for deposits among banks in recent
years. The Bank, however, is generally competitive with all financial
institutions in its service area with respect to interest rates paid on time and
savings deposits, service charges on deposit accounts and interest rates charged
on loans. Additional competition is derived from credit unions, finance
companies, brokerage firms, insurance companies and retailers.
SUPERVISION AND REGULATION OF THE BANK
GENERAL
The operations of the Bank are subject to federal and state statutes
applicable to banks chartered under the banking laws of the United States, to
members of the Federal Reserve System and to banks whose deposits are insured by
the FDIC. Bank operations are also subject to regulation of the OCC, the Federal
Reserve Board and the FDIC. The proposed reorganization will not affect the
authority of these agencies over the Bank.
Federal and state banking laws and regulations govern, among other things,
the scope of a bank's business, a bank's investments, a bank's reserves against
deposits, a bank's loans, interest rates, the activities of a bank with respect
to mergers and consolidations and the establishment of branches. Under Texas
law, all banks in Texas are permitted to establish or acquire branch offices in
any county of the state. National bank branches may be established within the
permitted area only after approval by the OCC. The OCC is required to grant
approval only if it finds that there is a need for banking services or
facilities such
46
<PAGE>
as those contemplated by the proposed branch and may disapprove the application
if the bank does not have the capital and surplus deemed necessary by the OCC.
Multi-bank holding companies are permitted in Texas within certain
limitations. See "DESCRIPTION OF THE HOLDING COMPANY -- Supervision and
Regulation of the Holding Company."
DIFA
The Bank is a member of the Federal Deposit Insurance Corporation
("FDIC"), which currently insures the deposits of the Bank to a maximum of
$100,000 per depositor. For this protection the Bank pays a semi-annual
statutory assessment and is subject to the rules and regulations of the FDIC.
The FDIC reduced the insurance premiums it charges on bank deposits insured by
the Bank Insurance Fund ("BIF") to the statutory minimum of $2,000.00 for
"well capitalized" banks, effective January 1, 1996. On September 30, 1996,
the Deposit Insurance Funds Act of 1996 ("DIFA") was enacted and signed into
law. DIFA reduced the amount of semi-annual FDIC insurance premiums for savings
association deposits to the same levels assessed for bank deposits.
DIFA further provides for assessments to be imposed on insured depository
institutions to pay amounts due on bonds issued by the Financing Corporation
used to fund the federal thrift bailout. During 1997, the Bank paid
approximately $46,087 for the FICO bond assessment and the Bank believes similar
amounts will be assessed per year through 1999 (or earlier if no savings
associations exist prior to December 31, 1999) in connection with such bond
payments.
BANK DIVIDENDS
The directors of a national bank are authorized to declare cash dividends
on the capital stock of the bank, and the amount of the dividend is within the
board's discretion. However, a dividend cannot be declared if: (1) it would
exceed the bank's profits; (2) it would impair the bank's capital; or (3) the
bank is in default on the payment of any assessment due to the FDIC. The OCC
adopted a regulation effective as of January 1, 1991, which prohibits the Bank
from including its allowance for loan losses as an element of net profits when
calculating the dividends the Bank may pay. Approval of the OCC will be required
for any dividend paid by the Bank to the shareholders if the total of all actual
and proposed dividends declared by the Bank in any calendar year exceeds the
total of its net profits for that year combined with its retained net profits
for the preceding two years, less any required transfers to surplus or a fund
for the retirement of any preferred stock. The OCC has also issued a banking
circular emphasizing that the level of cash dividends should bear a direct
correlation to the level of a national bank's current and expected earnings
stream, the bank's need to maintain an adequate capital base and other factors.
At December 31, 1997, the Bank had an aggregate of approximately $8,372,000
available for the payment of dividends pursuant to the regulations.
The banking regulators enjoy an arsenal of civil and criminal enforcement
which they may utilize to enforce the banking laws and regulations, including
the laws and regulations pertaining to the restrictions on the payment of
dividends. The Financial Institutions Reform, Recovery and Enforcement Act
enacted in 1989 ("FIRREA") significantly expanded the reach of the banking
agencies' civil enforcement authority and dramatically increases civil and
criminal penalties for depository institution-related offenses. If the Board of
Directors of the Bank declared a dividend in contravention of the applicable
laws and regulations, the federal banking agencies could require affirmative
action to correct the violation through a cease and desist order. Under certain
circumstances, the agencies could require the Board of Directors of the Bank to
reimburse the Bank in the amount of the unlawful dividend. Other enforcement
powers available to the agencies include, among others, suspension or removal of
management officials and civil money penalties.
If the OCC determines that a national bank's capital stock has become
impaired, the OCC may require the bank to restore an appropriate amount to its
capital account by means of an assessment upon its shareholders pro rata to the
amount of the capital stock held by each. If a shareholder fails to pay an
authorized assessment after three months notice, the board of directors of the
bank is empowered to cause a sufficient amount of the shareholder's stock to be
sold at public auction. This assessment power of the OCC has not been used in
recent times.
47
<PAGE>
BANK CAPITAL
Banks are required to maintain adequate levels of capital. As of December
31, 1997, the Bank was required to maintain a minimum ratio of total
capital-to-risk-weighted assets of 8.00% of which at lease 4.00% must be in the
form of Tier 1 Capital. Tier 1 capital is comprised of the bank's common stock,
surplus and retained earnings. At December 31, 1997, the Bank's ratio of total
capital-to-risk-weighted assets was 19.65%. The guidelines make regulatory
capital requirements more sensitive to differences in risk profiles among
banking organizations, taking off-balance sheet exposure into account in
assessing capital adequacy, and encourage the holding of liquid, low risk
assets.
In addition to the risk-based capital guidelines, the OCC adopted,
effective at the end of 1990, the use of a new leverage ratio as an additional
tool to evaluate the capital adequacy of banks. The leverage ratio is defined to
be a company's Tier 1 capital divided by its adjusted average total assets. The
3.0% leverage ratio adopted by the Federal banking agencies requires a CAMEL
Rating of 1; all other institutions will be expected to maintain a 100 to 200
basis point cushion, i.e. these institutions will be expected to maintain a
leverage ratio of 4.00% to 5.00%. The Bank's leverage ratio at December 31, 1997
was 11.99% and exceeds the regulatory minimum.
Effective December 19, 1992, the federal bank regulatory agencies adopted
regulations which mandate a five-tier scheme of capital requirements and
corresponding supervisory actions to implement the prompt corrective action
provisions of the Federal Deposit and Insurance Corporation Improvement Act of
1991 ("FDICIA"). The regulations include requirements for the capital
categories that will serve as benchmarks for mandatory supervisory actions.
Under the regulations, the highest of the five categories would be a well
capitalized institution with a total risk-based capital ratio of 10%, a Tier 1
risk-based capital ratio of 6% and a Tier 1 leverage ratio of 5%. An institution
would be prohibited from declaring any dividends, making any other capital
distribution or paying a management fee if the capital ratios drop below the
levels for an adequately capitalized institution, which are 8%, 4% and 4%,
respectively. The corresponding provisions of FDICIA mandate corrective actions
be taken if a bank is undercapitalized. Based on the Bank's capital ratios as of
December 31, 1997, the Bank was classified as "well capitalized" under the
applicable regulations.
In 1995, in accordance with FDICIA, the FDIC modified its risk-based
capital adequacy guidelines to explicitly include a bank's exposure to declines
in the economic value of its capital due to changes in interest rates as a
factor that it will consider in evaluating a bank's capital adequacy. In 1996
the bank regulatory agencies introduced risk-based examination procedures.
Effective January 1, 1997, the federal banking agencies jointly adopted
regulations that amend the risk-based capital standards to incorporate measures
for market risk. Applicable banking institutions will be required to adjust
their risk-based capital ratio to reflect market risk. On December 19, 1996, the
FFIEC revised the Uniform Financial Institutions Rating System commonly referred
to as the CAMEL rating system. A sixth component addressing sensitivity to
market risk was added. Sensitivity to market risk reflects the degree to which
changes in interest rates, foreign exchange rates, commodity prices or equity
prices can adversely affect a financial institution's earnings or economic
capital.
INSOLVENCY
The OCC has articulated in a regulation the standards the OCC uses to
determine when a national bank becomes insolvent. The regulation alters the
standards such that a bank would be deemed to be insolvent for regulatory
purposes when it lacks equity capital rather than when it lacks primary capital
(principally equity capital plus the allowance for loan losses). Under the
regulatory guidelines, the OCC is also authorized to declare a national bank
insolvent when the bank is unable to meet its obligations as they mature.
LENDING RESTRICTIONS
The operations of the Bank are also subject to lending limit restrictions
pertaining to the extension of credit and making of loans to one borrower. The
scope and requirements of such laws and regulations have been expanded
significantly in recent years. Further, under the BHCA and the regulations of
the FRB thereunder, the Holding Company and the Bank are prohibited from
engaging in certain tie-in arrangements
48
<PAGE>
with respect to any extension of credit or provision of property or services;
however, recently the FRB adopted a rule relaxing tying restrictions by
permitting a bank holding company to offer a discount on products or services if
a customer obtains other products or services from such company.
The interest rate and usury laws of most states, including laws of the
State of Texas, which laws are preempted to a certain extent by federal law,
generally limit the amount of interest which lenders, including the Bank, may
charge on loans. These limits may vary depending upon, among other things, the
identity, nature and location of the lender and the borrower, use of proceeds of
a loan, amount of the loan, type of collateral for the loan and the particular
state or federal law applicable thereto. During 1997, the Texas Constitution was
amended to permit home equity lending in Texas effective January 1, 1998. At
present, no accurate prediction can be made as to how this legislation will
affect the Bank.
CRA
Under the Community Reinvestment Act ("CRA"), the OCC is required to
assess the record of the Bank to determine if the Bank meets the credit needs of
the entire community, including low and moderate income neighborhoods served by
the institution, and to take that record into account in its evaluation of any
application made by the Bank for, among other things, approval of the
acquisition or establishment of a branch or other deposit facility, an office
relocation, a merger, or the acquisition of shares of capital stock of another
financial institution. The OCC prepares a written evaluation of the Bank's
record of meeting the credit needs of its entire community and assigns a rating,
which rating is publicly disclosed. The Bank received an "outstanding" rating
in its most recent CRA examination. Further, there are fair lending laws which
prohibit discrimination in connection with lending decisions.
BSA
Banks are required to report certain deposit transactions to the Treasury
pursuant to the Bank Secrecy Act ("BSA"). During 1996, the Financial Crimes
Enforcement Network and the federal banking regulators amended the BSA
regulations regarding suspicious activity reporting, funds transfer
recordkeeping and the definition and designation of exempt customers. The Bank's
compliance with BSA is examined regularly by the OCC as well as the internal
auditors of the Bank.
SECTION 23A
The Holding Company and the Bank are "affiliates" within the meaning of
Section 23A of the Federal Reserve Act which sets forth certain restrictions on
loans and extensions of credit between a subsidiary bank and affiliates, on
investments in an affiliate's stock or other securities, and on acceptance of
such stock or other securities as collateral for loans. Such restrictions
prevent a bank holding company from borrowing from any of its bank subsidiaries
unless the loans are secured by specific obligations. Further, such secured
loans and investments by a subsidiary bank are limited in amount, as to a bank
holding company or any other affiliate, to 10% of such bank subsidiaries'
capital and surplus and, as to the bank holding company and its affiliates, to
an aggregate of 20% of such bank subsidiaries' capital and surplus. Certain
restrictions do not apply to 80% or more owned sister banks of bank holding
companies. Section 23B of the Federal Reserve Act requires that the terms of
affiliate transactions be comparable to terms of similar non-affiliate
transactions.
FDICIA
In 1991 Congress enacted FDICIA. The law emphasizes the regulatory focus of
protecting the Bank Insurance Fund. The FDIC was granted an expanded supervisory
role in connection with all federally insured financial institutions. FDICIA
firmly links supervision to bank capital. FDICIA provides for mandatory early
intervention procedures that are triggered by diminishing capital of a financial
institution. FDICIA changes the way banks are assessed for deposit insurance in
a manner which increases the cost in proportion to the degree of risk in the
bank's portfolio.
49
<PAGE>
OCC OP SUB RULE
During 1996, the OCC adopted a major overhaul of its rules governing
corporate applications, practices, and notices. The new rule incorporates a
risk-based approach to corporate applications and activities of national banks.
The new rule includes authority for operating subsidiaries to conduct for the
first time activities beyond those permitted for national banks directly. Under
the new rule, an operating subsidiary engaged in activities not permissible for
the parent bank must observe certain separateness requirements. National banks
must file applications for prior OCC approval to establish, or acquire,
operating subsidiaries engaged in activities that are not permissible for the
parent bank and the OCC may grant such approval on a case by case basis.
S ELECTION
As part of the Small Business Job Protection Act of 1996, banks are now
eligible to make an S election for federal income tax purposes. To qualify as an
S corporation, a financial institution must (i) not use the reserve method of
accounting for bad debts, (ii) have only one class of stock and (iii) have no
more than seventy-five shareholders. The Bank currently does not qualify for the
S election.
GOVERNMENT MONETARY POLICIES
Because the Bank is a member of the Federal Reserve System, the earnings of
the Bank are affected by the fiscal and monetary policies of the Federal Reserve
System, which regulates the national money supply in order to mitigate
recessionary and inflationary pressures. Changes in the discount rate on member
bank borrowings, availability of borrowings at the "discount window," open
market operations, the imposition of, and changes in, reserve requirements
against member banks' deposits and assets of foreign branches, the imposition of
and changes in reserve requirements against certain borrowings by banks and
their affiliates, and the placing of limits on interest rates which member banks
may pay on time and savings deposits are some of the instruments of monetary
policy available to the Federal Reserve Board. These monetary policies influence
to a significant extent the overall growth of bank loans, investments and
deposits and the interest rates charged on loans or paid on time savings
deposits. The nature of future monetary policies and the effect of such policies
on the future earnings and business of the Bank cannot be predicted.
YEAR 2000
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without considering the impact of the
upcoming change in the century. If uncorrected, many computer applications could
fail or create erroneous results by or at the Year 2000. The Year 2000 issue
affects virtually all companies and organizations. The Bank has developed and
implemented a plan to deal with the Year 2000 problem. The plan provides for
addressing critical and noncritical issues, complete with the assignment of
responsibility and target dates for completion. The Bank's major computer
providers have represented that those services will function properly on January
1, 2000. Testing of these applications is ongoing. The Bank is expensing
appropriate costs incurred as a result of addressing the Year 2000 issue.
The Bank does not expect that the cost of addressing any Year 2000 issue
will be a material event or uncertainty that would cause its reported financial
information not to be indicative of future operating results or future financial
condition, or that the costs or consequences of incomplete or untimely
resolution of any Year 2000 issue represent a known material event or
uncertainty that is reasonably likely to affect its future financial results, or
cause its reported financial information not to be indicative of future
operating results or future financial condition.
Additionally, the federal bank regulators have enforcement powers with
respect to Year 2000 compliance. Failure to institute an acceptable Year 2000
readiness plan could result in the disapproval of expansion applications filed
with bank regulatory agencies or the imposition of a cease and desist order or
civil money penalties.
50
<PAGE>
LEGAL PROCEEDINGS
The nature of the Bank's business generates a certain amount of litigation
involving matters arising in the ordinary course of business. In the opinion of
management of the Bank, however, there are no proceedings pending to which the
Bank is a party or to which its property is subject, which, if determined
adversely to the Bank, would be material in relation to the Bank's undivided
profits or financial condition, nor are there any proceedings pending other than
ordinary routine litigation incident to the business of the Bank. In addition,
no material proceedings are pending or are known to be threatened or
contemplated against the Bank by government authorities or others.
CERTAIN TRANSACTIONS
There have been no material transactions between the Bank, nor any material
transactions proposed, with any director or executive officer of the Bank, or
any associate of the foregoing persons. The Bank has engaged in and intends to
continue to engage in banking and financial transactions in the ordinary course
of business with directors and officers of the Bank and their associates on
comparable terms and with similar interest rates as those prevailing from time
to time for other customers of the Bank. Total loans outstanding from the Bank
at February 28, 1998, to the Bank's officers and directors as a group and
members of their immediate families and companies in which they had an ownership
interest of ten percent (10%) or more were approximately $4,109,000, or
approximately 7.33% of the Bank's total equity capital. Loans to such persons
were made in the ordinary course of business, were made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons, and did not involve more
than the normal risk of collectability or present other unfavorable features.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Bank's
directors, executive officers and shareholders owning in excess of ten percent
(10%) of the Bank's outstanding equity stock to file initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Bank with the Office of the Comptroller of the Currency. Based
on a review of copies of such reports received by it, and on the statements of
the reporting persons, the Bank believes that all such Section 16(a) filing
requirements were complied with in a timely fashion.
DESCRIPTION OF THE BANK COMMON STOCK
THE BANK COMMON STOCK
The Bank's authorized capital stock consists of 5,000,000 shares of Bank
Common Stock, of which 2,372,792 shares were issued and outstanding as of March
17, 1998. Each share of Bank Common Stock is entitled to one (1) vote on all
matters that may be brought before shareholders' meetings except that the
holders of Bank Common Stock have cumulative voting rights in the election of
directors. Cumulative voting for the election of directors entitles each
shareholder to multiply the number of votes to which the shareholder is entitled
by the total number of directors to be elected, and the shareholder may cast the
whole number of these votes for one candidate or may distribute them among two
or more candidates. As of March 17, 1998, the Bank had approximately 657
shareholders of record. Shares of Bank Common Stock are non-assessable (except
as provided under 12 U.S.C. Section 55, relating to assessments upon
shareholders for a deficiency in paid-up capital stock; 12 U.S.C. Section 55 has
not been used for many years) and require no sinking fund. Each shareholder is
entitled to receive dividends that may be declared by the Board of Directors,
and, in the event of liquidation, dissolution or merger, the holders will be
entitled to share pro rata according to their interests. See "COMPARISON OF
SHAREHOLDER RIGHTS" for a summary of the differences between the rights of
holders of the Bank Common Stock and the rights of holders of the Holding
Company Common Stock.
Payment of dividends is subject to the restrictions set forth in the
National Bank Act, which provides that dividends may be declared by the Board of
Directors and paid from the net profits of the Bank as the Board of Directors
shall judge expedient. Dividends may be paid only if: (1) the payment would not
impair
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the Bank's capital structure; (2) the Bank's surplus is at least equal to its
common capital; (3) the dividends declared in any year do not exceed the net
profits in that year and the net profits retained in the two (2) preceding
years; and (4) no losses have been sustained equal to or exceeding its undivided
profits. In addition, under the FDIA (12 U.S.C. Section 1818), dividends cannot
be declared and paid if the OCC obtains a cease and desist order because such
payment would constitute an unsafe and unsound banking practice.
Total dividends paid during 1997 and 1996 were $.82 and $.64 per share
respectively. On January 20, 1998, the Board of Directors approved a regular
quarterly dividend of 25 cents per share payable on February 12, 1998, to
shareholders of record as of January 29, 1998.
The following table sets forth the dividends paid by the Bank to its
shareholders since January 1, 1996.
AMOUNTS OF DIVIDENDS PAID
--------------------------
REGULAR CASH
DIVIDEND IN THE
PERIOD PER SHARE AGGREGATE
- - ------------------------------------- ------------ ----------
1996
First Quarter................... $ .160 $ 379,647
Second Quarter.................. .160 379,647
Third Quarter................... .160 379,647
Fourth Quarter.................. .160 379,647
1997
First Quarter................... .160 379,647
Second Quarter.................. .160 379,647
Third Quarter................... .250 593,198
Fourth Quarter.................. .250 593,198
1998
First Quarter................... .250 593,198
MARKET PRICES
The Bank Common Stock is traded in the Nasdaq National Market. The
following table sets forth, for the periods indicated, the range of the high and
low bid quotations for the Bank Common Stock. Information with respect to
over-the-counter bid quotations represents prices between dealers, does not
include retail mark-ups, mark-downs or commissions, and does not necessarily
represent actual transactions.
PERIOD HIGH LOW
- - ------------------------------------- --------- ---------
1996
First Quarter................... $ 24.500 $ 21.000
Second Quarter.................. 23.500 21.000
Third Quarter................... 23.375 22.750
Fourth Quarter.................. 24.375 23.000
1997
First Quarter................... 27.250 23.500
Second Quarter.................. 27.000 25.500
Third Quarter................... 35.250 26.000
Fourth Quarter.................. 39.750 32.250
1998
First Quarter (through March 10,
1998)........................... 42.000 39.000
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CAPITALIZATION
The following table sets forth (i) the historical consolidated
capitalization of the Bank and the Holding Company at December 31, 1997,
respectively, and (ii) the Holding Company's pro forma consolidated
capitalization as of such date (giving effect to the Merger as of December 31,
1997).
<TABLE>
<CAPTION>
PRO FORMA
HOLDING ADJUSTMENTS PRO FORMA
BANK COMPANY FOR COMBINED AS
HISTORICAL HISTORICAL MERGER ADJUSTED
---------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
(UNAUDITED)
Equity:
Common stock.................... $ 5,932 $ -- $(5,908) $ 24
Surplus......................... 9,774 -- 5,908 15,682
Retained earnings............... 40,776 -- -- 40,776
Unrealized loss on securities... (411) -- -- (411)
---------- ---------- ----------- -----------
Total shareholder's equity........... 56,071 -- -- 56,071
---------- ---------- ----------- -----------
Total capitalization................. $ 56,071 $ -- $-- $56,071
========== ========== =========== ===========
</TABLE>
DESCRIPTION OF THE HOLDING COMPANY COMMON STOCK
HOLDING COMPANY COMMON STOCK
The Holding Company is authorized to issue twenty million (20,000,000)
shares of Holding Company Common Stock, of which approximately 2,372,792 shares
would be outstanding if the Merger had been consummated as of March 17, 1998.
The remaining authorized but unissued shares of Holding Company Common Stock may
be issued by the Board of Directors of the Holding Company without further
shareholder approval. Issuance of these shares could cause a dilution of the
book value of the Holding Company Common Stock and the voting power of
shareholders. The holders are entitled to one (1) vote per share on all matters
presented to them and have no cumulative voting rights in the election of
directors.
The Holding Company Common Stock has no preemptive, subscription, or
conversion rights, redemption or repurchase provisions. These shares are
non-assessable and require no sinking fund. Each shareholder is entitled to
receive dividends that may be declared by the Board of Directors and to share
pro rata in the event of dissolution or liquidation. For information concerning
dividend restrictions, see "DESCRIPTION OF THE BANK COMMON STOCK -- The Bank
Common Stock" and "COMPARISON OF SHAREHOLDER RIGHTS."
In some jurisdictions, shares of common stock of a general business
corporation, such as the Holding Company, may be treated differently from shares
of stock of a bank, and therefore, may be the subject of personal property
taxation.
ANTI-TAKEOVER PROVISIONS
Under the Texas Business Corporation Act, as amended ("TBCA"), the
Articles of Incorporation and Bylaws of the Holding Company, there are certain
provisions that may be deemed to be "anti-takeover" in nature that will be
immediately applicable. Two of these provisions are: the authorization of twenty
million (20,000,000) shares of Holding Company Common Stock and the lack of
preemptive rights for shareholders to subscribe to purchase additional shares of
stock on a pro rata basis. The additional shares of Holding Company Common Stock
and the elimination of preemptive rights to such stock were authorized for the
purpose of providing the Board of Directors of the Holding Company with as much
flexibility as possible to issue additional shares, without further shareholder
approval for proper corporate purposes, including financing, acquisitions, stock
dividends, stock splits, employee incentive plans and other similar purposes.
However, these additional shares may also be used by the Board of Directors (if
consistent with its fiduciary responsibilities) to deter future attempts to gain
control over the Holding Company.
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Another provision that could be considered "anti-takeover" in nature is
the elimination of cumulative voting. Cumulative voting entitles each
shareholder to as many votes as equal the number of shares owned by him
multiplied by the number of directors to be elected. A shareholder may cast all
of these votes for one candidate or distribute them among any two or more
candidates. Cumulative voting is required under the national banking laws, but
is optional under the TBCA. The Board of Directors did not provide for
cumulative voting in the Articles of Incorporation of the Holding Company
because it believes that each director should represent and act in the interest
of all shareholders and not any special group of shareholders. The absence of
cumulative voting means that the holders of a majority of the outstanding shares
of Holding Company Common Stock can elect all the members of the Board of
Directors. Although the Bank has (and the Holding Company after the
reorganization will have) approximately 657 shareholders of record, the Board of
Directors recognizes that the absence of cumulative voting makes it more
difficult to gain representation on the Board of Directors.
Provisions in the Holding Company's Bylaws require action by the Chairman
of the Board, the President or at least three directors of the Holding Company
to call a meeting of the Board of Directors. The Holding Company's Bylaws may be
amended by a majority vote of the members of the Board of Directors, subject to
the affirmative vote of at least seventy-five percent (75%) of the issued and
outstanding shares to change any amendment to the Bylaws previously approved by
the Board of Directors. These provisions were included in the Articles of
Incorporation and Bylaws of the Holding Company in order to ensure that any
corporate transaction could be effected only if it received a clear mandate from
the shareholders and/or the directors. Other provisions that could be considered
"anti-takeover" are the requirements in the Holding Company's Articles of
Incorporation that the affirmative vote of the holders of at least seventy-five
percent (75%) of the outstanding shares of Holding Company Common Stock is
required to approve any merger, consolidation, dissolution or liquidation of the
Holding Company or the sale of all or substantially all of its assets; or the
holders of at least a majority of the outstanding shares of Holding Company
Common Stock when at least a majority of Directors have approved such
transaction. These provisions were included in the Articles of Incorporation of
the Holding Company in order to ensure that any extraordinary corporate
transaction could be effected only if it receives a clear mandate from the
shareholders. However, these provisions could give the Holding Company's
management a veto power over certain acquisitions regardless of whether any such
acquisition is desired by or beneficial to a majority of the shareholders and
thereby assist management in retaining their present positions. Also, these
provisions could give the holders of a minority of the Holding Company's
outstanding shares a veto power over any merger, consolidation, dissolution or
liquidation of the Holding Company, the sale of all or substantially all of its
assets even if management and/or a majority of the shareholders believes such
transaction to be desirable and beneficial. Absent such provisions in the
Holding Company's Articles of Incorporation, the affirmative vote of at least
two-thirds of the Holding Company's shares outstanding and entitled to vote
thereon would be required to approve any merger, consolidation, dissolution,
liquidation, and the sale of all of its assets. Upon the consummation of the
reorganization, it is expected that the executive officers and directors of the
Holding Company will own an aggregate of approximately 435,777 shares, or
approximately 18.37% of the Holding Company's outstanding stock.
Another anti-takeover provision in the Articles of Incorporation enables
the Board of Directors to oppose a tender offer on the basis of factors other
than economic benefit to shareholders, such as the impact the acquisition of the
Holding Company would have on the community; the effect of the acquisition upon
shareholders, employees, depositors, suppliers and customers; and the reputation
and business practices of the tender offeror. This provision was included in the
Articles of Incorporation of the Holding Company to permit the Board of
Directors to recognize the responsibilities to these constituent groups and to
the Holding Company and its subsidiaries and the communities that they serve.
THE OVERALL EFFECT OF THESE PROVISIONS MAY BE TO DETER A FUTURE OFFER OR
OTHER MERGER OR ACQUISITION PROPOSAL THAT A MAJORITY OF THE SHAREHOLDERS MIGHT
VIEW TO BE IN THEIR BEST INTERESTS AS THE OFFER MIGHT INCLUDE A SUBSTANTIAL
PREMIUM OVER THE MARKET PRICE OF THE HOLDING COMPANY COMMON STOCK AT THAT TIME.
IN ADDITION, THESE PROVISIONS MAY HAVE THE EFFECT OF ASSISTING
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<PAGE>
THE HOLDING COMPANY'S CURRENT MANAGEMENT IN RETAINING ITS POSITION AND PLACING
IT IN A BETTER POSITION TO RESIST CHANGES THAT THE SHAREHOLDERS MAY WANT TO MAKE
IF DISSATISFIED WITH THE CONDUCT OF THE HOLDING COMPANY'S BUSINESS.
A vote in favor of the Plan of Reorganization and Plan of Merger is a vote
in favor of these anti-takeover provisions contained in the Holding Company's
Articles of Incorporation and Bylaws and under the TBCA. For a summary of
certain material differences between the rights of shareholders of the Bank and
the rights of shareholders of the Holding Company, see "COMPARISON OF
SHAREHOLDER RIGHTS."
DIVIDENDS
The Bank has paid continuous cash dividends for over 7 years. It is the
present intention of the Holding Company's Board of Directors to retain the
dividend policy of providing for a quarterly dividend; however, further
dividends must necessarily depend upon earnings, financial condition,
appropriate legal restrictions and other factors relevant at the time the Board
of Directors of the Holding Company considers a dividend policy. Cash available
for dividend distribution to shareholders of the Holding Company must initially
come from dividends paid by the Bank to the Holding Company. Therefore, the
restrictions on the Bank's dividend payments are directly applicable to the
Holding Company. See "DESCRIPTION OF THE BANK COMMON STOCK -- The Bank Common
Stock" and "COMPARISON OF SHAREHOLDER RIGHTS."
Under the TBCA, the Holding Company may not pay a dividend if: (1) after
giving effect thereto the Holding Company would be unable to pay its debts as
they become due in the usual course of its business or (2) the dividend exceeds
the "surplus" of the Holding Company, where "surplus" is defined as the
excess of the net assets of the Holding Company over its stated capital.
COMPARISON OF SHAREHOLDER RIGHTS
One result of the consummation of the proposed reorganization is that
shareholders of the Bank, whose rights are presently governed by the National
Act and the Articles of Association and Bylaws of the Bank, will become
shareholders of the Holding Company, and their rights in the future will be
governed by the TBCA and the Articles of Incorporation (the "Holding Company
Articles") and Bylaws of the Holding Company, which differ in several aspects
from those of the Bank.
The following summary, which sets forth certain material differences
between the rights of shareholders of the Bank and the rights of shareholders of
the Holding Company, does not purport to be a complete statement of all such
differences. This summary is qualified by the national banking laws of the
United States and the laws of the State of Texas as well as the more detailed
information appearing elsewhere in this Proxy Statement/Prospectus and the
annexes hereto and is not intended to be an exhaustive comparison.
CUMULATIVE VOTING
Under the TBCA, cumulative voting is available unless prohibited by the
articles of incorporation. The Holding Company Articles expressly prohibit
cumulative voting.
As required by the National Bank Act, cumulative voting for the election of
directors is available for shareholders of the Bank.
CLASSIFIED BOARD
The TBCA permits, but does not require, the adoption of a classified board
of directors consisting of any number of directors with staggered terms, with
each class having a term of office longer than one year but not longer than
three years. The TBCA also provides that no classification of directors shall be
effective for any corporation if any shareholder has the right to cumulate his
vote unless the board of directors consists of nine or more members. The Holding
Company Articles do not provide for a staggered board of directors.
55
<PAGE>
The Bank is not permitted under the National Banking Act to elect directors
for staggered terms.
PREEMPTIVE RIGHTS
Under the TBCA, shareholders of a corporation have a preemptive right to
acquire additional, unissued, or treasury shares of the corporation, or
securities of the corporation convertible into or carrying a right to subscribe
to or acquire shares, except to the extent limited or denied by statute or by
the corporation's articles of incorporation. The Holding Company Articles
expressly deny preemptive rights.
Under federal banking regulations, a national bank in its articles of
association must grant or deny preemptive rights to the bank's shareholders. Any
amendment to a national bank's articles of association which modifies such
preemptive rights must be approved by a vote of the holders of two-thirds of the
bank's outstanding voting shares. The Bank's Articles of Association expressly
deny preemptive rights.
DIVIDENDS
Under the TBCA, the Holding Company may not pay a dividend if: (1) after
giving effect thereto the Holding Company would be unable to pay its debts as
they become due in the usual course of its business or (2) the dividend exceeds
the "surplus" of the Holding Company, where "surplus" is defined as the
excess of the net assets of the Holding Company over its stated capital.
Additionally, the Bank's dividend restrictions described below apply indirectly
to the Holding Company, as cash available for dividend distributions will
initially come from dividends paid to the Holding Company by the Bank.
Under the National Bank Act, Dividends may be paid only if: (1) the payment
would not impair the Bank's capital structure; (2) the Bank's surplus is at
least equal to its common capital; (3) the dividends declared in any year do not
exceed the net profits in that year and the net profits retained in the two (2)
preceding years; and (4) no losses have been sustained equal to or exceeding its
undivided profits.
MERGERS
Under the TBCA, shareholders generally have the right, subject to certain
exceptions, to vote on mergers to which the corporation is a party. In certain
circumstances, different classes of securities may be entitled to vote
separately as classes with respect to such mergers. Unless the articles of
incorporation provide otherwise, approval of the holders of at least two-thirds
of all outstanding shares entitled to vote is generally required by the TBCA to
approve a merger. The Holding Company Articles contain a provision requiring the
approval of the holders of at least seventy-five percent (75%) of the Holding
Company's outstanding shares to approve a merger (if shareholder approval is
required for such merger under the TBCA), unless the merger has received the
prior approval of at least a majority of the directors then in office, in which
case the merger would require the approval of at least a majority of the Holding
Company's outstanding shares. The approval of the shareholders of the surviving
corporation in a merger is not required under the TBCA if (i) the corporation is
the sole surviving corporation in the merger; (ii) there is no amendment to the
corporations articles of incorporation; (iii) each shareholder holds the same
number of shares after the merger as before with identical designations,
preferences, limitations and relative rights; (iv) the voting power of the
shares outstanding after the merger plus the voting power of the shares issued
in the merger does not exceed the voting power of the shares outstanding prior
to the merger by more than 20%; (v) the number of shares outstanding after the
merger plus the shares issued in the merger does not exceed the number of shares
outstanding prior to the merger by more than 20%; and (vi) the board of
directors of the surviving corporation adopts a resolution approving the plan of
merger. Additionally, under the TBCA certain mergers involving a corporation and
its wholly-owned subsidiary do not require the approval of the shareholders of
one or both corporations.
Under the National Bank Act, shareholders generally have the right to vote
on mergers to which the bank is a party. Approval of the holders of at least
two-thirds of all outstanding shares entitled to vote is generally required by
the National Bank Act to approve a merger. After the Merger, the Holding Company
would generally be able to approve a merger to which the Bank is party without
the necessity of seeking approval of the Holding Company's shareholders.
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<PAGE>
SALE OF SUBSTANTIALLY ALL ASSETS
The TBCA provides that the sale, lease, exchange or other disposition (not
including any pledge, mortgage, deed of trust or trust indenture, unless
otherwise provided in the articles of incorporation) of all, or substantially
all, the property and assets of a corporation, if not made in the usual and
regular course of its business, requires the approval of the holders of at least
two-thirds of the outstanding shares of the corporation, unless the
corporation's articles of incorporation specify another proportion. The Holding
Company Articles contain a provision requiring the approval of at least
seventy-five percent (75%) of the Holding Company's outstanding shares, unless
the transaction has received the prior approval of at least a majority of the
directors then in office, in which case the transaction would require the
approval of at least a majority of the Holding Company's outstanding shares.
The National Bank Act provides that a national bank may go into liquidation
and be closed by the vote of shareholders owning two-thirds of its outstanding
capital stock. If the liquidation is to be effected by the sale of any of the
bank's assets, the purchase and sale agreement must also be approved by the vote
of shareholders owning two-thirds of its outstanding capital stock.
TENDER OFFERS
The Articles of Incorporation of the Holding Company authorize the Board of
Directors to oppose a tender offer for shares of the Holding Company on the
basis of factors other than economic benefit to shareholders such as: the impact
of the acquisition upon the community; the effect of the acquisition upon
employees, depositors, shareholders and customers; and the reputation and
business practices of the tender offeror. See "DESCRIPTION OF THE HOLDING
COMPANY COMMON STOCK -- Anti-Takeover Provisions."
The Articles of Association of the Bank do not contain a similar provision.
RIGHT TO CALL SPECIAL MEETINGS OF SHAREHOLDERS
Under the TBCA, a special meeting of shareholders may be called by the
president, board of directors or such other persons as may be authorized in the
articles of incorporation or bylaws of the corporation or by the holders of at
least 10% of all the shares entitled to vote at the proposed special meeting,
unless the articles of incorporation provide for a number of shares greater than
or less than 10%, in which event, special meetings of the shareholders may be
called by the holders of at least the percentage of shares so specified in the
articles of incorporation, but in no event shall the articles of incorporation
provide for a number of shares greater than 50%. The Holding Company Articles
provide that special meetings of shareholders may be called only by the Board of
Directors, the President, the Chairman of the Board or the holders of at least
20% of all the shares entitled to vote at the proposed special meeting.
Under the Articles of the Bank, special meetings of shareholders of the
Bank may be called by the Board of Directors or any three or more shareholders
owning, in the aggregate, not less than 10% of the stock of the Bank.
AMENDMENT OF ARTICLES
Under the TBCA, an amendment to a corporation's articles of incorporation
requires the approval of the holders of at least two-thirds of the outstanding
shares of the corporation, unless a different amount, not less than a majority,
is specified in the articles of incorporation. The Holding Company Articles
contain a provision requiring the approval of at least seventy-five percent
(75%) of the Holding Company's outstanding shares to amend the Holding Company
Articles, unless the amendment has received the prior approval of at least a
majority of the directors then in office, in which case the transaction would
require the approval of at least a majority of the Holding Company's outstanding
shares.
Under the National Bank Act, an amendment to a national bank's articles of
incorporation requires the approval of the holders of at least two-thirds of the
outstanding shares of the bank.
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AMENDMENT OF BYLAWS
The Holding Company's Bylaws may be amended only with the affirmative vote
of the holders of at least seventy-five percent (75%) of the Holding Company's
outstanding shares, or by a majority vote of the Board of Directors subject to
the power of shareholders of the Holding Company to change such action of the
Board of Directors by the affirmative vote of the holders of seventy-five
percent (75%) of the out-standing shares.
The Bank's Bylaws may be amended only by a majority vote of the Board of
Directors, subject to the power of shareholders to change such action by the
affirmative vote of the holders of a majority of the outstanding shares; or by
the affirmative vote of the holders of at least fifty percent (50%) of the
outstanding shares.
REPURCHASE OF SHARES
Under the TBCA, a corporation can repurchase outstanding shares of its
capital stock unless: (1) after giving effect thereto the corporation would be
unable to pay its debts as they become due in the usual course of its business
or (2) the dividend exceeds the "surplus" of the corporation, where
"surplus" is defined as the excess of the net assets of the Holding Company
over its stated capital; provided, however, that if the net assets of the
corporation are not less than the amount of the proposed distribution, the
corporation may make a distribution involving a purchase or redemption if made
by the corporation to: (a) eliminate fractional shares; (b) collect or
compromise indebtedness owed by or to the corporation; (c) pay dissenting
shareholders entitled to payment for their shares under Texas law; or (d) effect
the purchase or redemption of redeemable shares in accordance with the TBCA.
Repurchases of outstanding shares by the Holding Company would also be subject
to the restriction under the Bank Holding Company Act that no more than ten
percent (10%) of the outstanding shares can be repurchased in any twelve (12)
month period without prior regulatory approval.
Under the National Bank Act, a national bank can not reduce or retire any
part of its outstanding capital stock without prior regulatory approval.
DISSENTER'S RIGHTS
Under the TBCA, a shareholder is entitled, with certain exceptions, to
dissent from and, upon perfection of the shareholder's appraisal rights, to the
fair value of his or her shares in the event of certain corporate actions,
including certain mergers, share exchanges, sales of substantially all assets of
the corporation, and certain amendments to the corporation's articles of
incorporation that materially and adversely affect shareholder rights.
Under the National Bank Act, a shareholder of a national banking
association is entitled in connection with certain conversions, mergers and
consolidations to receive in cash the value of the shares held by him upon
perfection of the shareholder's appraisal rights.
PROVISIONS AFFECTING CONTROL SHARE ACQUISITIONS AND BUSINESS COMBINATIONS
The TBCA prohibits, with certain exceptions, certain public Texas
corporations from engaging in a "business combination" with an "affiliated
shareholder" for three years following the date that such person becomes an
affiliated shareholder. With certain exceptions, an affiliated shareholder is a
person who is the beneficial owner, or at any time within the previous three
years was the beneficial owner, of 20% or more of the corporation's outstanding
voting shares.
A Texas corporation may elect not to be governed by this restriction
through a provision of its original articles of incorporation or bylaws or an
amendment thereto, which amendment must be approved by majority shareholder
vote. The Holding Company Articles contain a provision opting out of this
restriction.
The National Bank Act does not have a provision similar to this
restriction.
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ACTIONS WITHOUT A MEETING
Under the TBCA, any action to be taken by shareholders at a meeting may be
taken without a meeting if all shareholders entitled to vote on the matter
consent to the action in writing. In addition, a Texas corporation's articles of
incorporation may provide that shareholders may take action by a consent in
writing signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting. The Holding Company Articles do not contain such a provision.
Under the National Bank Act, under limited circumstances (such as where a
bank is wholly-owned by a holding company), shareholder action may be taken by
unanimous written consent. Otherwise, the National Bank Act does not provide for
actions of shareholders by written consent.
REMOVAL OF DIRECTORS
The TBCA provides that if a corporation's articles of incorporation or
bylaws so provide, at a meeting of shareholders called for that purpose, any
director or the entire board of directors may be removed with or without cause,
by the vote of the holders of the portion of shares specified in the
corporation's articles of incorporation or bylaws, but not less than a majority
of the shares entitled to vote at an election of directors. The Holding
Company's Articles and Bylaws provide that, at a meeting of shareholders called
for that purpose, any director or the entire board of directors may be removed
with or without cause, by the vote of the holders of at least 75% of the shares
entitled to vote at an election of directors of the Holding Company.
The National Bank Act does not address the removal of directors. However,
the regulations promulgated thereunder provide that a national bank may adopt
the corporate law of the state where the bank is located with respect to
corporate governance issues not addressed by the National Bank Act. The Bank has
elected to be governed by Texas corporate law. Neither the Bank's Articles of
Association nor Bylaws provide for the removal of directors.
VACANCIES IN BOARD OF DIRECTORS
Under the TBCA, any vacancy occurring in the board of directors of a
corporation may be filled by the shareholders or by the affirmative vote of a
majority of the remaining directors. A directorship to be filled by reason of an
increase in the number of directors may be filled by the shareholders or by the
board of directors for a term of office continuing only until the next election
of one or more directors by the shareholders, provided that the board of
directors may not fill more than two such directorships during the period
between any two successive annual meetings of shareholders.
Under federal banking regulations, any vacancy occurring in the board of
directors of a national banking association may be filled by the affirmative
vote of a majority of the remaining directors although less than a quorum of the
board of directors. A director elected to fill a vacancy shall be elected to
serve only until the next election of directors by the shareholders. The Bank's
Articles of Association provide that the Board of Directors, by the vote of a
majority of the full Board, may increase the size of the Board by not more than
members between annual meetings of shareholders and by like vote fill the
vacancies created thereby.
INSPECTION OF BOOKS AND RECORDS
The TBCA permits any person who shall have been a shareholder for at least
six months immediately preceding his demand, or who is the holder of at least 5%
of the outstanding stock of the corporation, upon written demand stating the
purpose thereof, to examine the relevant books and records of account, minutes,
and share transfer records of the corporation.
Shareholders of a national bank have no similar rights to examine the books
and records of the bank, although shareholders do have a right to examine the
shareholder list of the bank.
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LIMITATION ON DIRECTOR LIABILITY
Texas law permits a corporation to include in its articles of incorporation
a provision that a director of the corporation is not 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 such a provision cannot eliminate
or limit the liability of a director for (a) a breach of a director's duty of
loyalty to the corporation or its shareholders; (b) an act or omission not in
good faith that constitutes a breach of duty of the director to the corporation
or an act or omission that involves intentional misconduct or a knowing
violation of the law; (c) 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; or (d) an act or omission for which
the liability of a director is expressly provided for by statute. The Holding
Company Articles contain a provision eliminating director liability to the
fullest extent provided by Texas law.
The Articles of Association of the Bank contain a similar provision
eliminating director liability to the fullest extent not prohibited by law.
INDEMNIFICATION
Under the TBCA, a corporation may indemnify a director for liabilities and
expenses in respect to actions brought against him by reason of serving as a
director or officer of the corporation (or of another entity at the request of
the corporation) if he conducted himself in good faith and reasonably believed
that (i) in the case of conduct in his official capacity as a director, his was
in the corporation's best interests, and (ii) in all other cases, that his
conduct was at least not opposed to the best interest of the corporation.
Indemnification for criminal actions also requires the director to have had no
reasonable cause to believe his conduct was unlawful. Expenses may also be
advanced to a director in respect of a proceeding if the corporation receives a
written affirmation of his good faith belief that he has met the standards for
indemnification and undertakes to reimburse the corporation for the expenses if
it is ultimately determined that he did not meet the standard or is otherwise
not entitled to indemnity. In addition, if the director is found liable to the
corporation on the basis that a personal benefit was improperly received by him,
indemnification will be limited to expenses actually incurred and will not be
available if the director is found liable for willful or intentional misconduct
in the performance of his duty to the corporation. The Holding Company Articles
and Bylaws provide for the mandatory indemnification of directors, officers and
certain other persons to the fullest extent permitted by the TBCA.
In cases involving an administrative proceeding or civil action not
initiated by a Federal banking agency, a national bank may indemnify an
institution-affiliated party for damages and expenses, including the advancement
of expenses and legal fees, in accordance with the law of the state in which the
main office of the bank is located, the law of the state in which the bank's
holding company is incorporated, or the relevant provisions of the Model
Business Corporation Act or Delaware General Corporation Law, provided such
payments are consistent with safe and sound banking practices. A national bank
shall designate in its bylaws the body of law selected for making
indemnification payments under this paragraph. The Articles of Association of
the Bank provide for, with certain exceptions, the mandatory indemnification of
directors, officers and certain other persons to the extent permitted by the
TBCA.
STATUS OF SHARES
In some jurisdictions, shares of common stock of a business corporation
such as the Holding Company may be treated differently from shares of stock of a
banking institution for legal investments for institutions and fiduciaries, and
as the subject of personal property taxation. Thus, shareholders of the Bank may
desire to determine whether the status of their shares under local or state laws
applicable to them would be changed upon the effective date of the Merger.
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APPROVAL OF THE FVNB CORP. STOCK INCENTIVE PLAN
(PROPOSAL 3)
On March 17, 1998, the Board of Directors of the Bank and the Board of
Directors and sole shareholder of the Holding Company unanimously adopted the
FVNB Corp. Stock Incentive Plan (the "Incentive Plan"), subject to the
approval by the shareholders of the Bank of (i) the Plan of Reorganization and
Plan of Merger and (ii) the Incentive Plan. If such shareholder approvals are
obtained, the Incentive Plan would become effective upon the consummation of the
Merger. The Plan is intended to provide the Board of Directors of the Holding
Company with flexibility to adapt the compensation of directors, officers and
employees of the Holding Company and its subsidiaries ("Eligible Persons") to
a changing business environment by allowing not only grants of stock options
("Options"), but also grants of stock appreciation rights ("SARs"), shares
of restricted stock ("Restricted Stock") and any other form of compensation
that the committee of the Board of Directors administering the Incentive Plan
(the "Plan Committee") determines is consistent with the purpose of the
Incentive Plan. The Incentive Plan also provides the Plan Committee with
flexibility in determining the terms and conditions under which Options, SARs
and Restricted Stock may be awarded.
The purpose of the Incentive Plan is to increase the interest of directors,
officers and employees of the Holding Company and its subsidiaries in their
future growth and success. The Holding Company, through the Incentive Plan,
seeks to retain and motivate directors, officers and employees and to attract
highly competent individuals whose judgment, initiative and continuing effort
will contribute to the success of the Holding Company and its subsidiaries.
The complete text of the Incentive Plan is set forth in Annex E to this
Proxy Statement, which is incorporated herein by reference. The following
summary of the material features of the Incentive Plan does not purport to be
complete and is qualified in its entirety by reference to Annex E.
GENERAL
Subject to the adjustment provisions described below, the maximum number of
shares of Holding Company Common Stock and Holding Company Common Stock
equivalents which may be made subject to grants under the Incentive Plan under
all forms of awards is 400,000 shares. Subject to the adjustment provisions
described below, the maximum number of shares of Holding Company Common Stock
and Holding Company Common Stock equivalents which may be granted to any
Eligible Person in any fiscal year under all forms of awards is 15,000 shares.
The shares to be issued under the Incentive Plan may be either treasury shares
or newly issued shares. Any shares subject to a grant under the Incentive Plan
that lapse or are terminated or forfeited for any reason prior to exercise may
be made subject to subsequent grants under the Incentive Plan, provided that no
benefits of ownership therefrom, such as dividends, were received by the former
grantee.
No grants have been made under the Incentive Plan through the date of this
Proxy Statement/Prospectus and no grants under the Plan will be made unless and
until the Plan of Reorganization and Plan of Merger and the Incentive Plan are
approved at the Meeting. The number and type of awards that may be granted under
the Incentive Plan, the number of Eligible Persons who may be granted such
awards and the allocation of such awards among such Eligible Persons have not
been determined at this time.
The Plan Committee will consist of either the entire Board of Directors of
the Holding Company or a committee of the Board of Directors consisting of at
least two (2) members of the Board of Directors who are "non-employees" (as
that term is defined in the rules and regulations under Section 16 of the
Exchange Act) and "outside directors" (as that term is defined in the
regulations promulgated under Section 162(m) of the Code, as may be amended).
Within the limits of the Incentive Plan, the Plan Committee determines the
amounts, times, forms, terms and conditions of grants under the Incentive Plan.
Participation in the Incentive Plan is determined by the Plan Committee and is
limited to directors, officers and employees. The cost of administering the
benefit payments under the Incentive Plan shall be borne solely by the Holding
Company. Generally, no member of the Board of Directors or the Plan Committee
shall be liable for any action or determination taken or made with respect to
the Incentive Plan. In addition, the Holding Company
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will indemnify the Board of Directors and the Plan Committee against any losses
in connection with administration of the Incentive Plan.
As a condition to any grant under the Incentive Plan, each participant must
enter into an agreement containing such terms and conditions relating to such
grant as shall be determined by the Plan Committee consistent with the terms of
the Incentive Plan. In addition, the Plan Committee may from time to time
establish procedures governing the administration of the Incentive Plan and
terms and conditions related to the grant of awards under the Incentive Plan.
The Board of Directors may at any time amend, suspend or terminate the
Incentive Plan without shareholder approval or approval of participants, except
that (i) shareholder approval is required if any action may increase the total
number of shares of Holding Company Common Stock subject to the Incentive Plan
(other than pursuant to the adjustment provisions of the Incentive Plan) and
(ii) as described below, the approval of participants is required if certain are
to be made following an event effectively constituting a change in control of
the Holding Company.
In the event that the outstanding shares of Holding Company Common Stock
are changed into or exchanged for a different number or kind of shares or other
securities of the Holding Company or another corporation by reason of merger,
consolidation, other reorganization, recapitalization, reclassification,
combination of shares, stock split-up, or stock dividend, the Plan Committee
shall make such adjustments, if any, to outstanding grants and the Incentive
Plan as it deems appropriate.
The Incentive Plan contains a self-operative provision that modifies any
term of the Incentive Plan that varies from or conflicts with any applicable
Federal or state securities laws and regulations in effect from time to time so
that such term conforms to and complies with such laws.
The Incentive Plan permits the Plan Committee to determine, at the time of
each grant, whether, when and how dividends (or dividend cash equivalents), if
any, shall be paid in respect of such grant.
The Incentive Plan contains provisions to enable the Holding Company to
satisfy its tax withholding obligations pursuant to such arrangements as are
satisfactory to the Plan Committee. The Plan Committee may permit participants
to pay such taxes through the tender of cash or securities or the withholding of
Holding Company Common Stock or cash to be received through grants or any other
arrangement satisfactory to the Plan Committee.
Grants under the Incentive Plan that are otherwise subject to vesting over
a period of time can, under certain circumstances, become fully and immediately
exercisable or can cease to be subject to applicable restrictions upon certain
events effectively constituting a Change of Control (as defined in the Incentive
Plan) of the Holding Company (the date on which any such event occurs is
referred as a "Trigger Date").
The Plan Committee may, prior to the Trigger Date, require any or all
participants in the Incentive Plan to surrender all or a portion of the awards
made to such participant under the Incentive Plan and receive in cash (i) for
each share of Holding Company Common Stock in respect of which an Option is
surrendered, an amount equal to the amount by which the Event Price (as defined
in the Incentive Plan) exceeds the Option Price (as hereinafter defined) for
such share, (ii) for any SARs surrendered, an amount equal to the amount such
participant would have received if such SAR had been exercised and the Fair
Market Value (as defined in the Incentive Plan) of a share of Holding Company
Common Stock on the date of exercise had been the Event Price and (iii) for any
Restricted Stock surrendered, an amount equal to the Event Price for each share
Restricted Stock so surrendered. The provision of such a cash settlement event
in respect of grants under the Incentive Plan will not reduce the number of
shares and share equivalents available for grants under the Incentive Plan.
The Change of Control provisions in the Incentive Plan may cause a possible
merger, takeover of the Holding Company, acquisition of the Holding Company by a
principal shareholder or change in management to be more expensive than it would
be in the absence of such provisions. The Incentive Plan is not being proposed
in response to any present actions known to the Board of Directors. The Board of
Directors believes that on balance the Incentive Plan will be of significant
benefit to the Holding Company, its shareholders and its employees.
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OPTIONS
The Plan Committee has full and final authority to select those Eligible
Persons who will be granted Options. The Options granted under the Incentive
Plan may be Incentive Stock Options ("ISOs"), as defined in Section 422 of the
Code, or options not qualifying for treatment as ISOs ("Nonstatutory Stock
Options"). Subject to applicable provisions of the Code, the Plan Committee
determines the recipients of Options and the terms of the Options, including the
number of shares for which an Option is granted, the term of the Option and the
time(s) when the Option can be exercised. Restrictions on the exercise of an
Option may at the discretion of the Plan Committee be contained in the agreement
with the participant or in the Plan Committee's procedures. Each ISO must comply
with all the requirements of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code). The Plan Committee may in its discretion waive any
condition or restriction on the exercise of an Option and may accelerate the
time at which any Option is exercisable.
The price per share of Holding Company Common Stock subject to an Option
(the "Option Price") is set by the Plan Committee. In the case of ISOs, the
Option Price may not be less than the fair market value of Holding Company
Common Stock (as determined in good faith by the Plan Committee) on the date of
the grant of the ISOs; provided, however, the Option Price of an ISO granted to
a Eligible Person who owns 10% or more of the Holding Company Common Stock may
not be less than 110% of the fair market value of the Common Stock on the date
of grant of the ISOs. The Plan Committee also determines the manner in which the
Option Price of an Option may be paid, which may include the tender of cash or
securities or the withholding of Holding Company Common Stock or any other
arrangement satisfactory to the Plan Committee.
Options granted under the Incentive Plan may be exercisable for a period of
up to 10 years from the date of grant, excluding ISOs granted to 10%
shareholders which may be exercisable for a period of up to only 5 years. Within
these limitation periods, the Plan Committee will determine the expiration dates
of Options. Options may be exercised at any time or from time to time, within
their terms, in whole or in part, or otherwise as shall be determined by the
Plan Committee.
An Option or any of the rights thereunder may be exercised by such
Participant only, and may not be transferred or assigned, voluntarily,
involuntarily or by operation of law (including, without limitation, the laws of
bankruptcy) other than by will or the laws of descent and distribution, and with
respect only to Nonstatutory Stock Options, pursuant to a qualified domestic
relations order or upon the written consent of the Plan Committee.
SARS
The Plan Committee has full and final authority to select those Eligible
Persons who will be granted SARs. In the discretion of the Plan Committee, SARs
may be granted separately or in tandem with the grant of an Option. A SAR is a
grant entitling the participant to receive an amount in cash or shares of
Holding Company Common Stock or a combination thereof, as the Plan Committee may
determine, having a value equal to (or if the Plan Committee shall determine at
the time of grant, less than) the excess of (i) the fair market value on the
date of exercise of the shares of Holding Company Common Stock with respect to
which the SAR is exercised over (ii) the fair market value of such shares on the
date of the grant (or over the Option Price, if the SAR is granted in tandem
with an Option).
A SAR granted in tandem with a Nonstatutory Stock Option may be granted
either at or after the time of the grant of the Nonstatutory Stock Option. A SAR
granted in tandem with an ISO may be granted only at the time of the grant of
the ISO. A SAR granted in tandem with an Option terminates and is no longer
exercisable upon the termination or exercise of the related Option, except that
if a SAR is granted with respect to less than the full number of shares covered
by a related Option, such SAR shall terminate only if and to the extent that the
number of shares covered by the exercise or termination of the related Option
exceeds the number of shares not covered by such SAR. Subject to the limitations
set forth in the Incentive Plan, SARs shall be subject to such terms and
conditions as shall be determined from time to time by the
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Plan Committee. The Plan Committee at any time may accelerate the exercisability
of any SAR and waive or amend any conditions to the grant of a SAR.
SARs are not transferable except by will or the laws of descent and
distribution.
RESTRICTED STOCK
The Incentive Plan provides that the Plan Committee will have discretion to
make awards of Restricted Stock to the Eligible Persons. A Restricted Stock
grant entitles the recipient to acquire, at no cost or for a purchase price
determined by the Plan Committee on the date of the grant, shares of Holding
Company Common Stock subject to such restrictions and conditions as the Plan
Committee may determine at the time of the grant. Upon (i) the grant of
Restricted Stock (or upon payment of the purchase price for Restricted Stock if
a purchase price is required) and (ii) recording of the Restricted Stock in the
stock ledger of the Holding Company, the recipient may have all the rights of a
shareholder with respect to the Restricted Stock, including voting and dividend
rights. A grant of Restricted Stock will be subject to non-transferability
restrictions, Holding Company repurchase and forfeiture provisions and such
other conditions (including conditions on voting and dividends) as the Plan
Committee shall impose at the time of grant. Shares of Restricted Stock may not
be transferred or otherwise disposed of except as specifically provided for in
the Incentive Plan.
Upon the grant of a Restricted Stock award, the Plan Committee shall
specify the conditions, if any, to be met in order for the restrictions on the
shares subject to the grant to lapse and/or the date(s) when the restrictions
will lapse. Restrictions may include vesting restrictions based upon matters
such as timing, but could also relate to other matters. Subsequent to the lapse
of all restrictions on shares of Restricted Stock, such shares shall cease to be
Restricted Stock and shall be deemed "vested." The Stock Option Plan Committee
may in it discretion waive any condition or restriction related to a grant of
Restricted Stock or accelerate the date(s) on which a grant of Restricted Stock
vests.
In the event of termination of employment of a participant for any reason
prior to shares of Restricted Stock becoming vested, the Holding Company has the
right, in the discretion of the Plan Committee, to repurchase such unvested
shares at their purchase price, or to require forfeiture of such shares if
acquired at no cost.
OTHER AWARDS
In addition to Options, SARs and Restricted Stock, the Incentive Plan
permits the Plan Committee to grant awards to Eligible Persons consisting of any
form of consideration that the Plan Committee determines it consistent with the
purposes of the Incentive Plan. The grant of additional types of awards is
subject to the overall limitation on the number of shares of Holding Company
Common Stock (or share equivalents) that may be granted under the Incentive Plan
to participants under all forms of awards. Pursuant to such authority, the Plan
Committee could grant awards to Eligible Persons such as restricted units,
phantom stock, performance awards, performance units, performance shares, stock
appreciation shares, limited stock appreciation rights, stock acquisition
rights, valuation protection rights, reload options or any other type of award
or combination or derivative of various types of awards. The form and terms of
any such additional types of awards, as well as the terms and conditions of the
grant of any such awards, will be determined by the Plan Committee and set forth
in the agreements entered into with participants and in the Plan Committee's
procedures. Such grants (including grants of Options, SARs and Restricted Stock)
may be settled at the discretion of the Plan Committee in cash, shares of
Holding Company Common Stock or any combination thereof.
FEDERAL INCOME TAX CONSEQUENCES
Commencing in taxable years beginning on or after January 1, 1994, a
publicly held corporation may not, subject to limited exceptions, deduct for
federal income tax purposes certain compensation paid to an executive officer
who is the chief executive officer or one of the four other highest paid
executive officers in excess of $1 million in any taxable year (the "$1 million
cap"). In general, compensation received on account of the exercise options
that were granted on or prior to February 17, 1993 is not subject to the
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$1 million cap. Also, certain other performance based compensation may not be
subject to the $1 million cap. Compensation attributable to the exercise of
options and other awards granted after February 17, 1993, however, may be
counted in determining whether the $1 million cap has been exceeded in any
taxable year if such compensation does not qualify as performance based
compensation. The Holding Company believes that any Options and SARs to be
granted under the Incentive Plan with an exercise price at or above the fair
market value of the Holding Company Common Stock on the date of grant will
qualify as performance based compensation and not be subject to the $1 million
cap. However, whether (i) the grant of Restricted Stock or any other types of
awards under the Incentive Plan are subject to the $1 million cap, (ii) the $1
million cap with respect to such an executive will be exceeded and (iii) the
Holding Company's deductions for compensation paid in excess of the $1 million
cap will be denied, will depend on the resolution of various factual and legal
issues that cannot beat this time.
Under the Code, a participant receiving a Nonstatutory Stock Option
generally does not recognize taxable income upon the grant of the Option. A
participant does, however, recognize ordinary income upon the exercise of a
Nonstatutory Stock Option to the extent that the fair market value of the
Holding Company Common Stock on the date of exercise exceeds the Option Price.
The Holding Company may deduct for Federal income tax purposes (subject to the
$1 million cap, if applicable, and subject to satisfying the Federal income tax
withholding requirements) an amount equal to the ordinary income so realized by
the participant. Upon the subsequent sale of the shares acquired pursuant to a
Nonstatutory Stock Option, any gain or loss will be capital gain or loss,
assuming the shares represent a capital asset in the hands of the participant.
There will be no tax consequences to the Holding Company upon the subsequent
sale of shares acquired pursuant to a Nonstatutory Stock Option.
The grant of an ISO does not result in taxable income to a participant. The
exercise of an ISO also does not result in taxable income, provided that the
requirements specified in the Code are satisfied, although such exercise may
give rise to alternative minimum tax for the participant. In addition, if the
participant does not dispose of the Holding Company Common Stock acquired upon
exercise of an ISO during the statutory holding period, then any gain or loss
upon the subsequent sale of the Holding Company Common Stock will be a long-term
capital gain or loss, assuming the shares represent a capital asset in the
participant's hands.
The statutory holding period for Holding Company Common Stock acquired
pursuant to the exercise of an ISO is the later of two years from the date the
ISO is granted or one year from the date the Holding Company Common Stock is
transferred to the participant pursuant to the exercise of the ISO. If the
employment and statutory holding period requirements are satisfied, the Holding
Company may not claim any Federal income tax deduction upon the grant of the
ISO, the exercise of the ISO or the subsequent sale of the Holding Company
Common Stock received upon exercise of the ISO. If these requirements are not
satisfied, the amount of ordinary income taxable to the participant is the
lesser of (i) the fair market value of the Holding Company Common Stock on the
date of exercise minus the Option Price, and (ii) the amount realized on
disposition minus the Option Price. The Holding Company may deduct for Federal
income tax purposes an amount equal to the ordinary income so recognized by the
participant.
A recipient does not realize taxable income upon the grant of a SAR but
realizes ordinary income upon its exercise to the extent of the fair market
value of the Holding Company Common Stock subject to the SAR on the date of the
exercise and the Holding Company may then deduct for Federal income tax purposes
(subject to the $1 million cap, if applicable, and subject to satisfying federal
withholding requirements) an amount equal to the ordinary income realized by the
participant. Upon the subsequent sale of shares acquired pursuant to a SAR, any
gain or loss will be capital gain or loss, assuming the shares represent a
capital asset in the hands of the participant.
In general, a participant receiving Restricted Stock does not realize
taxable income on the grant of Restricted Stock. A participant will, however,
realize ordinary income when the Restricted Stock becomes vested to the extent
that the fair market value of the Holding Company Common Stock on that date
exceeds the price, if any, paid for the Restricted Stock or, if no price were
paid, to the extent of the fair market value of the Holding Company Common Stock
on that date. However, the participant may elect (within 30 days
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after the grant of Restricted Stock) to realize taxable income on the date of
the grant to the extent of the fair market value of the Restricted Stock
(determined without regard to restrictions on transferability and any
substantial risk of forfeiture). If such election is made, the participant will
not realize taxable income when the Restricted Stock becomes vested. In
addition, if such an election is made and the Restricted Stock is subsequently
forfeited, the participant is not entitled to a deduction but will be allowed a
capital loss, if any, equal to the amount paid for such shares. Upon a
subsequent sale of vested Restricted Stock, any gain or loss will be capital
gain or loss, assuming the shares represent a capital asset in the hands of the
participant. The Holding Company may deduct for Federal income tax purposes
(subject to the $1 million cap, if applicable, and subject to satisfying federal
income tax withholding requirements) an amount equal to the ordinary income
realized by the recipient of the Restricted Stock. Dividends paid to the
participant on Restricted Stock during the restricted period are ordinary
compensation income to the participant and deductible as such by the Holding
Company (subject to the $1 million cap, if applicable).
If the exercisability of an Option or a SAR or the elimination of
restrictions on Restricted Stock is accelerated, or special cash settlement
rights are triggered and exercised, as a result of a change in control, all or a
portion of the value of the relevant award at that time may be a "parachute
payment" for purposes of determining whether a 20% excise tax is payable by the
participant as a result of the receipt of an "excess parachute payment"
pursuant to Section 4999 of the Code. The Holding Company will not be entitled
to a deduction for that portion of any parachute payment which is subject to the
excise tax.
OTHER MATTERS
The adoption of the Incentive Plan will not affect any other incentive or
compensation plan in effect, or which may at a later date become effective, for
directors, officers or employees of the Holding Company or its subsidiaries. In
addition, the Incentive Plan will not preclude the Holding Company or its
subsidiaries from establishing any other forms of incentive or other
compensation (including stock options, stock appreciation rights or restricted
stock awards) for their directors, officers or employees, or from assuming any
forms of incentives or other compensation of any person or entity in connection
with the acquisition of the business or assets of any person or entity.
APPROVAL
In the opinion of the Boards of Directors of the Holding Company and the
Bank, the Incentive Plan will be of significant benefit to the Holding Company
in providing an incentive for directors, officers and employees to remain with
the Holding Company and its subsidiaries and in stimulating the active interest
of such persons in the development and financial success of the Holding Company.
The management of the Holding Company and the Bank recommends that the
shareholders vote FOR the adoption of the Incentive Plan. The persons named in
the accompanying proxy will vote in accordance with the choice specified
thereon, or, if no choice is properly indicated, in favor of the adoption of the
Incentive Plan.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
(PROPOSAL 4)
The Board of Directors of the Bank has selected Arthur Andersen LLP as
independent public accountants to audit the consolidated financial statements of
the Bank and its subsidiaries for the current fiscal year, and such selection
will be submitted to the shareholders for ratification at the meeting. Arthur
Andersen LLP has served as independent public accountants of the Bank since 1982
and is, therefore, familiar with the affairs and financial procedures of the
Bank. The Board of Directors of the Bank recommends approval of this selection
of auditors by the shareholders. Unless otherwise indicated, the accompanying
Proxy will be voted for the selection of Arthur Andersen LLP as independent
public accountants of the Bank for the current fiscal year. Representatives of
Arthur Andersen LLP will be present at the Annual Meeting and they will have the
opportunity to make a statement if they desire to do so and are expected to be
available to respond to appropriate questions.
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FINANCIAL STATEMENTS
The Bank is subject to the reporting requirements of the Exchange Act, and
accordingly, files reports, proxy statements and other information with the OCC.
The Board of Directors has not included any financial statements of the
Bank in this Proxy Statement/Prospectus. It is the Board's position that
financial statements would not be material or relevant, in order for the
shareholders to make an informed prudent judgment to approve the Plan of
Reorganization and Plan of Merger. For example, if the reorganization into the
Holding Company would have occurred on January 1, 1997, the financial statements
contained in the 1997 Annual Report would not be different in any material
respect.
A copy of the Bank's Annual Report containing financial statements for the
fiscal year ended December 31, 1997, prepared in accordance with generally
accepted accounting principles is being mailed to shareholders with this Proxy
Statement/Prospectus. A copy of the Bank's 1996 and 1995 Annual Reports may be
obtained at no cost by contacting H. Allen Jones, Secretary to the Board of
Directors, 101 S. Main Street, P. O. Box 1338, Victoria, Texas 77902. A
representative of Arthur Andersen LLP, the Bank's independent auditor, will
attend the Meeting and be available to respond to any appropriate questions
concerning the Annual Report posed by shareholders at the Meeting.
LEGAL MATTERS
Certain legal matters related to the shares of Holding Company Common Stock
to be issued in connection with the Merger are being passed upon for the Holding
Company by Cox & Smith Incorporated, San Antonio, Texas.
SHAREHOLDERS' PROPOSALS FOR THE
1999 ANNUAL MEETING OF SHAREHOLDERS
In the event of consummation of the Merger, any shareholder who, in
accordance with and subject to the provisions of the proxy rules of the
Securities and Exchange Commission, wishes to submit a proposal for inclusion in
the Holding Company's proxy statement for its 1999 Annual Meeting of
Shareholders must deliver such proposal, in writing, at its principal executive
offices and directed to: C. Dee Harkey, Secretary, FVNB Corp., 101 S. Main
Street, P. O. Box 1338, Victoria, Texas 77902, no later than December 24, 1998.
If the Merger is not consummated, then any shareholder of the Bank who
wishes to submit a proposal for inclusion in the Bank's proxy statement for its
1999 Annual Meeting of Shareholders, must submit the proposal, in writing, at
its principal executive offices and directed to: H. Allen Jones, Secretary to
the Board of Directors, First Victoria National Bank, 101 S. Main Street, P. O.
Box 1338, Victoria, Texas 77902, no later than December 24, 1998.
OTHER BUSINESS
The Board of Directors does not know of any other matters that are likely
to be brought before the Meeting for action. However, if any matters do properly
come before the Meeting, it is intended that the enclosed Proxy will be voted in
accordance with the judgment of the persons named as proxies.
H. Allen Jones
SECRETARY TO THE BOARD OF DIRECTORS
April , 1998
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ANNEX A
A-1
PLAN OF REORGANIZATION
THIS PLAN OF REORGANIZATION ("Agreement") made and entered into as of the
17th day of March, 1998, by and between FVNB Corp., a Texas corporation (the
"Holding Company"), and First Victoria National Bank, a national banking
association (the "Bank").
WHEREAS, the Holding Company and the Bank desire to effect the formation
of a bank holding company whereby an interim national banking association to be
formed by the Holding Company (the "Interim Bank") will be merged with and into
the Bank, the Bank, as the surviving bank, will become a wholly-owned subsidiary
of the Holding Company, and the present shareholders of the Bank (except for
those who perfect dissenters' rights) will become shareholders of the Holding
Company, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and intending to be legally bound hereby, the parties agree as
follows:
SECTION 1. MERGER.
1.1. AGREEMENT TO MERGE. Subject to the terms and conditions hereinafter
set forth, the parties hereto agree to effect a merger of the Bank and the
Interim Bank (the "Merger") pursuant to the provisions of the Bank Merger Act of
1966, 12 U.S.C. Section 215a, (the "Bank Merger Act") in accordance with the
form of the Plan of Merger attached hereto as Exhibit A and made a part hereof
(the "Plan of Merger").
1.2. HOLDING COMPANY COMMON STOCK. The Holding Company shall make
available to the Bank and the Interim Bank a sufficient number of shares of the
Holding Company's common stock to effect the Merger pursuant to the Plan of
Merger. Immediately after the effectiveness of the Merger, the Holding Company
shall repurchase the two (2) shares of the Holding Company's common stock that
are issued and outstanding as of the date of this Agreement (the "Organizational
Shares") in consideration for the payment to the holder(s) thereof of an amount
equal to the aggregate capital contribution theretofore made by such holder(s)
to the Holding Company with respect to such shares.
SECTION 2. SHARES OF THE HOLDING COMPANY AND OF THE SURVIVING BANK.
2.1. CONVERSION OF SHARES. The manner of converting the shares of Capital
Stock of the Bank into shares of Common Stock of the Holding Company and the
shares of Capital Stock of the Interim Bank into shares of Capital Stock of the
surviving bank in the Merger shall be as set forth in Section 6 of the Plan of
Merger.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE HOLDING COMPANY.
The Holding Company represents, warrants and agrees as follows:
3.1. ORGANIZATION AND STANDING. The Holding Company is a corporation duly
organized and validly existing under the laws of the State of Texas.
3.2. CAPITALIZATION. The Holding Company is authorized to issue Twenty
Million (20,000,000) shares of Common Stock, par value One Cent ($.01) per
share, of which two (2) shares are issued and
A-1
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outstanding. There are no outstanding options, warrants, calls, convertible
securities, subscriptions or other commitments or rights of any nature with
respect to the Common Stock of the Holding Company.
3.3. AUTHORITY RELATIVE TO THIS AGREEMENT. The execution, delivery and
performance of this Agreement have been duly authorized by the Board of
Directors of the Holding Company. Subject to appropriate shareholder and
regulatory approvals, neither the execution and delivery of this Agreement nor
the consummation of the transactions provided for herein will violate any
agreement to which the Holding Company is a party or by which it is bound or any
law, order or decree or any provision of its Articles of Incorporation or
By-laws.
3.4. ABSENCE OF LIABILITIES. Prior to the effective time of the Merger,
the Holding Company will have engaged only in the transactions contemplated by
this Agreement and the Plan of Merger, will have no material liabilities and
will have incurred no material obligations except in connection with its
performance of the transactions provided for in this Agreement and in the Plan
of Merger.
3.5 HOLDING COMPANY COMMON STOCK. The shares of the Holding Company's
Common Stock, par value $.01 per share, to be issued pursuant to this Agreement
and the Plan of Merger will, upon the issuance thereof in accordance with the
terms set forth in this Agreement and the Plan of Merger, be validly issued,
fully paid and nonassessable.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE BANK.
The Bank represents, warrants and agrees as follows:
4.1. ORGANIZATION AND STANDING. The Bank is a national banking association
duly organized and validly existing under the National Bank Act.
4.2. CAPITALIZATION. The Bank is authorized to issue Five Million
(5,000,000) shares of Capital Stock, par value Two Dollars and Fifty Cents
($2.50) per share, of which 2,372,792 shares are issued and outstanding. There
are no outstanding options, warrants, calls, convertible securities,
subscriptions or other commitments or rights of any nature with respect to the
Capital Stock of Bank.
4.3. AUTHORITY RELATIVE TO THIS AGREEMENT. The execution, delivery and
performance of this Agreement and the Plan of Merger have been duly authorized
by the Board of Directors of the Bank. Subject to appropriate shareholder and
regulatory approvals, neither the execution and delivery of this Agreement or
the Plan of Merger nor the consummation of the transactions provided for herein
or therein will violate any agreement to which the Bank is a party or by which
it is bound or any law, order, or decree or any provision of its Articles of
Association or Bylaws.
SECTION 5. COVENANTS OF THE HOLDING COMPANY.
The Holding Company agrees that between the date hereof and the effective
time of the Merger:
5.1. FORMATION OF THE INTERIM BANK. The Holding Company shall cause the
Interim Bank to be organized under the National Bank Act in accordance with the
requirements thereof and of the Office of the Comptroller of the Currency and to
cause the Interim Bank to be capitalized to the extent required in connection
with such organization and the Merger. The Holding Company shall also cause the
Interim Bank to do all further things necessary so as to permit the consummation
of the Merger provided for in the
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Plan of Merger.
5.2. APPROVAL OF MERGER. The Holding Company, as a shareholder of the
Interim Bank, shall approve this Agreement and the Plan of Merger in accordance
with applicable law.
5.3. BEST EFFORTS. The Holding Company will use its best efforts to take,
or cause to be taken, all actions or do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
and the Plan of Merger, subject, however, to the requisite vote of the
shareholders of the Bank in accordance with the requirements of the Bank Merger
Act and applicable law.
SECTION 6. COVENANTS OF THE BANK.
The Bank agrees that between the date hereof and the effective time of the
Merger:
6.1. SHAREHOLDERS MEETING. The Bank shall submit this Agreement and the
Plan of Merger to the vote of its shareholders as provided by the Bank Merger
Act and other applicable laws at an Annual Meeting of Shareholders to be held on
or about May 14, 1998, and any adjournment or postponement thereof.
6.2. BEST EFFORTS. The Bank will use its best efforts to take, or cause to
be taken, all actions or do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement and the Plan of
Merger, subject, however, to the requisite vote of the shareholders of the Bank
in accordance with the requirements of the Bank Merger Act and applicable law.
SECTION 7. CONDITIONS TO OBLIGATIONS OF THE PARTIES.
The obligations of the parties to consummate this Agreement and the Plan
of Merger shall be subject to the following conditions:
7.1. REPRESENTATIONS AND WARRANTIES: PERFORMANCE OF COVENANTS. The
representations and warranties and covenants contained in Sections 3, 4, 5 and 6
hereof shall be true as of and at the effective time of the Merger, and each
party shall have performed all obligations required hereby to be performed by it
prior to the effective time of the Merger.
7.2. BANK SHAREHOLDER APPROVAL. The shareholders of Bank shall have duly
approved this Agreement and the Plan of Merger in accordance with applicable
laws.
7.3. REGULATORY APPROVALS. Any federal or state regulatory agency having
jurisdiction (banking or otherwise), to the extent that any consent or approval
is required by applicable laws or regulations for the consummation of the
transactions contemplated by this Agreement and the Plan of Merger, shall have
granted any necessary consent or approval.
7.4. REGISTRATION STATEMENT. The registration statement (the "Registration
Statement") filed by the Holding Company under the Securities Act of 1933, as
amended, covering the shares of the Holding Company's Common Stock to be issued
pursuant to the Plan of Merger shall have been declared effective by the
Securities and Exchange Commission; and no stop order suspending the
effectiveness of the
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Registration Statement shall have been issued and no proceeding for that purpose
shall have been initiated or, to the knowledge of the Holding Company, shall be
contemplated or threatened by the Securities and Exchange Commission.
7.5. LITIGATION. There shall be no litigation or proceeding pending or
threatened for the purpose of enjoining, restraining or preventing the
consummation of the Merger, this Agreement or the Plan of Merger or otherwise
claiming that such consummation is improper.
SECTION 8. TERMINATION, WAIVER AND AMENDMENT.
8.1. CIRCUMSTANCES OF TERMINATION. Anything herein or elsewhere to the
contrary notwithstanding, this Agreement and the Plan of Merger may be
terminated at any time before the effective time of the Merger (whether before
or after action with respect thereto by the Bank's shareholders) only:
(a) by the mutual consent of the Board of Directors of the Bank, the
Interim Bank and the Holding Company evidenced by an instrument in writing
signed on behalf of each by any of their respective officers; or
(b) by the Board of Directors of the Bank if in its sole judgment the
Merger would be inadvisable because of the number of shareholders of the Bank
who perfect their dissenter's rights in accordance with applicable law and the
Plan of Merger, or if, in the sole judgment of such Board, the Merger would not
be in the best interests of the Bank or its employees, depositors or
shareholders for any reason whatsoever.
8.2. EFFECT OF TERMINATION. In the event of the termination and
abandonment hereof, this Agreement and the Plan of Merger shall become void and
have no effect, without any liability on the part of any of the parties, their
directors, officers or shareholders, except as set forth in Section 9 hereof.
8.3. WAIVER. Any of the terms or conditions of this Agreement and the Plan
of Merger may be waived in writing at any time by the Bank by action taken by
its Board of Directors, whether before or after action by the Bank's
shareholders; provided, however, that such action shall be taken only if, in the
judgment of the Board of Directors, such waiver will not have a materially
adverse effect on the benefits intended to be granted hereunder to the
shareholders of the Bank.
8.4. AMENDMENT. Anything herein or elsewhere to the contrary
notwithstanding, to the extent permitted by law, this Agreement and the Plan of
Merger may be amended at any time by the affirmative vote of a majority of the
Board of Directors of each of the Bank, the Holding Company and the Interim
Bank, whether before or after action with respect thereto by the Bank's
shareholders and without further approval of such amendment by the shareholders
of the parties hereto; provided, however, that after such approval by the
shareholders of the Bank, no such amendment shall be made which shall affect the
rights of the shareholders of the Bank in a manner which, in the judgment of the
Board of Directors of the Bank, respectively, is materially adverse to such
shareholders, without the further approval of such shareholders.
SECTION 9. EXPENSES.
9.1. GENERAL. Each party hereto will pay its own expenses incurred in
connection with this Agreement and the Plan of Merger, whether or not the
transactions contemplated herein are effected.
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9.2. SPECIAL DIVIDEND. Upon the effective time of the Merger, the
surviving bank shall pay a special dividend to the Holding Company in an amount
equal to the sum of:
(a) the expenses of the Holding Company in connection with the
transactions contemplated herein, if any, and the cost of repurchasing the
Organizational Shares as contemplated by Section 1.2
(b) the principal amount of any loan that the Holding Company shall have
obtained to purchase shares of Capital Stock of the Interim Bank as provided in
5.1 hereof; and
(c) the amount of any interest incurred by the Holding Company on account
of any loans obtained by it in order to purchase shares of Capital Stock of the
Interim Bank as provided in Section 5.1 hereof.
SECTION 10. MISCELLANEOUS.
10.1. RESTRICTIONS ON AFFILIATES. The Holding Company may cause stock
certificates representing any shares issued to any shareholder who may be deemed
to be an affiliate of the Bank, within the meaning of Rule 145 under the
Securities Act of 1933, as amended, to bear a legend setting forth any
applicable restrictions on transfer thereof under Rule 145 and may cause
stop-transfer orders to be entered with its transfer agent with respect to any
such certificates.
10.2. NO BROKERS. Each of the parties represents to the other that it has
not incurred and will not incur any liability for brokerage fees or agents'
commissions in connection with this Agreement, the Plan of Merger and the
transactions contemplated hereby and thereby.
10.3. RIGHT TO WITHHOLD DIVIDENDS. The Board of Directors of the Holding
Company reserves the right to withhold dividends from any former shareholder of
the Bank who fails to exchange certificates representing the shares of the Bank
for certificates representing the shares of the Holding Company in accordance
with Section 6 of the Plan of Merger, if such exchange is required by the
Holding Company.
10.4. FAILURE TO SURRENDER CERTIFICATES. Shareholders of the Holding
Company may be required, at the option of the Holding Company, to surrender
certificates representing the shares of the Bank for certificates representing
the shares of the Holding Company within two (2) years of the date of the letter
of transmittal as provided in Section 6 of the Plan of Merger. In the event that
any certificates are not surrendered for exchange within such two (2) year
period, the shares, represented by appropriate certificates of the Holding
Company that would otherwise have been delivered in exchange for the
unsurrendered certificates, may be sold and the net proceeds of the sale shall
be held for the shareholders of the unsurrendered certificates to be paid to
them upon surrender of their outstanding certificates. From and after such sale,
the sole right of the holders of the unsurrendered outstanding certificates
shall be the right to collect the net sales proceeds held for their account.
10.5. ENTIRE AGREEMENT. This Agreement (including the Plan of Merger
attached as an exhibit hereto) contains the entire agreement among the parties
with respect to the subject matter hereof and supersedes all prior agreements,
written or oral, with respect thereto.
10.6. CAPTIONS. Descriptive headings are for convenience only and shall
not control or affect the meaning or construction of any provisions of this
Agreement or the Plan of Merger.
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10.7. APPLICABLE LAW. This Agreement and the Plan of Merger shall be
governed by the laws of the State of Texas applicable to contracts executed in
and to be performed exclusively within the State of Texas, regardless of where
they are executed.
10.8. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
ATTEST: FIRST VICTORIA NATIONAL BANK
By: /S/ DAVID M. GADDIS
- - ---------------------------- ---------------------------------------
David M. Gaddis, President and Chief
Executive Officer
ATTEST: FVNB CORP.
/s/ C. DEE HARKEY By: /S/ DAVID M. GADDIS
- - ---------------------------- ---------------------------------------
C. Dee Harkey, Secretary David M. Gaddis, President and Chief
Executive Officer
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Exhibit A
To Plan of Reorganization
Form of
PLAN OF MERGER
FIRST VICTORIA NATIONAL BANK
with and into
FVNB INTERIM BANK, N.A.
under the charter
FIRST VICTORIA NATIONAL BANK
under the title of
FIRST VICTORIA NATIONAL BANK
THIS PLAN OF MERGER made by and between First Victoria National Bank
(hereinafter referred to as "Bank"), a banking association organized under the
laws of the United States, being located at 101 S. Main St., Victoria, County of
Victoria, in the State of Texas, with a capital of Five Million Nine Hundred
Thirty One Thousand Nine Hundred Eighty Dollars ($5,931,980) divided into Two
Million Three Hundred Seventy Two Seven Hundred Ninety Two (2,372,792) shares of
common stock each of Two Dollars and Fifty Cents ($2.50) par value, surplus of
approximately $9,774,000, and retained earnings, including capital reserves of
approximately $40,776,000, and unrealized holding losses on available-for-sale
securities of $411,000, as of December 31, 1997, and FVNB Interim Bank, N.A.
(hereinafter referred to as "Interim Bank"), an interim banking association
organized under the laws of the United States, being located at 101 S. Main St.,
Victoria, County of Victoria, in the State of Texas, with aggregate capital
stock of $_______ divided into __________ shares of common stock, each of
________________ ($___) par value, surplus of ______________ Dollars ($______),
and no undivided profits or capital reserves, as of _________, 1998, each acting
pursuant to a resolution of its board of directors, adopted by the vote of a
majority of its directors, pursuant to the authority given by and in accordance
with the provisions of the Act of November 7, 1918, as amended (12 U.S.C. 215a)
(the "Bank Merger Act"), witnessed as follows:
Section 1.
The Interim Bank shall be merged into the Bank under the charter of the
Bank.
Section 2.
The name of the Receiving Association (hereinafter referred to as the
"Association") shall be the First Victoria National Bank.
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Section 3.
The business of the Association shall be that of a national banking
association. This business shall be conducted by the Association at its main
office which shall be located at 101 S. Main St., Victoria, County of Victoria,
State of Texas 77901, and at its legally established branches.
Section 4.
The aggregate amount of capital stock of the Association upon completion
of the transaction shall be $5,931,980, divided into 2,372,792 shares of common
stock, each of Two Dollars and Fifty Cents par value, and at the Effective Time,
the Association shall have a surplus of $__________, and undivided profits,
including capital reserves, which when combined with the capital and surplus
will be equal to the combined capital structures of the merging banks as stated
in the preamble of this Plan of Merger, adjusted, however, for normal earnings
and expenses between December 31, 1997, and the effective time of the merger
(the "Effective Time").
Section 5.
All assets of the Bank and the Interim Bank, as they exist at the
Effective Time, shall pass to and vest in the Association without any conveyance
or other transfer. The Association shall be responsible for all of the
liabilities of every kind and description of each of the merging banks existing
as of the Effective Time.
Section 6.
The manner and basis of converting shares of common stock of the Bank and
Interim Bank shall be as follows:
6.1. STOCK OF THE INTERIM BANK. The shares of common stock of the Interim
Bank issued and outstanding immediately prior to the Effective Time shall, at
the Effective Time, by virtue of the merger and without any action on the part
of the holder thereof, be converted into and become, in the aggregate, 2,372,792
shares of common stock, par value Two Dollars and Fifty Cents ($2.50) per share,
of the Association. From and after the Effective Time, each certificate that,
prior to the Effective Time represented shares of the Interim Bank, shall
evidence ownership of shares of the Association on the basis hereinabove set
forth. A new stock certificate representing 2,372,792 shares of the
Association's common stock shall be issued to the Holding Company upon the
receipt by the Association of the stock certificate(s) previously representing
shares of the Interim Bank.
6.2. STOCK OF THE BANK. Each share of Common Stock, par value Two Dollars
and Fifty Cents ($2.50) per share, of the Bank issued and outstanding
immediately prior to the Effective Time (except for shares owned by shareholders
who shall have duly perfected dissenters' rights in accordance with this Plan of
Merger and applicable law) shall, at the Effective Time, by virtue of the merger
and without any action on the part of the holder thereof, be converted into and
become one (1) share of fully paid and nonassessable common stock, par value One
Cent ($.01) per share, of FVNB Corp., a Texas corporation (the "Holding
Company"), as contemplated by and more particularly described in that certain
Plan of Reorganization dated as of March 17, 1998 (the "Plan of
Reorganization"), by and between the Bank and the Holding Company. From and
after the Effective Time, each certificate which, prior to the Effective Time,
represented shares of common stock of the Bank shall evidence ownership of
shares of common stock of the Holding Company on the basis herein set forth.
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6.3. TREASURY STOCK. Each share of common stock, par value Two Dollars and
Fifty Cents ($2.50) per share, of the Bank held as a treasury share immediately
prior to the Effective Time, if any, shall thereupon and without notice be
cancelled.
6.4. EXCHANGE AGENT. If and when the Holding Company determines, the Bank
shall designate a party to act as exchange agent to receive from the holders
thereof certificates that immediately prior to the Effective Time represented
the Bank's common stock and to exchange such certificates for common stock of
the Holding Company as provided herein.
6.5. EXCHANGE PROCEDURE. If appointed pursuant to Section 6.4 hereof, the
exchange agent shall promptly mail to each record holder as of the date of
exchange of an outstanding certificate or certificates that prior to the
Effective Time represented shares of the Bank's common stock, a letter of
transmittal (which shall specify how delivery shall be effected, and that risk
of loss and title to such certificate or certificates shall pass only upon
proper delivery of such certificate or certificates, together with a properly
executed letter of transmittal to the exchange agent at its address stated
therein) and instructions for use in effecting the surrender of such certificate
or certificates for exchange therefor. Upon surrender to the exchange agent of
such certificate or certificates, together with such letter of transmittal,
properly executed, the exchange agent shall exchange such certificate or
certificates for shares of common stock of the Holding Company as provided
herein.
6.6. DISSENTERS' RIGHTS. Shareholders of the Bank shall be entitled to
exercise the rights provided in the Bank Merger Act with respect to this Plan of
Merger.
Section 7.
Neither of the banks shall declare nor pay any dividend to its
shareholders between the date of this Plan of Merger and the Effective Time,
except for the declaration and payment by the Bank of any regular quarterly
dividend, nor dispose of any of its assets in any other manner except in the
normal course of business and for adequate value.
Section 8.
The present Board of Directors of the Bank shall continue to serve as the
Board of Directors of the Association until the next annual meeting of
shareholders or until such time as their successors have been elected and have
qualified.
Section 9.
Effective as of the time this merger shall become effective as specified
in the "Certificate Approving Merger" to be issued by the Comptroller of the
Currency, the Articles of Association of the Association shall read in their
entirety as follows:
FIRST: The title of this Association shall be the "First Victoria
National Bank".
SECOND: The main office shall be in Victoria, Victoria County, Texas.
The general business of the Association shall be conducted at its main office
and its legally established branches.
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THIRD: The Board of Directors of this Association shall consist of not
less than five nor more than twenty-five directors. At any meeting of the
shareholders held for the purpose of electing Directors, or changing the number
thereof, the number of Directors may be determined by a majority of the votes
cast by the shareholders in person or by proxy. A majority of the Board of
Directors shall be necessary to constitute a quorum for the transaction of
business at any Directors' meeting. The Board of Directors, by the vote of a
majority of the full Board, may, between annual meetings of shareholders,
increase the membership of the Board by not more than two members and by like
vote appoint qualified persons to fill the vacancies created thereby.
FOURTH: The regular annual meeting of the shareholders of the Association
shall be held at it main banking house, or other convenient place duly
authorized by the Board of Directors on such day of each year as is specified
therefore in the by-laws.
FIFTH: The amount of authorized capital stock of this Association shall be
5,000,000 shares of common stock, the par value per share of $2.50; but the
capital stock may be increased or decreased from time to time in accordance with
the provisions of the laws of the United States.
No holder of shares of capital stock of any class of the Association shall
have any preemptive or preferential right of subscription to any shares of any
class of stock of the Association, issued, or sold, nor any right of
subscription to any thereof other than such, if any, as the Board of Directors
in its discretion may from time to time determine and at such price as the Board
of Directors may from time to time fix.
If the capital stock is increased by a stock dividend, each shareholder
shall be entitled to his proportionate amount of such increase in accordance
with the number of shares of capital stock owned by him at the time the increase
is authorized by the shareholders, unless another time subsequent to the date of
the shareholders' meeting is specified in a resolution adopted by the
shareholders at the time the increase is authorized.
SIXTH. The Board of Directors shall appoint one of its members President
of this Association, who shall be Chairman of the Board, unless the Board
appoints another Director to be the Chairman. The Board of Directors shall have
the power to appoint one or more Vice Presidents, and one of whom shall be
authorized, in the absence of the President, to perform all acts and duties
pertaining to the office of the President; to appoint a Cashier and such other
officers and employees as may be required to transact the business of this
Association; to fix the salaries to be paid to such officers and employees of
this Association, and to dismiss any of such officers or employee and appoint
others to take their place.
The Board of Directors shall have the power to define the duties of
officers and employees of this Association and to require bonds from them for
the faithful performance of their duties; to make all bylaws that may be lawful
for the general regulation of the business of this Association and the
management of its affairs, and generally to do and perform all acts that may be
legal for a Board of Directors to do and perform.
The Board of Directors shall have the power to change the location of the
main office of this Association to any other place within the limits of
Victoria, Texas, without the approval of the shareholders of this Association
but subject to the approval of the Comptroller of the Currency; and shall have
the power to change the location of any branch or branches of this Association
to any other location, without the approval of the shareholders of this
Association but subject to the approval of the Comptroller of the Currency.
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SEVENTH: The corporate existence of this Association shall continue
until terminated in accordance with the laws of the United States.
EIGHTH: The Board of Directors of this Association, or any three or more
shareholders owning, in the aggregate, not less than ten per cent (10%) of the
stock of this Association, may call a special meeting of shareholders at any
time.
Unless otherwise provided by the laws of the United States, a notice of
the time, place, and purpose of every regular annual, and every special meeting
of the shareholders shall be given by first-class mail, postage prepaid, mailed
at least ten days prior to the date of such meeting to each shareholder of
record at his address as shown upon the books of this Association.
Subject to the provisions of the laws of the United States, these Articles
of Association may be amended at any meeting of the shareholders for which
adequate notice has been given, by the affirmative vote of the owners of a
majority of the stock of this Association, voting in person or by proxy.
NINTH: Any person, his heirs, executors, or administrators, may be
indemnified or reimbursed by the Association for expenses reasonably incurred in
actions to which he or they shall be made a party or a witness by reason of
being or having been a Director, officer, or employee of the Association, or by
reason of the performance of their official duties, to the extent and in the
manner permitted by the laws of the State of Texas, including, but not limited
to, Articles 2.02-1 of the Texas Business Corporation Act.
PROVIDED, HOWEVER, that no person shall be so indemnified or reimbursed in
relation to any matter and any action, suit or proceeding, as to which he shall
finally be adjudged to have been guilty of or liable for gross negligence,
willful misconduct, or criminal acts in performance of his duties to the
Association.
PROVIDED, FURTHER, that no person shall be so indemnified or reimbursed against
expenses, penalties, or other payments incurred in an administrative proceeding
or action instituted by an appropriate Bank regulatory agency which proceeding
or action results in a final order assessing civil money penalties or requiring
affirmative action by an individual or individuals in the form of payments to
the Bank. Provided, further, Office of the Comptroller of the Currency may, in
its discretion, review any proposed indemnification of Directors, officers or
employees, through appropriate administrative action. The foregoing right of
indemnification or reimbursement shall not be exclusive of other rights to which
such person, his heirs, executors or administrators may be entitled as a matter
of law.
The Association, may upon the affirmative vote of a majority of its Board
of Directors, purchase insurance for the purpose of indemnifying its Directors,
officers and other employees to the extent that such indemnification is allowed
in the preceding paragraph, except that any insurance shall explicitly exclude
coverage for a formal order assessing civil money penalties against a Bank
Director or employee.
ELEVENTH: To the fullest extent not prohibited by law, a Director of this
Association shall not be liable to the Association or its shareholders for
monetary damages for an act or omission in the Director's capacity as a
Director, except that this articles 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 or members; (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 the 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
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the liability of the Director is expressly provided for by statute; or (5) an
act related to an unlawful stock repurchase or payment of a dividend.
Section 10.
This Plan of Merger may be terminated by the unilateral action of the
Board of Directors of any participant prior to the approval of the shareholders
of said participant or by the mutual consent of the Board of all participants
after any shareholder group has taken affirmative action. Since time is of the
essence to this Plan of Merger, if for any reason the transaction shall not have
been consummated by December 31, 1998, this Plan of Merger shall terminate
automatically as of that date unless extended, in writing, prior to said date by
mutual action of the Boards of Directors of the participants.
Section 11.
This Plan of Merger shall be approved, adopted, ratified and confirmed by
the affirmative vote of the shareholders of each of the merging banks owning at
least two-thirds (2/3) of its capital stock outstanding, at a meeting to be held
on the call of the Directors; and the merger shall become effective at the time
specified in a merger approval to be issued by the Comptroller of the Currency
of the United States.
Section 12.
The obligations of the Bank and the Interim Bank to effect the merger
shall be subject to all of the terms and conditions contained in the Plan of
Reorganization.
Section 13.
The persons who are executive or other officers of the Bank immediately
prior to the consummation of the merger shall serve as the officers of the
Association from and after the Effective Time and until such time as the Board
of Directors of the Association shall otherwise determine. At the Effective
Time, all persons who are employees of the Bank and the Interim Bank shall
become employees of the Association.
WITNESS the signatures and seals, if any, of said merging banks this ___
day of _______, 1998, each hereunto set by its President or a Vice President and
attested by its Cashier or Secretary, pursuant to a resolution of its Board of
Directors, acting by a majority thereof, and witness the signatures hereto of a
majority of each of said Boards of Directors.
ATTEST: FIRST VICTORIA NATIONAL BANK
___________________________ By:_____________________________
David M. Gaddis, President and Chief
Executive Officer
_______________________________
Michael S. Anderson
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________________________________
O. D. Edwards, Jr.
________________________________
David P. Engel
________________________________
David M. Gaddis
________________________________
Robert L. Halepeska
________________________________
R. L. Keller
________________________________
Thomas Lane Keller
________________________________
James Robert McCan
________________________________
J. E. McCord
________________________________
Thomas M. O'Connor
________________________________
Billy W. Ruddock
________________________________
Roger Welder
________________________________
W. L. Zirjacks
A majority of Directors of First Victoria
National Bank, Victoria County, Texas
ATTEST: FVNB INTERIM BANK, N.A.
_______________________________ By:_____________________________________
David M. Gaddis, President and Chief
Executive Officer
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___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
A majority of Directors of FVNB Interim
Bank, N.A., Victoria County, Texas
STATE OF TEXAS ss.
ss.
COUNTY OF VICTORIA ss.
On this March 17, 1998, before me, a Notary Public for the State and
County aforesaid, personally came David M. Gaddis, as President and Chief
Executive Officer of First Victoria National Bank, and in his said capacity
acknowledged the foregoing instrument to be the act and deed of said national
banking association.
WITNESS my official seal and signature this day and year aforesaid.
______________________________________
(Seal of Notary) Notary Public, Victoria County
My commission expires:
STATE OF TEXAS ss.
ss.
COUNTY OF VICTORIA ss.
On this March 17, 1998, before me, a Notary Public for the State and
County aforesaid, personally came David M. Gaddis, as President and Chief
Executive Officer of FVNB Interim Bank, N.A., and in his said capacity
acknowledged the foregoing instrument to be the act and deed of said national
banking association.
WITNESS my official seal and signature this day and year aforesaid.
______________________________________
(Seal of Notary) Notary Public, Victoria County
My commission expires:
A-14
<PAGE>
ANNEX B
B-1
ARTICLES OF INCORPORATION
OF
FVNB CORP.
----------------------
Pursuant to the provisions of Article 3.01 of the Texas Business
Corporation Act (the "TBCA"), the undersigned Incorporator adopts the following
Articles of Incorporation:
ARTICLE I
The name of the corporation is FVNB Corp.
ARTICLE II
The period of duration of the corporation is perpetual.
ARTICLE III
The purpose for which the corporation is organized is to transact any or
all lawful business for which corporations may be organized under the TBCA.
ARTICLE IV
The aggregate number of shares which the corporation shall have the
authority to issue is Twenty Million (20,000,000) shares of Common Stock of the
par value of One Cent ($0.01) per share.
ARTICLE V
The corporation will not commence business until it has received for the
issuance of its shares consideration of the value of at least One Thousand
Dollars ($1,000.00), consisting of money, labor done or property actually
received.
ARTICLE VI
The street address of the initial registered office of the corporation is
101 S. Main St., Victoria, Texas 77901, and the name of the initial registered
agent for the corporation at such address is David M. Gaddis.
ARTICLE VII
(a) The initial Board of Directors of the corporation shall consist of
twelve members, whose names and addresses are as follows:
NAME ADDRESS
Michael S. Anderson 101 S. Main St., Victoria, Texas 77901
O. D. Edwards, Jr. 101 S. Main St., Victoria, Texas 77901
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David P. Engel 101 S. Main St., Victoria, Texas 77901
David M. Gaddis 101 S. Main St., Victoria, Texas 77901
Robert L. Halepeska 101 S. Main St., Victoria, Texas 77901
R. L. Keller 101 S. Main St., Victoria, Texas 77901
Thomas Lane Keller 101 S. Main St., Victoria, Texas 77901
James Robert McCan 101 S. Main St., Victoria, Texas 77901
J. E. McCord 101 S. Main St., Victoria, Texas 77901
Thomas M. O'Connor 101 S. Main St., Victoria, Texas 77901
Billy W. Ruddock 101 S. Main St., Victoria, Texas 77901
Roger Welder 101 S. Main St., Victoria, Texas 77901
(b) Any director, or the entire Board of Directors, may be removed from
office at any time, but only by the affirmative vote of the holders of at least
seventy-five percent (75%) of the then outstanding shares of the corporation
entitled to vote generally in the election of directors, voting together as a
single class.
ARTICLE VIII
Special meetings of the shareholders may be called only by the Board of
Directors, the President, the Chairman of the Board or the holders of at least
twenty percent of the outstanding shares entitled to vote at the proposed
special meeting.
ARTICLE IX
With respect to any matter other than the election of directors for which
the affirmative vote of the holders of a specified portion of the shares
entitled to vote is required by TBCA, as presently in effect and as hereafter
amended, the act of the shareholders on that matter shall require the
affirmative vote of the holders of at least seventy-five percent (75%) of the
shares entitled to vote on such matter, rather than the affirmative vote
otherwise required by the TBCA, as presently in effect and hereafter amended;
provided, however, that if such matter shall have received the prior approval of
at least a majority of the directors then in office, such matter shall require
the affirmative vote of the holders of at least a majority of the shares
entitled to vote on such matter, rather than the affirmative vote otherwise
required by the TBCA, as presently in effect and hereafter amended.
ARTICLE X
The undersigned Incorporator, David M. Gaddis, is a natural person of
the age of eighteen (18) years or more and whose address is 101 S. Main St.,
Victoria, Texas 77901.
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<PAGE>
ARTICLE XI
The corporation shall indemnify its directors and officers from and
against any and all liabilities, costs and expenses incurred by them in such
capacities as and to the fullest extent permitted by the TBCA, as presently in
effect and as hereafter amended, and shall have the power to purchase and
maintain liability insurance for those persons or make other arrangements on
such persons behalf as and to the fullest extent permitted by the TBCA, as
presently in effect and as hereafter amended.
ARTICLE XII
Cumulative voting by the shareholders of the corporation at any election
for directors or upon any other matter is expressly prohibited, and the
directors of the corporation shall be elected by plurality vote of the
shareholders entitled to vote at such election.
ARTICLE XIII
No shareholder of the corporation shall, by reason of his holding shares
of any class of the capital stock of the corporation, have any preemptive or
preferential right, other than such preemptive or preferential rights, if any,
as the Board of Directors in its discretion may fix, to purchase, subscribe to
or otherwise acquire any unissued or treasury shares of any class of the capital
stock of the corporation, now or hereafter to be authorized, or any notes,
debentures, bonds or other securities convertible into, exchangeable for, or
carrying or accompanied by warrants, options or rights to purchase or subscribe
to shares of any class of the capital stock of the corporation, now or hereafter
to be authorized, whether or not the issuance of any such shares of capital
stock or such notes, debentures, bonds or other securities would adversely
affect the dividend or voting rights of such shareholder, and the Board of
Directors may issue shares of any class of the capital stock of the corporation,
now or hereafter to be authorized, or any notes, debentures, bonds or other
securities convertible into, exchangeable for, or carrying or accompanied by
warrants, options or rights to purchase or subscribe to shares of any class of
the capital stock of the corporation, now or hereafter to be authorized, without
offering any such shares of any class of capital stock of the corporation,
either in whole or in part, to the existing shareholders of any class of the
capital stock of the corporation.
ARTICLE XIV
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 for liability for (a) a breach of
the director's duty of loyalty to the corporation or its shareholders; (b) an
act or omission not in good faith or that involves intentional misconduct or a
knowing violation of the law; (c) a transaction from which the director received
an improper benefit, whether or not the benefit resulted from an action taken
within the scope of the director's office; or (d) an act or omission for which
the liability of the director is expressly provided by an applicable statute.
If the TBCA or the Texas Miscellaneous Corporation Laws Act (the "TMCLA")
hereafter is amended to authorize further elimination of limitation of the
liability of directors, then the liability of a director of the corporation, in
addition to the limitation on the personal liability provided herein, shall be
limited to the fullest extent permitted by the TBCA, as amended and the TMCLA,
as amended. Any repeal or modification of this Article XIV by the shareholders
of the corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director at the time of such repeal or
modification.
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<PAGE>
ARTICLE XV
(a) The Board of Directors may, if it deems advisable, oppose a tender or
other offer for the corporation's securities, whether the offer is in cash or in
the securities of a corporation or otherwise. When considering whether to oppose
an offer, the Board of Directors may, but is not legally obligated to, consider
any relevant, germane or pertinent issue; by way of illustration, but not to be
considered any limitation on the power of the Board of Directors to oppose a
tender or other offer for this corporation's securities, the Board of Directors
may, but shall not be legally obligated to, consider any or all of the
following:
(i) Whether the offer price is acceptable based on the historical
and present operating results or financial condition of the corporation;
(ii) Whether a more favorable price could be obtained for the
corporation's securities in the future;
(iii) The social and economic effects of the offer or transaction on
the corporation and any of its subsidiaries, employees, depositors, loan
and other customers, creditors, shareholders and other elements of the
communities in which the corporation and any of its subsidiaries operate
or are located;
(iv) The reputation and business practice of the offeror and its
management and affiliates as they would affect the shareholders,
employees, depositors and customers of the corporation and its
subsidiaries and the future value of the corporation's stock;
(v) The value of the securities (if any) which the offeror is
offering in exchange for the corporation's securities, based on an
analysis of the worth of the corporation or other entity whose securities
are being offered;
(vi) The business and financial conditions and earnings prospects of
the offeror, including, but not limited to, debt service and other
existing or likely financial obligations of the offeror, and the possible
affect of such conditions upon the corporation and any of its subsidiaries
and the other elements of the communities in which the corporation and any
of its subsidiaries operate or are located;
(vii) Any antitrust or other legal and regulatory issues that are
raised by the offer.
(b) If the Board of Directors determines that an offer should be rejected,
it may take any lawful action to accomplish its purpose including, but not
limited to, any or all of the following: advising shareholders not to accept the
offer; litigation against the offeror; filing complaints with all governmental
and regulatory authorities; acquiring the offeror corporation's securities;
selling or otherwise issuing authorized but unissued securities or treasury
stock or granting options with respect thereto; acquiring a company to create an
antitrust or other regulatory problem for the offeror; and obtaining a more
favorable offer from another individual or entity.
ARTICLE XVI
The Bylaws of the corporation may be altered, amended or repealed, or new
Bylaws adopted, only (i) by the affirmative vote of the holders of at least
seventy-five percent (75%) of the corporation's shares entitled to vote on such
matter, or (ii) by a majority vote of the whole Board of Directors, subject to
the
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<PAGE>
power of the shareholders of the corporation to change such action of the
Board of Directors by the affirmative vote of the holders of at least
seventy-five percent (75%) of the corporation's shares entitled to vote on such
matter.
ARTICLE XVII
The corporation elects not to be governed by Part Thirteen of the TBCA.
EXECUTED this 9th day of March, 1998.
/s/ DAVID M. GADDIS
David M. Gaddis, Incorporator
B-5
<PAGE>
ANNEX C
BYLAWS
OF
FVNB CORP.
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the Company
shall be in Victoria, Texas.
Section 2. OTHER OFFICES. The Company 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 Company may require.
ARTICLE II
SHAREHOLDERS
Section 1. TIME AND PLACE OF MEETING. All meetings of the shareholders
shall be held at such time and at such place within or without the State of
Texas as shall be determined by the Board of Directors.
Section 2. ANNUAL MEETINGS. In the absence of an earlier meeting at such
time and place as the Board of Directors shall specify, annual meetings of the
shareholders shall be held at the principal office of the Company on the
Thursday preceding the third Tuesday of May of each year if not a legal holiday,
and if a legal holiday, then on the next full business day following, at 2:00
p.m., at which the shareholders shall elect directors and transact such other
business as may properly be brought before the meeting.
Section 3. SPECIAL MEETINGS. Special meetings of the shareholders may be
called at any time by the President, the Chairman of the Board or the Board of
Directors, and shall be called by the President or Secretary at the request in
writing of the holders of not less than twenty percent (20%) of the shares
issued outstanding and entitled to vote at the meeting. Such request shall state
the purpose or purposes of the proposed special meeting. The purpose or purposes
of any such special meeting shall be stated in the call and notice thereof.
Business transacted at special meetings of shareholders shall be confined to the
purposes stated in the notice of the special meeting.
Section 4. NOTICE. Written or printed notice stating the place, day and
hour of any shareholders' meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten (10) nor more than sixty (60) days before the date of the meeting,
either personally or by mail, by or at the direction of the President,
Secretary, or the officer or person calling the meeting, to each shareholder of
record entitled to vote at such meeting, provided that the Company shall notify
each shareholder, whether or not entitled to vote, of any meeting of
shareholders at which a plan of merger or exchange is to be submitted for
approval, at least twenty (20) business days before such meeting, and that such
notice shall state that the purpose, or one of the purposes, of the meeting is
to consider the plan of merger or exchange and shall contain or be accompanied
by a copy or summary of the plan. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, postage prepaid, to the
shareholder at his address as it appears on the stock transfer books of the
Company. Any
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notice required to be given to a shareholder pursuant to this Section 4 or any
other provision of these Bylaws, the Articles of Incorporation of the Company or
any provision of the Texas Business Corporation Act (herein called the "Act")
need not be given to such shareholder if (a) notice of two (2) consecutive
annual meetings of shareholders of the Company, and all notices of meetings of
shareholders of the Company held during the period between such annual meetings,
if any, or (b) all (but in no event less than two (2)) payments (if sent by
first class mail) of distributions or interest on securities of the Company
during any twelve-month period, have been mailed to such shareholder at his
address as shown on the records of the Company and have been returned
undeliverable, and any action or meeting of shareholders of the Company taken or
held without notice to such shareholder shall have the same force and effect as
if notice had been duly given to such shareholder; provided, however, that if
such shareholder delivers to the Company a written notice setting forth his or
her then current address, the requirement that notice be given to such
shareholder shall be reinstated.
Section 5. RECORD DATE. The Board of Directors may fix in advance a record
date for the purpose of determining shareholders entitled to notice of or to
vote at a meeting of shareholders, such record date to be not less than ten (10)
nor more than sixty (60) days prior to such meeting, or the Board of Directors
may close the stock transfer books for such purpose for a stated period of not
less than ten (10) nor more than sixty (60) days prior to such meeting. In the
absence of any action by the Board of Directors, the date upon which the notice
of the meeting is mailed shall be the record date. In the event that a special
meeting of shareholders is called by shareholders, the record date for
determining shareholders entitled to call such meeting shall be the date on
which the first shareholder calling such special meeting signs the call or
notice of that meeting.
Section 6. LIST OF SHAREHOLDERS. The officer or agent of the Company
having charge of the stock transfer books for shares of the Company shall make,
at least ten (10) days before each meeting of the shareholders, a complete list
of the shareholders entitled to vote at such meeting or any adjournment thereof,
arranged in alphabetical order, with the address of and the number of voting
shares held by each, which list, for a period of ten (10) days prior to such
meeting, shall be kept on file at the registered office of the Company and shall
be subject to inspection by any such shareholder at any time during usual
business hours. Such list shall also be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any shareholder
during the whole time of the meeting. The original stock transfer books shall be
prima facie evidence as to who are the shareholders entitled to examine such
list or transfer books or to vote at any meetings of shareholders.
Section 7. QUORUM. The holders of a majority of the issued and outstanding
shares entitled to vote thereat, present in person or represented by proxy,
shall constitute a quorum at all meetings of the shareholders for the
transaction of business, except as otherwise provided by the Act. If, however,
such quorum shall not be present or represented at any meeting of the
shareholders, the shareholders entitled to vote, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. When any adjourned meeting is reconvened and a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the meeting as originally noticed. Once a quorum is
constituted, the shareholders present or represented by proxy at a meeting may
continue to transact business until adjournment, notwithstanding the subsequent
withdrawal therefrom of such number of shareholders as to leave less than a
quorum.
Section 8. VOTING. When a quorum is present at any meeting, the vote of
the holders of a majority of the shares present or represented by proxy at such
meeting and entitled to vote shall be the act of the shareholders, unless the
vote of a different number is required by the Act, the Articles of Incorporation
of
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the Company or these Bylaws. Each shareholder shall at every meeting of the
shareholders be entitled to one vote in person or by proxy for each share having
voting power held by such shareholder.
Section 9. PROXY. Every proxy must be executed in writing by the
shareholder or by his duly authorized attorney-in-fact, and shall be filed with
the Secretary of the Company prior to or at the time of the meeting. No proxy
shall be valid after eleven (11) months from the date of its execution unless
otherwise provided therein. Each proxy shall be revocable unless the proxy form
conspicuously states that the proxy is irrevocable and the proxy is coupled with
an interest. Proxies coupled with an interest include the appointment as proxy
of:
(a) a pledgee;
(b) a person who purchased or agreed to purchase, or owns or holds
an option to purchase, the shares covered by such proxy;
(c) a creditor of the Company who extended credit to the Company
under terms requiring appointment of the creditor as proxy;
(d) an employee of the Company whose employment contract
requires appointment of the employee as proxy; and
(e) a party to a voting agreement entered into pursuant to and in
compliance with applicable provisions of the Act.
Section 10. MEETINGS BY CONFERENCE TELEPHONE. Shareholders may participate
in and hold meetings of shareholders by means of conference telephone 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.
ARTICLE III
DIRECTORS
Section 1. NUMBER OF DIRECTORS. The number of directors of the Company
shall be at least one (1) and no more than twenty-five (25) as the Board of
Directors may determine from time to time. The number of directors may be
increased from time to time to a number greater than twenty-five (25) by
amendment of these Bylaws or by resolution adopted by the shareholders, but no
decrease shall have the effect of reducing the term of any incumbent director.
Directors shall be elected at the annual meeting of the shareholders, except as
provided in Section 2 of this Article III, and each director shall hold office
until his successor is elected and qualified. Directors need not be residents of
the State of Texas.
Section 2. VACANCIES. Notwithstanding the fact that the remaining
directors may constitute less than a quorum of the Board of Directors as fixed
by Section 8 of this Article, the affirmative vote of a majority of the
remaining directors may fill any vacancy occurring in the Board of Directors
and, during the period between any two successive annual meetings of the
shareholders, may fill a maximum of two (2) vacant directorships resulting from
an increase in the number of directors. A director elected to fill a vacancy
shall be elected for the unexpired term of his predecessor in office. A
directorship to be filled by
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reason of an increase in the number of directors may be filled by the Board of
Directors for a term of office continuing only until the next election of one or
more directors by the shareholders. Any directorship to be filled by reason of
an increase in the number of directors may also be filled by election at an
annual meeting or at a special meeting of shareholders called for that purpose.
Any director, or the entire Board of Directors, may be removed from office at
any time, but only by the affirmative vote of the holders of at least
seventy-five percent (75%) of the then outstanding shares of the Company
entitled to vote generally in the election of directors, voting together as a
single class.
Section 3. GENERAL POWERS. The business of the Company shall be managed by
its Board of Directors, which may exercise any and all powers of the Company and
do any and all such lawful acts and things as are not by the Act, the Articles
of Incorporation of the Company or by these Bylaws directed or required to be
exercised or done by the shareholders.
Section 4. PLACE OF MEETINGS. The directors of the Company may hold
their meetings, both regular and special, either within or without the State
of Texas.
Section 5. ANNUAL MEETINGS. The first meeting of each newly elected Board
of Directors shall be held without further notice immediately following the
annual meeting of the shareholders, and at the same place, unless by unanimous
consent of the directors then elected and serving such time or place shall be
changed.
Section 6. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and place as shall from
time to time be determined by the Board of Directors.
Section 7. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the President or Chairman of the Board of the Company on two
(2) days' notice to each director, with such notice to be given personally, by
mail or by telephone, facsimile, telex, telegraph or mailgram. Special meetings
shall be called by the President or Secretary of the Company in like manner and
on like notice on the written request of any three (3) directors or one (1)
director if there are fewer than three (3) directors.
Section 8. QUORUM AND VOTING. At all meetings of the Board of Directors
the presence of at least a majority of the number of directors fixed by Section
1 of this Article shall be necessary and sufficient to constitute a quorum for
the transaction of business, and the affirmative vote of at least a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors, except as may be otherwise specifically provided by
the Act, the Articles of Incorporation of the Company or these Bylaws. If a
quorum shall not be present at any meeting of directors, the directors present
thereat may adjourn the meeting from time to time without notice other than
announcement at the meeting, until a quorum shall be present.
Section 9. COMMITTEES. The Board of Directors may, by resolution passed by
a majority of the whole Board, designate committees, each committee to consist
of one or more directors, which committees shall have such power and authority
and shall perform such functions as may be provided in such resolution, except
that no such committee shall have the authority of the Board of Directors in
reference to amending the Articles of Incorporation; approving a plan of merger
or consolidation; recommending to the shareholders the sale, lease, or exchange
of all or substantially all of the property and assets of the Company otherwise
than in the usual and regular course of its business; recommending to the
shareholders a voluntary dissolution of the Company or a revocation thereof;
amending, altering, or repealing the Bylaws of the corporation or adopting new
Bylaws for the Company; filling vacancies in the Board of Directors or any
committee; filling any directorship to be filled by reason of an increase in the
number of
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directors; electing or removing officers or members of any committee; fixing the
compensation of any member of a committee; altering or repealing any resolution
of the Board of Directors which by its terms provides that it shall not be so
amendable or repealable; and, unless the resolution expressly so provides, no
committee shall have the power or authority to declare a dividend or to
authorize the issuance of shares of the Company. Such committee or committees
shall have such name or names as may be designated by the Board of Directors and
shall keep regular minutes of their proceedings and report the same to the Board
of Directors when required.
Section 10. COMPENSATION OF DIRECTORS. By resolution of the Board of
Directors, the Directors may receive a fixed sum and expenses of attendance, if
any, for attendance at regular or special meetings of the Board of Directors;
provided that nothing herein contained shall be construed to preclude any
director or directors from serving the Company in any other capacity and
receiving compensation therefor.
Section 11. ACTION BY WRITTEN CONSENT. Any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee designated
by the Board of Directors may be taken without a meeting if a written consent,
setting forth the action so taken, is signed by all the members of the Board of
Directors or of such committee, and such consent shall have the same force and
effect as a unanimous vote at a meeting.
Section 12. MEETINGS BY CONFERENCE TELEPHONE. Members of the Board of
Directors or members of any committee designated by the Board of Directors may
participate in and hold a meeting of such Board or committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and 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 13. RESIGNATIONS. Each director shall have the right to resign at
any time upon written notice of such resignation to the Chairman of the Board or
Secretary of the Company. Unless otherwise specified in such written notice, the
resignation shall take effect upon the receipt thereof, and acceptance of such
resignation shall not be necessary to make same effective.
ARTICLE IV
NOTICES
Section 1. FORM OF NOTICE. Whenever under the provisions of the Act, the
Articles of Incorporation of the Company or these Bylaws notice is required to
be given to any director or shareholder, and no provision is made as to how such
notice shall be given, notice shall not be construed to mean personal notice,
but any such notice may be given in writing, by mail, postage prepaid, addressed
to such director or shareholder at such address as appears on the books of the
Company, or by facsimile, telex, telegraph or mailgram. Any notice required or
permitted to be given by mail shall be deemed to be given at the time when the
same is deposited, postage prepaid, in the United States mail as aforesaid.
Section 2. WAIVER. Whenever any notice is required to be given to any
director or shareholder of the Company under the provisions of the Act, the
Articles of Incorporation of the Company or these Bylaws, a waiver thereof in
writing signed by the person or persons entitled to such notice, whether signed
before or after the time stated in such waiver, shall be deemed equivalent to
the giving of such notice.
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ARTICLE V
OFFICERS
Section 1. IN GENERAL. The officers of the Company shall be elected by the
Board of Directors and shall be a President, a Secretary and a Principal
Accounting Officer. The Board of Directors may also, if it chooses to do so,
elect one or more Vice Presidents, one or more Assistant Secretaries and such
other officers and agents as it shall deem necessary, all of whom shall also be
officers of the Company. Two or more offices may be held by the same person. The
Board of Directors may also, if it chooses to do so, elect a Chairman of the
Board, a Vice Chairman of the Board, an Honorary Chairman, a Chairman Emeritus
and a Senior Chairman, but none of such positions shall be deemed to be an
officer position of the Company.
Section 2. ELECTION. The Board of Directors at its first meeting after
each annual meeting of the shareholders shall elect a President and, if it so
chooses, may elect a Chairman of the Board, both of whom shall be members of the
Board of Directors, but the other officers need not be members of the Board of
Directors. The Board of Directors shall in addition elect at such meeting a
Secretary and a Principal Accounting Officer and may appoint such other officers
and agents as it shall deem necessary, and may determine the salaries of all
officers and agents from time to time. The officers shall hold office until
their successors are duly elected and qualified. Any officer elected or
appointed by the Board of Directors may be removed, for or without cause, at any
time by a majority vote of the whole Board of Directors. Election or appointment
of an officer or agent shall not of itself create contract rights.
Section 3. CHAIRMAN. The Chairman of the Board of Directors, if there be a
Chairman, shall preside at all meetings of the shareholders and the Board of
Directors and shall have such other powers as may from time to time be assigned
by the Board of Directors. The Chairman of the Board shall not be deemed to be
an officer of the Company.
Section 4. PRESIDENT. The President shall be the chief executive officer
of the Company, shall preside at all meetings of the shareholders and the Board
of Directors if a Chairman of the Board has not been elected, shall have
authority and responsibility for the general and active management of the
business of the Company and shall see that all orders and resolutions of the
Board of Directors are carried into effect. Subject to the prior approval of the
Board of Directors, the President shall execute all contracts, mortgages,
conveyances or other legal instruments in the name of and on behalf of the
Company, but this provision shall not prohibit the delegation of such powers by
the Board of Directors to some other officer, agent or attorney-in-fact of the
Company.
Section 5. VICE PRESIDENTS. The Vice President, if any, or if there be
more than one, the Vice Presidents in the order of their seniority or in any
other order determined by the Board of Directors, shall, in the absence or
disability of the President, perform the duties and exercise the powers of the
President, and shall generally assist the President and perform such other
duties as the Board of Directors shall prescribe.
Section 6. SECRETARY. The Secretary shall attend all sessions of the Board
of Directors and all meetings of the shareholders and shall record all votes and
the minutes of all such proceedings in a book to be kept for that purpose, and
shall perform like duties for any committees of the Board when required. The
Secretary shall give, or cause to be given, notice of all meetings of the
shareholders and special meetings of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors
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or President, under whose supervision he or she shall be. The Secretary shall
keep in safe custody the seal of the Company, if any.
Section 7. ASSISTANT SECRETARIES. Any Assistant Secretary shall, in the
absence or disability of the Secretary, perform the duties and exercise the
powers of the Secretary and shall perform such other duties as may be prescribed
by the Board of Directors or the President.
Section 8. PRINCIPAL ACCOUNTING OFFICER. The Principal Accounting Officer
shall have the custody of all corporate funds and securities, shall keep full
and accurate accounts of receipts and disbursements of the Company, and shall
deposit all moneys and other valuable effects in the name of and to the credit
of the Company in such depositories as may be designated by the Board of
Directors. The Principal Accounting Officer shall disburse the funds of the
Company as may be ordered by the Board of Directors, taking proper vouchers for
such disbursements, shall render to the President and directors, at the regular
meetings of the Board of Directors or whenever they may otherwise require, an
account of all of his or her transactions as Principal Accounting Officer and of
the financial condition of the Company, and shall perform such other duties as
may be prescribed by the Board of Directors or the President.
Section 9. RESIGNATIONS. Each officer shall have the right to resign at
any time upon written notice of such resignation to the President or the Board
of Directors. Unless otherwise specified in such written notice, the resignation
shall take effect upon the receipt thereof, and acceptance of such resignation
shall not be necessary to make same effective.
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
Section 1. FORM OF CERTIFICATES. The Company shall deliver certificates
representing all shares to which shareholders are entitled. Certificates
representing shares of the Company shall be in such form as shall be determined
by the Board of Directors and shall be numbered consecutively and entered in the
books of the Company as they are issued. Each certificate shall state on the
face thereof the holder's name, the number and class of shares, and the par
value of the shares or a statement that the shares are without par value. Each
certificate shall be signed by the President or a Vice President and the
Secretary or an Assistant Secretary of the Company, and may be sealed with the
seal of the Company or a facsimile thereof if the Company shall then have a
seal. The signatures of the Company's officers on any such certificate or
certificates may be facsimiles. In case any officer or officers who have signed,
or whose facsimile signature or signatures have been used on, such certificate
or certificates shall cease to be such officer or officers of the Company,
whether because of death, resignation or otherwise, before such certificate or
certificates have been delivered by the Company or its agents, such certificate
or certificates may nevertheless be adopted by the Company and be issued and
delivered as though the person or persons who signed the certificate or
certificates or whose facsimile signature or signatures have been used thereon
had not ceased to be such officer or officers of the Company.
Section 2. LOST CERTIFICATES. The Board of Directors may direct that a new
certificate be issued in place of any certificate theretofore issued by the
Company which is alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing the issue of a new certificate, the Board of
Directors, in its discretion and as a condition precedent to the issuance
thereof, may require the owner of the lost or destroyed certificate, or his
legal representative, to advertise the same in such manner as it shall require
and/or give the Company a bond in such form, in such sum, and with such surety
or sureties as it may direct as indemnity against any claim
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that may be made against the Company with respect to the certificate alleged to
have been lost or destroyed.
Section 3. TRANSFER OF SHARES. Shares of stock shall be transferable only
on the books of the Company by the holder or holders thereof in person or by
his, her or their duly authorized attorney or attorneys and, upon surrender to
the Company or to the transfer agent of the Company of a certificate
representing shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Company or the transfer agent of the Company to issue a new certificate to the
person entitled thereto, cancel the old certificate and record the transaction
upon its books.
Section 4. REGISTERED SHAREHOLDERS. The Company shall be entitled to
recognize the holder or holders of record of any share or shares of stock as the
holder or holders 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 law.
ARTICLE VII
GENERAL PROVISIONS
Section 1. DIVIDENDS AND OTHER DISTRIBUTIONS. Dividends and other
distributions made upon or with respect to the outstanding shares of the
Company, subject to the provisions of the Act and of the Articles of
Incorporation of the Company, may be declared by the Board of Directors at any
regular or special meeting. Dividends may be declared and paid in cash, in
property or in shares of the Company, and other distributions may be declared
and paid in cash or property, provided that all such declarations and payments
of dividends and other distributions shall be in strict compliance with all
applicable laws and the Articles of Incorporation of the Company. The Board of
Directors may fix in advance a record date for the purposes of determining
shareholders entitled to receive payment of any dividend or other distribution,
such record date to be not more than sixty (60) days prior to the payment date
of such dividend or other distribution, or the Board of Directors may close the
stock transfer books for such purpose for a period of not more than sixty (60)
days prior to the payment date of such dividend or other distribution. In the
absence of any action by the Board of Directors, the date upon which the Board
of Directors adopts the resolution declaring such dividend or other distribution
shall be the record date. Any dividend or other distribution declared pursuant
to this Section 1 shall be payable to the persons registered as shareholders of
the Company in the Company's stock transfer books as of the record date for such
dividend or other distribution as set pursuant to this Section 1, and the person
in whose name shares are registered in the stock transfer books of the Company
as of such record date shall be deemed to be the owner of the shares so
registered in his name at such time.
Section 2. FISCAL YEAR. The fiscal year of the Company shall be the
twelve-month period ending on December 31 of each year.
Section 3. SEAL. The Company may by resolution of the Board of Directors
adopt and have a seal, and said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in any manner reproduced. Any officer of
the Company shall have authority to affix the seal to any document requiring it.
Section 4. ANNUAL STATEMENT. The Board of Directors shall present to the
shareholders at each annual meeting, and, when called for by vote of the
shareholders, at any special meeting, a full and clear statement of the business
and condition of the Company.
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ARTICLE VIII
INDEMNITY
Section 1. INDEMNIFICATION. The Company shall indemnify its directors and
officers from and against any and all liabilities, costs and expenses incurred
by them in such capacities to the fullest extent permitted by the Act, as
presently in effect and as may be hereafter amended, and shall have the power to
purchase and maintain liability insurance coverage for those persons or make and
maintain other arrangements on such persons' behalf as, and to the fullest
extent, permitted by the Act, as presently in effect and as may be hereafter
amended.
Section 2. INDEMNIFICATION NOT EXCLUSIVE. The rights of indemnification
and reimbursement provided for in Section 1 of this Article VIII shall not be
deemed exclusive of any other rights to which any such director or officer may
be entitled under the Articles of Incorporation, any Bylaws, agreement or vote
of shareholders, or as a matter of law or otherwise.
ARTICLE IX
BYLAWS
Section 1. AMENDMENTS. These Bylaws may be altered, amended or repealed,
or new Bylaws adopted, only (i) by the affirmative vote of the holders of at
least seventy-five percent (75%) of the Company's shares entitled to vote on
such matter, or (ii) by a majority vote of the whole Board of Directors, subject
to the power of the shareholders of the Company to change such action of the
Board of Directors by the affirmative vote of the holders of at least
seventy-five percent (75%) of the Company's shares entitled to vote on such
matter.
Section 2. WHEN BYLAWS SILENT. It is expressly recognized that when
the Bylaws are silent as to the manner of performing any corporate function,
the provisions of the Act shall control.
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ANNEX D
EXCERPTS FROM SECTION 215A OF THE
NATIONAL BANK ACT RELATING TO DISSENTERS' RIGHTS
(b) If a merger shall be voted for at the called meetings by the necessary
majorities of the shareholders of each association or State bank participating
in the plan of merger, and thereafter the merger shall be approved by the
Comptroller, any shareholder of any association or State bank to be merged into
the receiving association who has voted against such merger at the meeting of
the association or bank of which he is a shareholder, or has given notice in
writing at or prior to such meeting to the presiding officer that he dissents
from the plan of merger, shall be entitled to receive the value of the shares so
held by him when such merger shall be approved by the Comptroller upon written
request made to the receiving association at any time before thirty days after
the date of consummation of the merger, accompanied by the surrender of his
stock certificates.
(c) The value of the shares of any dissenting shareholder shall be
ascertained, as of the effective date of the merger, by an appraisal made by a
committee of three persons, composed of (1) one selected by the vote of the
holders of the majority of the stock, the owners of which are entitled to
payment in cash; (2) one selected by the directors of the receiving association;
and (3) one selected by the two so selected. The valuation agreed upon by any
two of the three appraisers shall govern. If the value so fixed shall not be
satisfactory to any dissenting shareholder who has requested payment, that
shareholder may, within five days after being notified of the appraised value of
his shares, appeal to the Comptroller, who shall cause a reappraisal to be made
which shall be final and binding as to the value of the shares of the appellant.
(d) If, within ninety days from the date of consummation of the merger,
for any reason one or more of the appraisers is not selected as herein provided,
or the appraisers fail to determine the value of such shares, the Comptroller
shall upon written request of any interested party cause an appraisal to be made
which shall be final and binding on all parties. The expenses of the Comptroller
in making the reappraisal or the appraisal, as the case may be, shall be paid by
the receiving association. The value of the shares ascertained shall be promptly
paid to the dissenting shareholders by the receiving association. The shares of
stock of the receiving association which would have been delivered to such
dissenting shareholders had they not requested payment shall be sold by the
receiving association at an advertised public auction, and the receiving
association shall have the right to purchase any of such shares at such public
auction, if it is the highest bidder therefor, for the purpose of reselling such
shares within thirty days thereafter to such person or persons and at such price
not less than par as its board of directors by resolution may determine. If the
shares are sold at public auction at a price greater than the amount paid to the
dissenting shareholders, the excess in such sale price shall be paid to such
dissenting shareholders. The appraisal of such shares of stock in any State bank
shall be determined in the manner prescribed by the law of the State in such
cases, rather than as provided in this section, if such provision is made in the
State law; and no such merger shall be in contravention of the law of the State
under which such bank is incorporated. The provisions of this subsection shall
apply only to shareholders of (and stock owned by them in) a bank or association
being merged into the receiving association.
Section 215(b)(4) of the National Bank Act defines the term "receiving
association," as used in Section 215a, to mean the national banking association
into which one or more national banking associations or one or more State banks,
located within the same State, merge.
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ANNEX E
1998 FVNB CORP.
STOCK INCENTIVE PLAN
FVNB CORP.
Victoria, Texas
Effective March 17, 1998
<PAGE>
1998 FVNB CORP.
STOCK INCENTIVE PLAN
TABLE OF CONTENTS
ARTICLE SECTION PAGE
I DEFINITIONS 1
1.01 Agreement 1
1.02 Award 1
1.03 Board or Board of Directors 1
1.04 Change of Control 1
1.05 Code 1
1.06 Committee 1
1.07 Company 1
1.08 Effective Date 2
1.09 Eligible Person 2
1.10 Event Price 2
1.11 Exchange Act 2
1.12 Fair Market Value 2
1.13 Incentive Stock Option 2
1.14 Non-Employee Director 2
1.15 Nonstatutory Stock Option 2
1.16 Option 2
1.17 Option Price 2
1.18 Outside Director 2
1.19 Participant 2
1.20 Plan 3
1.21 Restricted Stock 3
1.22 Restricted Stock Awards 3
1.23 Securities Act 3
1.24 Stock 3
1.25 Stock Appreciation Right 3
1.26 Stock Option Agreement 3
1.27 Subsidiary 3
1.28 Trigger Date
II PARTICIPATION 3
2.01 Participation 3
2.02 Limitation on Grants to Individual
Participant 3
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III SHARES OF STOCK SUBJECT TO PLAN 4
3.01 Limitations 4
3.02 Availability of Shares Once Issued
Under Plan 4
3.03 Adjustments to Options Once Issued 4
3.04 Grants and Agreement 4
3.05 Dividends 5
IV OPTIONS 5
4.01 Options; Grant and Exercise 5
4.02 Vesting of Options 5
V NONSTATUTORY STOCK OPTIONS 6
5.01 General 6
VI INCENTIVE STOCK OPTIONS 6
6.01 General 6
6.02 Terms and Conditions of Incentive
Stock Options 6
6.03 Limitations on Grants of Incentive
Stock Options 7
VII STOCK APPRECIATION RIGHTS 7
7.01 Grant and Exercise of Stock 7
Appreciation Rights
7.02 Terms and Conditions of Stock
Appreciation Rights 8
VIII RESTRICTED STOCK AWARDS 8
8.01 Grants and Agreement 8
8.02 Rights as a Stockholder 8
8.03 Restrictions 8
8.04 Vesting of Restricted Stock 9
IX STOCK CERTIFICATES 9
9.01 Stock Certificates 9
X PLAN ADMINISTRATION 9
10.01 Plan Administration 9
XI MISCELLANEOUS PROVISIONS 10
11.01 Applicable Law 10
11.02 Expenses 10
11.03 Gender and Number 10
11.04 Headings Not Part of Plan 10
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11.05 Indemnification 10
11.06 Limitation of Rights 11
11.07 No Distribution, Compliance with
Legal Requirements 11
11.08 Timing of Grants 11
11.09 Non-Assignability 11
11.10 Nontransferability 11
11.11 Other Compensation Plans 11
11.12 Plan Binding on Successors 12
11.13 Tax Withholding 12
11.14 Non-Contravention of Securities Laws 12
11.15 Unenforceability of a Particular
Provision 12
XII CHANGE OF CONTROL 12
12.01 Acceleration 12
12.02 Special Rights 13
12.03 Committee Rights 13
12.04 Termination of Participant; Modification
of Plan 14
12.05 Event Price 14
12.06 Change of Control 15
XIII PERMANENCY OF THIS PLAN AND PLAN
TERMINATION 16
13.01 Effective Date 16
13.02 Termination, Amendment, and
Modification of Plan 16
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1998 FVNB CORP.
STOCK INCENTIVE PLAN
The 1998 FVNB CORP. STOCK INCENTIVE PLAN (the "Plan") is intended to
advance the interests of the Company and its shareholders by affording
directors, officers and employees of the Company and its Subsidiaries an
opportunity to increase their proprietary equity interest in the Company by the
grant of Options to them under the terms set forth herein. The Company seeks to
motivate and retain present directors, officers and employees of the Company and
its Subsidiaries as well as attract highly competent individuals whose judgment,
initiative, leadership, and continued effort will contribute to the success of
the Company and its Subsidiaries. The Company believes that this Plan will
contribute to that end.
ARTICLE I
DEFINITIONS
For purposes of this Plan:
1.01 AGREEMENT. The term "Agreement" shall mean the agreement as described
in Section 3.04 of this Plan between the Company and the Participant under which
such Participant receives an Award pursuant to this Plan.
1.02 AWARD. The term "Award" shall mean an incentive award granted under
this Plan, whether in the form of Options, Stock Appreciation Rights, Restricted
Stock or any other form of compensation (which may provide for settlement in
shares of Stock, cash and/or a combination thereof) determined by the Committee
to be consistent with the purposes of this Plan, including but not limited to
restricted units, phantom stock, performance awards, performance units,
performance shares, stock appreciation shares, limited stock appreciation
rights, stock acquisition rights, valuation protection rights, reload options or
any other type of award or combination or derivative of various types of awards.
1.03 BOARD OR BOARD OF DIRECTORS. The term "Board" or "Board of Directors"
shall mean the Board of Directors of the Company.
1.04 CHANGE OF CONTROL. The term "Change of Control" shall mean that term
as defined in Section 12.06 hereof.
1.05 CODE. The term "Code" shall mean the Internal Revenue Code of 1986,
as amended, or any successor statute, provided that any specific reference
herein to a particular section of the Code will, to the extent applicable, refer
to the corresponding section or provision of any such successor statute.
1.06 COMMITTEE. The term "Committee" shall mean either (i) the entire
Board of Directors acting as the committee or (ii) a committee of the Board of
Directors consisting of at least two (2) members of the Board of Directors of
which each member shall be both a Non-Employee Director and an Outside Director.
1.07 COMPANY. The term "Company" shall mean FVNB CORP., a Texas
corporation, and any successor thereof.
1.08 EFFECTIVE DATE. The term "Effective Date" shall mean that term as
defined in Section 13.01 hereof.
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1.09 ELIGIBLE PERSON. The term "Eligible Person" shall mean any director,
officer or employee of the Company or any Subsidiary, designated by the
Committee as eligible to receive an Award subject to the conditions set forth
herein.
1.10 EVENT PRICE. The term "Event Price" shall mean that term as defined
in Section 12.05 hereof.
1.11 EXCHANGE ACT. The term "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended from time to time.
1.12 FAIR MARKET VALUE. The term "Fair Market Value" shall mean the fair
market value of a share of Stock on any given date as determined in good faith
by the Committee, consistent with Section 422 of the Code and the regulations
promulgated thereunder.
1.13 INCENTIVE STOCK OPTION. The term "Incentive Stock Option" shall have
the meaning given to it by Section 422 of the Code and as further defined in
Article VI hereof.
1.14 NON-EMPLOYEE DIRECTOR. The term "Non-Employee Director" shall have
the meaning set forth in Rule 16b-3(i) promulgated under the Exchange Act, as
may be amended from time to time.
1.15 NONSTATUTORY STOCK OPTION. The term "Nonstatutory Stock Option" shall
mean any Option granted by the Company pursuant to this Plan which is not an
Incentive Stock Option.
1.16 OPTION. The term "Option" shall mean an option granted by the Company
to purchase Stock pursuant to the provisions of this Plan and the related Stock
Option Agreement executed pursuant hereto.
1.17 OPTION PRICE. The term "Option Price" shall mean the price per share
of Stock purchasable under an Option. The Option Price of an Option shall be
determined by the Committee at the time of grant but, in the case of an
Incentive Stock Option, shall not be less than the Fair Market Value on the date
of grant, unless the Participant who is granted an Incentive Stock Option owns
more than ten percent (10%) of the Stock or more than ten percent (10%) of the
voting stock of any Subsidiary, in which case the Option Price shall not be less
than one hundred ten percent (110%) of the Fair Market Value on the date of
grant.
1.18 OUTSIDE DIRECTOR. The term "Outside Director" shall have the meaning
given to it in the regulations promulgated under Section 162(m) of the Code, as
may be amended from time to time.
1.19 PARTICIPANT. The term "Participant" shall mean an Eligible Person who
has been granted an Option hereunder.
1.20 PLAN. The term "Plan" shall mean the 1998 FVNB Corp. Stock Incentive
Plan, as amended from time to time.
1.21 RESTRICTED STOCK. The term "Restricted Stock" shall mean the shares
of Stock issued to an Eligible Person pursuant to a Restricted Stock Award.
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1.22 RESTRICTED STOCK AWARDS. The term "Restricted Stock Award" shall mean
a grant made by the Committee entitling the Participant to acquire, at no cost
or for a purchase price determined by the Committee at the time of grant, shares
of Stock subject to such restrictions and conditions as the Committee may
determine at the time of grant.
1.23 SECURITIES ACT. The term "Securities Act" shall mean the Securities
Act of 1933, as amended from time to time.
1.24 STOCK. The term "Stock" shall mean common stock, $.01 par value,
issued by the Company.
1.25 STOCK APPRECIATION RIGHT. The term "Stock Appreciation Right" shall
mean a grant entitling the Participant to receive an amount in cash or shares of
Stock or a combination thereof having a value equal to (or if the Committee
shall so determine at the time of a grant, less than) the excess of the Fair
Market Value of a share of Stock on the date of exercise over the Fair Market
Value of a share of Stock on the date of grant (or over the Option Price, if the
Stock Appreciation Right was granted in tandem with an Option) multiplied by the
number of shares with respect to which the Stock Appreciation Right shall have
been exercised, with the Committee having sole discretion to determine the form
of payment. The term "Stock Appreciation Right" is further defined in Article
VII hereof.
1.26 STOCK OPTION AGREEMENT. The term "Stock Option Agreement" shall mean
the agreement as described in Section 3.04 of this Plan between the Company and
the Participant under which such Participant receives an Option pursuant to this
Plan.
1.27 SUBSIDIARY. The term "Subsidiary" shall mean any subsidiary
corporation, as defined in Section 424(f) of the Code, to which the Committee
has determined to extend the application of this Plan.
1.28 TRIGGER DATE. The term "Trigger Date" shall mean the date on which a
Change of Control occurs.
ARTICLE II
PARTICIPATION
2.01 PARTICIPATION. A grant of an Option under this Plan may be made by
the Committee to any Eligible Person.
2.02 LIMITATIONS ON GRANTS TO INDIVIDUAL PARTICIPANT. Subject to
adjustments pursuant to the provisions of Section 3.03 hereof, the number of
shares of Stock which may be covered by Options granted hereunder to any
Participant during any fiscal year shall not exceed 15,000 shares. If an Option
is cancelled, the cancelled Option shall continue to be counted toward such
15,000 share limit for the year granted. An Option that is repriced during any
fiscal year shall be treated as the cancellation of such Option and a grant of a
new Option for purposes of the 15,000 share limit for that fiscal year.
ARTICLE III
SHARES OF STOCK SUBJECT TO PLAN
3.01 LIMITATIONS.
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(a) Subject to Section 3.02 and the adjustments pursuant to the
provisions of Section 3.03 hereof, the number of shares of Stock or Stock
equivalents which may be granted hereunder to Participants under all forms of
Awards shall not exceed 400,000 shares.
(b) For purposes of this Section 3.01, the shares of Stock that
shall be counted toward such limitation shall include all shares of Stock:
(1) issued or issuable pursuant to Options that have
been or may be exercised;
(2) subject to Stock Appreciation Rights that have been or may
be exercised (other than Stock Appreciation Rights granted in tandem with
outstanding Options or any limited stock appreciation rights deemed to be
granted pursuant to Article XII); and
(3) issued as, or subject to issuance as Restricted
Stock.
(c) Shares of Stock subject to grants under this Plan shall be
authorized and unissued shares of Stock or treasury stock.
3.02 AVAILABILITY OF SHARES ONCE ISSUED UNDER PLAN. Once grants or Awards
have lapsed, terminated or been forfeited, the Committee shall have the sole
discretion to issue a new grant to any Eligible Person covering the number of
shares to which such lapsed, terminated or forfeited grant related, provided
that the former grantee received no monetary benefits of ownership therefrom,
such as dividends.
3.03 ADJUSTMENTS TO GRANTS ONCE ISSUED. In the event that the outstanding
shares of Stock are changed into or exchanged for a different number or kind of
shares or other securities of the Company or of another corporation or other
entity by reason of merger, consolidation, other reorganization,
recapitalization, reclassification, combination of shares, stock split-up, or
stock dividend, the corresponding proportionate adjustments shall be made to the
number and kind of shares which may be granted under this Plan, the maximum
number and kind of shares which may be granted to any one eligible Participant,
and the number, the Option Price, and the kind of shares or property subject to
each outstanding grant unless the Committee shall determine, in its sole
discretion, that such adjustments are not appropriate or advisable.
3.04 GRANTS AND AGREEMENT. Each grant of an Award under this Plan shall be
evidenced by a written Agreement dated as of the date of the grant and executed
by the Company and the Participant. The rights of a grantee in and to an Award
shall become effective only upon execution and delivery by the Company of the
Agreement. Such Agreement shall set forth the terms and conditions of such
Award, as may be determined by the Committee, consistent with this Plan, and
shall indicate whether the Option that it evidences, if applicable, is intended
to be an Incentive Stock Option or a Nonstatutory Stock Option.
3.05 DIVIDENDS. At the time of each grant of an Award to an Eligible
Person, the Committee may, in its sole discretion, determine whether the grant
shall provide a dividend or a dividend equivalent and the terms and conditions
under which any such dividend or dividend equivalent is to be provided,
including but not limited to permitting or requiring immediate payment, deferral
or investment of dividends or dividend equivalents.
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ARTICLE IV
OPTIONS
4.01 OPTIONS; GRANT AND EXERCISE. The Committee shall have full and final
authority to select those Eligible Persons who will be granted Options and
whether such Options shall be Incentive Stock Options or Nonstatutory Stock
Options. Subject to Federal and state statutes then applicable and the express
terms of this Plan, the terms and procedures by which an Option may be exercised
shall be set forth in the Participant's Stock Option Agreement or in procedures
established by the Committee. Certain of the procedures for the notice of the
grant of an Option, the execution of the Stock Option Agreement and the exercise
of an Option, are as follows:
(a) As soon as practicable after a determination is made by the
Committee to grant an Option to an Eligible Person, as set forth in this
Article IV hereof, the appropriate officer or officers of the Company
shall give notice (written or oral) to such effect to each such Eligible
Person, which notice shall be accompanied by a copy or copies of the Stock
Option Agreement to be executed by such Eligible Person. The Stock Option
Agreement shall designate whether it is an Incentive Stock Option or
Nonstatutory Stock Option.
(b) Upon the due execution by such Eligible Person and the Company
of a Stock Option Agreement (on such terms as the Committee shall
determine) within such number of days from the giving of such notice as
shall be specified in such notice (unless waived by the Company), such
Option shall be granted and such Eligible Person shall become and be a
Participant.
(c) An Option of a Participant may be exercised during the period
such Option is in effect and as set forth herein and in the Stock Option
Agreement, but only if compliance with all applicable Federal and state
securities laws can be effected. The Committee may permit payment of the
Option Price to be made through the tender of cash or securities, the
withholding of Stock, or any other arrangement satisfactory to the
Committee.
4.02 VESTING OF OPTIONS. The Stock Option Agreement shall specify the date
or dates on which the Participant may begin to exercise all or a portion of his
Option. To the extent not exercised, the vested portion of the Option shall be
exercisable, in whole or in part, at any time after becoming exercisable, but
not later than the date the Option terminates. Notwithstanding the terms of any
Stock Option Agreement, the Committee at any time may accelerate such date or
dates and otherwise waive or amend any conditions of the Option in any manner
that is not adverse to the Option holder. A Participant's subsequent transfer or
disposition of any Stock obtained through the exercise of an Option shall be
subject to any Federal and state laws then applicable, specifically securities
laws.
ARTICLE V
NONSTATUTORY STOCK OPTIONS
5.01 GENERAL. The Committee may grant Nonstatutory Stock Options to
Eligible Persons under this Plan. The grant of Nonstatutory Stock Options shall
be designated as such in a Participant's Stock Option Agreement. Such
Nonstatutory Stock Options must comply with all requirements of this Plan except
for those contained in Articles VI, VII and VIII hereof.
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ARTICLE VI
INCENTIVE STOCK OPTIONS
6.01 GENERAL. The Committee may only grant Incentive Stock Options under
this Plan to Eligible Persons who are employees (including officers) of the
Company or any Subsidiary. All Incentive Stock Options shall comply with all of
the restrictions and limitations set forth in Section 422 of the Code and this
Article.
6.02 TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS. Notwithstanding any
other provision of this Plan, Incentive Stock Options shall be subject to such
terms and conditions as shall be determined by the Committee, which shall
include the following:
(a) The Option Price shall be an amount determined by the Committee
in accordance with the provision of Section 1.17 hereof.
(b) No Incentive Stock Option shall be exercisable after the lapse
of ten (10) years from the date such Incentive Stock Option is granted;
provided, however, if the Participant owns more than ten percent (10%) of the
Stock or of the voting stock of any Subsidiary, such Participant's Incentive
Stock Option shall not be exercisable after the lapse of five (5) years from the
date such Incentive Stock Option is granted.
(c) Except as provided in this Subsection 6.02(c) and Subsections
6.02(d) and (e), all Incentive Stock Options granted to a Participant shall
terminate no later than three (3) months from the date the Participant's service
with the Company terminates; provided, however, if the Participant's service
with the Company terminates as a result of the Participant's permanent
disability, such Incentive Stock Options shall terminate no later than twelve
months from the date that the Participant's service with the Company terminates
as a result of such disability. Notwithstanding the foregoing, the Committee
may, in its sole discretion, provide in the Stock Option Agreement for the
termination of the Option upon the Participant's termination of service with the
Company prior to such three (3) month period or one year period, as the case may
be.
(d) An Incentive Stock Option shall not be sold, assigned,
transferred, pledged, or otherwise encumbered or disposed of by the Participant
otherwise than by will or the laws of descent and distribution, and an Incentive
Stock Option may be exercisable, during the Participant's lifetime, only by him.
Upon the death of a Participant who has been granted an Incentive Stock Option,
any Incentive Stock Option exercisable on the date of death may be exercised by
the Participant's estate or by a person who acquires the right to exercise such
Incentive Stock Option pursuant to the Participant's will or by the laws of
descent and distribution, provided that the exercise of the Incentive Stock
Option occurs within both the remaining term of the Incentive Stock Option and
twelve months after the Participant's death. The provisions of this Section
6.02(d) shall apply notwithstanding that the Participant's employment may have
terminated prior to death, but only to the extent that such Incentive Stock
Option is exercisable on the date of death.
(e) An Incentive Stock Option may provide, in the Committee's
discretion, that if the provisions of this Article VI are not satisfied, the
Option granted shall not lapse and the Option shall be classified as a
Nonstatutory Stock Option.
6.03 LIMITATIONS ON GRANTS OF INCENTIVE STOCK OPTIONS. The Committee may
not grant an Incentive Stock Option hereunder to an Eligible Person if such
grant could result in the aggregate Fair
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Market Value (determined at the time each incentive stock option is granted) of
Stock with respect to which incentive stock options are exercisable for the
first time by such Eligible Person during any calendar year (under all incentive
stock option plans of the Company or its parent or subsidiaries, if any, as
defined in Section 424(e) and (f) of the Code) exceeding $100,000 or such other
maximum amount which is permissible under the Code, as it may be amended, on the
date of such grant; provided, however, for purposes of determining whether a
proposed grant of an Incentive Stock Option is permissible under this Section
6.03, the Committee shall not consider the possible accelerated vesting upon a
Change of Control under Article XII hereof unless the Committee has received
notice of such Change of Control.
ARTICLE VII
STOCK APPRECIATION RIGHTS
7.01 GRANT AND EXERCISE OF STOCK APPRECIATION RIGHTS. The Committee shall
have full and final authority to select those Eligible Persons who will be
granted Stock Appreciation Rights. Stock Appreciation Rights may be granted to
Eligible Persons by the Committee in tandem with, or independently of, any
Option granted pursuant to Article IV, Article V or VI of this Plan. In the case
of a Stock Appreciation Right granted in tandem with a Nonstatutory Stock
Option, such Stock Appreciation Right may be granted either at or after the time
of the grant of such Nonstatutory Stock Option. In the case of a Stock
Appreciation Right granted in tandem with an Incentive Stock Option, such Stock
Appreciation Right may be granted only at the time of the grant of such
Incentive Stock Option.
A Stock Appreciation Right, or applicable portion thereof granted in
tandem with an Option, shall terminate and no longer be exercisable upon the
termination or exercise of the related Option. However, if a Stock Appreciation
Right is granted with respect to less than the full number of shares covered by
a related Option, such Stock Appreciation Right shall terminate only if and to
the extent that the number of shares covered by the exercise or termination of
the related Option exceeds the number of shares not covered by such Stock
Appreciation Right.
7.02 TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS. Stock Appreciation
Rights shall be subject to such terms and conditions as shall be determined from
time to time by the Committee and embodied in the Agreement and in procedures
established by the Committee. The Committee at any time may accelerate the
exercisability of any Stock Appreciation Right and otherwise waive or amend any
conditions of the grant of a Stock Appreciation Right.
ARTICLE VIII
RESTRICTED STOCK AWARDS
8.01 GRANTS AND AGREEMENT. The Committee shall have full and final
authority to select those Eligible Persons who will be awarded Restricted Stock.
If the purchase of Restricted Stock is required by the Agreement, an Eligible
Person who is granted a Restricted Stock Award shall have no rights with respect
to such grant unless the Participant shall have accepted the grant within 60
days (or such shorter date as the Committee may specify) following the date of
the grant by making payment to the Company by certified or bank check or other
instrument acceptable to the Committee in an amount equal to the specified
purchase price, if any, of the shares covered by the grant and by executing and
delivering to the Company an Agreement in such form as the Committee shall
determine.
8.02 RIGHTS AS A STOCKHOLDER. After the Restricted Stock has been
recorded in the stock ledger of the Company and
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(a) upon complying with Section 8.01 above, if the purchase of
Restricted Stock is required by the Agreement; or
(b) immediately if no purchase of Restricted Stock is
required by the Agreement,
a Participant shall have all the rights of a stockholder with respect to such
Restricted Stock including voting and dividend rights, subject to
non-transferability restrictions and Company repurchase or forfeiture rights
described in this Section 8.02 and Section 8.03, and subject to such other
conditions (including but not limited to condition on voting and dividend
rights) as are contained in the Agreement. Unless the Committee shall otherwise
determine, certificates evidencing shares of Restricted Stock shall remain in
the possession of the Company until such shares are vested as provided in
Section 8.04 below and the Agreement.
8.03 RESTRICTIONS. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged, or otherwise encumbered or disposed of except as
specifically provided herein. Restrictions on shares of Restricted Stock shall
be set forth in a Agreement and may include such vesting restrictions as the
Committee shall determine, including but not limited to restrictions related to
timing, profitability of the Company, and growth of the share price. In the
event of a Participant's termination of employment with the Company and its
Subsidiaries for any reason (including death) prior to the date shares of
Restricted Stock awarded to such Participant become vested, the Company shall
have the right, at the discretion of the Committee, to repurchase such unvested
shares at their purchase price, or to require forfeiture of such shares to the
Company if acquired at no cost, from such Participant or Participant's legal
representative.
8.04 VESTING OF RESTRICTED STOCK. The Committee at the time of grant shall
specify the date or dates (which may depend upon or be related to the attainment
of performance goals and other conditions) on which the restrictions imposed
upon the Restricted Stock and the Company's right of repurchase or forfeiture
shall lapse. Subsequent to such date or dates, the shares on which all
restrictions have lapsed shall no longer be Restricted Stock and shall be deemed
"vested." The Committee at any time may accelerate such date or dates and
otherwise waive or amend any conditions of the grant. A Participant may transfer
or dispose of any Restricted Stock that has vested, subject to any Federal and
State laws then applicable, specifically securities laws.
ARTICLE IX
STOCK CERTIFICATES
9.01 STOCK CERTIFICATES. The Company shall not be required to issue or
deliver any certificate for shares of Stock under this Plan or of any portion
thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing or quotation on all
stock exchanges or automated quotation systems on which the Stock is then listed
or quoted, if any;
(b) The completion of any registration or other qualification of
such shares under any Federal or state law, under the rulings or regulations of
the Securities and Exchange Commission, or under any other governmental
regulatory agency which the Committee shall in its sole discretion determine to
be necessary or advisable;
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(c) The obtaining of any approval or other clearance from any
Federal or state governmental agency which the Committee shall in its sole
discretion determine to be necessary or advisable; and
(d) The lapse of such reasonable period of time following the
exercise of the grant as the Committee from time to time may establish for
reasons of administrative convenience.
If these conditions are not satisfied the Participant may lose his rights
to such Stock as determined by the Committee.
ARTICLE X
PLAN ADMINISTRATION
10.01 PLAN ADMINISTRATION. This Plan and all Agreements shall be
administered, and all grants to Eligible Persons under this Plan shall be
awarded, by the Committee. The Committee shall have full authority and absolute
sole discretion:
(a) To determine, consistent with the provisions of this Plan, which
of the Eligible Persons shall be granted Awards; the form and terms of such
Awards; the timing of such grants; the number of shares subject to each Award
and the Option Price of Stock covered by each Option (if applicable); the
restrictions, if any, applicable to the shares of Stock issuable upon the
exercise of each Option; and the period over which the Awards shall become and
remain exercisable (if applicable);
(b) To construe and interpret this Plan and the Agreements;
(c) To determine the terms and provisions of each respective
Agreement, which need not be identical.
(d) To make all other determinations and take all other actions
deemed necessary or advisable for the proper administration of this Plan;
(e) To modify and amend outstanding Options unilaterally in any
manner that is not adverse to the Option holder; and
(f) To adopt, alter, and repeal such rules, guidelines, and
practices for administration of this Plan and for its own acts and proceedings
as it shall deem advisable; to interpret the terms and provisions of this Plan
and any grant (including related Agreements); to make all determinations it
deems advisable for the administration of this Plan; to decide all disputes
arising in connection with this Plan; and to otherwise supervise the
administration of this Plan.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.01 APPLICABLE LAW. To the extent that state law shall not have been
preempted by any laws of the United States, this Plan shall be construed,
regulated, interpreted and administered according to the laws of the State of
Texas.
11.02 EXPENSES. The cost of benefit payments from this Plan and the
expenses of administering this Plan shall be borne by the Company; provided,
however, that except as otherwise specifically provided
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in this Plan or the applicable Agreement between the Company and a Participant,
the Company shall not be obligated to pay any costs or expenses (including legal
fees) incurred by any Participant in connection with any Agreement, this Plan
or, Award, Option or Stock held by any Participant.
11.03 GENDER AND NUMBER. Unless the context clearly requires otherwise,
the masculine pronoun whenever used shall include the feminine and neuter
pronoun, the singular shall include the plural, and vice versa.
11.04 HEADINGS NOT PART OF PLAN. Headings of Articles and Sections are
inserted for convenience and reference; they constitute no part of this Plan.
11.05 INDEMNIFICATION. No member of the Board of Directors or the
Committee shall be liable for any action or determination taken or made in good
faith with respect to this Plan nor shall any member of the Board of Directors
or the Committee be liable for any Stock Option Agreement issued pursuant to
this Plan or any grants under it. Without limiting any other rights to
indemnification, each member of the Board of Directors and of the Committee
shall be indemnified by the Company against any losses incurred in such
administration of this Plan to the fullest extent permitted by the Texas
Business Corporation Act, as amended.
11.06 LIMITATION OF RIGHTS. Neither the adoption and maintenance of this
Plan or Stock Option Agreement nor anything contained herein, shall with respect
to any Participant, be deemed to:
(a) limit the right of the Company or any Subsidiary to discharge or
discipline any such person, or otherwise terminate or modify the terms of his
employment, or
(b) create any contract or other right or interest under this Plan
other than as specifically provided in this Plan and an Agreement.
11.07 NO DISTRIBUTION, COMPLIANCE WITH LEGAL REQUIREMENTS. The Committee
may require each Participant acquiring shares of Stock pursuant to a grant to
represent to and agree with the Company in writing that such Participant is
acquiring the shares without a view to distribution thereof in violation of
applicable securities laws. No shares of Stock shall be issued pursuant to the
exercise of a grant until all applicable securities law and other legal and
stock exchange or other listing requirements have been satisfied. The Committee
may require the placing of such stop-orders and restrictive legends on
certificates for Stock and grants as it deems appropriate.
11.08 TIMING OF GRANTS. All Awards granted under this Plan shall be
granted prior to the tenth anniversary of the Effective Date.
11.09 NON-ASSIGNABILITY. Except as otherwise set forth herein, a
Participant's interest under this Plan shall not be subject at any time or in
any manner to alienation, sale, transfer, assignment, pledge, attachment,
garnishment or encumbrance of any kind and any attempt to deliver, sell,
transfer, assign, pledge, attach, garnish or otherwise encumber such interest
shall be void and any interest so encumbered will terminate.
11.10 NONTRANSFERABILITY. Unless otherwise approved by the Committee in
writing (except as otherwise provided in Section 6.02(d)), an Award shall not be
transferable by the Participant otherwise than by will or the laws of descent
and distribution or, with respect only to a Nonstatutory Stock Option, pursuant
to a qualified domestic relations order. During the lifetime of the Participant,
such Award shall
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be exercisable or perfected only by the Participant in accordance with the terms
of this Plan and the Stock Option Agreement, unless otherwise approved in
writing by the Committee, in its sole discretion.
11.11 OTHER COMPENSATION PLANS. The adoption of this Plan shall not affect
any other existing or future incentive or compensation plans for directors,
officers or employees of the Company or its Subsidiaries. Moreover, the adoption
of this Plan shall not preclude the Company or its Subsidiaries from:
(a) Establishing any other forms of incentive or other compensation
for officers, employees, consultants or advisors or directors of the Company or
its Subsidiaries; or
(b) Assuming any forms of incentives or other compensation of any
person or entity in connection with the acquisition or the business or assets,
in whole or in part, of any person or entity.
11.12 PLAN BINDING ON SUCCESSORS. This Plan shall be binding upon the
successors and assigns of the Company.
11.13 TAX WITHHOLDING. Each Participant shall, no later than the date as
of which the value of a grant or of any Stock or other amount received
thereunder first becomes includable in the gross income of the Participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Committee regarding payment of any Federal, state, or local
taxes of any kind required by law, or deemed advisable by the Company, to be
withheld with respect to such income. The Committee may permit payment of such
taxes to be made through the tender of cash or securities, the withholding of
Stock or cash to be received through Awards or any other arrangement
satisfactory to the Committee. The Company and its Subsidiaries shall, to the
extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the Participant.
11.14 NON-CONTRAVENTION OF SECURITIES LAWS. Notwithstanding anything to
the contrary expressed in this Plan, any provisions hereof that vary from or
conflict with any applicable Federal or state securities laws (including any
regulations promulgated thereunder) shall be deemed to be modified to conform to
and comply with such laws.
11.15 UNENFORCEABILITY OF A PARTICULAR PROVISION. The unenforceability of
any particular provision of this document shall not affect the other provisions,
and this document shall be construed in all respects as if such unenforceable
provision were omitted.
ARTICLE XII
CHANGE OF CONTROL
12.01 ACCELERATION. Unless the Committee shall otherwise expressly provide
in the Agreement relating to an Award, upon the occurrence of a Change of
Control:
(a) Upon the occurrence of a Change of Control:
(1) In the case of Options and Stock Appreciation Rights, each
such Option and Stock Appreciation Right shall automatically become fully
exercisable;
(2) Restrictions and conditions applicable to Restricted Stock
shall automatically be deemed waived, and the recipients of such grants shall
become entitled to receipt of the Stock subject to such grants, subject to
compliance with applicable state and federal securities laws; and
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(3) In the case of any other Award, the occurrence of such
Change of Control shall have such effect on such Award as may be provided in the
Agreement related thereto or in the Committee's procedures; and
(b) The Committee may at any time accelerate the exercisability of
any Awards to Eligible Persons (if applicable) and may waive restrictions and
conditions on Awards (if applicable) to Eligible Persons to the extent it shall
in its sole discretion determine.
12.02 SPECIAL RIGHTS. Anything in this Plan to the contrary
notwithstanding but subject to Section 12.03, during the 90-day period from and
after a Change of Control (the "Change of Control Exercise Period") a
Participant (other than a Participant who initiated the event that resulted in
the occurrence of such Change of Control in a capacity other than as an officer
or director of the Company) shall have the right to take such action or make
such election as may be permitted upon a Change of Control in the Agreement
relating to such Award or in the Committee's procedures.
12.03 COMMITTEE RIGHTS. The Committee may at any time prior to the
occurrence of a Change of Control require that during the Change of Control
Exercise Period any or all Participants surrender all or a portion of the Awards
made to such Participant under this Plan and receive in cash (i) for each share
of Stock in respect of which such Option is surrendered, an amount equal to the
amount by which the Event Price exceeds the Option Price for such share, (ii)
for such Stock Appreciation Rights surrendered, an amount equal to the amount
such Participant would have received if such Stock Appreciation Right had been
exercised and the Fair Market Value of a share of Stock on the date of exercise
had been the Event Price and (iii) for such Restricted Stock surrendered, an
amount equal to the Event Price for each share of Restricted Stock so
surrendered.
12.04 TERMINATION OF PARTICIPANT; MODIFICATION OF PLAN. The rights of a
Participant or the Committee under Section 12.02 and Section 12.03,
respectively, may be exercised during the Change of Control Exercise Period
referred to therein notwithstanding the termination of the Participant's
employment by the Company, unless provided otherwise in the Agreement relating
to such Award. Anything in this Plan to the contrary notwithstanding, no
termination, amendment or modification of this Plan after the occurrence of a
Change of Control shall in any manner adversely affect any Participant's rights
under this Article XII in respect of such Change of Control without the written
consent of the affected Participant.
12.05 EVENT PRICE. In connection with a Change of Control and a surrender
contemplated by Section 12.03 with respect to an Award, the term "Event Price"
shall mean a price per share of Stock equal to the higher of:
(a) the highest Fair Market Value of the Stock during the period
beginning 90 days prior to such Trigger Date and ending on and including the
last trading day prior to such surrender and
(b) whichever of the following is applicable (or the highest if more
than one is applicable):
(1) the highest per share price paid or to be paid in any
tender or exchange offer which is in effect at any time during such period
referred to in clause (a);
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(2) the fixed or formula price for the acquisition of shares
of Stock in a merger or similar agreement approved by the Company's shareholders
or the Board, if such price is determinable on the date of such surrender; and
(3) the highest price per share paid or to be paid to any
shareholder of the Company in a transaction or group of transactions (including
any tender or exchange offer) giving rise to the occurrence of such Change of
Control:
Any securities or property which are part or all of the consideration paid
or to be paid for shares of Stock in connection with any event contemplated by
clauses (1), (2), and (3) above shall be valued in determining the Event Price
at the higher of (x) the valuation placed on such securities or property by the
person or entity which paid or is to pay such price or (y) the valuation placed
on such securities or property by the Committee.
12.06 CHANGE OF CONTROL. The term "Change of Control" shall mean the
occurrence of any of the following events:
(i) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act (other than the Company, any affiliate (as defined in Rule
144 under the Securities Act) of the Company as of the Effective Date, any
trustee or other fiduciary holding securities under an employee benefit plan of
the Company, or any company owned, directly or indirectly, by the shareholders
of the Company in substantially the same proportions as their ownership of the
Stock of the Company), is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company (not including in the securities beneficially owned by such person any
securities acquired directly from the Company) representing more than 50% of the
combined voting power of the Company's then outstanding voting securities;
provided, however, a Change of Control shall not be deemed to occur solely
because such person acquired beneficial ownership of more than 50% of the
combined voting power of the Company's then outstanding voting securities as a
result of the acquisition of voting securities by the Company, which by reducing
the number of voting securities outstanding, increases the proportional number
of shares beneficially owned by such person, provided that if a Change of
Control would occur (but for the operation of this sentence) as a result of the
acquisition of voting securities by the Company, and after such share
acquisition by the Company, such person becomes the beneficial owner of any
additional voting securities which increases the percentage of the then
outstanding voting securities beneficially owned by such person, then a Change
of Control shall occur;
(ii) during any period of 24 consecutive months (not including any
period prior to the Effective Date), individuals who at the beginning of such
period constitute the Board and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in subsection (i), (iii) or (iv) of this Section
12.06) whose election by the Board or nomination for election by the Company's
shareholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority of the Board;
(iii) the shareholders of the Company approve a merger,
consolidation or reorganization of the Company with any other corporation, other
than a merger, consolidation or reorganization which would result in the
shareholders of the Company immediately before such merger, consolidation or
reorganization, owning, directly or indirectly immediately following such
merger, consolidation or reorganization, at least 50% of the combined voting
power of the voting securities of the
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Company or such surviving entity outstanding immediately after such merger,
consolidation or reorganization in substantially the same proportion as their
ownership of the voting securities immediately before such merger,
consolidation, or reorganization; or
(iv) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
ARTICLE XIII
PERMANENCY OF THIS PLAN AND PLAN TERMINATION
13.01 EFFECTIVE DATE. This Plan became effective on March 17, 1998 (the
"Effective Date"), subject to the approval of the Plan by the shareholders of
the Company.
13.02 TERMINATION, AMENDMENT, AND MODIFICATION OF PLAN. The Board of
Directors may at any time terminate or suspend, and may at any time and from
time to time and in any respect amend or modify, this Plan; provided, however,
that no such action of the Board of Directors without approval of the
shareholders of the Company may increase the total number of shares of Stock
subject to this Plan except as contemplated in Section 3.03 hereof.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 2.02-1 of the Texas Business Corporation Act (the "Act") empowers
a Texas corporation to indemnify any person who was, is, or is threatened to be
made, a named defendant or respondent to any threatened, pending or completed
action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such action, suit or proceeding,
and any inquiry or investigation that could lead to such an action, suit or
proceeding, because the person is or was a director of such corporation, and any
person who, while serving as a director of such corporation, was serving at the
request of such corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another
corporation or enterprise. This indemnity may include judgments, penalties
(including excise and similar taxes), fines, settlements and reasonable expenses
actually incurred by such person in connection with such action, suit or
proceeding, provided that he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. Indemnification of a director is not permitted
if the person is found liable for willful and intentional misconduct in the
performance of his duty to the corporation, is found to be liable on the basis
of the receipt of an improper benefit or is found liable to the corporation. A
Texas corporation is also permitted to indemnify and advance expenses to
officers, employees and agents who are not directors to such extent as may be
provided by its articles of incorporation, bylaws, action of board of directors,
a contract or required by common law. No indemnification shall be permitted if
the person shall have been found liable for willful or intentional misconduct in
the performance of his duty to the corporation. A Texas corporation is required
to indemnify a director or officer against reasonable expenses incurred by him
in connection with a proceeding in which he is named as a defendant or
respondent because he is or was a director or officer if he has been wholly
successful, on the merits or otherwise, in defense of the proceeding.
Article XI of the Articles of Incorporation of the Holding Company and
Article VIII of the Bylaws of the Holding Company provide for indemnification of
the directors and officers of the Holding Company to the fullest extent
permitted by law, as now in effect or later amended.
The Holding Company intends to provide liability insurance for each
director and officer for certain losses arising from claims or charges made
against them while acting in their capacities as directors or officers of the
Holding Company.
Additionally, Article XIV of the Holding Company's Articles of
Incorporation limits the liability of the Holding Company's directors under
certain circumstances. Article XIV states:
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 for liability for (a) a
breach of the director's duty of loyalty to the corporation or its
shareholders; (b) an act or omission not in good faith or that involves
intentional misconduct or a knowing violation of the law; (c) a transaction
from which the director received an improper benefit, whether or not the
benefit resulted from an action taken within the scope of the director's
office; or (d) an act or omission for which the liability of the director
is expressly provided by an applicable statute.
If the TBCA or the Texas Miscellaneous Corporation Laws Act (the
"TMCLA") hereafter is amended to authorize further elimination of
limitation of the liability of directors, then the liability of a director
of the corporation, in addition to the limitation on the personal liability
provided herein, shall be limited to the fullest extent permitted by the
TBCA, as amended and the TMCLA, as amended. Any repeal or modification of
this Article XIV by the shareholders of the corporation shall be
prospective only, and shall not adversely affect any limitation on the
personal liability of a director at the time of such repeal or
modification.
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
<C> <S>
2.1 -- Plan of Reorganization, dated as of March 17, 1998 by and between the Holding Company and
First Victoria National Bank (included as Annex A to the Proxy Statement/Prospectus
forming a part of this Registration Statement).
3.1 -- Articles of Incorporation of the Holding Company (included as Annex B to the Proxy
Statement/Prospectus forming a part of this Registration Statement).
3.2 -- Bylaws of the Holding Company (included as Annex C to the Proxy Statement/Prospectus
forming a part of this Registration Statement).
5.1 -- Opinion of Cox & Smith Incorporated.
10.1 -- FVNB Corp. Stock Incentive Plan (included as Annex E to the Proxy Statement/Prospectus forming a
part of this Registration Statement).
23.1 -- Consent of Cox & Smith Incorporated (included in Exhibit 5.1).
</TABLE>
(b) Not Applicable.
(c) Not Applicable.
ITEM 22. UNDERTAKINGS
A. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
B. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrants of expenses
incurred or paid by a director, officer or controlling person in the successful
defense of any action, suit or proceedings) 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 to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
D. The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
E. The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (D) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the undersigned
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Victoria,
Texas, on March 13, 1998.
FVNB CORP.
By:/s/ DAVID M. GADDIS
DAVID M. GADDIS,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
directors of the registrant hereby constitutes and appoints David M. Gaddis and
C. Dee Harkey, or either of them, as his true and lawful attorneys-in-fact and
agents, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign the Registration Statement filed
herewith and any and all amendments to said Registration Statement filed
herewith and any and all amendments to said Registration Statement (including
post-effective amendments and registration statements filed pursuant to Rule 462
and otherwise), and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or their substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE NAME AND TITLE DATE
- - ------------------------------------------------ ------------------------------------------- ---------------
<S> <C> <C>
/s/DAVID M. GADDIS President and Chief Executive Officer March 13, 1998
DAVID M. GADDIS (Principal Executive Officer) and Director
/s/C. DEE HARKEY Secretary and Principal Accounting Officer March 13, 1998
C. DEE HARKEY
___________________________ Director, Chairman of the Board
MICHAEL S. ANDERSON
/s/O. D. EDWARDS, JR. Director March 13, 1998
O. D. EDWARDS, JR.
____________________________ Director
DAVID P. ENGEL
____________________________ Director
ROBERT L. HALEPESKA
/s/R. L. KELLER Director March 13, 1998
R. L. KELLER
II-3
<PAGE>
<CAPTION>
SIGNATURES -- (CONTINUED)
/s/THOMAS LANE KELLER Director March 13, 1998
THOMAS LANE KELLER
_____________________________ Director
JAMES ROBERT MCCAN
/s/J. E. McCORD Director March 13, 1998
J. E. MCCORD
/s/THOMAS M. O'CONNOR Director March 13, 1998
THOMAS M. O'CONNOR
/s/BILLY W. RUDDOCK Director March 13, 1998
BILLY W. RUDDOCK
/s/ROGER WELDER Director, Vice Chairman of the Board March 13, 1998
ROGER WELDER
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
<C> <S>
2.1 -- Plan of Reorganization, dated as of March 17, 1998 by and between the Holding Company and
First Victoria National Bank (included as Annex A to the Proxy Statement/Prospectus
forming a part of this Registration Statement).
3.1 -- Articles of Incorporation of the Holding Company (included as Annex B to the Proxy
Statement/Prospectus forming a part of this Registration Statement).
3.2 -- Bylaws of the Holding Company (included as Annex C to the Proxy Statement/Prospectus
forming a part of this Registration Statement).
5.1 -- Opinion of Cox & Smith Incorporated.
10.1 -- FVNB Corp. Stock Incentive Plan (included as Annex E to the Proxy Statement/Prospectus forming a
part of this Registration Statement).
23.1 -- Consent of Cox & Smith Incorporated (included in Exhibit 5.1).
</TABLE>
EXHIBIT 5.1
COX & SMITH
I N C O R P O R A T E D
ATTORNEYS COUNSELORS
112 East Pecan Street
Suite 1800
San Antonio, Texas 78205-1521
(210) 554-5500
Fax (210) 226-8395
Writer's Direct Number Writer's E-Mail Address
(210) 554-5250 [email protected]
March 12, 1998
FVNB Corp.
101 S. Main Street
Victoria, Texas 77901
RE: REGISTRATION OF UP TO 2,372,792 SHARES OF
COMMON STOCK, PAR VALUE $.01 PER SHARE, OF
FVNB CORP.
Gentlemen:
We have acted as counsel to FVNB Corp., a Texas corporation (the
"Company"), in connection with the issuance of up to 2,372,792 shares (the
"Shares") of common stock, par value $.01 per share, of the Company in
connection with the transactions contemplated by the Plan of Reorganization,
dated as of March 17, 1998 (the "Plan of Reorganization"), by and between the
Company and First Victoria National Bank, a national banking association (the
"Bank"), and the related Plan of Merger in the form attached as Exhibit A to the
Plan of Reorganization (the "Plan of Merger") to be entered into by and between
the Bank and FVNB Interim Bank, N.A., an interim national banking association to
be formed by the Company (the "Interim Bank").
We have examined such documents, records and matters of law as we have
deemed necessary for purposes of this opinion. Based on such examination and on
the assumptions set forth below, we are of the opinion that, when the
Registration Statement on Form S-4 (the "Registration Statement") filed by the
Company to effect registration of the Shares under the Securities Act of 1933,
as amended, has been declared effective by the Securities and Exchange
Commission and the Shares have been issued and delivered in accordance with the
terms and provisions of the Plan of Reorganization and Plan of Merger as
contemplated by the Registration Statement, the Shares will be duly authorized,
validly issued, fully paid, and nonassessable.
In rendering this opinion, we have (i) assumed and have not
independently verified (a) that each agreement, document, or instrument pursuant
to which any of the Shares are
<PAGE>
to be issued will at the time of such issuance have been duly authorized,
executed, and delivered by the parties thereto and will constitute a valid,
binding, and enforceable obligation of such parties, (b) that all signatures on
all certificates and other documents examined by us are genuine, and that, where
any such signature purports to have been made in a corporate, governmental or
other capacity, the person who affixed such signature to such certificate or
other document had authority to do so, and (c) the authenticity of all documents
submitted to
us as originals and the conformity to original documents of all
documents submitted to us as copies, (ii) as to certain factual matters, relied
upon certificates of public officials and the Company and its officers and upon
the representations and warranties set forth in the Plan of Reorganization and
Plan of Merger and have not independently checked or verified the accuracy of
the factual statements contained therein, and (iii) assumed that the parties to
the Plan of Reorganization and Plan of Merger will comply with the provisions
thereof.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Proxy Statement-Prospectus constituting a part of the
Registration Statement. In giving this consent, however, we do not hereby admit
that we are within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, and the rules and
regulations of the Securities and Exchange Commission thereunder.
Yours very truly,
COX & SMITH INCORPORATED
By:/s/ CARY PLOTKIN KAVY
Cary Plotkin Kavy
For the Firm
