<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
INDEPENDENT BANKSHARES, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.25 per share
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(2) Aggregate number of securities to which transaction applies:
2,273,647
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
$45,473,000-- Sale Price. Subject to increase if merger does not
occur by August 8, 2000
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(4) Proposed maximum aggregate value of transaction:
$45,473,000
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(5) Total fee paid:
$9,095.00
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
INDEPENDENT BANKSHARES, INC.
547 Chestnut Street
Abilene, Texas 79602
(915) 677-5550
Dear Shareholder: June __, 2000
You are cordially invited to attend the special meeting of shareholders of
Independent Bankshares, Inc., a Texas corporation and the holding company for
First State Bank, National Association, to be held at First State Bank's Central
Branch Lobby, 547 Chestnut Street, Abilene, Texas at 4:00 p.m. (local time) on
July 12, 2000.
The attached Notice of Special Meeting of Shareholders and proxy statement
describe the formal business to be transacted at the special meeting. The
purpose of the special meeting is to consider and vote upon a proposal to
approve and adopt the Agreement and Plan of Reorganization by and between State
National Bancshares, Inc. ("State National") and Independent Bankshares, Inc.
(the "Company") dated as of March 1, 2000, which provides for a merger of New
FSB, Inc., a wholly owned subsidiary of State National with and into our Company
with our Company continuing as the surviving corporation. In the merger, each
share of the Company's common stock outstanding at the time of the merger would
be converted into the right to receive an amount of cash equal to $20.00,
subject to such price increasing if the merger is not consummated by August 8,
2000. The accompanying proxy statement more fully describes the proposed
merger, and contains business, financial and other information regarding the
Company.
Consummation of the merger is subject to certain conditions, including the
approval of all applicable regulatory authorities and the Company's
shareholders. The Board of Directors believes that the proposed merger is in
the best interests of the Company and its shareholders, and has unanimously
approved the merger agreement and the merger. The Board of Directors
unanimously recommends that you vote "FOR" approval and adoption of the merger
agreement.
You are urged to carefully read the accompanying proxy statement, which
provides important information regarding the merger and related matters.
Your vote is important, regardless of the number of shares that you own.
In order for the merger to be consummated, the merger agreement must be approved
by the holders of two-thirds of the outstanding shares of common stock entitled
to vote. Consequently, a failure to vote or a vote to abstain will have the
same effect as a vote against the merger agreement. On behalf of the Board of
Directors, I urge you to sign, date and return the enclosed proxy in the
enclosed postage-paid envelope as soon as possible, even if you currently plan
to attend the special meeting. This will not prevent you from voting in person,
but will assure that your vote is counted if you are not able to attend the
special meeting. Executed proxies with no instructions indicated on such
proxies will be voted "FOR" approval and adoption of the merger agreement.
We look forward to seeing you at this important special meeting. If you
have any questions regarding the special meeting or the proposed merger, you
are encouraged to call Randal N. Crosswhite, Corporate Secretary of Independent
Bankshares, Inc., at (915) 677-5550.
Bryan W. Stephenson
President and Chief Executive Officer
<PAGE>
INDEPENDENT BANKSHARES, INC.
547 Chestnut Street
Abilene, Texas 79602
(915) 677-5550
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held July 12, 2000
A special meeting of the shareholders of Independent Bankshares, Inc. (the
"Company") will be held at the First State Bank, N.A., Central Branch Lobby, 547
Chestnut Street, Abilene, Texas at 4:00 p.m. (local time) to consider the
following proposal:
To approve and adopt the Agreement and Plan of Reorganization by and
between State National Bancshares, Inc. ("State National") and the Company,
dated as of March 1, 2000, pursuant to which:
. New FSB, Inc., a wholly owned subsidiary of State National
("New FSB") will merge with and into the Company with the
Company continuing as the surviving corporation and as a
wholly owned subsidiary of State National; and
. each outstanding share of the Company's common stock will be
exchanged for $20.00 in cash, subject to such price
increasing if the merger is not consummated by August 8,
2000.
The board of directors has fixed June 8, 2000, as the record date for the
determination of shareholders entitled to vote at the special meeting.
If you would like to attend the special meeting and your shares are held by
a broker, bank or other nominee, you must bring to the special meeting a recent
brokerage statement or letter from the nominee confirming your beneficial
ownership of the shares of common stock. You must also bring a form of personal
identification. In order to vote your shares at the special meeting you must
obtain from each nominee a proxy issued in your name.
Under Part Five of the Texas Business Corporation Act, if holders of the
Company's shares of common stock dissent from and do not vote in favor of the
approval and adoption of the Agreement and Plan of Reorganization and the
merger, they are entitled to certain appraisal rights, provided that they
strictly comply with certain statutory procedures explained in detail in the
attached proxy statement. A copy of the dissenters' rights provisions of the
Texas Business Corporation Act (Articles 5.11 through 5.13) is attached as
Appendix C to the proxy statement.
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It will be helpful to us if you read the proxy statement and voting
instructions on the proxy card, and then vote by promptly marking, signing,
dating and returning the accompanying proxy in the enclosed, self-addressed,
stamped envelope so that the necessary quorum may be represented at the special
meeting.
By Order of the Board of Directors,
Randal N. Crosswhite
Corporate Secretary
Abilene, Texas
June __, 2000
Please do not send any share certificates at this time.
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INDEPENDENT BANKSHARES, INC.
547 Chestnut Street
Abilene, Texas 79602
(915) 677-5550
_____________________
PROXY STATEMENT
_____________________
SPECIAL MEETING OF SHAREHOLDERS
To Be Held July 12, 2000
This proxy statement and the accompanying proxy are solicited by the
Company's Board of Directors from holders of its outstanding shares of its
common stock, par value $0.25 per share. The proxies will be voted at the
Company's special meeting of shareholders to be held on July 12, 2000, at the
time and place and for the purpose set forth in the accompanying Notice of
Special Meeting of Shareholders and at any adjournments or postponements of the
special meeting. This proxy statement and the accompanying proxy are first
being mailed to shareholders on or about June __, 2000.
At the special meeting, shareholders will consider and vote upon a proposal
to approve and adopt the Agreement and Plan of Reorganization by and between the
Company and State National, dated as of March 1, 2000, and the Agreement and
Plan of Merger attached thereto as Exhibit A (together, the "merger
---------
agreement"), pursuant to which New FSB, a wholly owned subsidiary of State
National, will merge with and into the Company. As a result of the merger, the
Company will continue as the surviving corporation and a wholly owned subsidiary
of State National and New FSB will cease to exist. In the merger, each share of
the Company's common stock outstanding at the time of the merger would be
converted into the right to receive an amount of cash equal to $20.00, subject
to such price increasing if the merger is not consummated by August 8, 2000.
Shares held by shareholders properly perfecting dissenters' rights would be
converted into cash pursuant to the dissenters' rights provisions also described
in this proxy statement. For a discussion of the consideration to be received
by the Company's shareholders in the merger, see "The Proposed Merger--Purchase
Price." A copy of the merger agreement is included as Appendix A to this proxy
----------
statement, and is incorporated herein by reference.
Consummation of the merger is conditioned upon, among other things,
approval and adoption of the merger agreement by the requisite vote of the
Company's shareholders and the receipt of all requisite regulatory approvals and
consents. For further information concerning the terms and conditions of the
merger, see "The Proposed Merger--The Merger."
The board of directors knows of no additional matters that will be
presented for consideration at the special meeting. No persons have been
authorized to give any information or to make any representations other than
those contained in this proxy statement in connection with the solicitation of
proxies made hereby, and, if given or made, such information or representations
must not be relied upon as having been authorized by the Company or any other
person.
No persons have been authorized to give any information or to make any
representation other than those contained in this proxy statement in connection
with the solicitation of proxies made hereby, and if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or any other person.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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FORWARD-LOOKING STATEMENTS--CAUTIONARY STATEMENTS............................................................ 1
QUESTIONS AND ANSWERS ABOUT THE MERGER....................................................................... 2
SUMMARY...................................................................................................... 5
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY.......................................................... 11
SPECIAL MEETING OF SHAREHOLDERS.............................................................................. 14
Purpose................................................................................................... 14
Solicitation and Voting................................................................................... 14
Revocability of Proxies................................................................................... 15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.............................................................. 15
SECURITY OWNERSHIP OF MANAGEMENT............................................................................. 16
THE PROPOSED MERGER.......................................................................................... 17
The Merger................................................................................................ 17
Background of the Merger.................................................................................. 17
Reasons for the Merger and Recommendation of the Board of Directors....................................... 17
Opinion of the Company's Financial Advisor................................................................ 19
Effective Time of the Merger.............................................................................. 25
Conversion of Shares of the Company's Common Stock........................................................ 25
Purchase Price............................................................................................ 25
Surrender of the Company's Common Stock................................................................... 25
Company Trust Preferred Securities........................................................................ 26
Interests of Certain Persons in the Merger................................................................ 26
Employee Matters and Impact on Employee Benefit Plans..................................................... 27
Covenants of the Company and State National; Conduct of Business Prior to the Merger...................... 28
Conditions to Consummation of the Merger.................................................................. 31
Regulatory Approvals...................................................................................... 31
Termination; Termination Fees and Expenses................................................................ 33
Operation of the Company after the Merger................................................................. 34
Noncompete and Support Agreements......................................................................... 34
Certain Federal Income Tax Consequences................................................................... 35
Accounting Treatment...................................................................................... 35
Dissenters' Rights........................................................................................ 35
MARKET PRICES AND DIVIDENDS.................................................................................. 37
INFORMATION REGARDING STATE NATIONAL AND NEW FSB............................................................. 37
AVAILABLE INFORMATION........................................................................................ 38
SHAREHOLDER PROPOSALS........................................................................................ 38
OTHER BUSINESS............................................................................................... 38
</TABLE>
APPENDIX A: Agreement and Plan of Reorganization by and between State
National Bancshares, Inc. and Independent Bankshares,
Inc. dated as of March 1, 2000
APPENDIX B: Opinion of Stifel, Nicolaus & Company, Incorporated
APPENDIX C: Dissenters' Rights Provisions--Articles 5.11-5.13 of the
Texas Business Corporation Act
i
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FORWARD-LOOKING STATEMENTS--CAUTIONARY STATEMENTS
This proxy statement contains certain forward-looking statements and
information relating to the Company and its subsidiaries that are based on the
beliefs of the Company's management as well as assumptions made by and
information currently available to the Company's management. When used in this
proxy statement, the words "anticipate," "believe," "estimate," "expect" and
"intend" and words or phrases of similar import, as they relate to the Company
or its subsidiaries or Company management, are intended to identify forward-
looking statements. Such statements reflect the current view of the Company with
respect to future events and are subject to certain risks, uncertainties and
assumptions related to certain factors including, without limitation,
competitive factors, general economic conditions, customer relations, the
interest rate environment, governmental regulation and supervision,
nonperforming asset levels, loan concentrations, changes in industry practices,
one time events and other factors described herein. Based upon changing
conditions, should any one or more of these risks or uncertainties materialize,
or should any underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated,
expected or intended. The Company does not intend to update these forward-
looking statements.
1
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QUESTIONS AND ANSWERS ABOUT THE MERGER
The following questions and answers are intended to address briefly some
commonly asked questions regarding the merger. These questions and answers may
not address all questions that may be important to you as a Company shareholder.
Please refer to the more detailed information contained elsewhere in this proxy
statement and the appendices to this proxy statement.
Q. When and where is the special meeting?
A. The special meeting will take place on Wednesday, July 12, 2000, at
4:00 p.m., local time, in the lobby of First State's Central Branch
Location, 547 Chestnut Street, Abilene, Texas.
Q. Who is soliciting the proxy?
A. The Board of Directors of the Company.
Q. What am I being asked to vote upon?
A. Your Board of Directors is asking you to vote to approve or disapprove
a merger agreement which provides that State National will acquire the
Company by merging an entity owned by State National into the Company, with
the Company being the surviving corporation in the merger. The merger
agreement is attached to this proxy statement as Appendix A. We encourage
you to read the merger agreement as it is a legal document that governs the
merger.
Q. If the merger is completed, what will I receive for my Company common
stock?
A. If the merger is completed and you do not dissent to the merger, you
will receive $20.00 in cash for each share of our common stock you own. In
addition, if the merger does not occur by August 8, 2000, you will receive
an approximate additional consideration in the amount of $0.005 per share
per day commencing August 8, 2000, until the merger becomes effective.
Q. Will I owe taxes as a result of the merger?
A. The merger will be a taxable transaction for all holders of our common
stock. As a result, the cash you receive in the merger for your shares of
the common stock and any cash you receive from exercising your dissenter's
rights will be subject to United States income tax and also may be taxed
under applicable state, local and other tax laws. In general, you will
recognize gain or loss equal to the difference between (1) the amount of
cash you receive and (2) the tax basis of your shares of the Company common
stock.
Q. Why is your board of directors recommending the merger?
A. We believe the merger represents a unique opportunity for our
shareholders to realize a fair price for their shares; approximately a 54%
premium over the $13.00 closing price on February 16, 2000, the last day of
trading prior to our announcement that we had received an acquisition
proposal from State National. We are competing against larger and better
capitalized financial institutions and our future growth opportunities are
somewhat limited by our lack of size and available resources. Our Board of
Directors believes that the merger is fair to, and in the best interests
of, the Company and its shareholders. Our Board of Directors has received a
written fairness opinion from Stifel, Nicolaus & Company, Incorporated (the
"Stifel Opinion") that the $20.00 per share in cash to be received by our
shareholders pursuant to the merger agreement is fair from a financial
point of view to the Company and our shareholders.
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Q. Does the Board of Directors or officers of the Company have any special
interest in the outcome of the vote?
A. As described in the proxy statement, the members of our Board of
Directors and officers of the Company have certain interests in the merger
that are different from or in addition to your interests, which may create
possible conflicts of interest.
Q. What rights do shareholders have if they oppose the merger?
A. Shareholders who wish to dissent from the merger may seek appraisal of
the fair value of their shares, but only if they strictly comply with all
of the procedures under Texas law that are summarized in this proxy
statement.
Q. What stockholder vote is required to adopt the merger agreement and the
merger?
A. Under Texas law, two-thirds of the outstanding shares of common stock
entitled to vote must adopt the merger agreement and the merger.
Q. What happens if I do not instruct a broker holding my shares as to how
to vote them or I abstain from voting?
A. If your shares are held by a broker as nominee, your broker will not be
able to vote your shares without instructions from you. You should
instruct your broker on how to vote your shares, using the instructions
which will be provided to you by your broker prior to the special meeting.
If your broker is unable to vote your shares or if you abstain, it will
have the effect of voting against adoption of the merger agreement and the
merger.
Q. Can I vote shares at the meeting that are held by a broker as nominee?
A. If you would like to attend the special meeting and your shares are
held by a broker, bank or other nominee, you must bring to the special
meeting a recent brokerage statement or letter from the nominee confirming
your beneficial ownership of the shares of common stock. You must also
bring a form of personal identification. In order to vote your shares at
the special meeting you must obtain from each nominee a proxy issued in
your name.
Q. Who is entitled to vote at the special meeting?
A. Holders of record of our common stock as of the close of business on
June 8, 2000, are entitled to vote at the special meeting. Each
shareholder has one vote for each share of our common stock owned.
Q. Do I need to attend the special meeting in person?
A. No. It is not necessary for you to attend the special meeting in order
to vote your shares, although you are welcome to attend.
Q. Is the merger subject to regulatory approval?
A. Yes. The merger is subject to the approval of the Federal Reserve.
There can be no assurance that such regulatory approval will be obtained,
and, if obtained, there can be no assurance as to the date of any such
approval.
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Q. When is the merger expected to be completed?
A. We are working toward completing the merger as quickly as possible.
The merger cannot be completed until a number of conditions are satisfied.
The most important condition is the approval of the merger agreement and
the merger by the Company shareholders at the special meeting. If adopted
by the shareholders, we currently expect the merger to be completed on or
before August 1, 2000.
Q. What do I need to do now?
A. After you have carefully read this proxy statement, please complete,
sign and mail your proxy card in the enclosed return envelope as soon as
possible. That way, your shares can be represented at the special meeting.
If your shares are held by a broker as nominee, you should receive a proxy
card from your broker. Company shareholders must return their proxy cards
before the special meeting or attend the special meeting in person in order
for their votes to be counted at the special meeting. Your proxy materials
include detailed information on how to vote.
Q. Can I change my vote after I have mailed my proxy card?
A. Yes. You can change your vote at any time before your proxy is voted
at the special meeting. You may revoke your proxy by notifying our
Secretary in writing or by submitting a new proxy, in each case, dated
after the date of the proxy being revoked. In addition, your proxy may be
revoked by attending the special meeting and voting in person. However,
simply attending the special meeting will not revoke your proxy. If you
have instructed a broker to vote your shares, you must follow the
instructions received from your broker to change your vote.
Q. Should I send in my company stock certificates now?
A. State National will send you written instructions for exchanging your
stock certificates. You must return your stock certificate as described in
the instructions. You will receive your cash payment as soon as
practicable upon receipt of your stock certificates, together with the
documents requested in the instructions, and consummation of the merger.
Q. Where can I find more information about the Company?
A. We file periodic reports and other information with the Securities and
Exchange Commission. You may read and copy this information at the
Commission's public reference facilities. Please call the Commission at
1-800-SEC-0330 for information about these facilities. This information is
also available at the Internet site maintained by the Commission at
http://www.sec.gov and at the offices of the American Stock Exchange, LLP.,
86 Trinity Pl Fl 8, New York, New York 10006; telephone (212) 306-1000.
Q. Who can help answer my questions?
A. If you have questions about the merger after reading this proxy
statement, you should contact Randal N. Crosswhite, our Chief Financial
Officer, at (915) 677-5550.
Q. Will any other matters be voted on at the special meeting?
A. No other matters will be voted on at the special meeting.
4
<PAGE>
SUMMARY
The following is a brief summary of the material information relating to
the merger contained elsewhere in this proxy statement. This proxy summary is
qualified in its entirety by the more detailed information contained elsewhere
in this proxy statement and the appendices to this proxy statement. The
"Company," "we" "us" or "our" refers to Independent Bankshares, Inc. "First
State" refers to First State Bank, National Association, the Company's wholly
owned banking subsidiary. "State National" refers to State National Bancshares,
Inc. "New FSB" refers to New Independent Holdings, Inc., State National's wholly
owned subsidiary. Capitalized terms not otherwise defined below have the
meanings ascribed to them elsewhere in this proxy statement. Shareholders are
urged to read this proxy statement and its appendices in their entirety.
Parties to the Merger
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The Company The Company is a bank holding company subject to supervision by
the Board of Governors of the Federal Reserve System ("Federal
Reserve"). The Company owns all of the common securities of
Independent Capital Trust ("Issuer Trust") and indirectly owns
through a Delaware subsidiary, Independent Financial Corp.
("Independent Financial"), 100% of the shares of common stock of
First State. First State operates full-service banking locations
in the Texas cities of Abilene (three locations), Azle (two
locations), Lubbock, Odessa (four locations), San Angelo, Stamford
and Winters. The Company's primary activities are to assist First
State in the management and coordination of its financial
resources and to provide capital, business development, long range
planning and public relations for First State. The Company's
executive and administrative offices are located at 547 Chestnut
Street, Abilene, Texas 79602, and its telephone number at that
location is (915) 677-5550.
State National (page 37) State National is a Texas corporation and a bank holding company
subject to supervision by the Federal Reserve. State National
owns all of the outstanding shares of common stock of State
National Bancshares of Delaware, Inc. ("State National Delaware'),
a subsidiary bank holding company organized and domiciled in
Dover, Delaware. State National Delaware owns 100% of the
outstanding capital stock of three subsidiary banks: State
National Bank of West, Texas, Lubbock, Texas, State National Bank,
El Paso, El Paso, Texas and United Bank & Trust, Abilene, Texas.
State National's executive and administrative offices are located
at 1617 Broadway, Lubbock, Texas 79401, and its telephone number
at that location is (806) 749-5667.
New FSB (page 37) New FSB was organized as a Texas corporation on May 23, 2000,
solely for the purpose of effecting the merger. State National
owns 100% of the outstanding capital stock of New FSB. New FSB's
79401, and its telephone number at that location is (806)
749-5667. To date, New FSB has not conducted any business other
than in connection with its formation and capitalization and the
transactions contemplated by the merger agreement.
</TABLE>
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The Special Meeting
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<S> <C>
Time, Place and Date of the The special meeting will be held at 4:00 p.m., local time, on July
Special Meeting (page 14) 12, 2000 in the lobby of First State's Central Branch, 547
Chestnut Street, Abilene, Texas.
Record Date and You are entitled to vote at the special meeting if you owned
Shareholders Entitled to shares of our common stock at the close of business on June 8,
Vote (page 14) 2000, the record date for the special meeting. You will have one
vote for each share of our common stock you owned on the record
date. There are approximately 2,273,647 shares of Company common
stock entitled to be voted held by approximately ____ shareholders
of record.
Purpose of the Meeting You will be asked to consider and vote upon a proposal to approve
(page 14) the merger agreement and the merger.
Vote Required (page 14) Approval of the merger requires the affirmative vote of the
holders of two-thirds of our outstanding shares of common stock.
Our directors, officers, together with their respective
affiliates, and the Company's Employee Stock Ownership/401(k) Plan
collectively own approximately 541,383 shares of the Company
common stock, or 23.8% of the total currently outstanding shares.
Failure to vote FOR the merger, either by not returning the
enclosed proxy or by checking the ABSTAIN box on the proxy, will
have the same effect as a vote AGAINST the merger. The completion
of the merger depends upon satisfaction of a number of conditions,
including, among other things:
. approval of the merger agreement by the shareholders of the
Company holding not less than two-thirds of the outstanding shares
of common stock;
. receipt of all applicable regulatory approvals; and
. the absence of a material adverse change in our business,
financial condition or results of operation since December 31,
1999.
Solicitation of Proxies (pages 14 and 15) We will pay all of the costs of soliciting proxies from our
shareholders. In addition to soliciting proxies by mail, our
directors, officers and employees, without receiving additional
compensation, may solicit proxies by personal interview, mail,
telephone and facsimile. Arrangements will also be made with
brokerage firms and other custodians, nominees and fiduciaries to
forward solicitation materials to the beneficial owners of shares
held of record by such persons, and we will reimburse such
brokerage firms, custodians, nominees and fiduciaries for
reasonable out-of-pocket expenses incurred by them.
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<TABLE>
<S> <C>
Purpose and Effect of the Merger Upon completion of the merger:
(page 17)
. New FSB will be merged with and into us and we will be the
surviving corporation after the merger;
. We will be 100% owned indirectly, through State National Delaware,
by State National; and
. Each share of our common stock issued and outstanding immediately
prior to the effective time of the merger (other than shares as to
which dissenters' rights are perfected) will be converted into the
right to receive $20.00 in cash. In addition, if the merger does
not occur by August 8, 2000, you will receive additional
consideration in the approximate amount of $0.005 per share per
day commencing August 8, 2000, until the merger becomes effective.
Reasons for the Merger (page 17) In arriving at our determination that the merger is fair to, and
in the best interests of, our shareholders, the Board of Directors
considered a number of factors, including, without limitation, the
following:
. The merger represents an opportunity for our shareholders to
realize a premium over recent market prices for their shares;
. In the opinion of our financial advisor, the price per share of
common stock to be received by you is fair from a financial point
of view;
. We compete against many larger and better capitalized financial
institutions and are vulnerable to competitive factors;
. Our shares are somewhat illiquid and there is no assurance that
our shares will appreciate in the future;
. We have explored strategic alternatives and believe that the
merger offers a unique opportunity to maximize the value of our
common stock; and
. Since February 16, 2000, the date we announced our negotiations
with State National, there has been no communication of any kind
from other companies evidencing an interest in commencing
acquisition discussions with us.
Recommendations of the Our Board of Directors has unanimously approved the merger agreement,
Board of Directors (page 17) and have determined that the terms of the merger are fair to, and
in the best interests of, our shareholders. Our Board of Directors
unanimously recommends that you approve the merger agreement and the
merger.
</TABLE>
7
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<TABLE>
<S> <C>
Opinion of Financial Advisor On March 1, 2000, Stifel, Nicolaus & Company, Incorporated, our
(page 19) financial advisor, delivered the Stifel Opinion to our Board of
Directors that, as of the date of such opinion, the consideration
to be received by our shareholders in the merger is fair from a
financial point of view. The full text of the Stifel Opinion,
which has been updated through the date of this proxy statement
and which sets forth the assumptions made, general procedures
followed, matters considered and limitations on the review
undertaken in connection with the opinion, is attached to this
proxy statement as Appendix B. You should read this opinion
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carefully and in its entirety.
Interests of Certain Persons in the Merger Our officers and directors have interests in the merger as
(page 26) employees and directors that are different from, or in addition
to, your interests as shareholders.
The Merger Agreement
Effective Time of the Merger The merger will become effective upon the filing of Articles of
(page 25) Merger with the Secretary of State of the State of Texas. The
filing is expected to occur within 20 business days (but
anticipated on or before August 1, 2000) after approval of the merger
agreement by our shareholders at the special meeting and
satisfaction or waiver of the other conditions to the merger
contained in the merger agreement. We cannot assure you that all
conditions to the merger contained in the merger agreement will be
satisfied or waived.
Representations and Warranties; Conduct of The merger agreement contains various customary representations
Business Pending the Merger (page 28) and warranties made by each of the parties to the merger
agreement. The merger agreement also contains various customary
covenants, including a covenant that during the period from the
date of the merger agreement until consummation of the merger we
will conduct our business in the usual and ordinary course.
Conditions to Consummation of the Merger The completion of the merger depends upon satisfaction of a number
(page 31) of conditions, including, among other things:
. approval of the merger agreement by the shareholders of the
Company holding not less than two-thirds of the outstanding shares
of common stock;
. receipt of all applicable regulatory approvals; and
. the absence of a material adverse change in our business,
financial condition or results of operation since December 31,
1999.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
No Negotiations with Others (page 32) Subject to certain exceptions, we cannot, directly or indirectly,
nor can we permit First State or their respective officers,
directors or employees to:
. encourage, solicit or initiate discussions or negotiations with,
any corporation, partnership, person or other entity concerning a
merger, tender offer, takeover offer, sale of substantial assets,
sale of shares of capital stock or similar transaction;
. entertain, discuss or negotiate with any corporation, partnership,
person or other entity concerning any merger, tender offer,
takeover offer, sale of substantial assets, sale of shares of
capital stock or similar transaction; or
. provide any information to or cooperate with any corporation,
partnership, person or other entity concerning a merger, tender
offer, takeover offer, sale of substantial assets, sale of shares
of capital stock or similar transaction.
Termination of Merger Agreement; Termination The merger agreement provides that the merger agreement and the
Fee (page 33) merger may be terminated by the mutual consent of the parties, or
by either party upon the occurrence or non-occurrence of certain
events. Subject to certain qualifications, the parties have
agreed that the defaulting party will pay the other party a
termination fee equal to $1,500,000 if the merger agreement is
terminated in connection with certain events, including the
Company or First State entering into an acquisition agreement with
a third party, the Board of Directors of the Company approving a
third party acquisition proposal or publicly announcing its
intention to do so or recommending that the shareholders of the
Company approve or accept such third party acquisition proposal,
State National's inability to obtain regulatory approval as a
result of the insufficiency of its capital to consummate the
merger, or if all of the conditions precedent to the obligations
of State National in the merger have been met, but State National
refuses to consummate the transaction.
Material Federal Income Tax Consequences As a result of the merger, you will generally recognize a gain or
(page 35) loss for United States income tax purposes measured by the
difference between the cash received pursuant to the merger
agreement and your adjusted tax basis in the shares of the
Company's common stock exchanged for such cash. You should
consult with your tax advisor as to the specific tax consequences
of the merger to you, including the applicability and effect of
federal, state, local, foreign and other tax laws.
Accounting Treatment (page 35) The merger will be accounted for as a "purchase" in accordance
with generally accepted accounting principles. Consequently, the
aggregate consideration paid by State National in connection with
the merger will be allocated to the Company's assets and
liabilities based upon their fair values, with any excess being
treated as goodwill.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Rights of Dissenting Shareholders (page 35) Under Texas law, if holders of the shares of the Company's common
stock dissent and vote against approval and adoption of the merger
agreement and the merger, they are entitled to appraisal rights,
provided that they strictly comply with certain statutory
procedures further explained in detail in this proxy statement. A
copy of Articles 5.11 through 5.13 of the Texas Business
Corporation Act, which sets forth the rights of dissenting
shareholders under Texas law, is attached as Appendix C to the
----------
proxy statement.
Recent Prices of Company Common Stock The Company's common stock is traded on the American Stock
(page 37) Exchange ("AMEX") under the symbol "IBK." The closing price per
share for the common stock as reported on the AMEX on February 16,
2000, the last full trade day prior to the public announcement
that we were negotiating with State National, was $13.00. The
closing price per share for the common stock as reported on the
AMEX on February 29, 2000, the last full trading day prior to the
announcement of the proposed merger, was $16.5625.
Selected Financial Information (page 11) Certain selected historical financial data is set forth under the
"Selected Consolidated Financial Data of the Company."
Management Ownership (page 16) As of June 8, 2000, our directors and executive officers own, in
the aggregate, 424,911 shares of our outstanding common stock,
representing an aggregate of approximately 18.69% of our
outstanding shares.
</TABLE>
10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The selected consolidated financial data of the Company for the years ended
December 31, 1999, 1998, 1997, 1996 and 1995, and for the quarters ended March
31, 2000 and 1999, and the balance sheet data as of December 31, 1999, 1998,
1997, 1996 and 1995, and as of March 31, 2000, are derived from the audited
Consolidated Financial Statements of the Company and the unaudited Consolidated
Financial Statements of the Company, respectively, not included in this proxy
statement.
11
<PAGE>
<TABLE>
<CAPTION>
At or for the
At or for the Years Ended December 31, Quarters Ended March 31,
---------------------------------------------------------- ------------------------
1999 1998 1997 1996 1995 2000 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Total assets....................... $ 358,262 $ 370,178 $ 264,574 $ 205,698 $ 180,344 $ 355,866 $ 363,088
Loans, net......................... 186,626 184,560 140,853 92,017 81,927 187,242 184,093
Deposits........................... 318,299 330,804 242,801 189,575 164,704 315,257 324,074
Stockholders' equity............... 25,356 24,505 20,527 14,937 13,818 25,935 24,336
Common stockholders' equity
per share.......................... 11.21 11.03 10.36 10.41 10.00 11.47 11.14
Common shares outstanding
adjusted for stock dividends....... 2,273,647 2,217,296 1,975,263 1,380,805 1,312,865 2,273,647 2,180,780
SELECTED OPERATING DATA:
Interest income.................... $ 24,206 $ 20,434 $ 18,324 $ 13,556 $ 11,962 $ 6,150 $ 6,056
Interest expense................... 9,898 9,276 8,659 6,441 5,309 2,527 2,543
Net interest income.............. 14,308 11,158 9,665 7,115 6,653 3,623 3,513
Provision for loan losses.......... 445 570 250 201 206 110 105
Net interest income after
provision for loan losses..... 13,863 10,588 9,415 6,914 6,447 3,513 3,408
Noninterest income................. 3,267 2,791 1,909 1,551 1,509 812 843
Noninterest expense................ 13,504 9,998 8,237 6,290 6,242 3,370 3,326
Income before federal income
taxes......................... 3,626 3,381 3,087 2,175 1,714 955 925
Federal income taxes............... 1,174 1,193 977 753 582 324 296
Net income......................... 2,452 2,188 2,110 1,422 1,132 631 629
Basic earnings per common
share............................ 1.12 1.07 1.12 1.00 0.82 0.28 0.28
Diluted earnings per common
share............................ 1.08 1.02 1.03 0.84 0.67 0.28 0.27
Cash dividends per common
share............................ 0.20 0.20 0.19 0.14 0.09 0.06 0.05
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
At or for the
At or for the Years Ended December 31, Quarters Ended March 31,
------------------------------------------------------ ------------------------
1999 1998 1997 1996 1995 2000 1999
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands, except per share data)
SELECTED FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS:
Return on average assets.................... 0.68% 0.75% 0.82% 0.72% 0.67% 0.70% 0.69%
Return on average stockholders' equity...... 9.87 9.89 10.95 9.89 8.99 9.84 10.22
Average stockholders' equity to average
assets..................................... 6.86 7.53 7.45 7.33 7.43 7.13 6.74
Ending stockholders' equity to average
assets..................................... 7.08 6.62 7.76 7.25 7.66 7.29 6.70
Efficiency ratio (1)........................ 66.20 66.31 69.09 72.78 76.56 65.84 65.56
Interest rate spread (2)....................
Net interest margin (3).....................
REGULATORY CAPITAL RATIOS:
Tier 1 capital (4).......................... 12.08% 10.36% 11.26% 10.99% 15.23% 12.24% 10.64%
Total capital (5)........................... 15.22 13.77 12.02 12.15 16.08 15.25 14.11
Leverage (6)................................ 6.83 5.97 6.71 5.95 7.65 7.14 5.93
ASSET QUALITY DATA:
Nonperforming assets........................ $ 897 $ 1,176 $ 1,034 $ 585 $ 629 $ 723 $ 869
Nonperforming assets to total assets........ 0.25% 0.32% 0.39% 0.28% 0.35% 0.20% 0.24%
Nonperforming loans......................... 625 546 295 196 292 432 519
Nonperforming loans to loans, net........... 0.33% 0.30% 0.21% 0.21% 0.36% 0.23% 0.28%
Other real estate and other repossessed
assets..................................... $ 272 $ 630 $ 739 $ 389 $ 337 $ 291 $ 350
Allowance for possible loan losses to
nonperforming loans........................ 293.28% 337.36% 397.63% 404.59% 259.93% 431.94% 356.26%
</TABLE>
_______________________
(1) The efficiency ratio is computed by dividing noninterest expense less
distributions on guaranteed preferred beneficial interests in the
Company's subordinated debentures, amortization of intangible assets and
expenses related to other real estate and other repossessed assets by the
sum of net interest income before provision for loan losses plus
noninterest income, excluding securities gains and losses.
(2) Interest rate spread represents the difference between the average yield
on interest-earning assets and the average costs of interest-bearing
liabilities.
(3) Net interest margin represents net interest income, on a fully taxable-
equivalent basis, divided by average interest-earning assets.
(4) Tier 1 capital to risk weighted assets.
(5) Total capital to risk-weighted assets.
(6) Tier 1 capital to adjusted quarterly average assets.
13
<PAGE>
SPECIAL MEETING OF SHAREHOLDERS
Purpose
At the special meeting, shareholders of the Company will be asked to
consider and vote on a proposal to approve and adopt the merger agreement. The
merger agreement provides for merger of New FSB, a wholly owned subsidiary of
State National with and into the Company. Upon consummation of the merger, the
Company would be the surviving corporation and would be a wholly owned
subsidiary of State National. Pursuant to the merger agreement, upon
consummation of the proposed merger each share of the Company's common stock
outstanding immediately prior to the effective time of the merger will be
canceled and converted into the right to receive $20.00 in cash, subject to such
price increasing as described below. The aggregate purchase price to be paid by
State National for the Company's common stock issued and outstanding immediately
prior to the effective time will be an amount equal to $45,473,000 plus, if the
effective time of the merger does not occur by August 8, 2000, the sum of
$12,455 per day for each day commencing August 8, 2000 until the effective time.
Accordingly, assuming the Company's outstanding shares remain constant at
2,273,647 shares, State National will be required to pay an additional
approximately $0.005 per share per day for each day commencing August 8, 2000,
until the effective time. See "The Proposed Merger--The Merger."
The board of directors of the Company believes that the merger is in the
best interests of the Company and its shareholders and unanimously recommends
that you vote "FOR" approval and adoption of the merger agreement.
Solicitation and Voting
In addition to the solicitation of proxies by use of the mail, officers,
directors and regular employees of the Company may solicit the return of proxies
by personal interview, mail, telephone and facsimile. These persons will not be
additionally compensated, but will be reimbursed for out-of-pocket expenses.
The Company will also request brokerage houses and other custodians, nominees
and fiduciaries to forward solicitation material to the beneficial owners of
shares. The Company will reimburse such persons and the transfer agent for their
reasonable out-of-pocket expenses in forwarding such materials.
To the extent necessary in order to ensure sufficient representation at the
Company's special meeting, the Company may request by telephone or telegram the
return of proxy cards. The extent to which this will be necessary depends
entirely upon how promptly proxy cards are returned. The Company will bear all
of the cost of the solicitation. Shareholders are urged to send in their proxies
without delay.
As of the record date, 2,333,647 shares of the Company's common stock were
issued and 2,273,647 shares were outstanding. At that date, such shares were
held of record by approximately ________ shareholders. The presence, in person
or by proxy, of at least a majority of all the outstanding shares of the
Company's common stock entitled to vote at the special meeting is necessary to
constitute a quorum at the special meeting. Shareholders as of the record date
are entitled to one vote for each share of the Company's common stock that they
own.
The affirmative vote of the holders of at least two-thirds of the
outstanding shares of the Company's common stock entitled to vote is required to
approve and adopt the merger agreement and the merger. A failure to return a
properly executed proxy or to vote in person at the special meeting will have
the same effect as a vote "AGAINST" approval and adoption of the merger
agreement.
Abstentions and broker nonvotes will be counted as shares present at the
special meeting for purposes of determining the presence of a quorum.
Abstentions and broker nonvotes will have the same effect as a vote "AGAINST"
approval of the merger agreement. A broker nonvote occurs when a nominee
holding shares for a
14
<PAGE>
beneficial owner does not vote on a particular proposal because the nominee does
not have discretionary voting power for that particular item and has not
received instructions from the beneficial owner.
As of the record date, the Company's directors and executive officers and
their respective affiliates beneficially owned a total of 424,911 shares of the
Company's common stock, or 18.69%, of the total outstanding shares.
Revocability of Proxies
The Company encourages the personal attendance of its shareholders at the
special meeting. An execution of the accompanying proxy will not affect a
shareholder's right to attend the special meeting and to vote in person.
Proxies may be revoked if you:
. Deliver a signed, written revocation letter, dated any time before the
proxy is voted, to Mr. Randal N. Crosswhite, Corporate Secretary,
Independent Bankshares, Inc. at the Company's principal executive
offices, 547 Chestnut Street, Abilene, Texas 79602;
. Sign and deliver a proxy, dated later than the first one, to the
Company's Corporate Secretary at the above address; or
. Attend the meeting and vote in person. Attending the special meeting
alone will not revoke your proxy. A revocation letter or a later-dated
proxy will not be effective until received by the Company at or prior
to the special meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table shows the name, address, number of shares held, and
percentage of shares held as of the record date, by the entities known to the
Company to be the beneficial owners of more than five percent of the Company's
common stock.
<TABLE>
<CAPTION>
Number of Percentage of
Name and Address Shares (1) Class (2)
------------------------------------ ---------- -------------
<S> <C> <C>
Independent Bankshares Inc. 159,313(3) 7.01%
Employee Stock Ownership/401(k) Plan
P.O. Box 3296
Abilene, Texas 79604
Dodge Jones Foundation 147,318 6.48
400 Pine Street, Suite 900
Abilene, Texas 79601
</TABLE>
_______________
(1) Beneficial ownership as reported in the above table has been determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended. Unless otherwise indicated, each of the persons named has sole
voting and investment power with respect to the shares reported.
(2) The percentage of common stock indicated is based on 2,273,647 shares of
common stock outstanding on the record date.
(3) The shares held in the Company's Employee Stock Ownership /401(k) Plan (the
"Stock Ownership Plan") are voted by the employee participants.
15
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table and notes to the table set forth information with
respect to common stock beneficially owned as of the record date by:
. each director of the Company;
. each of the five most highly compensated executive officers of the
Company;
. each individual selected as an advisory director or director emeritus of
the Company; and
. all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Amount and Nature Percent of
of Beneficial Class Owned
Name of Beneficial Owner Ownership(1) Beneficially(2)
----------------------------------------------- ----------------- ---------------
<S> <C> <C>
John L. Beckham................................ 2,750 0.12%
Lee Caldwell................................... 13,706 0.60
Carl E. Campbell............................... 0 --
Mrs. Wm. R. (Amber) Cree....................... 4,541 0.20
Randal N. Crosswhite........................... 26,063(3) 1.15
Thomas C. Darden............................... 830(4) 0.04
James G. Fitzhugh.............................. 15,353(5) 0.68
Michael D. Jarrett............................. 7,885(6) 0.35
Nancy E. Jones................................. 300 0.01
Marshal M. Kellar.............................. 1,931(7) 0.08
Tommy McAlister................................ 5,360(8) 0.24
L.H. Mosley*................................... 55,039 2.42
J.E. Smith*.................................... 3,875(9) 0.17
Bryan W. Stephenson............................ 108,635(10) 4.78
Scott L. Taliaferro............................ 84,361(11) 3.71
James D. Webster, M.D.......................... 885 0.04
C.G. Whitten................................... 6,547 0.29
John A. Wright**............................... 86,850 3.82
All executive officers and directors as a group
(18 individuals, including the executive
officers and directors listed above)........... 424,911(12) 18.69%
</TABLE>
- --------------
* Advisory Director
** Director Emeritus
(1) Beneficial ownership as reported in the above table has been determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended. Unless otherwise indicated, each of the persons named has sole
voting and investment power with respect to the shares reported.
(2) The percentages of common stock indicated are based on 2,273,647 common
shares outstanding on the record date.
(3) Includes Mr. Crosswhite's beneficial ownership of 12,695 shares held by the
Stock Ownership Plan.
(4) Includes Mr. Darden's beneficial ownership of 830 shares held by the Stock
Ownership Plan.
(5) Includes Mr. Fitzhugh's beneficial ownership of 10,552 shares held by the
Stock Ownership Plan.
16
<PAGE>
(6) Includes Mr. Jarrett's beneficial ownership of 5,635 shares held by the
Stock Ownership Plan.
(7) Includes 1,931 shares owned by M & G Kellar Investment Limited
Partnership, a partnership in which Mr. Kellar is a general partner.
(8) Includes 3,924 shares owned by McAlister Oil Co., Inc. Mr. McAlister is
President and sole shareholder of McAlister Oil Co., Inc.
(9) Includes 1,750 shares owned by Mr. Smith's wife.
(10) Includes 25,363 shares owned by Mr. Stephenson's wife and minor child.
Also includes Mr. Stephenson's beneficial ownership of 13,129 shares held
by the Stock Ownership Plan.
(11) Includes 1,240 shares owned by Mr. Taliaferro's wife.
(12) Includes such executive officers' beneficial ownership of 42,841 shares
held by the Stock Ownership Plan.
THE PROPOSED MERGER
The following is a summary description of the material aspects of the
merger. This description does not purport to be complete and is qualified in
its entirety by reference to the appendices attached to this proxy statement,
including the merger agreement, which is attached as Appendix A to this proxy
----------
statement. We urge you to read the appendices in their entirety.
The Merger
Under the terms of the merger agreement, at the effective time, New FSB, a
wholly owned subsidiary of State National, will merge with and into the Company
with the Company continuing as the surviving corporation. As a result of the
merger, the Company will become a wholly owned subsidiary of State National and
will succeed to all of the assets and liabilities of New FSB. New FSB, which was
formed only to facilitate the merger, will cease to exist as a separate entity.
Upon completion of the merger, shareholders of the Company will no longer own
any shares of the Company's common stock and will not, as a result of the
merger, own any common stock either of State National or New FSB.
At the effective time of the merger, each of the outstanding shares of the
Company's common stock will be converted into the right to receive $20.00 in
cash, subject to such price increasing as described below. The aggregate
purchase price to be paid by State National for the Company's common stock
issued and outstanding immediately prior to the effective time will be an amount
equal to $45,473,000 plus, if the effective time of the merger transaction does
not occur by August 8, 2000, the sum of $12,455 per day for each day commencing
August 8, 2000 until the effective time. Accordingly, assuming the Company's
outstanding shares remain constant at 2,273,647 shares, State National will be
required to pay an additional approximately $0.005 per share per day for each
day commencing August 8, 2000, until the effective time. For a discussion of the
consideration to be received by the Company's shareholders in the merger, see
"The Proposed Merger--Purchase Price."
Background of the Merger
The management and the Board of Directors of the Company have, from time to
time, discussed intensifying competition in, and the continuing consolidation
of, the banking and financial services industries. At various times in the past,
management and the Board of Directors have also considered the possibility of a
sale of the Company as a way to enhance shareholder value. The management and
certain members of the Board of Directors of the Company have also been
contacted from time to time by officers and other representatives of other
financial institutions, which inquired about the willingness of the Board of
Directors to consider a sale of the Company; however, none of such inquiries
matured into a formal offer or resulted in a letter of intent for the sale of
the Company. In each instance, the Board of Directors continued to pursue a plan
of expansion of the Company's network of branch offices, which at March 31, 1999
consisted of thirteen locations across West Texas.
During May 1999, after receiving inquiries with respect to the Company's
interest in a potential business combination from Tom C. Nichols, President of
State National, and Don Adam, Chairman of First American Bank, Texas SSB ("First
American"), Bryan Stephenson, President of the Company, requested that Stifel
explore strategic alternatives for the Company and advise the Company's Board of
Directors on matters relating to the enhancement of shareholder value.
Representatives of the Company informed both State National and First American
that the Company was considering its strategic alternatives at this time and
that should a sale of the Company be one of the options, they would be
contacted.
On June 15, 1999, Stifel furnished the Company with an analysis of
strategic alternatives for the Company and this analysis was reviewed and
discussed by the Company's Executive Committee (consisting of Directors Scott
Taliaferro, Sr. (Chairman), Bryan Stephenson, C.G. Whitten and John Beckham) on
June 16, 1999. In late June 1999, Mr. Taliaferro had an informal meeting with
representatives of First American to discuss their interest in the Company. On
July 1, 1999, representatives of Stifel met with the Executive Committee in
person and reviewed and discussed the analysis. Among other things, Stifel's
analysis discussed a range of potential values of $20 to $25 per share for the
sale of the Company should the Company determine not to remain independent.
In early July 1999, representatives of First American faxed to Scott
Taliaferro, Sr. a proposed timetable relating to a possible business
transaction between First American and the Company. The time line did not
contain an offer and did not contain a price. The timetable was reviewed by the
Executive Committee on July 7, 1999, and after discussion with counsel, Mr.
Taliaferro, at the direction of the Executive Committee, informed Mr. Adam of
First American that the Company was in the process of considering its strategic
alternatives and that future discussions regarding a potential transaction
should be directed to Mr. Stephenson.
Also, on July 7, 1999, at the direction of the Executive Committee, Bryan
Stephenson instructed Stifel to contact, on a confidential, no name basis, a
number of financial institutions to determine the level of interest that might
exist in the marketplace for a possible business combination with the Company.
During the second and third weeks of July 1999, Stifel contacted
approximately seven financial institutions and on July 22, 1999, informed the
Executive Committee through Bryan Stephenson that five interested organizations,
including State National, had indicated an interest in receiving more
information and entering into discussions. Upon receipt of the information, the
Executive Committee through Mr. Stephenson instructed Stifel to attempt to
determine the level of interest and range of values that the potential acquirors
would consider in an acquisition of the Company.
At the July 22, 1999, regular meeting of the Board of Directors, Mr.
Stephenson distributed Stifel's analysis of strategic alternatives to the entire
Board of Directors for their review and consideration. Although the Board of
Directors considered each of the strategic alternatives referenced, including
sale or merger of the Company, a merger of equals and remaining independent, the
Board of Directors took no formal action with respect to the strategic
alternatives.
At the end of July 1999, Stifel obtained confidentiality agreements with
these various financial organizations that previously expressed an interest to
Stifel and, subsequently, supplied certain financial and other information
regarding the Company and First State. At the same time, Stifel requested
indications of interest from the various organizations concerning the possible
acquisition of the Company. In early August, Stifel also contacted First
American to ascertain their interest in the Company. After this contact, Stifel
obtained a confidentiality agreement and solicited an indication of interest
from First American.
During the second week of August 1999, Bank United Corp. ("Bank United")
responded with a preliminary range of $19 to $22 per share in stock; First
American responded with a preliminary indication of $20 per share in cash; and
State National responded with a preliminary indication of $19 per share in cash
or $20 per share in stock. The other potentially interested parties did not
respond with a proposal and were not contacted again.
During the last week in August, the Company and Stifel formalized their
relationship and entered into an agreement for Stifel to act as the Company's
financial advisor. The Board of Directors ratified the Executive Committee's
approval of the Stifel agreement on September 15, 1999.
Stifel continued discussions and negotiations with Bank United, First
American and State National and solicited increased proposals. In the first two
weeks of September 1999, Bank United responded with a preliminary range of $21
to $23 per share in stock; First American reiterated its $20 per share in cash
indication; and State National increased its potential price to $20.25 per share
in cash. After receipt and review of the three preliminary proposals, the
Company scheduled separate due diligence reviews with these three organizations.
The due diligence reviews commenced on September 21, 1999 and ended October 6,
1999, with all three parties conducting extensive due diligence.
Upon conclusion of the due diligence reviews and further negotiations,
Stifel solicited final offers from State National, First American and Bank
United. In mid-October, Bank United dropped its indication of interest to $19
per share in stock, First American again reaffirmed its preliminary indication
of $20 per share in cash and State National increased its per share preliminary
indication to $22 in cash.
On October 20, 1999, Mr. Stephenson informed the Executive Committee of
these developments and the Committee instructed Mr. Stephenson to direct counsel
to forward a draft of a proposed acquisition agreement to both First American
and State National, with the goal being that it would be easier for the Company
to compare two offers if the underlying agreements were similar.
On November 5, 1999, Mr. Stephenson informed the Executive Committee that
First American and State National had furnished their initial comments on the
proposed draft acquisition agreement. While State National had relatively few
comments, First American proposed significant changes, one of which effectively
dropped their proposed price to approximately $19.25 per share. In discussions,
First American indicated to representatives of the Company that it was not
likely to change the scope or nature of its comments to the proposed agreement.
At a special meeting of the Board of Directors on November 12, 1999, the
Board of Directors was informed of and discussed the various alternatives to
maximize shareholders' value, including the three potential merger opportunities
with Bank United, First American and State National. The Board of Directors was
advised of the background of merger discussions to date and thoroughly discussed
the various acquisition proposals focusing in most areas on the State National
opportunity. The Board of Directors' discussion included, among other things,
discussions regarding the status of negotiations with State National and First
American, timing of a potential transaction, tax treatment of each proposal,
the Company's projected future performance and other available strategic
alternatives, including remaining independent, background information on State
National, State National's plans and prospects for financing the acquisition,
post signing and preclosing covenants, termination and termination fee
provisions, employee benefit matters, the effect of a potential transaction on
the Company's trust preferred securities, director and officer indemnification
and director and officer insurance coverage, various ancillary agreements, and
other open issues. The Board of Directors discussed the prospects of continued
interest by Bank United. The Board of Directors adjourned the meeting to have
additional time to consider all of the information that they had received.
At the regular Board of Directors meeting held on November 17, 1999, the
Board of Directors continued its discussion of the acquisition opportunities,
again focusing on the State National transaction. The Board of Directors
discussed, among other things, State National's ability to service the
obligations relating to the Company's trust preferred securities following
consummation of a transaction, and the necessity to carefully review and
consider State National's current and pro forma financial condition and results
of operations and corporate structure after completion of the proposed
transaction. The Board of Directors recommended that the Company continue to
pursue the State National proposal and instructed management to negotiate the
open contractual issues and to continue to review and consider State National's
ability to service the Company's obligations to the holders of its trust
preferred securities.
On November 18, 1999, management directed counsel to furnish Bank United
with the original draft of the acquisition agreement for its review.
Representatives of Bank United indicated they would respond in a day or two.
Subsequent to receiving the draft, Bank United determined not to submit
comments.
On November 23, 1999, the Board of Directors held a special meeting to
discuss financing issues related to a transaction with State National. At the
meeting, Bryan Stephenson, Randal Crosswhite and representatives of Stifel
reviewed for the Board of Directors financial information and projections
recently received from State National and, along with the Board of Directors,
discussed the reasonableness of such materials. After further discussion of the
information presented to the Board of Directors, the Board of Directors
adjourned. The purpose of the adjournment was to provide the directors a period
of time to review the recently received State National financial information.
Another special meeting of the Board of Directors was called and held on
December 2, 1999. Bryan Stephenson updated the directors on conversations with
Bank United and informed them that Bank United was no longer interested. The
Board of Directors continued to discuss the merits of a transaction with State
National as compared to remaining independent. The Board of Directors determined
to provide State National 60 days to provide the Company with assurances that
State National could raise the funds necessary to complete the transaction.
Bryan Stephenson communicated this request to Tom C. Nichols of State National.
On February 10, 2000, Tom Nichols delivered to Bryan Stephenson and Scott
Taliaferro, Sr. commitment letters, subject to the satisfaction of certain
conditions, for $36,500,000 in equity and $10,000,000 in debt financing. Mr.
Nichols' informed Mr. Stephenson and Mr. Taliaferro at that time that State
National would be able to proceed with the transaction only at a price of $20
per share in cash and provided Mr. Stephenson with a nonbinding written proposal
to that effect.
On February 16, 2000, the Executive Committee met to consider State
National's revised purchase proposal and funding commitments. The Executive
Committee determined to convene a special meeting of the Board of Directors and
to issue a press release announcing the Company's receipt and the Board of
Directors' consideration of the State National proposal. On February 16, 2000,
the Company issued a press release stating that it had received a nonbinding
proposal from State National to acquire the Company at price of $20 per share in
cash.
On February 29, 2000, the Board of Directors met to consider and discuss
the revised purchase proposal and the advisability of accepting State National's
guarantee and assumption of the Company's trust preferred securities. The per
share price offered by State National was within the range of potential values
initially suggested by Stifel.
At a special meeting of the Board of Directors held on March 1, 2000, a
final contract was presented to the Board of Directors, and representatives of
Stifel discussed the Stifel Opinion regarding the proposed State National
transaction. At this meeting, Stifel delivered its oral opinion to the effect
that, as of that date, and subject to various assumptions, matters considered
and limitations described in the opinion, that the $20 per share offer from
State National was fair, from a financial point of view, to the holders of the
Company's common stock. Counsel updated the Board of Directors on final changes
to the merger agreement, including the agreement of State National to guarantee
and assume the Company's outstanding trust preferred securities. After a lengthy
discussion, the Board unanimously approved the merger agreement and the merger
of a subsidiary of State National into the Company.
Reasons for the Merger and Recommendation of the Board of Directors
The Company's Board of Directors believes that the terms of the merger
agreement, which are the product of arm's length negotiations between
representatives of State National and the Company, are fair and in the best
17
<PAGE>
interests of the Company and its shareholders. In the course of reaching its
determination, the Company's Board of Directors consulted with its legal
counsel, with respect to its legal duties, the terms of the merger agreement and
related issues; with its financial advisor Stifel, with respect to the financial
aspects and fairness of the transaction; and with senior management regarding,
among other things, operational matters.
The financial services industry has changed significantly in recent
years. Changes include:
. consolidation of the banking industry through mergers;
. deregulation of competition among banking, securities and insurance
services providers; and
. a trend towards banks and others offering a broad range of different
financial services and products to customers.
In the future, many expect the extensive use of technology to continue to
transform the delivery of banking services. For these reasons, the Board of
Directors of the Company developed concerns about the Company's small size and
limited resources and its ability to meet the challenges facing it. The Board of
Directors was also concerned about the Company's ability to meet its
shareholders' expectations. Increasing shareholder value in future years would
require significant increases in profitability and growth, which would be
difficult for the Company to achieve given its small size, current market
conditions and increasing consumer demand for sophisticated financial services.
We believe that the merger at this time is in the best interests of the
shareholders. Our financial advisor has advised us that State National's offer
of $20.00 per share for the Company's outstanding common stock will result in
the return of value that is within the range that can be achieved for the
Company's shareholders.
In reaching its determination to approve the merger agreement, the
Company's Board of Directors considered all factors it deemed material. The
Company's Board of Directors analyzed information with respect to the financial
condition, results of operations, cash flow, businesses and prospects of the
Company. In this regard, the Board of Directors considered the performance
trends of the Company over the past several years. The Board of Directors
compared the Company's current and anticipated future operating results to
publicly available financial and other information for other similarly sized
banking institutions in West Texas. The Board of Directors used this
information in analyzing the options of selling the Company, remaining
independent on a stand-alone basis or pursuing acquisitions, and the business
strategies that could reasonably be implemented by the Company. The Board of
Directors concluded that although the Company has been successful in reducing
its operating costs, competition from larger financial institutions would make
it difficult for the Company over time to earn an adequate return as an
independent entity, which, in the future, may decrease the value of the common
stock.
The Board of Directors concluded that the merger represents an opportunity
for the Company's shareholders to realize a premium over recent market prices
for their common stock. The shareholders of the Company will receive
approximately a 54% premium over the $13.00 closing price of the common stock on
February 16, 2000, the last day of trading prior to the announcement that the
Company had received a merger proposal from State National.
The Board of Directors considered the Stifel Opinion that, as of
March 1, 2000, the purchase price to be received by holders of the Company's
common stock pursuant to the merger agreement was fair to the Company's
shareholders from a financial point of view. See "The Proposed Merger--Opinion
of the Company's Financial Advisor." The Company's Board of Directors reviewed
the assumptions and results of the various
18
<PAGE>
valuation methodologies employed by Stifel in arriving at its opinion and found
those assumptions and results to be reasonable and complete.
The Board of Directors considered the current operating environment,
including but not limited to, the continued consolidation and increasing
competition in the banking and financial services industries, the prospects for
further changes in these industries, and the importance of being able to
capitalize on developing opportunities in these industries. This information
had been periodically reviewed by the Company's Board of Directors at its
regular meetings and was also discussed between the Company's Board of Directors
and the Company's advisors. The Board of Directors also considered the current
and prospective economic and competitive conditions facing the Company in
particular in its market areas.
The Board of Directors also considered provisions made for benefits to and
obligations of employees, management and members of the Board of Directors. The
Board of Directors concluded that those terms are fair and reasonable.
The Board of Directors considered the likelihood of the merger being
approved by the appropriate regulatory authorities, including factors such as
market share analyses, and the estimated pro forma financial impact of the
merger on the Company. See "The Proposed Merger--Regulatory Approvals."
The Board of Directors considered the specific terms of the merger
agreement, including the taxable nature of the purchase price. The Board of
Directors also considered the ability of State National to pay the aggregate
purchase price, and accordingly reviewed State National's financial condition,
results of operation, liquidity and capital position. The Board of Directors
also reviewed certain commitment letters from equity and debt financing
sources of State National. These commitment letters are conditioned upon there
being no changes to the merger agreement, no material adverse change in the
financial condition, results of operation or prospects of either the Company or
State National between June 30, 1999 and the Closing, and the satisfaction of
all conditions precedent to the merger agreement.
In addition, the Board of Directors considered the fact that the merger
agreement prohibits the Company and the Board of Directors from initiating,
soliciting, or encouraging discussions with third parties regarding alternative
business combinations.
The Board of Directors also considered State National's assumption of the
Company's obligations on all outstanding trust preferred securities and State
National's agreement to maintain the listing of the trust preferred securities
on the AMEX until September 22, 2003.
The above discussion of the factors considered by the Board of Directors is
not intended to be exhaustive. In determining whether to approve and recommend
the merger agreement, the Board of Directors did not assign any relative or
specific weights to any of the foregoing factors, and individual directors may
have weighed factors differently. After deliberating with respect to the merger
and the merger agreement, considering, among other things, the reasons discussed
above and the Stifel Opinion referred to above, the Company's Board of Directors
unanimously approved and adopted the merger agreement and the merger as being in
the best interests of the Company and its shareholders.
For the reasons set forth above, the Company's Board of Directors has
unanimously approved the merger agreement and the merger as advisable and in the
best interests of the Company and its shareholders and recommends that the
shareholders of the Company vote "FOR" the approval and adoption of the merger
agreement and the merger.
Opinion of the Company's Financial Advisor
The Company retained Stifel, Nicolaus & Company, Incorporated as its
financial advisor in connection with its consideration of strategic
alternatives, including the merger, because Stifel is a nationally recognized
investment banking firm with substantial expertise in transactions similar to
the merger and is familiar with the Company and its business. Stifel is an
investment banking
19
<PAGE>
and securities firm with membership on all principal U.S. securities exchanges.
As part of its investment banking activities, Stifel is regularly engaged in the
independent valuation of businesses and securities in connection with mergers,
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. In September 1998, Stifel acted as the Company's underwriter in the
public offering of $2,300,000 of the Company's common stock and $13,000,000 of
the Company's trust preferred securities. In connection with this underwriting,
the Company allowed Stifel an underwriting discount and commission of $705,150
and agreed to indemnify Stifel for certain liabilities, including liabilities
under the Securities Act of 1933, as amended.
At a meeting of the Company's Board of Directors on March 1, 2000, Stifel
rendered to the Company's Board of Directors an oral opinion that, as of such
date, and subject to various assumptions, matters considered and limitations
described in the opinion, the $20 to be paid for each share of the Company's
common stock pursuant to the merger agreement, referred to below as the cash
consideration, was fair to the holders of the Company's common stock from a
financial point of view.
Stifel has confirmed its March 1, 2000, oral opinion by delivery of its
written opinion to the Company's Board of Directors, dated the date of this
proxy statement, that, based upon and subject to various assumptions, matters
considered and limitations described therein, the cash consideration to be
received by the shareholders of the Company pursuant to the merger agreement is
fair to such shareholders from a financial point of view.
The full text of the Stifel Opinion as of the date hereof, which sets forth
the assumptions made, matters considered and limitations of the review
undertaken, is attached as Appendix B to this proxy statement and is
----------
incorporated herein by reference, and should be read in its entirety in
connection with this proxy statement. The summary of the opinion of Stifel set
forth in this proxy statement is qualified in its entirety by reference to the
full text of such opinion.
No limitations were imposed by the Company on the scope of Stifel's
investigation or the procedures to be followed by Stifel in rendering its
opinion. Stifel was not requested to and did not make any recommendation to the
Company's Board of Directors as to the form or amount of the consideration to be
paid to the Company, which was determined through arm's length negotiations
between the parties. In arriving at its opinion, Stifel did not ascribe a
specific range of values to the Company. Its opinion is based on the financial
and a comparative analysis described below. The Stifel Opinion is for the use
and benefit of the Company's Board of Directors in connection with its
consideration of the merger. The Stifel Opinion is not intended to be and does
not constitute a recommendation to any shareholder of the Company as to how such
shareholder should vote with respect to the merger. Stifel was not requested to
opine as to, and its opinion does not address, the Company's underlying business
decision to proceed with or effect the merger.
In connection with its March 1, 2000, oral opinion and its written
opinion dated the date hereof, Stifel reviewed, among other things:
. reviewed the merger agreement;
. reviewed the financial statements of the Company included in its Annual
Reports on Form 10-K for each of the five years ended December 31, 1998,
and its Quarterly Reports on Form 10-Q for the three quarters ended
September 30, 1999, and internal financial statements for the twelve
months ended December 31, 1999;
. reviewed the financial statements of State National for the two years
ended December 31, 1998, and the period from inception (March 8, 1996)
to December 31, 1996, and internal financial statements for the twelve
months ended December 31, 1999;
. reviewed various internal financial analyses and forecasts for the
Company and State National prepared by their respective managements; and
certain pro forma financial forecasts for the Company and State National
on a combined basis, giving effect to the merger, prepared by the
respective managements of the Company and State National utilizing the
Company's and State National's internal financial forecasts;
20
<PAGE>
. conducted conversations with the Company's and State National's senior
management regarding their respective business plans and financial
forecasts;
. compared financial and securities data of the Company and State National
with various other companies whose securities are traded in public
markets, reviewed the historical stock prices and trading volumes of the
common stock of the Company;
. reviewed the financial terms of several other business combinations; and
. conducted such other financial studies, analyses and investigations as
it deemed appropriate for purposes of its opinion.
Stifel also took into account its assessment of general economic, market
and financial conditions and its experience in other transactions, as well as
its experience in securities valuations and its knowledge of the financial
services industry generally.
In rendering its opinion, Stifel relied upon and assumed, without
independent verification, the accuracy and completeness of all of the financial
and other information that was provided to it or that was otherwise reviewed by
it. Stifel did not assume any responsibility for independently verifying any of
such information. With respect to the financial forecasts supplied to it,
Stifel assumed that they were reasonably prepared on the basis reflecting the
best currently available estimates and judgments of the management of the
Company and State National as to the future operating and financial performance
of the Company and State National, that they would be realized in the amounts
and time periods estimated and that they provided a reasonable basis upon which
Stifel could form its opinion. Stifel also assumed that there were no material
changes in the assets, liabilities, financial condition, results of operations,
business or prospects of either the Company or State National since the date of
the last financial statements made available to it. Stifel also assumed,
without independent verification and with the Company's consent, that the
aggregate allowances for loan losses set forth in the financial statements of
the Company and State National are in the aggregate adequate to cover all such
losses. Stifel did not make or obtain any independent evaluation, appraisal or
physical inspection of the Company's or State National's assets or liabilities,
the collateral securing any of such assets or liabilities, or the collectibility
of any such assets nor did it review loan or credit files of the Company or
State National. Stifel relied on advice of the Company's counsel and
accountants as to all legal and accounting matters with respect to the Company,
the merger agreement and the transactions and other matters contained or
contemplated therein. Stifel assumed, with the Company's consent, that there
are no factors that would delay or subject to any adverse conditions any
necessary regulatory or governmental approval and that all conditions to the
merger will be satisfied and not waived.
As a matter of policy, the Company and State National do not publicly
disclose internal management forecasts, projections or estimates of the type
furnished to Stifel in connection with its analysis of the financial terms of
the merger, and such forecasts and estimates were not prepared with a view
towards public disclosure. These forecasts and estimates were based on numerous
variables and assumptions which are inherently uncertain and which may not be
within the control of the management of either the Company or State National,
including, without limitation, factors related to the integration of the Company
and State National and general economic, regulatory and competitive conditions.
Accordingly, actual results could vary materially from those set forth in such
forecasts and estimates.
In connection with rendering its March 1, 2000, oral opinion, Stifel
performed a variety of financial analyses that are summarized below. Such
summary does not purport to be a complete description of such analyses. Stifel
believes that its analyses and the summary set forth herein must be considered
as a whole and that selecting portions of such analyses and the factors
considered therein, without considering all factors and analyses, could create
an incomplete view of the analyses and processes underlying its opinion. The
preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analysis or summary
description. In its analyses, Stifel made numerous assumptions with respect to
industry performance, business and economic conditions, and other matters, many
of which are beyond the control of the Company or
21
<PAGE>
State National. Any estimates contained in Stifel's analyses are not necessarily
indicative of actual future values or results, which may be significantly more
or less favorable than suggested by such estimates. Estimates of values of
companies do not purport to be appraisals or necessarily reflect the actual
prices at which companies or their securities actually may be sold. No company
or transaction utilized in Stifel's analyses was identical to the Company or
State National or the merger, respectively. Accordingly, such analyses are not
based solely on arithmetic calculations; rather, they involve complex
considerations and judgments concerning differences in financial and operating
characteristics of the relevant companies, the timing of the relevant
transactions, and prospective buyer interest, as well as other factors that
could affect the public trading values of the company or companies to which they
are being compared. None of the analyses performed by Stifel was assigned a
greater significance by Stifel than any other. The analyses described below do
not purport to be indicative of actual future results, or to reflect the prices
at which the Company's common stock or State National's common stock may trade
in the public markets.
The following is a summary of the financial analyses performed by Stifel in
connection with providing its oral opinion on March 1, 2000.
Analysis of Bank Merger Transactions. Stifel analyzed various information
relating to recent transactions in the banking industry, consisting of:
. 213 acquisitions announced between February 19, 1999, and February 18,
2000, involving sellers in all regions of the United States with
announced transaction values and excluding merger of equals
transactions, referred to below as Group A;
. a second group of 85 all cash acquisitions announced between February
19, 1999, and February 18, 2000, involving sellers in all regions of the
United States with announced transaction values, referred to below as
Group B; and
. a third group of 24 all cash acquisitions announced between February 19,
1999, and February 18, 2000, involving sellers in the Southwest Region
of the United States with announced transaction values, referred to
below as Group C.
These transactions are collectively referred to below as the selected
transactions.
Stifel calculated the following ratios with respect to the merger and the
selected transactions:
<TABLE>
<CAPTION>
Group A Selected Transactions
--------------------------------------------------
Company/
Ratios State National 25/th/ Percentile Median 75/th/ Percentile
- ---------------------------------------------- ------------------- -------------------- -------- --------------------
<S> <C> <C> <C> <C>
Deal Price Per Share/Book Value 179.3% 170.5% 229.4% 290.0%
Deal Price Per Share/Tangible Book Value 299.2% 172.7% 244.2% 305.9%
Adjusted Deal Price/6.50% Equity 186.4% 208.1% 274.6% 368.7%
Deal Price Per Share/Last 12 Months 18.6x 17.2x 21.1x 26.3x
Earnings Per Share
Deal Price/Assets 16.3% 16.4% 20.5% 26.7%
Premium over Tangible Book Value/ 9.5% 8.6% 14.2% 20.9%
Deposits
Deal Price/Deposits 18.4% 19.2% 24.5% 31.7%
<CAPTION>
Group B Selected Transactions
---------------------------------------------------
Company/
Ratios State National 25/th/ Percentile Median 75/th/ Percentile
- ---------------------------------------------- ------------------- ------------------- -------- ------------------
<S> <C> <C> <C> <C>
Deal Price Per Share/Book Value 179.3% 144.1% 174.8% 232.7%
Deal Price Per Share/Tangible Book Value 299.2% 145.3% 184.3% 241.4%
Adjusted Deal Price/6.50% Equity 186.4% 163.0% 219.5% 275.6%
Deal Price Per Share/Last 12 Months 18.6x 15.3x 19.6x 27.1x
Earnings Per Share
Deal Price/Assets 16.3% 14.1% 18.0% 21.3%
Premium over Tangible Book Value/Deposits 9.5% 5.0% 9.3% 13.2%
Deal Price/Deposits 18.4% 15.6% 21.6% 24.7%
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Group B Selected Transactions
--------------------------------------------------
Company/
Ratios State National 25/th/ Percentile Median 75/th/ Percentile
- ---------------------------------------------- ------------------- ------------------- -------- -----------------
<S> <C> <C> <C> <C>
Deal Price Per Share/Book Value 179.3% 159.9% 171.1% 236.8%
Deal Price Per Share/Tangible Book Value 299.2% 159.9% 189.0% 242.1%
Adjusted Deal Price/6.50% Equity 186.4% 202.7% 225.2% 280.9%
Deal Price Per Share/Last 12 Months 18.6x 14.3x 17.9x 23.6x
Earnings Per Share
Deal Price/Assets 16.3% 15.2% 17.8% 23.6%
Premium over Tangible Book Value/Deposits 9.5% 8.2% 9.5% 14.3%
Deal Price/Deposits 18.4% 17.1% 21.1% 26.0%
</TABLE>
This analysis resulted in a range of imputed values for the Company's
common stock of between $16.32 and $29.03 based on the median multiples for
Group A, between $12.32 and $24.45 based on the median multiples for Group B,
and between $12.63 and $23.98 based on the median multiples for Group C.
Present Value Analysis. Applying discounted cash flow analysis to the
theoretical future earnings and dividends of the Company, Stifel compared the
$20.00 consideration to be received in exchange for one share of the Company's
common stock under the terms of the merger agreement as of March 1, 2000, to
the calculated future value of one share of the Company's common stock on a
stand-alone basis. The analysis was based upon management's projected earnings
growth, a range of assumed price/earnings ratios, and a 15.0%, 17.5% and 20.0%
discount rate. Stifel selected the range of terminal price/earnings ratios on
the basis of past and current trading multiples for other publicly traded
comparable commercial banks. The stand-alone present value of the Company's
common stock calculated on this basis ranged from $14.97 to $20.71 per share.
Discounted Cash Flow Analysis. Using a discounted cash flow analysis,
Stifel estimated the net present value of the future streams of after-tax cash
flow that the Company could produce to benefit a potential acquiror, referred to
below as dividendable net income. In this analysis, Stifel assumed that the
Company would perform in accordance with management's estimates and calculated
assumed after-tax distributions to a potential acquiror such that its tangible
common equity ratio would be maintained at 6.5% of assets. Stifel calculated the
sum of (1) the estimated terminal values per share of the Company's common stock
based on assumed multiples to the Company's projected 2004 earnings ranging from
16.1x to 21.1x, plus (2) the assumed 1999 to 2003 dividendable net income
streams per share, in each case discounted to present values at assumed discount
rates ranging from 12.0% to 16.0%. This discounted cash flow analysis indicated
an implied equity value reference range of $13.78 to $28.43 per share of the
Company's common stock. This analysis did not purport to be indicative of actual
future results and did not purport to reflect the prices at which shares of the
Company's common stock may trade in the public markets. A discounted cash flow
analysis was included because it is a widely used valuation methodology, but the
results of such methodology are highly dependent upon the numerous assumptions
that must be made, including estimated revenue enhancements, earnings growth
rates, dividend payout rates, terminal values and discount rates.
Analysis of Premium to Market Price for Merger Transactions. Stifel
analyzed the premiums paid to the then current market price one day, one week
and one month prior to the date of announcement of a transaction for 545
transactions in the bank and thrift industries announced in the U.S. between
February 19, 1995, and February 18, 2000. Stifel calculated the following
ratios with respect to the merger and such transactions:
23
<PAGE>
<TABLE>
<CAPTION>
Transactions Announced Between 2/19/95 and 2/18/00
---------------------------------------------------
Company/
Market Premium Data State National 25/th/ Percentile Median 75/th/ Percentile
- ----------------------------------------- ----------------- ------------------- -------- --------------------
<S> <C> <C> <C> <C>
Premium to stock price one day prior to 53.8% 10.8% 21.5% 34.5%
announcement
Premium to stock price one week prior to 53.1% 14.1% 25.3% 40.5%
announcement
Premium to stock price one month prior to 45.5% 18.0% 30.6% 46.0%
announcement
</TABLE>
This analysis resulted in a range of imputed values for the Company's
common stock of between $15.79 and $17.95 based on the median premiums for such
transactions.
Comparison of Selected Companies. Stifel reviewed and compared various
multiples and ratios for the merger with a peer group of eight selected
community banks headquartered in Texas and one headquartered in Oklahoma which
Stifel deemed to be relevant. The group of selected banks consisted of Bay
Bancshares, Inc., CNBT Bancshares, Inc., Guaranty Bancshares, Inc., MetroCorp
Bancshares, Inc., Prosperity Bancshares, Inc., Southwest Bancorp, Inc., Sterling
Bancshares, Inc., Summit Bancshares, Inc., and Texas Regional Bancshares, Inc.
In order to calculate a range of imputed values for a share of the Company's
common stock, Stifel applied a 30.6% control premium to the trading prices of
the selected group of comparable companies and compared the resulting
theoretical offer price to each of book value, tangible book value, adjusted
6.5% equity, latest 12 month earnings, estimated 2000 earnings as provided by
Institutional Brokers Estimate System, assets, tangible book value to deposits
and deposits. Stifel then applied the resulting range of multiples and ratios
for the peer group specified above to the appropriate financial results of the
Company. This analysis resulted in a range of imputed values for the Company's
common stock of between $14.04 and $23.60 based on the median multiples and
ratios for the peer group. The 30.6% control premium selected by Stifel was
based on a 5 year analysis of market premiums paid in bank and thrift merger
transactions.
Additionally, Stifel calculated the following ratios with respect to the
nine selected comparable companies after application of the 30.6% control
premium:
<TABLE>
<CAPTION>
Nine Selected Comparable Companies
----------------------------------
Company/
Ratios State National Minimum Median Maximum
- ---------------------------------------- ------------------ ---------- --------- -----------
<S> <C> <C> <C> <C>
Deal Price Per Share/Book Value 179.3% 121.6% 209.8% 277.1%
Deal Price Per Share/Tangible Book Value 299.2% 121.6% 210.1% 402.0%
Adjusted Deal Price/6.5% Equity 186.4% 126.5% 221.5% 335.1%
Deal Price Per Share/Last 12 Months 18.6x 9.0x 14.9x 15.5x
Earnings Per Share
Deal Price Per Share/Estimated 2000 16.1x 7.5x 12.7x 13.7x
Earnings Per Share
Deal Price to Assets 16.3% 9.7% 15.1% 23.9%
Premium over Tangible Book Value/ 9.5% 2.1% 9.4% 18.0%
Deposits
Deal Price to Deposits 18.4% 11.7% 17.9% 28.1%
</TABLE>
In connection with its written opinion dated as of the date of this proxy
statement, Stifel performed procedures to update, as necessary, some of its
analyses and review the assumptions on which such analyses were based and the
factors considered in connection therewith. Stifel did not utilize any methods
of analysis in addition to those described above in updating its March 1, 2000
oral opinion.
24
<PAGE>
Pursuant to the terms of Stifel's engagement, the Company paid Stifel a
nonrefundable cash fee of $100,000 upon the signing of the definitive agreement
and, subject to and conditioned upon consummation of the merger, will pay Stifel
an additional cash fee of $484,730 based upon the total cash consideration in
the merger and the $13,000,000 of trust preferred securities assumed by State
National for Stifel's role as the Company's financial advisor. The Company has
also agreed to reimburse Stifel for various out-of-pocket expenses and has
agreed to indemnify Stifel, its affiliates and their respective partners,
directors, officers, agents, consultants, employees and controlling persons
against certain liabilities, including liabilities under the federal securities
laws.
In the ordinary course of its business, Stifel actively trades equity
securities of the Company in its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
Effective Time of the Merger
The merger agreement provides that the merger will be effective after all
regulatory, corporate and other approvals have been obtained and required
waiting periods have passed. Although the parties have not adopted any formal
timetable, it is presently anticipated that the merger will be consummated on or
prior to August 1, 2000, assuming all conditions set forth in the merger
agreement are satisfied or waived; however, it is possible that the effective
time may extend beyond such date. The date on which the merger is effective as
specified in the merger agreement is referred to as the "effective time."
Conversion of Shares of the Company's Common Stock
At the effective time, by virtue of the merger and without any action on
the part of the holders of record of the Company's common stock, the number of
shares of the outstanding common stock of New FSB will automatically be
converted exclusively into a like number of shares of the common stock of the
Company as the surviving corporation, with the effect that the number of shares
of the common stock of the Company outstanding immediately after the effective
time shall be equal to the aggregate number of shares of the Company's common
stock outstanding immediately before the effective time. The authorized number
of shares of common stock of the Company after the effective time will be the
same as the authorized number of shares of the Company's common stock
immediately prior to the effective time.
Record holders of the Company's common stock have the right to receive in
exchange for their shares of common stock, a payment in an aggregate amount
determined in accordance with the terms and conditions described below and the
record holders of the Company's common stock will cease to have any rights with
respect to the common stock other than any dissenters' rights they have
perfected pursuant to Part Five of the Texas Business Corporation Act. See "The
Proposed Merger--Dissenters' Rights."
Purchase Price
The merger agreement provides that the aggregate purchase price to be paid
by State National for the Company's common stock issued and outstanding
immediately prior to the effective time will be an amount equal to $45,473,000
plus if the effective time of the merger transaction does not occur by August 8,
2000, the sum of $12,455 per day for each day commencing August 8, 2000, until
the effective time. Accordingly, assuming the Company's outstanding shares
remain constant at 2,273,647 shares, State National will be required to pay an
additional approximately $0.005 per share per day for each day commencing August
8, 2000, until the effective time.
Surrender of the Company's Common Stock
Prior to the effective time, State National, acting as the paying agent,
will establish an account containing an amount of cash sufficient to make full
payment of the purchase price to the holders of all outstanding certificates
representing the Company's common stock. No later than 30 days prior to the
effective time, State National will furnish to the Company, and the Company will
mail to each record holder of shares of the Company's common
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stock a form of transmittal letter and instructions concerning the surrender of
stock certificates in exchange for cash specifying that delivery is effected and
risk of loss is passed.
On and after the effective time, upon the delivery to State National of
certificates evidencing shares of the Company's common stock for cancellation,
together with a properly completed transmittal letter and any other
documentation, State National will mail to the Company's shareholder a check in
payment of the purchase price for the shares of common stock represented by such
surrendered certificates. Such payments will be made, in the case of
shareholders who deliver to State National stock certificates, transmittal
letters and other documentation no later than ten days prior to the effective
time, by mailing checks on the closing date, and in all other cases, by mailing
checks promptly, but in no event more than ten days following the later of the
effective time or the date on which such stock certificates, transmittal letters
and other documentation are delivered to State National, and the surrendered
certificates will be canceled. However, the record holders of more than 1,500
shares of the Company's common stock will receive payment by wire transfer for
their shares at closing, less any applicable wire transfer fees, if such record
holders deliver to State National wire transfer instructions or deposit
information for such shareholder's account information at First State ten days
prior to the effective time. No payment will be made for the certificates prior
to the effective time, and no interest is payable with respect to the payment of
the purchase price. After the effective time, there will be no further
registration or transfers in the Company's stock transfer records, and any
certificate presented to the Company shall be forwarded to State National, to be
canceled and exchanged for cash.
Company Trust Preferred Securities
In September 1998, the Issuer Trust, a special purpose financing trust
formed by the Company, issued 13,000,000 of its 8.5% cumulative trust preferred
securities (having an aggregate liquidation value of $13,000,000) in an
underwritten public offering. At that time, the Company acquired 8.5% trust
common securities from the Issuer Trust (having an aggregate liquidation value
of $402,000). The preferred securities and the common securities represent
undivided beneficial interests in the assets of the Issuer Trust, which consist
solely of $13,402,000 aggregate principal amount of the Company's 8.5%
subordinated debentures due 2028.
The Issuer Trust does not and will not have any independent operations. It
was created for the sole and limited purpose of issuing the preferred securities
and the common securities and investing the proceeds of these securities in the
subordinated debentures. In brief, the Company is obligated to make all payments
of funds due under the Company subordinated debentures which, in turn, will be
promptly remitted to the holders of the preferred securities and the common
securities in the form of a quarterly dividend. To the extent that the Issuer
Trust receives payment on the Company debentures, but does not, for whatever
reason, pass the full amount on to the holders of the preferred securities and
common securities, the Company will be fully bound to pay directly any amount
not so passed on. The Issuer Trust and the preferred securities exist simply to
finance the operations of the Company and its consolidated subsidiaries.
The merger agreement requires that State National assume the Company's
obligations on all trust preferred securities, including without limitation its
obligations under the indenture and the preferred guaranty agreement and the
obligation to make the quarterly dividend payments on the preferred securities.
In addition, State National agrees to maintain or cause the Company to maintain
the listing of the trust preferred securities on the AMEX until September 22,
2003.
Interests of Certain Persons in the Merger
Beneficial Ownership. As of the record date, the executive officers and
directors of the Company, together with their respective affiliates,
beneficially owned 424,911 shares of the Company's common stock, or 18.69% of
the outstanding shares. The directors and executive officers will receive the
same consideration for their shares as the other shareholders of the Company.
See "Security Ownership of Management."
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Employee Retention Agreements. In September 1999, the Company entered into
employee retention agreements with selected executive officers to provide
additional incentives to such officers to continue their employment with the
Company in the event that the Company experienced a change of control, i.e., a
merger, consolidation, or sale of the assets or stock of the Company. Each
employee retention agreement provides that in certain cases the officer will
receive a cash lump sum payment equal to one or two times the officer's annual
compensation, including bonus compensation. This amount is payable after one
year from the change in control unless such officer is terminated sooner for
cause or resigns or severs his employment with the Company for any reason other
than constructive termination. In the event the officer is terminated without
cause or officer is constructively terminated because his compensation is
diminished, job title is changed to a position of lesser importance, or
responsibilities are materially reduced, the retention benefit must be paid by
the Company within 30 days of such termination. In the event of the officer's
death or disability, the pro rated portion of the retention benefit must be paid
by the Company within 30 days of such death or disability.
The following executive officers are entitled to payment of the specified
retention benefit in the event of a change in control:
Bryan W. Stephenson $352,000
Randal N. Crosswhite 210,000
Michael D. Jarrett 113,000
Thomas C. Darden 107,000
James G. Fitzhugh 92,000
Insurance; Directors' and Officers' Indemnification. At the present time,
the Company maintains a directors' and officers liability insurance policy.
Prior to the effective date, the Company may obtain an extended reporting period
(otherwise known as "tail coverage") under this policy for a period of up to
four years from the effective time, provided that the average premium for such
policy does not exceed 150% of the Company's current annual premium. In
addition, State National has agreed that all rights to indemnification existing
in favor of the directors and officers of the Company and First State as
provided in their respective articles of incorporation or association, bylaws or
indemnification agreements, or as provided by applicable law as of the date of
the merger agreement and immediately prior to the effective time with respect to
matters occurring prior to the effective time, will survive the merger and will
continue in full force and effect in accordance with and subject to applicable
law.
Employee Matters and Impact on Employee Benefit Plans
Benefit Plans. After the effective time, neither State National nor the
Company will make additional contributions to the Company's employee benefits
plans. Each employee of the Company or First State will receive credit for all
time employed with the Company or First State for purposes of the application of
State National's severance and vacation policies. The Company and State
National have agreed that each employee of the Company or First State who
remains an employee of the Company, State National or their subsidiaries will be
entitled to participate as a newly hired employee in the employee benefit plans
and programs maintained for employees of State National, and State National will
take all actions necessary to facilitate coverage of the continuing employees in
such plans and programs from and after the effective time.
Stock Ownership Plan. The Stock Ownership Plan covers most of its officers
and employees. The Stock Ownership Plan stipulates, among other things, that
vesting in employer contributions begins after one year of service, each
participant will become fully vested in employer contributions after seven years
of service, and the determination of the level of vesting began with the
original date of current employment of each participant with the Company or
First State. Contributions made to the employee stock ownership portion of the
Stock Ownership Plan by the Company were $141,000, $106,000 and $100,000 for the
years ended December 31, 1999, 1998 and 1997, respectively. These contributions
were used to make distributions to employees who left the Company's employment
in the respective years and to purchase common stock of the Company in the open
market. No contributions were made by the Company to match contributions made
by plan participants in the 401(k) portion of the Stock Ownership Plan during
the years ended December 31, 1999, 1998 and 1997; however, in December 1999
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the Company's Board of Directors voted to match 25% of up to a maximum of the
first 4% of each employees' salary which is deferred and contributed to the
401(k) portion of the Stock Ownership Plan beginning January 1, 2000. The amount
of all such contributions is at the discretion of the Company's Board of
Directors. Contributions are invested in various equity, debt and money market
investments, including common stock of the Company. The Stock Ownership Plan had
a note payable to the Company with an outstanding principal balance of $133,000
at April 30, 2000, which note payable was incurred to purchase shares of the
Company's common stock in January 1997. Prior to the effective time, the Company
will make a cash contribution to the Stock Ownership Plan in an amount
sufficient to allow the Stock Ownership Plan to repay its indebtedness owed to
the Company. Following the payment of such debt and immediately prior to the
effective time, the Stock Ownership Plan will be terminated in accordance with
the terms of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and other applicable law. As of the closing date, the Company will
cause each employee covered by the Stock Ownership Plan prior to the closing to
have a fully vested and nonforfeitable interest in such employee's account
balance. At April 30, 2000, 159,313 shares of common stock of the Company were
held by the Stock Ownership Plan.
Stock Option Plan. In February 1999, the Company adopted the 1999 Stock
Option Plan, pursuant to which stock options covering an aggregate of 60,000
shares of the Company's common stock may be granted. For the quarter ended
March 31, 2000, there were 60,000 available for grant under the 1999 Stock
Option Plan, of which none had been granted. This 1999 Stock Option Plan will
be terminated upon consummation of the merger.
Covenants of the Company and State National; Conduct of Business Prior to the
Merger
The merger agreement contains covenants of State National and the Company
concerning, among other things:
. cooperation to obtain government approvals to consummate the merger;
. provision of information about themselves and their subsidiaries;
. use of best efforts to consummate the merger;
. prompt notification of any event that would cause or constitute a breach
of any representation, warranty and covenant; and
. prompt notification of any pending or threatened legal action,
obligation, claim or controversy pending or threatened against that
party.
In addition, State National agrees to, among other things:
. promptly notify the Company of any adverse change that may prevent or
delay the merger; and
. enter into all documentation necessary for the Company to continue its
obligations under the indenture and the preferred guaranty agreement
governing the Company's outstanding trust preferred securities and to
maintain the listing of the trust preferred securities on the AMEX until
September 22, 2003.
The merger agreement provides that the Company will (and will cause First
State to), among other things:
. conduct their banking and related business in the ordinary course and
consistent with prudent banking practices;
. use all reasonable efforts to preserve their business organizations
intact;
. perform all of their obligations under agreements and contracts;
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. timely file reports, including tax returns, required to be filed with
governmental authorities;
. promptly pay taxes and withhold taxes;
. maintain all tangible assets in good repair, maintain insurance policies
in effect, withhold taxes; and
. follow the Company's existing policies and methods of operation.
The merger agreement further provides that prior to the effective time
neither the Company nor First State will, without the prior written consent of
State National:
. cause or fail to use its best efforts to prevent the loss of insurance
coverage, unless replaced with coverage that is substantially similar in
amount to that now in effect and issued by a comparable insurer;
. change its articles of incorporation, articles of association, bylaws or
authorized capital stock;
. except as explicitly permitted in the merger agreement or in accordance
with applicable law, engage in any transaction with any affiliated
person or allow such persons to acquire any assets from the Company,
except in the form of wages, salaries, bonuses and reimbursement of
expenses and by loans secured by collateral having a fair market value
at least equal to the principal balance due on such loan to its
officers, directors and employees;
. incur any obligation or liability, absolute, accrued, contingent or
otherwise, except in the ordinary course of business;
. discharge or satisfy any lien, charge or encumbrance or pay any
obligation or liability, whether absolute or contingent, due or to
become due, except in the ordinary course of business;
. declare or make any payment of dividends or other distribution to its
shareholders or purchase, retire or redeem, or obligate itself to
purchase, retire or redeem, any of its shares of capital stock or other
securities, except as consistent with past practices;
. issue, reserve for issuance, grant, sell or authorize the issuance of
any shares of its capital stock or other securities or subscriptions,
options, warrants, calls, rights or commitments of any kind relating to
the issuance thereto;
. acquire any capital stock or other equity securities or acquire any
equity or ownership interest in any bank, corporation, partnership or
other entity (except (i) through settlement of indebtedness,
foreclosure, or the exercise of creditors' remedies or (ii) in a
fiduciary capacity, the ownership of which does not expose it to any
liability from the business, operations or liabilities of such person);
. mortgage, pledge or subject to lien, charge, security interest or any
other encumbrance or restriction any of its property, business or
assets, tangible or intangible except in the ordinary course of
business;
. sell, transfer, lease to others or otherwise dispose of any of its
assets or cancel or compromise any debt or claim, or waive or release
any right or claim of material value, except in the ordinary course of
business;
. terminate, cancel or surrender any contract, lease or other agreement or
suffer any damage, destruction or loss which, in the aggregate, is
reasonably expected to result in a material adverse change in financial
condition, assets properties, liabilities, reserves, business or results
of a operation of the Company;
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. except as set forth in the merger agreement, make any change in the rate
of compensation, commission, bonus or other direct or indirect
remuneration payable, or pay or agree or orally promise to pay,
conditionally or otherwise, any bonus, extra compensation, pension or
severance or vacation pay, to or for the benefit of any of its
shareholders, directors, executive officers, or enter into any
employment or consulting contract or other agreement with any director
or executive officer or adopt, amend in any material respect or
terminate any pension, employee welfare, retirement, stock purchase,
stock option, stock appreciation rights, termination, severance, income
protection, golden parachute, savings or profit-sharing plan (including
trust agreements and insurance contracts embodying such plans), any
deferred compensation, or collective bargaining agreement, any group
insurance contract or any other incentive, welfare or employee benefit
plan or agreement maintained by it for the benefit of its directors,
employees or former employees, except for normal periodic increases in
the compensation payable to executive officers, officers or salaried
employees, consistent with past practices and made in the ordinary
course of business;
. except for improvements relating to properties, make any capital
expenditures or capital additions in excess of an aggregate of $100,000;
. hire or employ any person with an annual salary equal to or greater than
$50,000;
. enter into or give any promise, assurance or guarantee of the payment,
discharge or fulfillment of any undertaking or promise made by any other
person, firm or corporation other than in the ordinary course of
business;
. sell or knowingly dispose of the ownership, possession, custody or
control, of any corporate books or records of any nature that, in
accordance with sound business practice, normally are retained for a
period of time after their use, creation or receipt, except at the end
of the normal retention period;
. make any change in any accounting methods, principles or material
practices;
. make, renew, extend the maturity of, acquire a participation in,
reacquire an interest in a participation sold or alter any of the
material terms of any loan to any single borrower and his or her related
interests in excess of the principal amount of $100,000 on an unsecured
basis or $750,000 on a secured basis, provided, however, that the
consent of State National shall be deemed to have been given as follows
(unless earlier given or denied in writing) (i) with respect to any loan
presented at a regularly scheduled special meeting of First State's
Executive Loan Committee, at the later of 3:00 p.m. on the business day
of such special meeting or the adjournment of such special meeting,
provided that all information provided to the members of First State's
Executive Loan Committee with respect to such loan is delivered to State
National at the same time it is delivered to such committee members, and
(ii) with respect to all other loans, at the close of business on the
next business day after State National's consent is requested and all
information relating to the making, renewal or alteration of such loan
is furnished to State National; or
. sell or purchase any investment securities with a maturity in excess of
three years and in an amount in excess of $1,000,000.
Further, the Company has agreed that it will:
. pay all bonuses consistent with past practices, including prorated
bonuses for calendar year 2000 based on the calendar month-end
immediately preceding the closing date;
. make a cash contribution to the Stock Ownership Plan in an amount
sufficient to allow Stock Ownership Plan to repay its indebtedness owed
to the Company;
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. execute a supplemental indenture to the indenture governing the trust
preferred securities;
. invite two designees of State National to attend all regular and special
meetings of the Board of Directors of the Company;
. notify State National of any material adverse change in financial
condition, assets, properties, liabilities, reserves, business or
results of operation of the Company;
. not negotiate or discuss with any third party a merger proposal, tender
offer, takeover offer or similar business combination proposal; and
. provide State National with the Company's Annual Reports on Forms 10-K
and Quarterly Reports on Forms 10-Q for each year-end or quarter.
Conditions to Consummation of the Merger
The closing of the merger will occur only if, among other things:
. all required approvals from all necessary governmental agencies and
authorities, including, but not limited to, the Federal Reserve, are in
effect or have been obtained;
. the merger agreement is approved by two-thirds of the outstanding shares
of the common stock of the Company;
. the representations, warranties and agreements of the parties are true
and correct in all material respects at the effective time;
. no litigation regarding the transaction is pending or threatened; and
. the terms of the merger agreement have been performed and complied with
in all material respects at or prior to the effective time.
In addition, the following conditions must be satisfied or waived prior to
the merger:
. receipt by the Company of a fairness opinion from a reputable investment
banking firm;
. no changes in accounting or tax treatment, entries or adjustments, in
connection with this merger have occurred; and
. no material adverse change shall have occurred since December 31, 1999,
in the business, financial condition or results of operations of the
Company or First State.
Regulatory Approvals
The merger is subject to certain regulatory approvals, as set forth below.
To the extent that the following information describes statutes and regulations,
it is qualified in its entirety by reference to the particular statutes and
regulations promulgated under such statutes.
To effect the merger, State National will form a business corporation with
the name "New FSB Holdings, Inc." as a wholly owned subsidiary of State
National, and New FSB will merge with and into the Company, making the Company a
wholly owned subsidiary of State National. The various parts of the transactions
comprising the merger are subject to the approval of the Federal Reserve. There
can be no assurance that such regulatory approvals will be obtained, and, if
obtained, there can be no assurance as to the date of any such approvals.
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State National's acquisition of the Company, which will be effected through
the merger, is subject to approval by the Federal Reserve under the Bank Holding
Company Act of 1956, as amended, which permits a bank holding company, such as
State National, to acquire direct or indirect ownership or control of more than
5% of the voting shares of any bank or any bank holding company, such as the
Company, if the Federal Reserve has approved the transaction based upon, among
other things, its review of the managerial and financial resources and future
prospects of the existing and proposed institutions and the convenience and
needs of the community to be served. This consideration includes an evaluation
by the Federal Reserve as to whether the merger would result in a monopoly or
otherwise would substantially lessen competition or impair the financial and
managerial resources and future prospects of State National and the Company. In
addition, the Federal Reserve must take into account the records of State
National and the Company in meeting the credit needs of the entire community
served by such institutions, including low- and moderate-income neighborhoods.
State National has informed the Company that the Federal Reserve will likely act
on the applications in June of 2000.
The merger may not be completed until the 30/th/ day, or, with the consent
of the relevant agencies, the 15/th/ day, following the date of the Federal
Reserve approval, during which period the United States Department of Justice
may comment adversely on the acquisition or challenge the acquisition on
antitrust grounds. The commencement of an antitrust action would stay the
effectiveness on the Federal Reserve approval unless, of course, the Federal
Reserve orders otherwise.
Based on their current knowledge, management of the Company believes that
the merger will likely be approved by the Federal Reserve, and that the merger
will not likely be challenged by the Department of Justice under federal
antitrust laws. However, no assurance can be provided that the Federal Reserve
will provide its approval or that the Department of Justice will not challenge
the merger or that, in connection with the grant of any approval, the Federal
Reserve will not impose conditions, which are materially burdensome to State
National within the meaning of the merger agreement.
State National and the Company are not aware of any other governmental
approvals or actions that are required for consummation of the merger except as
described above. Should any such approval or action be required, it is
presently contemplated that such approval or action would be sought or taken.
There can be no assurance that any such approval or action, if needed, could be
obtained, would not delay consummation of the merger, or would not be
conditioned in a manner that could cause State National to abandon the merger.
No Negotiations with Others
Except upon advice of counsel to the extent required to fulfill the
fiduciary duties owed to the shareholders of the Company, the Company will not,
directly or indirectly, nor will it permit First State or their respective
officers, directors, employees, representatives or agents to directly or
indirectly:
. encourage, solicit or initiate discussions or negotiations with, any
corporation, partnership, person or other entity concerning a merger,
tender offer, takeover offer, sale of substantial assets, sale of shares
of capital stock or similar transaction;
. entertain, discuss or negotiate with any corporation, partnership,
person or other entity concerning any merger, tender offer, takeover
offer, sale of substantial assets, sale of shares of capital stock or
similar transaction; or
. provide any information to or cooperate with any corporation,
partnership, person or other entity concerning a merger, tender offer,
takeover offer, sale of substantial assets, sale of shares of capital
stock or similar transaction.
Immediately upon receipt of any unsolicited offer, the terms of which are
equal to or superior to the terms of the merger agreement, the Company will
communicate to State National the terms of such offer or request for information
and the identity of the parties involved.
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Termination; Termination Fees and Expenses
Termination.
The merger agreement provides that prior to or at the closing of the merger
(notwithstanding approval by the shareholders of the Company), the merger
agreement and merger may be terminated in writing:
. by the mutual consent of State National and the Company;
. by either State National or the Company if:
(a) the conditions precedent to such party's obligations to close
have not been met or waived or the effective time shall not have
occurred by August 28, 2000, or such later date as is agreed upon by the
parties; and
(b) any court, regulatory authority or other governmental body has
issued an order, decree or ruling that prohibits the merger agreement or
consummation of the merger.
. by State National if:
(a) it reasonably determines, after consulting with its counsel and
with the concurrence of the Company, that there is substantial
likelihood that any necessary regulatory approval will not be obtained;
(b) there shall have been any material adverse change in the
financial condition, assets, properties, liabilities, reserves, business
or results of operation of the Company or First State since December 31,
1999;
(c) the Company fails to comply in any material respect with any of
its covenants or agreements contained in the merger agreement;
(d) the Board of Directors of the Company fails to recommend,
withdraws, or modifies in a manner materially adverse to State National
its approval or recommendation of the merger agreement or the merger,
(e) after the Company enters into an agreement to engage in an
acquisition event or an acquisition event occurs or after a third party
makes a proposal to engage in a merger, consolidation or other business
combination that constitutes a superior proposal to the Company or
Company's shareholders, the merger is not approved by the Company's
shareholders at the shareholders' meeting required by the merger
agreement, or
(f) the meeting of the Company's shareholders required by the merger
agreement is not held by July 28, 2000, and the Company fails to comply
with its obligations under the merger agreement with respect to such
shareholders' meeting.
. by the Company if:
(a) State National fails to comply in any material respect with any
of its covenants or agreements contained in the merger agreement;
(b) the Board of Directors of the Company in good faith determines
that a proposal from a third party to engage in a merger, consolidation
or other business combination is superior to the Company and its
shareholders than the current merger proposal, provided, that the
Company has not
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breached its covenants regarding the holding of a shareholders' meeting
to approve and adopt the merger agreement and the Company delivers
simultaneously with such notice of termination, the termination fee
required by the merger agreement; or
(c) State National is not successful in raising the capital necessary
for State National to consummate the merger before August 28, 2000.
Termination Fee. The Company has agreed to promptly pay State National a
termination fee equal to $1,500,000 if the merger agreement is terminated by the
Company in connection with its receipt of a proposal to engage in a merger,
consolidation or other business combination that the Board of Directors deems to
be a superior proposal or by State National as a result of alternative
transaction termination event prior to the termination of the merger agreement
and within 12 months after its termination, any of the following events occur:
. the Company or First State enters into an agreement to engage in an
acquisition event or an acquisition event occurs; or
. the Board of Directors of the Company approves a superior proposal or
publicly announces its intention to do so or recommends that the
shareholders of the Company approve or accept such superior proposal.
State National has agreed to promptly pay the Company a termination fee
equal to $1,500,000 if either of the following events occur:
. State National is unable to obtain regulatory approval as a result of
the insufficiency of its capital to consummate the merger; or
. all of the conditions precedent to the obligations of State National in
the merger have been met, but State National refuses to consummate the
transaction.
Expenses. The Company shall pay all of its expenses and costs (including,
without limitation, all counsel fees and expenses), and State National shall pay
all of its expenses and costs (including, without limitation, all counsel fees
and expenses), incurred in connection with the merger agreement and the merger.
Operation of the Company after the Merger
After the merger, New FSB will cease to exist and the Company will operate
as a wholly owned subsidiary of State National.
Noncompete and Support Agreements
In connection with the consummation of the merger, State National and the
directors and officers of the Company have entered into certain noncompete and
support agreements. Under these agreements such directors and officers agreed:
. to use their reasonable best efforts to refrain from harming First
State's goodwill and its customer and client relationships; and
. for a period of six months after each such officer's termination of
employment, or for a period of eighteen months from the effective time
for each director, not to, directly or indirectly,
. solicit the banking business of any current customers of First
State;
. engage in certain competitive activities within the city limits or
within 75 miles of Abilene, Texas; or
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. solicit or hire any person who is or who has been within the preceding
12 months an employee of First State.
For these agreements, each officer will receive his current monthly base
salary each month during the six-month term of the noncompete covenant.
Certain Federal Income Tax Consequences
The receipt of cash for the Company's common stock pursuant to the merger
will be a taxable transaction for federal income tax purposes to shareholders
(and may be a taxable transaction for state, local and foreign tax purposes as
well). A holder of the Company's common stock will recognize a gain or loss
measured by the difference between such shareholder's tax basis for the
Company's common stock owned by him or her at the effective time and the amount
of cash received for the stock. Gain or loss will be a capital gain or loss if
the stock is a capital asset of the shareholder. If the shares have been held
for less than one year, the gain will be short-term capital gain. If the shares
have been held for more than one year, gain will be long-term capital gain taxed
at a maximum federal rate of 20%.
The cash payments due the holders of the Company's common stock upon the
exchange of such common stock pursuant to the merger (other than certain exempt
persons or entities) will be subject to "backup withholding" for federal income
tax purposes unless certain requirements are met under federal law. State
National as paying agent must withhold a percentage of the cash payments to
holders of the Company's common stock to whom backup withholding applies, and
the federal income tax liability of such persons will be reduced by the amount
withheld. To avoid backup withholding, a holder of the Company's common stock
must provide the paying agent with his or her taxpayer identification number and
complete a form to certify that he or she has not been notified by the Internal
Revenue Service that he or she is subject to backup withholding as a result of a
failure to report interest and dividends. The taxpayer identification number of
an individual is his or her Social Security number.
No ruling has been or will be requested from the Internal Revenue Service
as to any of the tax effects to the Company's shareholders of the transactions
discussed in this proxy statement, and no opinion of counsel has been or will be
rendered to the Company's shareholders with respect to any of the tax effects of
the merger to shareholders.
The tax consequences of the merger may vary depending upon the particular
circumstances of each shareholder. Therefore, each shareholder is urged to
consult his or her tax advisor to determine the particular tax consequences of
the merger to such holder, including those relating to state, local and/or other
taxes.
Accounting Treatment
It is anticipated the merger will be accounted for as a "purchase"
transaction under generally accepted accounting principles. Under such method
of accounting, the assets and liabilities of the Company will be revalued on
State National's consolidated balance sheet at their fair values as of the date
the transaction is consummated. The excess purchase price, if any, paid over
the fair value of the net assets acquired (including values assigned to core
deposits and other such intangible assets) will be reported as goodwill in State
National's consolidated balance sheet. The results of operations of the Company
will be reported in State National's consolidated statement of operations only
after the effective time of the merger.
Dissenters' Rights
Pursuant to Article 5.11 of the Texas Business Corporation Act ("TBCA"),
any holder of the Company's common stock who does not wish to accept the
consideration to be paid pursuant to the merger agreement may dissent from the
merger and elect to have the fair value agreed upon by the shareholder and the
Company or
35
<PAGE>
judicially determined by a court of competent jurisdiction and paid to such
shareholder in cash, provided that the shareholder complies with the provisions
of Articles 5.11 through 5.13 of the TBCA.
The following is a brief summary of the statutory procedures to be followed
by a holder of common stock in order to dissent from the merger and perfect his
or her appraisal rights under the TBCA. This summary is not intended to be
complete and is qualified in its entirety by reference to Articles 5.11 through
5.13 of the TBCA, the text of which are attached as Appendix C to this proxy
----------
statement.
If any holder of common stock desires to exercise the right to dissent from
the merger and demand appraisal, such shareholder must comply with the following
procedures:
. deliver to the Company, prior to the special meeting, a written
objection to the merger, setting out that the shareholder's right to
dissent will be exercised and the address to which notice that the
merger has been effected shall be delivered or mailed;
. vote against or abstain from voting in favor of the merger (failure to
vote "AGAINST" the merger will not constitute waiver of dissenters'
rights); and
. make written demand on the Company for payment of the fair value of the
shareholder's shares after the effective time and within ten days from
the delivery or mailing by the Company of the notice to the shareholders
that the merger has been effected. The demand must state the number of
shares of common stock owned by the shareholder and the fair value of
stock as estimated by the shareholder. Any shareholder failing to make a
demand within the ten day period will be bound by the terms of the
merger. A vote by the shareholder "AGAINST" the merger will not satisfy
the notice requirement.
If, within sixty days after the effective time, the value of the shares is
agreed upon by the shareholder and the Company, payment for the shares of common
stock must be made within ninety days after the date on which the action was
effected and upon surrender of the certificates duly endorsed. Upon payment of
the agreed value, the shareholder will cease to have any interest in the shares
or in the Company.
If, within the period of sixty days after the effective time, the
shareholder and the Company do not agree on the value of the shares, then either
the shareholder or the Company may, within one hundred twenty days after the
effective time, file a petition in any court of competent jurisdiction asking
for a finding and determination of the fair value of the shareholder's shares.
Any shareholder who has demanded payment for his or her shares may not
thereafter vote or exercise any other rights of a shareholder except the right
to receive the merger consideration in payment for his or her shares or the
right to maintain an appropriate action to obtain relief on the ground that the
corporate action was fraudulent, and the respective shares for which payment has
been demanded will not thereafter be considered outstanding for the purpose of
any subsequent vote of shareholders. Within twenty days after demanding payment
for his or her shares, each holder of certificates representing shares so
demanding payment must submit the certificates to the Company for notation on
such certificates that the demand has been made. If uncertified shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made are transferred, any new certificate issued for the
transferred certificate must bear similar notation together with the name of the
original dissenting holder of such shares and a transferee of such shares will
acquire by such transfer no rights in the Company other than those that the
original dissenting shareholder had after making a demand for payment of the
fair value. Any shareholder who demanded payment for his or her shares may
withdraw such demand at any time before payment for his or her shares.
All written demands for appraisal (i.e., the notice of intent to dissent)
should be addressed to: Randal N. Crosswhite, Corporate Secretary, Independent
Bankshares, Inc., 547 Chestnut Street, Abilene, Texas 79602, before the taking
of the vote concerning the merger at the special meeting, and should be executed
by, or on behalf of, the
36
<PAGE>
holder of record who held such shares on the date of making such demand, and who
continuously holds such shares through the time the certificates for such shares
are submitted to the Company for endorsement as dissenting shares, fully and
correctly, as such shareholder's name appears on his or her stock
certificate(s). Such demand must reasonably inform the Company of the identity
of the shareholder and that such shareholder is thereby demanding appraisal of
his or her shares.
Failure to comply with these procedures will cause the shareholder to lose
his or her dissenters' rights. Consequently, any shareholder who desires to
exercise his or her dissenters' rights is urged to consult a legal advisor
before attempting to exercise such rights.
MARKET PRICES AND DIVIDENDS
The Company's common stock trades on the AMEX under the symbol "IBK." The
following table sets forth, for the periods indicated, the high and low sales
prices for the common stock as quoted on the AMEX and the amount of cash
dividends paid per share.
<TABLE>
<CAPTION>
Common Stock
------------------------------------------
Cash
Dividends
High Low Per Share
------------- ------------- ------------
<S> <C> <C> <C>
Year Ended December 31, 1998
----------------------------
First Quarter $19 5/8 $15 3/4 $0.05
Second Quarter 19 14 0.05
Third Quarter 15 9/16 11 0.05
Fourth Quarter 11 7/8 10 1/4 0.05
Year Ended December 31, 1999
----------------------------
First Quarter $12 1/8 10 3/8 $0.05
Second Quarter 11 10 3/16 0.05
Third Quarter 12 3/8 10 3/8 0.05
Fourth Quarter 15 7/8 10 3/4 0.05
Year Ending December 31, 2000
-----------------------------
First Quarter $21 1/8 12 7/8 $0.06
Second Quarter (through May 25) 19 1/4 17 1/4 $0.06(1)
</TABLE>
____________
(1) This cash dividend will be paid May 31, 2000, to shareholders of record on
May 15, 2000.
The closing price per share for the common stock as reported on the AMEX on
February 29, 2000, the last full trading day prior to the public announcement of
the proposed merger, was $16.5625. As of the record date, June 8, 2000, there
were approximately _____holders of record of the common stock.
INFORMATION REGARDING STATE NATIONAL AND NEW FSB
State National. State National is a Texas Corporation, incorporated on
March 8, 1996, for the purpose of qualifying and acting as a bank holding
company under the Bank Holding Company Act of 1956, as amended (the "BHCA").
The principal offices of State National are located in Lubbock, Texas. State
National owns all the outstanding shares of common stock of State National
Delaware, a subsidiary bank holding company organized and domiciled in Dover,
Delaware. State National Delaware, in turn, owns 100 percent of the outstanding
capital stock of the three subsidiary banks: State National Bank of West Texas,
Lubbock, Texas, State National Bank, El Paso, El Paso, Texas and United Bank &
Trust, Abilene, Texas (the "Subsidiary Banks").
37
<PAGE>
State National, through its indirect Subsidiary Banks, engages in the
business of banking and other activities permissible for bank holding companies
under the BHCA. The Subsidiary Banks are primarily engaged in commercial and
consumer banking with customers located primarily in the West Texas and New
Mexico area. As of December 31, 1999, the Company, through its Subsidiary
Banks, operated 24 full-service banking locations in the Texas cities of Abilene
(2 locations), Big Spring, El Paso (6 locations), Lubbock (3 locations), Midland
and Plainview and in the New Mexico cities of Alamogordo (2 locations), Belen,
Deming, Elephant Butte, Las Cruces (2 locations), Ruidoso, Socorro, Sunland Park
and Truth or Consequences.
As of March 31, 2000, State National has (on a consolidated basis) total
assets of $834.9 million, total deposits of $713.8 million and shareholders'
equity of $86.2 million. As of March 31, 2000, State National Bank of West
Texas had total assets of $200.1 million, total deposits of $182 million and
shareholder's equity of $17.8 million. As of March 31, 2000, State National
Bank, El Paso had total assets of $518.1 million, total deposits of $434.1
million and shareholder's equity of $59.8 million. As of March 31, 2000, United
Bank and Trust had total assets of $116 million, total deposits of $97.8 million
and shareholder's equity of $16.9 million.
New FSB. New FSB is a Texas corporation incorporated on May 23, 2000
solely for the purpose of effecting the merger. State National owns 100 percent
of the outstanding capital stock of New FSB. As of May 24, 2000, New FSB had
total assets of $1,000 and shareholder's equity of $1,000.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, and in accordance therewith files reports, proxy
statements, and other information with the Securities and Exchange Commission.
Such reports, proxy statements and other information can be inspected and copied
at the public reference facilitates of the Commission located at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, DC 20549, and the Commission's
Regional offices located at Seven World Trade Center, 13th Floor, New York, New
York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can also be obtained at
prescribed rates by writing to the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C., 20549 or by calling the Commission at
1-800-SEC-0330. In addition, the Commission maintains a World Wide Web site at
http://www.sec.gov, which contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
commission, including the Company.
SHAREHOLDER PROPOSALS
Shareholders may present proposals for inclusion in the proxy statement for
consideration at the annual meeting of shareholders, if any. Such proposals
must be received by the Company by December 2, 2000, and must comply with the
requirements of Rule 14a-8 of the Securities Exchange Act of 1934.
OTHER BUSINESS
No other business may be presented for consideration at the special meeting
other than as stated in the accompanying Notice of Special Meeting of
Shareholders.
38
<PAGE>
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION
BY AND BETWEEN
STATE NATIONAL BANCSHARES, INC.
LUBBOCK, TEXAS
AND
INDEPENDENT BANKSHARES, INC.
ABILENE, TEXAS
Dated as of March 1, 2000
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I.ACQUISITION OF THE COMPANY BY PURCHASER............................................................... 1
Section 1.01 Merger of Newco with and into the Company........................................................ 1
-----------------------------------------
Section 1.02 Effects of the Merger............................................................................ 2
---------------------
Section 1.03 Articles of Incorporation and Bylaws............................................................. 2
------------------------------------
Section 1.04 Directors and Officers........................................................................... 2
----------------------
Section 1.05 Conversion of Securities......................................................................... 2
------------------------
Section 1.06 Shareholders' Meeting............................................................................ 3
---------------------
Section 1.07 Delivery of Consideration........................................................................ 4
-------------------------
Section 1.08 Reservation of Right............................................................................. 5
--------------------
ARTICLE II.THE CLOSING, THE CLOSING DATE AND THE EFFECTIVE TIME................................................. 5
Section 2.01 Time and Place of the Closing and Closing Date................................................... 5
----------------------------------------------
Section 2.02 Actions to be Taken at the Closing by the Company................................................ 6
-------------------------------------------------
Section 2.03 Actions to be Taken at the Closing by Purchaser.................................................. 7
-----------------------------------------------
Section 2.04 Further Assurances............................................................................... 9
------------------
Section 2.05 Effective Time................................................................................... 9
--------------
ARTICLE III.REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................................................... 9
Section 3.01 Organization and Qualification................................................................... 9
------------------------------
Section 3.02 Company Capitalization.......................................................................... 10
----------------------
Section 3.03 Bank Capitalization............................................................................. 10
-------------------
Section 3.04 Execution and Delivery.......................................................................... 10
----------------------
Section 3.05 No Breach of Contract........................................................................... 11
---------------------
Section 3.06 Compliance with Applicable Laws................................................................. 11
-------------------------------
Section 3.07 Consents Necessary.............................................................................. 11
------------------
Section 3.08 Financial Statements............................................................................ 12
--------------------
Section 3.09 Undisclosed Liabilities......................................................................... 12
-----------------------
Section 3.10 Litigation...................................................................................... 13
----------
Section 3.11 Absence of Certain Changes or Events............................................................ 13
------------------------------------
Section 3.12 Leases, Contracts and Agreements................................................................ 14
--------------------------------
Section 3.13 Title to Properties............................................................................. 15
-------------------
Section 3.14 Tax Matters..................................................................................... 15
-----------
Section 3.15 No Guaranties................................................................................... 16
-------------
Section 3.16 Books and Records............................................................................... 16
-----------------
Section 3.17 Regulatory Compliance........................................................................... 16
---------------------
Section 3.18 Condition of Assets............................................................................. 16
-------------------
Section 3.19 Proprietary Rights.............................................................................. 16
------------------
Section 3.20 Transactions with Certain Persons and Entities.................................................. 17
----------------------------------------------
Section 3.21 Evidences of Indebtedness....................................................................... 17
-------------------------
Section 3.22 Environmental Compliance........................................................................ 17
------------------------
Section 3.23 Absence of Certain Business Practices........................................................... 18
-------------------------------------
Section 3.24 Forms of Instruments, Etc....................................................................... 18
-------------------------
Section 3.25 Employee Benefit Plans.......................................................................... 19
----------------------
Section 3.26 Agreements with Regulators...................................................................... 19
--------------------------
Section 3.27 Insurance....................................................................................... 20
---------
Section 3.28 No Adverse Change............................................................................... 20
-----------------
Section 3.29 Dissenting Shareholders......................................................................... 20
-----------------------
Section 3.30 Fiduciary Responsibilities...................................................................... 20
--------------------------
Section 3.31 Representations Not Misleading.................................................................. 20
------------------------------
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER........................................................ 21
Section 4.01 Organization and Qualification.................................................................. 21
------------------------------
Section 4.02 Execution and Delivery.......................................................................... 21
----------------------
Section 4.03 Compliance with Laws, Permits and Instruments................................................... 21
---------------------------------------------
Section 4.04 Litigation...................................................................................... 21
----------
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
Section 4.05 Consents and Approvals.......................................................................... 22
----------------------
Section 4.06 Financial Statements............................................................................ 22
--------------------
Section 4.07 Agreements with Regulators...................................................................... 22
--------------------------
Section 4.08 Regulatory Approvals............................................................................ 22
--------------------
Section 4.09 Representations Not Misleading.................................................................. 22
------------------------------
ARTICLE V. COVENANTS OF THE COMPANY............................................................................ 23
Section 5.01 Best Efforts.................................................................................... 23
------------
Section 5.02 Merger Agreement................................................................................ 23
----------------
Section 5.03 Information for Applications and Statements..................................................... 23
-------------------------------------------
Section 5.04 Required Acts of the Company.................................................................... 23
----------------------------
Section 5.05 Prohibited Acts of the Company.................................................................. 24
------------------------------
Section 5.06 Access; Pre-Closing Investigation............................................................... 27
---------------------------------
Section 5.07 Invitations to and Attendance at Directors' and Committee Meetings.............................. 27
------------------------------------------------------------------
Section 5.08 Additional Financial Statements................................................................. 27
-------------------------------
Section 5.09 Untrue Representations.......................................................................... 28
----------------------
Section 5.10 Litigation and Claims........................................................................... 28
---------------------
Section 5.11 Adverse Changes................................................................................. 28
---------------
Section 5.12 No Negotiation with Others...................................................................... 28
--------------------------
Section 5.13 Consents and Approvals.......................................................................... 29
----------------------
Section 5.14 Payment of Bonuses to Employees................................................................. 29
-------------------------------
Section 5.15 ESOP Issues..................................................................................... 29
-----------
Section 5.16 Supplemental Indenture........................................................................... 29
----------------------
Section 5.17 Environmental Investigation; Right to Terminate Agreement....................................... 29
---------------------------------------------------------
ARTICLE VI. COVENANTS OF PURCHASER............................................................................. 30
Section 6.01 Best Efforts.................................................................................... 31
------------
Section 6.02 Merger Agreement................................................................................ 31
----------------
Section 6.03 Information for Applications.................................................................... 31
----------------------------
Section 6.04 Acts of Newco................................................................................... 31
-------------
Section 6.05 Untrue Representations.......................................................................... 31
----------------------
Section 6.06 Litigation and Claims........................................................................... 31
---------------------
Section 6.07 Regulatory and Other Approvals.................................................................. 32
------------------------------
Section 6.08 Adverse Change.................................................................................. 32
--------------
Section 6.09 Employee Benefit Plans.......................................................................... 32
----------------------
Section 6.10 Director and Officer Indemnification............................................................ 33
------------------------------------
Section 6.11 Assumption of Obligations Related to the Trust Preferred Securities............................. 33
-------------------------------------------------------------------
ARTICLE VII.CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY............................................. 34
Section 7.01 Compliance with Representations, Warranties and Agreements...................................... 34
----------------------------------------------------------
Section 7.02 Shareholder Approvals........................................................................... 34
---------------------
Section 7.03 Government and Other Approvals.................................................................. 34
------------------------------
Section 7.04 No Litigation................................................................................... 35
-------------
Section 7.05 Fairness Opinion................................................................................ 35
----------------
ARTICLE VIII. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER............................................. 35
Section 8.01 Compliance with Representations, Warranties and Agreements...................................... 35
----------------------------------------------------------
Section 8.02 Shareholder Approvals........................................................................... 36
---------------------
Section 8.03 Government and Other Approvals.................................................................. 36
------------------------------
Section 8.04 No Litigation................................................................................... 36
-------------
Section 8.05 Accounting Treatment............................................................................ 37
--------------------
Section 8.06 No Material Adverse Change...................................................................... 37
--------------------------
ARTICLE IX.TERMINATION AND ABANDONMENT......................................................................... 37
Section 9.01 Right of Termination............................................................................ 37
--------------------
Section 9.02 Notice of Termination........................................................................... 39
---------------------
Section 9.03 Effect of Termination........................................................................... 39
---------------------
Section 9.04 Termination Fee................................................................................. 39
---------------
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
ARTICLE X. CONFIDENTIAL INFORMATION............................................................................ 40
Section 10.01 Definition of "Recipient," "Disclosing Party", "Representative" and "Person"................... 40
----------------------------------------------------------------------------
Section 10.02 Definition of "Subject Information"............................................................ 40
-----------------------------------
Section 10.03 Confidentiality................................................................................ 41
---------------
Section 10.04 Securities Law Concerns........................................................................ 41
-----------------------
Section 10.05 Return of Subject Information.................................................................. 41
-----------------------------
Section 10.06 Specific Performance/Injunctive Relief......................................................... 41
--------------------------------------
ARTICLE XI. MISCELLANEOUS...................................................................................... 42
Section 11.01 Survival of Representations and Warranties..................................................... 42
------------------------------------------
Section 11.02 Expenses....................................................................................... 42
--------
Section 11.03 Brokerage Fees and Commissions................................................................. 42
------------------------------
Section 11.04 Entire Agreement............................................................................... 42
----------------
Section 11.05 Further Cooperation............................................................................ 43
-------------------
Section 11.06 Severability................................................................................... 43
------------
Section 11.07 Notices........................................................................................ 43
-------
Section 11.08 GOVERNING LAW.................................................................................. 44
-------------
Section 11.09 Multiple Counterparts.......................................................................... 44
---------------------
Section 11.10 Certain Definitions............................................................................ 45
-------------------
Section 11.11 Specific Performance........................................................................... 46
--------------------
Section 11.12 Attorneys' Fees and Costs...................................................................... 46
-------------------------
Section 11.13 Rules of Construction.......................................................................... 46
---------------------
Section 11.14 Binding Effect; Assignment..................................................................... 46
--------------------------
Section 11.15 Public Disclosure.............................................................................. 47
-----------------
Section 11.16 Extension; Waiver.............................................................................. 47
-----------------
Section 11.17 Amendments..................................................................................... 47
----------
</TABLE>
(iii)
<PAGE>
EXHIBITS
--------
Exhibit A - Form of Merger Agreement
(iv)
<PAGE>
SCHEDULES
---------
Schedule 3.01 - Subsidiaries
Schedule 3.02 - Company Capitalization
Schedule 3.03 - Bank Capitalization
Schedule 3.06 - Compliance with Applicable Laws
Schedule 3.09 - Undisclosed Liabilities
Schedule 3.07 - Consents Necessary
Schedule 3.10 - Litigation
Schedule 3.11 - Absence of Certain Changes or Events
Schedule 3.12 - Leases, Contracts and Agreements
Schedule 3.13 - Title to Properties
Schedule 3.15 - Guaranties
Schedule 3.19 - Proprietary Rights
Schedule 3.20 - Transaction with Certain Persons and Entities
Schedule 3.21 - Evidences of Indebtedness
Schedule 3.22 - Environmental Compliance
Schedule 3.25 - Employee Benefit Plans
Schedule 3.26 - Agreements with Regulators
Schedule 3.27 - Insurance
Schedule 3.30 - Fiduciary Responsibilities
Schedule 4.05 - Consents and Approvals
Schedule 5.04I - Existing Policies and Methods of Operations
Schedule 5.14 - Bonus Plan and Methodology
(v)
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
and entered into as of the 1/st/ day of March, 2000, by and between State
National Bancshares, Inc., a Texas corporation and registered bank holding
company with its principal offices in Lubbock, Texas ("Purchaser"), and
Independent Bankshares, Inc., a Texas corporation and registered bank holding
company with its principal offices in Abilene, Texas (the "Company").
W I T N E S S E T H:
-------------------
WHEREAS, the Company owns all of the stock of First State Bank, N.A.,
Abilene, Texas, a national banking association (the "Bank");
WHEREAS, Purchaser desires to acquire all of the issued and outstanding
stock of the Company through the merger of New FSB, Inc., a wholly-owned
subsidiary of Purchaser ("Newco") with and into the Company (the "Merger");
WHEREAS, Purchaser and the Company believe that the Merger, as provided
for and subject to the terms and conditions set forth in this Agreement and all
exhibits, schedules and supplements hereto, is in the best interests of
Purchaser, the Company and their respective shareholders;
WHEREAS, Purchaser and the Company desire to set forth certain
representations, warranties and covenants made by each to the other as an
inducement to the execution and delivery of this Agreement and certain
additional agreements related to the transactions contemplated hereby; and
WHEREAS, the respective boards of directors of Purchaser and the
Company have approved this Agreement and the proposed transactions substantially
on the terms and conditions set forth in this Agreement and have authorized the
execution hereof;
NOW, THEREFORE, for and in consideration of the foregoing and of the
mutual representations, warranties, covenants and agreements contained in this
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and subject to the conditions set
forth below, the parties hereto undertake, promise, covenant and agree with each
other as follows:
ARTICLE I.
ACQUISITION OF THE COMPANY BY PURCHASER
Section 1.01 Merger of Newco with and into the Company. Subject to the
-----------------------------------------
terms and conditions of this Agreement and the Agreement and Plan of Merger to
be entered into between the Company and Newco (the "Merger Agreement"), attached
hereto as Exhibit A, Purchaser shall cause Newco to be merged with and into the
---------
Company pursuant to the provisions of Part
<PAGE>
Five of the Texas Business Corporation Act (the "TBCA") and with the effect
provided in Article 5.06 of the TBCA.
Section 1.02 Effects of the Merger. The Merger shall have the effects
---------------------
set forth in Article 5.06 of the TBCA. Following the Merger, the Company shall
continue as the corporation resulting from the Merger (the "Resulting
Corporation"), and the separate corporate existence of Newco shall cease. The
name of the Resulting Corporation shall be "Independent Bankshares, Inc." The
existing offices and facilities of the Company immediately preceding the Merger
shall be the principal offices and facilities of the Resulting Corporation
following the Merger. At the Effective Time (as defined in Section 2.05), all
rights, title and interests to all real estate and other property owned by each
of Newco and the Company shall be allocated to and vested in the Resulting
Corporation without reversion or impairment, without further act or deed, and
without any transfer or assignment having occurred, but subject to any existing
liens or encumbrances thereon. At the Effective Time, all liabilities and
obligations of Newco and the Company shall be allocated to the Resulting
Corporation, and the Resulting Corporation shall be the primary obligor therefor
and no other party to the Merger shall be liable therefor. At the Effective
Time, a proceeding pending by or against either Newco or the Company may be
continued as if the Merger did not occur, or the Resulting Corporation may be
substituted in the proceedings.
Section 1.03 Articles of Incorporation and Bylaws. The Articles of
------------------------------------
Incorporation and Bylaws, respectively, of the Resulting Corporation shall be as
set forth in the Merger Agreement.
Section 1.04 Directors and Officers. The directors and officers,
----------------------
respectively, of the Resulting Corporation shall be as set forth in the Merger
Agreement.
Section 1.05 Conversion of Securities. At the Effective Time:
------------------------
A. All of the shares of common stock of the Company, par value
$0.25 per share (the "Company Stock"), issued and outstanding as of the
Effective Time shall be converted into the right to receive from
Purchaser, an aggregate amount in cash equal to the sum of (i)
$45,473,000 plus (ii) if the Closing Date (as defined in Section 2.01)
does not occur within one hundred sixty days of the date of this
Agreement, the sum of $12,455 per day for each day from the one hundred
sixtieth day until the Closing Date (the "Merger Consideration"). The
"Per Share Consideration" shall be determined by dividing the Merger
Consideration by the number of shares of Company Stock issued and
outstanding as of the Effective Time.
B. The number of shares of the common stock of Newco
outstanding at the Effective Time shall, at the Effective Time and by
virtue of the Merger and without any action on the part of any holder
thereof, be converted into a like number of shares of common stock of
the Resulting Corporation with a par value of $0.25 per share, with the
effect that the number of shares of the common stock of the Resulting
Corporation outstanding immediately after the Effective Time shall be
equal to the aggregate number of shares of the Company Stock
outstanding immediately before the Effective Time. The
<PAGE>
authorized number of shares of common stock of the Resulting
Corporation shall be the same as the authorized number of shares of
Company Stock immediately prior to the Effective Time.
C. The shares of the Company Stock issued and outstanding at
the Effective Time shall, by operation of law and without any action on
the part of the holder thereof, unless dissenters' rights under
applicable law are being perfected with respect thereto, be converted
into the right to receive the consideration set forth in Section 1.05A.
D. Until surrendered to the Paying Agent as described in
Section 1.07, each outstanding certificate formerly representing shares
of the Company Stock (each, a "Certificate") shall be deemed for all
purposes, subject only to dissenters' rights under applicable law, to
evidence solely the right to receive the consideration described in
Section 1.05A.
Section 1.06 Shareholders' Meeting. The Company, acting through its
----------------------
Board of Directors, shall, in accordance with applicable law:
A. Duly call, give notice of, convene and hold a meeting of
its shareholders (the "Shareholders' Meeting") as soon as practicable
for the purposes of approving and adopting the Merger and the Merger
Agreement and the transactions contemplated hereby and thereby;
B. Require no greater than the minimum vote of the Company
Stock required by applicable law in order to approve the Merger and the
Merger Agreement;
C. Unless the Board of Directors of the Company is advised by
counsel that the fiduciary duty owed by the directors to the
shareholders requires otherwise, include in the Shareholder Information
(defined in Section 1.06(D)) the recommendation of the Board of
Directors of the Company that the shareholders of the Company vote in
favor of the approval and adoption of the Merger and the Merger
Agreement; and
D. Cause the Shareholder Information to be mailed to the
shareholders of the Company as soon as practicable, and use its best
efforts to obtain the approval and adoption of the Merger and the
Merger Agreement by shareholders holding at least the minimum number of
shares of the Company Stock entitled to vote at the Shareholders'
Meeting necessary to approve the Merger and the Merger Agreement under
applicable law. The letter to shareholders, notice of meeting, summary
of the plan of merger and form of proxy, if any, to be distributed to
shareholders in connection with the Merger and the Merger Agreement
shall be in form and substance reasonably satisfactory to Purchaser and
are collectively referred to herein as the "Shareholder Information."
3
<PAGE>
Section 1.07 Delivery of Consideration.
-------------------------
A. On the day prior to the Effective Time, Purchaser, acting
as the "Paying Agent," shall establish an account containing an amount
of cash sufficient in the aggregate to make full payment of the Merger
Consideration to the holders of all outstanding Certificates.
B. No later than thirty (30) days prior to the Effective Time,
Purchaser shall furnish to the Company, and the Company shall mail to
each holder of record of the Company Stock, addressed to the most
current address of such persons according to the records of the
Company, the following: (i) a letter of transmittal specifying that
delivery shall be effected and risk of loss shall pass, on or after the
Effective Time only upon delivery of the Certificates to the Paying
Agent, which shall be in a form and contain any other provisions as
Purchaser, the Paying Agent and the Company may reasonably agree (the
"Transmittal Letter"), and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for cash in the amount of the
Per Share Consideration for each share of Company Stock represented by
the Certificates (the "Instructions"). The Instructions shall request
holders to deliver their Certificates, a properly completed, duly
executed Transmittal Letter, and any other documentation that may be
required from such holder pursuant to the Instructions (collectively,
the "Transmittal Items") to the Paying Agent, and shall state that (x)
occurrence of the Effective Time is contingent upon the satisfaction of
significant conditions, including regulatory approval of the Merger and
expiration of statutory waiting periods, and (y) the Transmittal Items
will be returned to the holders thereof if the Agreement is terminated
prior to the Effective Time. Purchaser shall instruct the Paying Agent
that, on and after the Effective Time, upon the delivery to the Paying
Agent of the Transmittal Items, the Paying Agent is to pay the holder
of such Certificate in exchange therefor the amount of cash such holder
is entitled to receive in respect of the Certificate surrendered,
pursuant to the provisions of Section 1.05A and this Section 1.07B,
payable by check, and the Certificate so surrendered shall forthwith be
canceled. Such payments shall be made, in the case of holders whose
Transmittal Items are delivered to the Paying Agent no later than ten
(10) days prior to the Effective Time, by mailing checks on the Closing
Date, and in all other cases, by mailing checks promptly, but in no
event more than ten (10) days following the later of (i) the Effective
Time, or (ii) the date on which the Transmittal Items are delivered to
the Paying Agent, provided, however, that any person or affiliated
-------- -------
group holding Certificates aggregating more than 1,500 shares of the
Company Stock as to which the Transmittal Items and either (i)
appropriate wiring instructions or (ii) deposit information for such
shareholder's account at the Bank are delivered to the Paying Agent no
later than ten (10) days prior to the Effective Time, and deliver
appropriate wire transfer instructions to the Paying Agent at least ten
(10) days prior to the Effective Time, shall be entitled to receive
payment for such shares on the Closing Date, less any applicable wire
transfer fees, by wire transfer. Only holders of Certificates who have
delivered their Transmittal Items to the Paying Agent no later than ten
(10) days prior to the Effective Time shall be eligible to receive
payment at the Effective Time as herein provided. Notwithstanding the
foregoing, neither the Paying Agent nor any other party to this
Agreement shall be liable to any
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holder of Certificates for any amount paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
No payment shall be made for the Certificates prior to the Effective
Time, and no interest shall be payable with respect to the payment of
the Merger Consideration.
C. After the Effective Time, there shall be no further
registration or transfers on the records of the Company of outstanding
Certificates, and if a Certificate is presented to the Company or
Purchaser, it shall be forwarded to the Paying Agent for cancellation
and exchange for the consideration set forth in Section 1.05A.
D. If the Per Share Consideration is to be issued to a person
other than a person in whose name a Certificate is registered, it shall
be a condition of issuance that the surrendered Certificate shall be
properly endorsed or otherwise executed in proper form for transfer and
that the person requesting such issuance shall pay to the Paying Agent
any required transfer or other taxes or establish to the satisfaction
of the Paying Agent that such tax has been paid or is not applicable.
E. If any record holder of a Certificate is unable to locate
any Certificate, prior to payment therefor by the Paying Agent, such
person shall submit to the Paying Agent an affidavit of lost
certificate and indemnification agreement in form acceptable to
Purchaser and the Paying Agent, and, if required by Purchaser or the
Paying Agent, a surety bond in an amount equal to the amount to be
delivered in payment for such Certificate, in lieu of such Certificate.
Section 1.08 Reservation of Right. Purchaser may at any time, change
--------------------
the corporate structure of effecting the acquisition of the Company by Purchaser
or any direct or indirect Subsidiary of Purchaser, if and to the extent that
Purchaser deems such change to be desirable; provided, however, that no such
change shall (A) alter or change the amount or kind of consideration and the tax
consequences of the receipt of such consideration to be paid by Purchaser under
this Agreement, or (B) impede or delay receipt of any approval referred to in
Section 4.05 or the consummation of the transactions contemplated by this
Agreement.
ARTICLE II.
THE CLOSING, THE CLOSING DATE AND THE EFFECTIVE TIME
Section 2.01 Time and Place of the Closing and Closing Date. On a date
----------------------------------------------
selected by Purchaser, and agreed to by the Company, which date shall be within
twenty (20) business days of the receipt of all necessary regulatory, corporate
and other approvals and the expiration of any mandatory waiting periods, but in
no event later than 180 days after the date of this Agreement (herein called the
"Closing Date"), a meeting (the "Closing") will take place at which the parties
to this Agreement will exchange certificates, letters and other documents in
order to determine whether all of the conditions set forth in Articles VII and
VIII of this Agreement have been satisfied or waived or whether any condition
exists that would permit a party to this Agreement to terminate this Agreement.
If no such condition then exists or if no party elects to exercise any
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right it may have to terminate this Agreement, then and thereupon the
appropriate parties shall execute such documents and instruments as may be
necessary or appropriate in order to effect the transactions contemplated by
this Agreement and shall file Articles of Merger pursuant to Article 5.04 of the
TBCA.
The Closing shall take place at the offices of the Company, 547
Chestnut, Abilene, Texas 79602, on the Closing Date, or at such other place to
which the parties may agree.
Section 2.02 Actions to be Taken at the Closing by the Company. At the
-------------------------------------------------
Closing, the Company shall execute and acknowledge (where appropriate) and
deliver to Purchaser, such documents and certificates necessary to carry out the
terms and provisions of this Agreement, including without limitation, the
following (all of such actions constituting conditions precedent to Purchaser's
obligations to close hereunder):
A. True, correct and complete copies of the Articles of
Incorporation of the Company and all amendments thereto, duly certified
as of a recent date by the Secretary of State of the State of Texas;
B. True, correct and complete copies of the Articles of
Association of the Bank and all amendments thereto, duly certified as
of a recent date by the Office of the Comptroller of the Currency (the
"OCC").
C. Good standing and existence certificates of a recent date,
issued by the appropriate state officials, duly certifying as to the
existence and good standing of the Company in Texas;
D. A certificate of existence, dated as of a recent date,
issued by the OCC, duly certifying that the Bank has been duly
organized and chartered and that it is validly existing;
E. A certificate of good standing, dated as of a recent date,
issued by the Texas Comptroller of Public Accounts, duly certifying as
to the good standing of the Bank in the State of Texas;
F. A certificate, dated as of a recent date, issued by the
Federal Deposit Insurance Corporation (the "FDIC"), duly certifying
that the deposits of the Bank are insured by the FDIC pursuant to the
Federal Deposit Insurance Act (the "FDIA");
G. A certificate, dated as of the Closing Date, duly executed
by the Secretary or an Assistant Secretary of the Company, acting
solely in his capacity as an officer of the Company, pursuant to which
the Company shall certify (i) the due adoption by the Board of
Directors of the Company of corporate resolutions attached to such
certificate authorizing the execution and delivery of this Agreement
and the other agreements and documents contemplated hereby, including,
but not limited to, the Merger Agreement, and the taking of all actions
contemplated hereby and thereby; (ii) the due adoption by the
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shareholders of the Company of resolutions authorizing the transactions
and the execution and delivery of this Agreement and the other
agreements and documents contemplated hereby and the taking of all
actions contemplated hereby and thereby; (iii) the incumbency and true
signatures of those officers of the Company duly authorized to act on
its behalf in connection with the transactions contemplated by this
Agreement and to execute and deliver this Agreement and other
agreements and documents contemplated hereby and the taking of all
actions contemplated hereby and thereby on behalf of the Company; and
(iv) that the copy of the Bylaws of the Company attached to such
certificate is true and correct and such Bylaws have not been amended
except as reflected in such copy;
H. A certificate duly executed by a duly authorized officer of
the Company, acting solely in his capacity as an officer of the
Company, dated as of the Closing Date, pursuant to which the Company
shall certify that all of the representations and warranties made in
Article III of this Agreement are true and correct in all material
respects on and as of the date of such certificate as if made on such
date and except as expressly permitted by this Agreement there shall
have been no Material Adverse Change since December 31, 1999;
I. All consents required to be obtained by the Company from
third parties to consummate the transactions contemplated by this
Agreement, including, but not limited to, those listed on Schedule
3.07, have been obtained; and
J. All other documents required to be delivered to Purchaser
by the Company under the provisions of this Agreement, and all other
documents, certificates and instruments as are reasonably requested by
Purchaser or its counsel.
Section 2.03 Actions to be Taken at the Closing by Purchaser. At the
-----------------------------------------------
Closing, Purchaser shall execute and acknowledge (where appropriate) and deliver
to the Company such documents and certificates necessary to carry out the terms
and provisions of this Agreement, including without limitation, the following
(all of such actions constituting conditions precedent to the Company's
obligations to close hereunder):
A. True, correct and complete copies of the Articles of
Incorporation of Purchaser and all amendments thereto, duly certified
as of a recent date by the Texas Secretary of State;
B. True, correct and complete copies of the Articles of
Incorporation and all amendments thereto of Newco, duly certified as of
a recent date by the Secretary of State of the State of Texas;
C. Good standing and existence certificates of a recent date,
issued by the appropriate state officials, duly certifying as to the
existence and good standing of Purchaser in Texas;
7
<PAGE>
D. A certificate, dated as of the Closing Date, executed by
the Secretary or an Assistant Secretary of Purchaser, acting solely in
his capacity as an officer of Purchaser, pursuant to which Purchaser
shall certify (a) the due adoption by the Board of Directors of
Purchaser of corporate resolutions attached to such certificate
authorizing the execution and delivery of this Agreement and the other
agreements and documents contemplated hereby and the taking of all
actions contemplated hereby and thereby; (b) the incumbency and true
signatures of those officers of Purchaser duly authorized to act on its
behalf in connection with the transactions contemplated by this
Agreement and to execute and deliver this Agreement and other
agreements and documents contemplated hereby and the taking of all
actions contemplated hereby and thereby on behalf of Purchaser, and (c)
that the copy of the Bylaws of Purchaser attached to such certificate
is true and correct and such Bylaws have not been amended except as
reflected in such copy;
E. A certificate, dated as of the Closing Date, executed by
the Secretary or an Assistant Secretary of Newco, acting solely in his
capacity as an officer of Newco, pursuant to which Newco shall certify
(a) the due adoption by the Board of Directors of Newco of corporate
resolutions attached to such certificate authorizing the execution and
delivery of the Merger Agreement and the taking of all actions
contemplated thereby; (b) the due adoption by the sole shareholder of
Newco of resolutions authorizing the Merger and the execution and
delivery of the Merger Agreement and the other agreements and documents
contemplated hereby and the taking of all actions contemplated hereby
and thereby; (c) the incumbency and true signatures of those officers
of Newco duly authorized to act on its behalf in connection with the
transactions contemplated by the Merger Agreement and to execute and
deliver the Merger Agreement and the taking of all actions contemplated
thereby on behalf of Newco; and (d) that the copy of the Bylaws of
Newco attached to such certificate is true and correct and such Bylaws
have not been amended except as reflected in such copy;
F. A certificate, dated as of the Closing Date, executed by a
duly authorized officer of Purchaser, acting solely in his capacity as
an officer of Purchaser, pursuant to which Purchaser shall certify that
all of the representations and warranties made in Article IV of this
Agreement are true and correct in all material respects on and as of
the date of such certificate as if made on such date;
G. True, correct and complete copies of the Articles of
Merger of Newco with and into the Company, pre-approved by the
Secretary of State of the State of Texas;
H. All consents required to be obtained by Purchaser from
third parties to consummate the transactions contemplated by this
Agreement, including, but not limited to, those listed on Schedule
4.05; and
I. All other documents required to be delivered to the
Company by Purchaser under the provisions of this Agreement, and all
other documents, certificates and instruments as are reasonably
requested by the Company or its counsel.
8
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Section 2.04 Further Assurances. At any time and from time to time
------------------
after the Closing, at the request of any party to this Agreement and without
further consideration, any party so requested will execute and deliver such
other instruments and take such other action as the requesting party may
reasonably deem necessary or desirable in order to effectuate the transactions
contemplated hereby. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each party
hereto shall take or cause to be taken all such action.
Section 2.05 Effective Time. The "Effective Time" as that term is used
--------------
in this Agreement means the Effective Time of the Merger under the terms of the
Merger Agreement.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby makes the representations and warranties set forth
in this Article III to Purchaser. The Company agrees at the Closing to provide
Purchaser with supplemental schedules reflecting any material changes thereto
between the date of this Agreement and the Closing Date.
Section 3.01 Organization and Qualification. The Company is a Texas
------------------------------
corporation and a bank holding company under the Bank Holding Company Act of
1956, as amended, and is duly organized, validly existing and in good standing
under the laws of the State of Texas. The Bank is a national banking
association, duly organized and validly existing under the laws of the United
States and in good standing under the laws of the State of Texas. The deposits
of the Bank are insured by the Bank Insurance Fund of the Federal Deposit
Insurance Corporation ("FDIC"), to the full extent permissible by law. Each of
the Company and the Bank has all requisite corporate power and authority
(including all licenses, franchises, permits and other governmental
authorizations as are legally required) to carry on its business as now being
conducted, to own, lease and operate its properties and assets as now owned,
leased or operated and to carry out its obligations under this Agreement. Except
as set forth on Schedule 3.01, the Company does not own or control any
subsidiary other than the Bank, and the Bank does not own or control any
subsidiary.
Section 3.02 Company Capitalization. The entire authorized capital
----------------------
stock of the Company consists solely of (i) 30,000,000 shares of Company Stock,
par value $0.25 per share, of which 2,333,647 shares are issued and 2,273,647
shares are outstanding as of the date hereof and (ii) 5,000,000 shares of
preferred stock, par value $10.00 per share, which the Board of Directors of the
Company may designate from time to time in one or more series. Pursuant to
action by the Board of Directors of the Company, 50,000 shares of preferred
stock have been designated as the Company's Series C Cumulative Convertible
Preferred Stock (the "Series C Preferred Stock"), which is convertible at the
option of the holder. As of the date hereof, all of the previously outstanding
shares of the Series C Preferred Stock have been converted into Company Stock,
and therefore, there are no shares of the Series C Preferred Stock issued and
outstanding. Independent Capital Trust, a Delaware business trust of which the
Company owns
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<PAGE>
all of its common securities, has issued and outstanding 40,207 of its trust
common securities and has issued and outstanding 1,300,000 trust preferred
securities (the "Trust Preferred Securities"), in each case as of the date
hereof. The obligations evidenced by the trust preferred securities are
guaranteed by the Company. The Company has issued all of its 8.5% subordinated
debentures to Independent Capital Trust. Except as set forth on Schedule
3.02,there are no (i) other outstanding equity securities of any kind or
character, (ii) outstanding subscriptions, options, convertible securities,
rights, warrants, calls or other agreements or commitments of any kind issued or
granted by, or binding upon, the Company to (A) purchase or otherwise acquire
any security of or equity interest in the Company or (B) issue any shares of,
restricting the transfer of or otherwise relating to shares of its capital
stock. All of the issued and outstanding shares of the Common Stock have been
duly authorized, validly issued and are fully paid and nonassessable, and have
not been issued in violation of the securities laws of the United States or any
other applicable jurisdiction or in violation of the preemptive rights of any
person.
Section 3.03 Bank Capitalization. The entire authorized capital stock
-------------------
of the Bank consists solely of 250,000 shares of common stock, par value $5.00
per share, of which 250,000 shares are issued and outstanding as of the date
hereof (the "Bank Stock"). There are no (a) other outstanding equity securities
of any kind or character, (b) outstanding subscriptions, options, convertible
securities, rights, warrants, calls or other agreements or commitments of any
kind issued or granted by, or binding upon, the Bank to (i) purchase or
otherwise acquire any security of or equity interest in the Bank or (ii) issue
any shares of, restricting the transfer of or otherwise relating to shares of
the Bank's capital stock. All of the issued and outstanding shares of the Bank
Stock have been duly authorized, validly issued and are fully paid and
nonassessable, other than as set forth in 12 USC (S) 55, and have not been
issued in violation of the securities laws of the United States or any other
applicable jurisdiction or in violation of the preemptive rights of any person.
Except as set forth on Schedule 3.03, the Company is the lawful record and
beneficial owner of all of the shares of Bank Stock, free and clear of any and
all liens, pledges, security interests, encumbrances, buy-sell agreements or
rights of any shareholder of the Bank and adverse claims of every kind or
character.
Section 3.04 Execution and Delivery. The Company has taken all
----------------------
corporate action necessary to authorize the execution, delivery and (provided
the required regulatory and shareholder approvals are obtained) performance of
this Agreement and the other agreements and documents contemplated hereby to
which it is a party, including, but not limited to, the Merger Agreement. This
Agreement has been, and the other agreements and documents contemplated hereby,
including, but not limited to, the Merger Agreement, have been or at Closing
will be, duly executed by the Company and each constitutes the legal, valid and
binding obligation of the Company, enforceable in accordance with its respective
terms and conditions, except as enforceability may be limited by bankruptcy,
conservatorship, insolvency, moratorium, reorganization, receivership or similar
laws and judicial decisions affecting the rights of creditors generally and by
general principles of equity (whether applied in a proceeding at law or in
equity).
Section 3.05 No Breach of Contract. Neither the execution, delivery or
---------------------
(provided the consents required under Section 3.07 this Agreement are obtained)
performance of this
10
<PAGE>
Agreement, nor the consummation of the transactions contemplated hereby, nor the
fulfillment of the terms thereof, will conflict with, or result in a breach of
the terms, conditions or provisions of, or constitute a default under the
Articles or Bylaws of the Company or the Bank or of any material agreement,
indenture, instrument, lien, charge, encumbrance or undertaking to which either
the Company or the Bank is a party or by which any of the properties of the
Company or the Bank may be bound or affected, and does not cause any lien,
charge or other encumbrance to be created or imposed upon any such properties by
reason thereof. Further, upon the execution and delivery of a supplemental
indenture between the Company and the Trustee if so required, neither the
execution, delivery or (provided the consents required under Section 3.07 this
Agreement are obtained) performance of this Agreement, nor the consummation of
the transactions contemplated hereby, nor the fulfillment of the terms thereof,
will accelerate the maturity of or otherwise conflict with, or result in a
breach of the terms, conditions or provisions of, or constitute a default under
any of the terms of the Trust Preferred Securities.
Section 3.06 Compliance with Applicable Laws. Except as set forth on
-------------------------------
Schedule 3.06, the Company and the Bank have in all material respects performed
and abided by all obligations required to be performed by each of them to the
date hereof, and each has complied with, and is in compliance with, and is not
in default (or with the giving of notice or the passage of time will be in
default) under, or in violation of, (i) any provision of the Articles or Bylaws
of the Company or the Bank, (ii) any material provision of any mortgage,
indenture, lease, contract, agreement or other instrument applicable to the
Company, the Bank or their respective assets, operations, properties or
businesses now conducted or heretofore conducted or (iii) any material permit,
concession, grant, franchise, license, authorization, judgment, writ,
injunction, order, decree, award, statute, federal, state or local law,
ordinance, rule or regulation of any courts, arbitrator or any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality applicable to the Company, the Bank or their respective assets,
operations, properties or businesses now conducted or heretofore conducted.
Section 3.07 Consents Necessary. Except as set forth on Schedule 3.07,
------------------
to the knowledge of the Company, no consent, approval or order of any
governmental or administrative board or body is required for the execution and
delivery by the Company of this Agreement.
Section 3.08 Financial Statements.
--------------------
(a) The Company has furnished to Purchaser true and complete copies of
(i) the audited consolidated balance sheets of the Company as of December 31,
1997 and 1998, and the related audited consolidated statements of income,
stockholders' equity and cash flows for the years ended December 31, 1996, 1997
and 1998, (ii) an unaudited consolidated balance sheet of the Company as of
December 31, 1999, and the related unaudited consolidated statement of income
for the year ended December 31, 1999 (such balance sheets and the related
statements of income, stockholders' equity and cash flows are collectively
referred to herein as the "Financial Statements"). Except as described in the
notes to the Financial Statements, the Financial Statements fairly present, in
all material respects, the consolidated financial position of the Company as of
the respective dates thereof and the results of operations and changes in
financial position of the Company for the periods then ended, in conformity with
generally accepted
11
<PAGE>
accounting principles ("GAAP"), applied on a basis consistent with prior periods
(subject, in the case of the unaudited interim financial statements, to normal
year-end adjustments and the fact that they do not contain all of the footnote
disclosures required by GAAP), except as otherwise noted therein, and the
accounting records underlying the Financial Statements accurately and fairly
reflect in all material respects the transactions of the Company. The Financial
Statements do not contain any items of extraordinary or nonrecurring income or
any other income not earned in the ordinary course of business except as
expressly specified therein.
(b) The Company has furnished, or has caused the Bank to furnish, to
Purchaser with true and complete copies of the Reports of Condition and Income
("Call Reports") for the Bank for the periods ended December 31, 1997, December
31, 1998 and December 31, 1999. Such Call Reports fairly present, in all
material respects, the financial position of the Bank and the results of its
operations at the dates and for the periods indicated in conformity with the
Instructions for the Preparation of Call Reports as promulgated by applicable
regulatory authorities. The Call Reports do not contain any items of special or
nonrecurring income or any other income not earned in the ordinary course of
business except as expressly specified therein. The Bank has calculated its
allowance for loan losses in accordance with GAAP, which includes regulatory
accounting principles ("RAP") where applicable, as applied to banking
institutions and in accordance with all applicable rules and regulations. To the
knowledge of the Company, the allowance for loan losses account for the Bank is,
and as of the Closing Date will be, adequate in all material respects to provide
for all losses, net of recoveries relating to loans previously charged off, on
all outstanding loans of the Bank.
Section 3.09 Undisclosed Liabilities. Neither the Company nor the Bank
-----------------------
has any material liability or obligation, accrued, absolute, contingent or
otherwise and whether due or to become due (including, without limitation,
unfunded obligations under any Employee Benefit Plan or liabilities for federal,
state or local taxes or assessments or liabilities under any tax sharing
agreements) that are not reflected in or disclosed in the Financial Statements
or the Call Report, which are required to be so reflected under GAAP or RAP, as
the case may be, except (A) those liabilities and expenses incurred in the
ordinary course of business and consistent with past business practices since
the date of the Company Financial Statements or the Call Report, respectively or
(B) as disclosed on Schedule 3.09.
Section 3.10 Litigation. Except as set forth on Schedule 3.10, there
----------
are no actions, claims, suits, investigations, or other proceedings of any kind
or nature now pending or, to the knowledge of the Company, threatened against
the Company or the Bank, that in any manner involve the Company or the Bank or
any of their respective properties or capital stock, and neither the Company nor
the Bank knows or has any reason to be aware of any basis for the same, which
would, in the event of an unfavorable outcome, result in a Material Adverse
Change.
Section 3.11 Absence of Certain Changes or Events. Except as set forth
------------------------------------
on Schedule 3.11, since December 31, 1999, each of the Company and the Bank has
conducted its business only in the ordinary course and has not:
12
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A. Incurred any obligation or liability except deposits taken
and federal funds purchased and current liabilities for trade or
business obligations in the ordinary course of business and consistent
with past practices, which individually or in the aggregate, result in
a Material Adverse Change;
B. Discharged or satisfied any material lien, charge or
encumbrance or paid any material obligation or liability except in the
ordinary course of business and consistent with past practices;
C. Declared or paid any dividends or other distribution to its
shareholders, other than consistent with past practices, or purchased,
retired or redeemed, or obligated itself to purchase, retire or redeem,
any of its shares of capital stock or other securities;
D. Issued, reserved for issuance, granted, sold or authorized
the issuance of any shares of its capital stock or other securities or
subscriptions, options, warrants, calls, rights or commitments of any
kind relating to the issuance thereto;
E. Acquired any capital stock or other equity securities or
acquired any equity or ownership interest in any bank, corporation,
partnership or other entity (except (i) through settlement of
indebtedness, foreclosure, or the exercise of creditors' remedies or
(ii) in a fiduciary capacity, the ownership of which does not expose it
to any liability from the business, operations or liabilities of such
person);
F. Mortgaged, pledged or subjected to lien, charge, security
interest or any other encumbrance or restriction any of its material
properties, businesses or assets;
G. Sold, transferred, leased to others or otherwise disposed of
any of its material assets except in the ordinary course of business
and consistent with past practices, or canceled or compromised any debt
or claim, or waived or released any right or claim of material value;
H. Terminated, canceled or surrendered, or received any notice
of or threat of termination or cancellation of any contract, lease or
other agreement or suffered any damage, destruction or loss (whether or
not constituting, or reasonably anticipated to constitute, a Material
Adverse Change covered by insurance), which, in any case or in the
aggregate, could reasonably be expected to result in a Material Adverse
Change;
I. Made any change in the rate of compensation, commission,
bonus or other direct or indirect remuneration payable, or paid or
agreed or orally promised to pay, conditionally or otherwise, any
bonus, extra compensation, pension or severance or vacation pay, to any
shareholder, director or executive officer, except for normal increases
in compensation consistent with past practices;
J. Made any capital expenditures or capital additions or
betterments in excess of an aggregate of $100,000;
13
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K. Had instituted against it, settled or agreed to settle any
litigation, action or proceeding before any court or governmental body
relating to its property other than routine collection suits instituted
by it to collect amounts owed;
L. Suffered any change, event or condition that, in any case or
in the aggregate, has caused or could reasonably be expected to result
in a Material Adverse Change; or
M. Sold, or knowingly disposed of, or otherwise knowingly
divested itself of the ownership, possession, custody or control, of
any corporate books or records of any nature that, in accordance with
sound business practice, normally are retained for a period of time
after their use, creation or receipt, except at the end of the normal
retention period.
Section 3.12 Leases, Contracts and Agreements. Schedule 3.12 sets forth
--------------------------------
an accurate and complete description of all leases, subleases, licenses,
contracts and agreements to which the Company or the Bank is a party or by which
the Company or the Bank is bound that obligate or could reasonably be expected
to obligate the Company, or the Bank in the aggregate for an amount in excess of
$100,000 over the entire term of any such agreement or related contracts of a
similar nature which in the aggregate obligate or could reasonably be expected
to obligate the Company or the Bank for an amount in excess of $100,000 over the
remaining term of such related contracts (the "Contracts"). The Company has made
all such Contracts available to Purchaser. Except as set forth in Schedule 3.12,
no participations or loans have been sold that have buy back, recourse or
guaranty provisions that create contingent or direct liabilities of the Company
or the Bank. To the knowledge of the Company and the Bank, all of the Contracts
are legal, valid and binding obligations of the parties to the Contracts
enforceable in accordance with their respective terms, subject to the effects of
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to creditors' rights generally and to general equitable principles, and
are in full force and effect. Except as described in Schedule 3.12, all rent and
other payments by the Bank under the Contracts are current, there are no
existing defaults by the Company or the Bank under the Contracts and no
termination, condition or other event has occurred which (whether with or
without notice, lapse of time or the happening or occurrence of any other event)
would constitute a default under the Contracts. The Company or the Bank,
respectively, has a good and indefeasible leasehold interest in each parcel of
real property leased by it free and clear of all mortgages, pledges, liens,
encumbrances and security interests, other than statutory and contractual
landlord liens, if any, and mortgages and other encumbrances placed on the real
property by the owner.
Section 3.13 Title to Properties. Except as reflected in Schedule 3.13
-------------------
or in the latest balance sheet contained in the Financial Statements, each of
the Company and the Bank has good, indefeasible and insurable title to all
material properties and assets reflected as assets in their respective balance
sheets or acquired after the date thereof (other than properties or assets
disposed of since the date of such balance sheets in the ordinary course of
business) free and clear of all liens, mortgages, pledges, encumbrances and
charges of every kind except (a) liens
14
<PAGE>
created in favor of a lender pursuant to a written loan agreement, a copy of
which has been provided to the Purchaser, (b) liens for taxes not yet due and
payable or being contested in good faith that have been adequately reserved
against on the books of the Company or the Bank, or (c) defects in title and
liens, charges and encumbrances, if any, that do not materially detract from the
value, or materially interfere with the present or proposed use, of the property
or asset subject thereto or affected thereby, or otherwise materially impair the
business operations of the Company or the Bank, respectively.
Section 3.14 Tax Matters. The Company and the Bank have filed all
-----------
material tax returns required by law to be filed and have paid all taxes shown
to be due and payable on such returns and all other taxes and assessments that
are payable before they have become delinquent. To the knowledge of the Company,
there is no proposed tax assessment against the Company or the Bank. The amounts
set up as provisions for current or deferred taxes on the Financial Statements
are sufficient in all material respects for the payment of all unpaid taxes
(including any interest or penalties) of or on behalf of the Company and the
Bank applicable to the periods covered by the Financial Statements, and all
years and periods prior thereto. No income tax liability of the Company or the
Bank has been asserted by the Internal Revenue Service for taxes in excess of
those already paid. Neither the Company nor the Bank is involved in an ongoing
audit of any federal income tax return. Neither the Company nor the Bank has
been granted any extension of time with respect to the date on which any tax
return was or is due to be filed by or with respect to either the Company or the
Bank, or any waiver or agreement by any such entity for the extension of time
for the assessment or collection of any tax. The amounts set up as provisions
for current or deferred taxes on the Financial Statements and the Call Report
are sufficient in all material respects for the payment of all unpaid federal,
state, county, local, foreign or other taxes (including any interest or
penalties) of or on behalf of the Company and the Bank applicable to the periods
covered by each entity's financial statements, and all years and periods prior
thereto. True and complete copies of the Federal income tax returns of the
Company and the Bank as filed with the Internal Revenue Service (the "IRS") for
the years ended December 31, 1996, 1997, and 1998 have been made available to
Purchaser.
Section 3.15 No Guaranties. Except as set forth in Schedule 3.15, none
-------------
of the obligations or liabilities of the Company or the Bank are guaranteed by
any other person, firm or corporation, nor has the Company or the Bank
guaranteed the obligations or liabilities of any other person, firm or
corporation, other than in the ordinary course of business.
Section 3.16 Books and Records. The minute books, stock certificate
-----------------
books and stock transfer ledgers of the Company and the Bank, respectively, are
complete and correct in all material respects, and there have been no
transactions involving the business of the Company or the Bank that were
required to have been set forth therein and that have not been accurately so set
forth.
Section 3.17 Regulatory Compliance. All material reports, records and
---------------------
other documents or information required to be filed by the Company or the Bank
with any regulatory authority, including, without limitation, the Federal
Reserve, the FDIC, the Office of the Comptroller of the Currency and the
Internal Revenue Service, have been duly and timely filed, and all information
15
<PAGE>
and data contained in such reports, records or other documents is true, accurate
and correct in all material respects. Further, since January 1, 1996, the
Company has timely filed all reports and documents required to be filed by it
under the Securities Act of 1933, as amended, or the Exchange Act of 1934, as
amended, and, as of their respective dates, all such reports complied in all
material respects with the published rules and regulations of the Securities and
Exchange Commission with respect thereto.
Section 3.18 Condition of Assets. As of the date of this Agreement, all
-------------------
material tangible assets used by the Company and the Bank, respectively, are in
good operating condition, ordinary wear and tear excepted, and substantially
comply with all applicable ordinances, regulations, zoning and other laws. As of
the date of this Agreement, none of the Company's or the Bank's premises or
equipment are in need of maintenance or repairs other than ordinary routine
maintenance and repairs that are not material in nature or cost. As of the
Closing Date, all material tangible assets used by the Company and the Bank,
respectively, will be in good operating condition, ordinary wear and tear
excepted, and will substantially comply with all applicable ordinances,
regulations, zoning and other laws.
Section 3.19 Proprietary Rights. Except as set forth on Schedule 3.19,
------------------
neither the Company nor the Bank owns or requires the use of any patent, patent
application, patent right, invention, process, trademark (whether registered or
unregistered), trademark application, trademark right, trade name, service name,
service mark, copyright or any trade secret ("Proprietary Rights") for the
business or operations of the Company or the Bank. To the Company's knowledge,
neither the Company nor the Bank are infringing upon or otherwise acting
adversely to, and have not in the past three (3) years infringed upon or
otherwise acted adversely to, any Proprietary Right owned by any other person or
persons. There is no claim or action by any such person pending, or to the
knowledge of the Company threatened, with respect thereto.
Section 3.20 Transactions with Certain Persons and Entities. Except as
----------------------------------------------
disclosed in Schedule 3.20, neither the Company nor the Bank owes any amount to
(excluding deposit liabilities), or has any loan, contract, lease, commitment or
other obligation from or to any of the present or former directors or officers
(other than compensation for current services not yet due and payable and
reimbursement of expenses arising in the ordinary course of business) of the
Company or the Bank, and none of such persons owes any amount to the Company or
the Bank. Except as set forth on Schedule 3.20, neither the Company nor the Bank
use any asset owned by any shareholder or any present or former directors or
officers of the Company or the Bank in either of their operations, nor do any of
such persons own real property that is adjacent to the property on which any
Bank facility is located. Except as set forth on Schedule 3.20, there are no
agreements, instruments, commitments, extensions of credit, tax sharing or
allocation agreements or other contractual agreements of any kind between or
among the Company, whether on its own behalf or in its capacity as trustee or
custodian for the funds of any employee benefit plan (as defined in the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and any of its
Affiliates (as defined in Section 11.10) other than the Bank and the Company's
Employee Stock Ownership/401(k) Plan (the "ESOP").
16
<PAGE>
Section 3.21 Evidences of Indebtedness. All evidences of indebtedness
-------------------------
and leases that are reflected as assets of the Company or the Bank are legal,
valid and binding obligations of the respective obligors thereof, enforceable in
accordance with their respective terms (except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors generally and the availability of injunctive relief, specific
performance and other equitable remedies) and are not subject to any known or
threatened defenses, offsets or counterclaims that may be asserted against the
Company, the Bank or the present holder thereof, except as disclosed in Schedule
3.21 or except for situations in which the inability of the Company to collect
on any such indebtedness would have a material impact on the Company or the
Bank. The credit files of the Bank contain all material information (excluding
general, local or national industry, economic or similar conditions) known to
the Company or the Bank that is reasonably required to evaluate in accordance
with generally prevailing practices in the banking industry the collectibility
of the loan portfolio of the Bank (including loans that will be outstanding if
any of them advances funds they are obligated to advance). The Company has
disclosed all of the substandard, doubtful, loss, nonperforming or problem loans
on the internal watch list of the Company and the Bank, a copy of which as of
December 31, 1999, has been provided to Purchaser on a confidential basis.
Section 3.22 Environmental Compliance. Except as disclosed on
------------------------
Schedule 3.22:
A. Each of the Company and the Bank, their respective
operations and their respective Properties (as defined in Section
11.10) are in material compliance with all Environmental Laws (as
defined in Section 11.10). Neither the Company nor the Bank is aware
of, nor has the Company or the Bank received notice of, any past,
present, or future conditions, events, activities, practices or
incidents that may interfere with or prevent the material compliance of
the Company or the Bank with all Environmental Laws.
B. The Company and the Bank have obtained all material
permits, licenses and authorizations that are required under all
Environmental Laws.
C. No Hazardous Materials (as defined in Section 11.10)
exist on, about or within any of the Properties, nor to the knowledge
of the Company and the Bank have any Hazardous Materials previously
existed on, about or within or been used, generated, stored,
transported, disposed of, on or released from any of the Properties.
The use that the Company and the Bank make and intend to make of the
Properties will not result in the use, generation, storage,
transportation, accumulation, disposal or release of any Hazardous
Material on, in or from any of the Properties.
D. There is no action, suit, proceeding, investigation, or
inquiry before any court, administrative agency or other governmental
authority pending or to the knowledge of the Company threatened against
the Company or the Bank relating in any way to any Environmental Law.
Neither the Company nor the Bank has any liability for remedial action
under any Environmental Law. Neither the Company nor the Bank has
received any request for information by any governmental authority with
respect to the condition, use or operation of any of the Properties nor
has the Company or the Bank received any
17
<PAGE>
notice of any kind from any governmental authority or other person with
respect to any violation of or claimed or potential liability of any
kind under any Environmental Law.
Section 3.23 Absence of Certain Business Practices. Neither the Company
-------------------------------------
nor the Bank, or any officer, employee or agent of the Company or the Bank, or
any other person acting on their behalf, has, directly or indirectly, within the
past five (5) years, given or agreed to give any gift or similar benefit to any
customer, supplier, governmental employee or other person who is or may be in a
position to help or hinder the business of the Company or the Bank (or assist
the Company or the Bank in connection with any actual or proposed transaction)
that (A) might subject the Company or the Bank to any damage or penalty in any
civil, criminal or governmental litigation or proceeding, (B) if not given in
the past, might have resulted in a Material Adverse Change or (C) if not
continued in the future might result in a Material Adverse Change or might
subject the Company or the Bank to suit or penalty in any private or
governmental litigation or proceeding.
Section 3.24 Forms of Instruments, Etc. The Company has made, and will
-------------------------
make, available to Purchaser copies of all standard forms of notes, mortgages,
deeds of trust and other routine documents of a like nature used on a regular
and recurring basis by the Company and the Bank in the ordinary course of its
business.
Section 3.25 Employee Benefit Plans. Set forth on Schedule 3.25 is a
----------------------
complete and correct list of all employee benefit plans, ERISA, all benefit
plans as defined in (S)6039D of the Internal Revenue Code of 1986, as amended
(the "Code"), and all other bonus, deferred compensation, profit sharing, stock
option, severance, health, life, disability, group insurance, fringe benefit or
welfare plan or any other similar plan, agreement, policy or understanding, and
any trust, escrow or other agreement related thereto, which (a) is currently or
has been at any time within the last sixty (60) months maintained or contributed
to by the Company or the Bank, or with respect to which the Company or the Bank
has any liability, and (b) provides benefits, or describes policies or
procedures applicable to any officer, employee, service provider, former officer
or former employee of the Company or the Bank, or the dependents of any thereof,
regardless of whether funded (the "Employee Plans").
No Employee Plan is a defined benefit plan within the meaning of
(S)3(35) of ERISA. Except as disclosed on Schedule 3.25(A), during the last
sixty (60) months, neither the Company nor the Bank has maintained, sponsored or
been obligated to contribute to any Employee Plans that are subject to Title IV
of ERISA. Except as disclosed on Schedule 3.25(B), the Company has delivered or
made available to Purchaser true, accurate and complete copies of the documents
comprising each Employee Plan, and such other documents, records or other
materials related thereto reasonably requested by Purchaser. Except as disclosed
on Schedule 3.25(B), there have been no prohibited transactions, breaches of
fiduciary duty or any other breaches or violations of any law applicable to the
Employee Plans that would subject Purchaser, the Company or the Bank to any
material liability. Each Employee Plan intended to be qualified under Code
section 401(a) has a current favorable determination letter and has been
operated in all material respects in compliance with applicable law. There are
no pending or, to the knowledge of the Company and the Bank, threatened claims,
lawsuits or actions relating to any Employee Plan (other than
18
<PAGE>
ordinary course claims for benefits). There is no medical, dental, life or
disability coverage for any period of time beyond termination of employment
(except to the extent of coverage required under (S)4980B of the Code and (S)
601 of ERISA). Except with respect to the executive retention agreements, the
Independent Bankshares, Inc. 1999 Stock Option Plan and the Independent
Bankshares, Inc. Employee Stock Ownership/401(k) Plan as disclosed on Schedule
3.25(C), the consummation of the transactions contemplated by this Agreement
will not accelerate the time of payment or vesting, or increase the amount, of
compensation due to any employee, officer, former employee or former officer of
the Company or the Bank. Except as disclosed on Schedule 3.25(D), there is not
now, nor has there been during the sixty (60) preceding months, any trade or
business with which the Company or the Bank is required by any of the rules
contained in the Code or ERISA to be treated as a single employer.
Section 3.26 Agreements with Regulators. Except as set forth on
--------------------------
Schedule 3.26, neither the Company nor any subsidiary of the Company is a party
to any written agreement or memorandum of understanding with, nor a party to any
commitment letter or similar undertaking to, nor subject to any order or
directive by, any regulatory authority. Neither the Company nor any subsidiary
has been advised by any regulatory authority that such authority is
contemplating issuing or requesting any such agreement, memorandum or
commitment, understanding, order or directive.
Section 3.27 Insurance. Schedule 3.27 contains an accurate and complete
---------
list and brief description of all policies of insurance, including fidelity and
bond insurance, of the Company and the Bank. Except as set forth on Schedule
3.27, all such policies (A) are sufficient in all material respects for
compliance by the Company and the Bank with all requirements of law and all
agreements to which the Company or the Bank is a party, (B) are valid,
outstanding and enforceable except as enforceability may be limited by
bankruptcy, conservatorship, insolvency, moratorium, reorganization,
receivership, or similar laws and judicial decisions affecting the rights of
creditors generally and by general principles of equity (whether applied in a
proceeding at law or equity), (C) will not in any significant respect be
affected by, and will not terminate or lapse by reason of, the transactions
contemplated by this Agreement, and (D) are presently in full force and effect,
no notice has been received of the cancellation, or threatened or proposed
cancellation, of any such policy and there are no unpaid premiums due thereon.
To the best of their knowledge, neither the Company nor the Bank is in default
with respect to the provisions of any such policy and has not failed to give any
notice or present any claim thereunder in a due and timely fashion. Except as
set forth on Schedule 3.27, there have been no claims under any fidelity bonds
of the Company or the Bank within the last three (3) years and the Company is
not aware of any facts that would form the basis of a claim under such bonds.
Section 3.28 No Adverse Change. Except as disclosed in the
-----------------
representations and warranties made in this Article III, there has not been any
Material Adverse Change since December 31, 1999, nor has any event or condition
occurred that has resulted in, or has a reasonable possibility of resulting in
the future, in a Material Adverse Change.
19
<PAGE>
Section 3.29 Dissenting Shareholders. The Company has no knowledge of
-----------------------
any plan or intention on the part of any of the Company shareholders to make
written demand for payment of the fair value of their shares of the Company
Stock in the manner provided by applicable law.
Section 3.30 Fiduciary Responsibilities. Except as set forth on
--------------------------
Schedule 3.30, the Company and the Bank have performed in all material respects
all of their respective duties as a trustee, custodian, guardian or as an escrow
agent in a manner that complies in all material respects with all applicable
laws, regulations, orders, agreements, instruments and common law standards.
Except as set forth on Schedule 3.30, neither the Company nor the Bank has any
reason to be aware of any basis for the same.
Section 3.31 Representations Not Misleading. No representation or
------------------------------
warranty by the Company contained in this Agreement, nor any statement, exhibit
or schedule furnished to the Purchaser by the Company under and pursuant to, or
in anticipation of this Agreement, contains or will contain on the Closing Date
any untrue statement of a material fact or omits or will omit to state any
material fact necessary to make the statements contained herein or therein, in
light of the circumstances under which it was or will be made, not misleading.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby makes the representations and warranties set forth in
this Article IV to the Company.
Section 4.01 Organization and Qualification. Purchaser is a corporation
------------------------------
duly organized, validly existing and in good standing under all laws, rules, and
regulations applicable to corporations located in the State of Texas. Purchaser
has all requisite corporate power and authority (including all licenses,
franchises, permits and other governmental authorizations as are legally
required) to carry on its business as now being conducted, to own, lease and
operate its properties and assets as now owned, leased or operated and to enter
into and carry out its obligations under this Agreement.
Section 4.02 Execution and Delivery. Purchaser has taken all corporate
----------------------
action necessary to authorize the execution, delivery and (provided the required
regulatory approvals are obtained) performance of this Agreement and the other
agreements and documents contemplated hereby to which it is a party, including,
but not limited to, the Merger Agreement. This Agreement has been, and the other
agreements and documents contemplated hereby, including, but not limited to, the
Merger Agreement, have been or at Closing will be, duly executed by Purchaser
and each constitutes the legal, valid and binding obligation of Purchaser,
enforceable in accordance with its respective terms and conditions, except as
enforceability may be limited by bankruptcy, conservatorship, insolvency,
moratorium, reorganization, receivership or similar laws and judicial decisions
affecting the rights of creditors generally and by general principles of equity
(whether applied in a proceeding at law or in equity).
20
<PAGE>
Section 4.03 Compliance with Laws, Permits and Instruments. The
---------------------------------------------
execution, delivery and (provided the required regulatory approvals are
obtained) performance of this Agreement and the other agreements contemplated
hereby, including, but not limited to the Merger Agreement, and the consummation
of the transactions contemplated hereby and thereby, will not conflict with, or
result, by itself or with the giving of notice or the passage of time, in any
violation of or default or loss of a benefit under, (i) any provision of the
Articles of Incorporation or Bylaws of Purchaser, (ii) any material provision of
any mortgage, indenture, lease, contract, agreement or other instrument
applicable to Purchaser or its assets, operations, properties or businesses now
conducted or heretofore conducted or (iii) any statute, law, ordinance, rule or
regulation applicable to Purchaser.
Section 4.04 Litigation. No legal action, suit or proceeding or
----------
judicial, administrative or governmental investigation is pending or, to the
knowledge of Purchaser, threatened against Purchaser that questions or might
question the validity of this Agreement or the agreements contemplated hereby,
including, but not limited to, the Merger Agreement, or any actions taken or to
be taken by Purchaser pursuant hereto or thereto or seeks to enjoin or otherwise
restrain the transactions contemplated hereby or thereby.
Section 4.05 Consents and Approvals. Except for regulatory approvals
----------------------
as disclosed in Schedule 4.05, no approval, consent, order or authorization of,
or registration, declaration or filing with, any governmental authority or other
third party is required on the part of Purchaser in connection with the
execution, delivery or performance of this Agreement or the agreements
contemplated hereby, including, but not limited to, the Merger Agreement or the
consummation by Purchaser of the transactions contemplated hereby or thereby.
Section 4.06 Financial Statements. The Purchaser has furnished to the
--------------------
Company true and complete copies of (i) the audited consolidated balance sheets
of the Purchaser as of December 31, 1997 and 1998, and the related audited
consolidated statements of income, stockholders' equity and cash flows for the
years ended December 31, 1996, 1997 and 1998, (ii) an unaudited consolidated
balance sheet of the Purchaser as of December 31, 1999, and the related
unaudited consolidated statement of income for the year ended December 31, 1999
(such balance sheets and the related statements of income, stockholders' equity
and cash flows are collectively referred to herein as the "Purchaser Financial
Statements"). Except as described in the notes to the Purchaser Financial
Statements, the Purchaser Financial Statements fairly present, in all material
respects, the consolidated financial position of the Purchaser as of the
respective dates thereof and the results of operations and changes in financial
position of the Purchaser for the periods then ended, in conformity with GAAP
(subject, in the case of the unaudited interim financial statements, to normal
year-end adjustments and the fact that they do not contain all of the footnote
disclosures required by GAAP).
Section 4.07 Agreements with Regulators. Neither Purchaser nor any
--------------------------
subsidiary of Purchaser is a party to any written agreement or memorandum of
understanding with, nor a party to any commitment letter or similar undertaking
to, nor subject to any order or directive by, any regulatory authority. Neither
Purchaser nor any subsidiary has been advised by any regulatory
21
<PAGE>
authority that such authority is contemplating issuing or requesting any such
agreement, memorandum or commitment, understanding, order or directive.
Section 4.08 Regulatory Approvals. To Purchaser's knowledge, no fact
--------------------
or circumstance exists that would delay or prevent Purchaser from obtaining the
approvals and consents set forth on Schedule 4.05 or will result in the
imposition of a condition or restriction on Purchaser.
Section 4.09 Representations Not Misleading. No representation or
------------------------------
warranty by Purchaser contained in this Agreement, nor any statement, exhibit or
schedule furnished to the Company by Purchaser under and pursuant to, or in
anticipation of this Agreement, contains or will contain on the Closing Date any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statements contained herein or therein, in light of
the circumstances under which it was or will be made, not misleading.
ARTICLE V.
COVENANTS OF THE COMPANY
The Company hereby makes the covenants set forth in this Article V to
Purchaser.
Section 5.01 Best Efforts. The Company will use its best efforts to
------------
cause the consummation of the transactions contemplated hereby in accordance
with the terms and conditions of this Agreement.
Section 5.02 Merger Agreement. The Company will, as soon as
----------------
practicable after the execution of this Agreement, duly authorize and enter into
the Merger Agreement, the form of which is attached hereto as Exhibit A, and
---------
perform all of its obligations thereunder.
Section 5.03 Information for Applications and Statements. The Company
-------------------------------------------
will promptly, but in no event later than ten (10) business days after receipt
of a request by Purchaser, prepare and furnish to Purchaser all information
concerning the Company and the Bank, including, but not limited to, financial
statements, required for inclusion in any application or statement to be made by
Purchaser to or filed by Purchaser with any governmental body in connection with
the transactions contemplated by this Agreement or in connection with any
unrelated transactions during the pendency of this Agreement, and the Company
represents and warrants that all information so furnished for such statements
and applications shall be true and correct in all material respects and shall
not omit any material fact required to be stated therein or necessary to make
the statements made, in light of the circumstances under which they were made,
not misleading. The Company shall, and shall cause the Bank to, otherwise fully
cooperate with Purchaser in the filing of any applications or other documents
necessary to consummate the transactions contemplated by this Agreement,
including the Merger.
Section 5.04 Required Acts of the Company. Prior to the Closing, the
----------------------------
Company shall, and shall cause the Bank to, unless otherwise permitted in
writing by Purchaser:
22
<PAGE>
A. Operate only in the ordinary course of business and
consistent with prudent banking practices;
B. Except as required by prudent business practices, use all
reasonable efforts to preserve its business organization intact and to
retain its present customers, depositors, suppliers, correspondent
banks, officers, directors, employees and agents;
C. Perform all of its obligations under contracts, leases and
documents relating to or affecting its assets, properties and business
except such obligations as it may in good faith reasonably dispute;
D. Except as required by prudent business practices, maintain
all offices, machinery, equipment, materials, supplies, inventories,
vehicles and other properties owned, leased or used by it (whether
under its control or the control of others), in good operating
condition and repair, ordinary wear and tear excepted;
E. Maintain in full force and effect all insurance policies
now in effect or renewals or replacements thereof and, except as
required by prudent business practices that do not jeopardize insurance
coverage, give all notices and present all claims under all insurance
policies in due and timely fashion;
F. Timely file all reports required to be filed with
governmental authorities and observe and conform to all applicable
laws, rules, regulations, ordinances, codes, orders, licenses and
permits, except those being contested in good faith by appropriate
proceedings;
G. Timely file all tax returns required to be filed by it and
promptly pay all taxes, assessments, governmental charges, duties,
penalties, interest and fines that become due and payable, except those
being contested in good faith by appropriate proceedings; and
H. Withhold from each payment made to each of its employees
the amount of all taxes (including, but not limited to, federal income
taxes, FICA taxes and state and local income and wage taxes) required
to be withheld therefrom and pay the same to the proper tax receiving
officers.
I. Follow the Company's existing policies and methods of
operation listed on Schedule 5.04I.
Section 5.05 Prohibited Acts of the Company. Prior to the Closing,
neither the Company nor the Bank shall, without the prior written consent of
Purchaser:
A. Take any action that could reasonably be anticipated to
result in a Material Adverse Change;
23
<PAGE>
B. Take or fail to take any action that would cause or permit
the representations and warranties made in Article III hereof to be
inaccurate at the time of the Closing or preclude the Company from
making such representations and warranties at the time of the Closing;
C. Cause or fail to use its best efforts to prevent the loss
of insurance coverage, unless replaced with coverage that is
substantially similar in amount to that now in effect and issued by a
comparable insurer;
D. Change its Articles of Incorporation, Articles of
Association, Bylaws or authorized capital stock;
E. Except as explicitly permitted hereunder or in accordance
with applicable law, engage in any transaction with any affiliated
person or allow such persons to acquire any assets from the Company
except in the form of wages, salaries, bonuses, and reimbursement of
expenses and by loans secured by collateral having a fair market value
at least equal to the principal balance due on such loan to its
officers, directors and employees;
F. Incur any obligation or liability, absolute, accrued,
contingent or otherwise, except in the ordinary course of business;
G. Discharge or satisfy any lien, charge or encumbrance or pay
any obligation or liability, whether absolute or contingent, due or to
become due, except in the ordinary course of business;
H. Declare or make any payment of dividends or other
distribution to its shareholders or purchase, retire or redeem, or
obligate itself to purchase, retire or redeem, any of its shares of
capital stock or other securities, except as consistent with past
practices;
I. Issue, reserve for issuance, grant, sell or authorize the
issuance of any shares of its capital stock or other securities or
subscriptions, options, warrants, calls, rights or commitments of any
kind relating to the issuance thereto;
J. Acquire any capital stock or other equity securities or
acquire any equity or ownership interest in any bank, corporation,
partnership or other entity (except (i) through settlement of
indebtedness, foreclosure, or the exercise of creditors' remedies or
(ii) in a fiduciary capacity, the ownership of which does not expose it
to any liability from the business, operations or liabilities of such
person);
K. Mortgage, pledge or subject to lien, charge, security
interest or any other encumbrance or restriction any of its property,
business or assets, tangible or intangible except in the ordinary
course of business;
24
<PAGE>
L. Sell, transfer, lease to others or otherwise dispose of any
of its assets or cancel or compromise any debt or claim, or waive or
release any right or claim of material value, except in the ordinary
course of business;
M. Terminate, cancel or surrender any contract, lease or other
agreement or suffer any damage, destruction or loss which in the
aggregate, is reasonably expected to result in a Material Adverse
Change;
N. Except as set forth herein or pursuant to the Schedules
provided for herein, make any change in the rate of compensation,
commission, bonus or other direct or indirect remuneration payable, or
pay or agree or orally promise to pay, conditionally or otherwise, any
bonus, extra compensation, pension or severance or vacation pay, to or
for the benefit of any of its shareholders, directors, executive
officers, or enter into any employment or consulting contract or other
agreement with any director or executive officer or adopt, amend in any
material respect or terminate any pension, employee welfare,
retirement, stock purchase, stock option, stock appreciation rights,
termination, severance, income protection, golden parachute, savings or
profit-sharing plan (including trust agreements and insurance contracts
embodying such plans), any deferred compensation, or collective
bargaining agreement, any group insurance contract or any other
incentive, welfare or employee benefit plan or agreement maintained by
it for the benefit of its directors, employees or former employees,
except for normal periodic increases in the compensation payable to
executive officers, officers or salaried employees, consistent with
past practices and made in the ordinary course of business;
O. Except for improvements or betterments relating to
Properties, make any capital expenditures or capital additions or
betterments in excess of an aggregate of $100,000;
P. Hire or employ any person with an annual salary equal to or
greater than $50,000;
Q. Enter into or give any promise, assurance or guarantee of
the payment, discharge or fulfillment of any undertaking or promise
made by any other person, firm or corporation other than in the
ordinary course of business;
R. Sell or knowingly dispose of, or otherwise divest itself of
the ownership, possession, custody or control, of any corporate books
or records of any nature that, in accordance with sound business
practice, normally are retained for a period of time after their use,
creation or receipt, except at the end of the normal retention period;
S. Make any, or acquiesce with any, change in any accounting
methods, principles or material practices;
T. Make, renew, extend the maturity of, acquire a
participation in, reacquire an interest in a participation sold or
alter any of the material terms of any loan to any single borrower and
his or her related interests in excess of the principal amount of
25
<PAGE>
$100,000 on an unsecured basis or $750,000 on a secured basis,
provided, however, that the consent of Purchaser shall be deemed to
have been given as follows (unless earlier given or denied in writing)
(i) with respect to any loan presented at a regularly scheduled meeting
of the Bank's Executive Loan Committee, at the later of 3:00 p.m. on
the business day of such meeting or the adjournment of such meeting,
provided that all information provided to the members of the Bank's
Executive Loan Committee with respect to such loan is delivered to
Purchaser at the same time it is delivered to such committee members,
and (ii) with respect to all other loans, at the close of business on
the next business day after Purchaser's consent is requested and all
information relating to the making, renewal or alteration of such loan
is furnished to Purchaser; or
U. Sell or purchase any investment securities with a maturity
in excess of three years and in an amount in excess of $1,000,000.
Section 5.06 Access; Pre-Closing Investigation. Subject to the
---------------------------------
provisions of Article X, the Company shall afford the officers, directors,
employees, attorneys, accountants, investment bankers and authorized
representatives of Purchaser reasonable access to the properties, books,
contracts and records of the Company and the Bank, permit Purchaser to make such
inspections (including without limitation with regard to such properties
physical inspection of the surface and subsurface thereof and any structure
thereon) as they may require and furnish to Purchaser during such period all
such information concerning the Company and the Bank and their respective
affairs as Purchaser may reasonably request, in order that Purchaser may have an
opportunity to make such reasonable investigation as it shall desire to make of
the affairs of the Company and the Bank, including, without limitation, access
sufficient to verify the value of the assets and the liabilities of the Company
and the Bank and the satisfaction of the conditions precedent to Purchaser's
obligations described in Article VIII of this Agreement. The Company agrees at
any time, and from time to time, to furnish to Purchaser as soon as practicable,
any additional information that Purchaser may reasonably request.
Section 5.07 Invitations to and Attendance at Directors' and Committee
---------------------------------------------------------
Meetings. The Company shall give notice, and shall cause the Bank to give
- --------
notice, to two (2) designees of Purchaser, and shall invite such persons to
attend all regular and special meetings of the board of directors of the Company
and the Bank and all regular and special meetings of any senior management
committee (including but not limited to the executive committee and the loan and
discount committee of the Bank) of the Company or the Bank. Such designees shall
execute confidentiality agreements satisfactory to the Company and the Bank.
Such designees shall have no right to vote and may be excluded from sessions of
board and committees during which there is being discussed (A) matters involving
this Agreement (B) information or material that the Company or the Bank is
required or obligated to maintain as confidential under applicable laws or
regulations or policies or procedures of the Company or the Bank, or (C) pending
or threatened litigation or investigations if, in the opinion of counsel to the
Company, the presence of such designees would or might adversely affect the
confidential nature of or any privilege relating to the matters being discussed.
26
<PAGE>
Section 5.08 Additional Financial Statements. The Company shall
-------------------------------
promptly furnish Purchaser with (A) audited financial statements of the Company
as of and for the period ending December 31, 1999, (B) the Company's 10K's and
10Q's for each quarter or year-end, as the case may be, from the date of this
Agreement until the Closing Date, and (C) true and complete copies of each
additional Report of Condition and Income of the Bank filed after March 31,
2000.
Section 5.09 Untrue Representations. The Company shall promptly notify
----------------------
Purchaser in writing if the Company becomes aware of any fact or condition that
makes untrue, or shows to have been untrue, in any material respect, any
schedule or any other information furnished to Purchaser or any representation
or warranty made in or pursuant to this Agreement or that results in the
Company's failure to comply with any covenant, condition or agreement contained
in this Agreement.
Section 5.10 Litigation and Claims. The Company shall promptly notify
---------------------
Purchaser in writing of any litigation, or of any claim, controversy or
contingent liability that might be expected to become the subject of litigation,
against the Company or the Bank or affecting any of their respective properties
if such litigation or potential litigation might, in the event of an unfavorable
outcome, result in a Material Adverse Change, and the Company shall promptly
notify Purchaser of any legal action, suit or proceeding or judicial,
administrative or governmental investigation, pending or, to the knowledge of
the Company, threatened against the Company or the Bank that questions or might
question the validity of this Agreement or the agreements contemplated hereby,
including, but not limited to, the Merger Agreement or any actions taken or to
be taken by the Company or the Bank pursuant hereto or thereto or seeks to
enjoin or otherwise restrain the transactions contemplated hereby or thereby.
Section 5.11 Adverse Changes. The Company shall promptly notify
---------------
Purchaser in writing if any change shall have occurred or been threatened (or
any development shall have occurred or been threatened involving a prospective
change) in the business, financial condition, operations or prospects of the
Company or the Bank that has or may reasonably be expected to have or lead to a
Material Adverse Change.
Section 5.12 No Negotiation with Others. The Company shall not,
--------------------------
directly or indirectly, nor shall it permit the Bank or their respective
officers, directors, employees, representatives or agents to, directly or
indirectly encourage, solicit or initiate discussions or negotiations with, or,
except upon advice of counsel to the extent required to fulfill the fiduciary
duties owed to the shareholders of the Company, entertain, discuss or negotiate
with, or provide any information to, or cooperate with, any corporation,
partnership, person or other entity or group (other than Purchaser or its
Affiliates or associates or officers, partners, employees or other authorized
representatives of Purchaser or such Affiliates or associates) concerning any
merger, tender offer or other takeover offer, sale of substantial assets, sale
of shares of capital stock or similar transaction involving the Company or the
Bank. Immediately upon receipt of any unsolicited offer, the terms of which are
equal to or superior to the terms of this Agreement, the Company will
communicate to Purchaser the terms of any proposal or request for information
and the identity of the parties involved.
27
<PAGE>
Section 5.13 Consents and Approvals. The Company shall use its best
----------------------
efforts to obtain all consents and approvals from third parties, including those
listed on Schedule 3.07, at the earliest practicable time.
Section 5.14 Payment of Bonuses to Employees. The Company shall pay all
-------------------------------
bonuses consistent with past practices. In addition, the Company shall pay
prorated bonuses consistent with past practices for calendar year 2000 based on
the calendar month-end immediately preceding the Closing Date. Schedule 5.14
lists the bonus amount paid in 1999 and the proposed maximum bonus amounts for
2000.
Section 5.15 ESOP Issues. Immediately prior to the Effective Time, the
-----------
Company shall make a cash contribution to the ESOP in an amount sufficient to
allow the ESOP to repay its indebtedness owed to the Company. Following the
payment of such debt and immediately prior to the Effective Time, the ESOP will
be terminated in accordance with the terms of ERISA and all other applicable
law.
Section 5.16 Supplemental Indenture. On or before the Closing Date, if
----------------------
required to do so, the Company will execute a supplemental indenture to the
indenture governing the Trust Preferred Securities. Nothing contained in this
provision shall relieve Purchaser of its obligations under Section 6.11 of this
Agreement.
Section 5.17 Environmental Investigation; Right to Terminate Agreement.
---------------------------------------------------------
A. Purchaser and its consultants, agents and representatives
shall have the right to the same extent that the Company or the Bank
has such right, but not the obligation or responsibility, to inspect
any Property, including, without limitation, conducting asbestos
surveys and sampling, environmental assessments and investigation, and
other environmental surveys and analyses including soil and ground
sampling ("Environmental Inspections") at any time on or prior to April
15, 2000. Purchaser shall notify the Company prior to any physical
inspections of the Property, and the Company may place reasonable
restrictions on the time of such inspections. If, as a result of any
such Environmental Inspection, further investigation ("secondary
investigation") including, without limitation, test borings, soil,
water and other sampling is deemed desirable by Purchaser, Purchaser
shall (i) notify the Company of any Property for which it intends to
conduct such a secondary investigation and the reasons for such
secondary investigation, and (ii) commence such secondary
investigation, on or prior to April 30, 2000. Purchaser shall give
reasonable notice to the Company of such secondary investigations, and
the Company may place reasonable time and place restrictions on such
secondary investigations.
B. Purchaser shall have the right to terminate this Agreement if
(i) the factual substance of any warranty or representation set forth
in Section 3.22 except for such matters set forth on Schedule 3.22, is
not true and accurate in all material respects; (ii) the results of
such Environmental Inspection, secondary investigation or other
environmental
28
<PAGE>
survey are disapproved by Purchaser because the environmental
inspection, secondary investigation or other environmental survey
identifies violations or potential violations of Environmental Laws;
(iii) the Company or the Bank has refused to allow Purchaser to conduct
an Environmental Inspection or secondary investigation in a manner that
Purchaser reasonably considers necessary; (iv) the Environmental
Inspection, secondary investigation or other environmental survey
identifies any past or present event, condition or circumstance that
would or potentially would require material remedial or cleanup action;
(v) the Environmental Inspection, secondary investigation or other
environmental survey identifies the presence of any underground or
above ground storage tank in, on or under any Property that is not
shown to be in material compliance with all Environmental Laws
applicable to the tank either now or at a future time certain, or that
has had a release of petroleum or some other Hazardous Material that
has not been cleaned up to the satisfaction of the relevant
governmental authority or any other party with a legal right to compel
cleanup and the cost of cleanup would be material; or (vi) the
Environmental Inspection, secondary investigation or other
environmental survey identifies the presence of any asbestos-containing
material in, on or under any Property, require material expenditures to
remove. On or prior to May 19, 2000, Purchaser shall advise the Company
in writing as to whether Purchaser intends to terminate this Agreement
pursuant to this Subsection 5.17B (i) - (vi). The Company shall have
the opportunity to correct any objected to violations or conditions or
breaches of representations to Purchaser"s reasonable satisfaction
prior to June 15, 2000. In the event that the Company fails to
demonstrate its satisfactory correction of the violations or conditions
to Purchaser, Purchaser may terminate the Agreement on or before June
15, 2000.
C. The Company agrees to make available to Purchaser and its
consultants, agents and representatives all documents and other
material relating to environmental conditions of any Property
including, without limitation, the results of other environmental
inspections and surveys. The Company also agrees that all engineers and
consultants who prepared or furnished such reports may discuss such
reports and information with Purchaser and shall be entitled to certify
the same in favor of Purchaser and its consultants, agents and
representatives and make all other data available to Purchaser and its
consultants, agents and representatives.
D. For purposes of this Section, the term "Property" or
"Properties" shall have the same meaning given in Section 11.10.
ARTICLE VI.
COVENANTS OF PURCHASER
Purchaser hereby makes the covenants set forth in this Article VI to
the Company.
Section 6.01 Best Efforts. Purchaser agrees to use its best efforts to
------------
cause the consummation of the transactions contemplated hereby in accordance
with the terms and conditions of this Agreement.
29
<PAGE>
Section 6.02 Merger Agreement. Purchaser will incorporate and organize
----------------
Newco as a Texas corporation, and will, and will cause Newco to, as soon as
practicable after the execution of this Agreement, enter into the Merger
Agreement, a form of which is attached hereto as Exhibit A, and Purchaser shall
---------
perform, and shall cause Newco to perform, all of their respective obligations
thereunder. Purchaser shall vote all of the stock of Newco in favor of the
Merger and the Merger Agreement.
Section 6.03 Information for Applications and Statements. Purchaser
-------------------------------------------
will promptly furnish to the Company all information concerning Purchaser and
Newco, including, but not limited to, financial statements, required for
inclusion in (A) any Shareholder Information to be used by the Company in
connection with the approval of the shareholders of the Company of the
transactions contemplated hereby and (B) any application or statement to be made
by the Company to or filed by the Company with any governmental body in
connection with the transactions contemplated by this Agreement, or in
connection with any unrelated transactions during the pendency of this
Agreement, and Purchaser represents and warrants that all information so
furnished for such statements and applications shall be true and correct in all
material respects and shall not omit any material fact required to be stated
therein or necessary to make the statements made, in light of the circumstances
under which they were made, not misleading. Purchaser shall otherwise fully
cooperate with the Company in the filing of any applications or other documents
necessary to consummate the transactions contemplated by this Agreement,
including the Merger.
Section 6.04 Acts of Newco. Prior to the Closing, Purchaser shall cause
-------------
Newco to refrain from taking any action or executing any agreement, document or
certificate except as contemplated by this Agreement and the other agreements
contemplated hereby, including, but not limited to, the Merger Agreement.
Section 6.05 Untrue Representations. Purchaser shall promptly notify
----------------------
the Company in writing if Purchaser becomes aware of any fact or condition that
makes untrue, or shows to have been untrue, in any material respect, any
schedule or any other information furnished to the Company or any representation
or warranty made in or pursuant to this Agreement or that results in Purchaser's
failure to comply with any covenant, condition or agreement contained in this
Agreement. Further, Purchaser shall promptly notify the Company in writing in
the event that Purchaser becomes aware of any fact or condition that makes
untrue, or shows to have been untrue, in any material respect, any schedule or
any other information furnished by the Company to the Purchaser or any
representation or warranty made by the Company in or pursuant to this Agreement.
Section 6.06 Litigation and Claims. Purchaser shall promptly notify the
---------------------
Company of any legal action, suit or proceeding or judicial, administrative or
governmental investigation, pending or, to the knowledge of Purchaser,
threatened against Purchaser or Newco that questions or might question the
validity of this Agreement or the agreements contemplated hereby, including, but
not limited to, the Merger Agreement, or any actions taken or to be taken by
Purchaser or Newco
30
<PAGE>
pursuant hereto or thereto or seeks to enjoin or otherwise restrain the
transactions contemplated hereby or thereby.
Section 6.07 Regulatory and Other Approvals. Purchaser shall promptly,
------------------------------
but in no event later than the later of (i) thirty (30) days after receipt of
all requested information from the Company or (ii) forty-five (45) days after
the date of this Agreement, file or cause to be filed applications for all
regulatory approvals required to be obtained by Purchaser or Newco in connection
with this Agreement and the other agreements contemplated hereby. Purchaser
shall promptly furnish the Company with copies of all such regulatory filings
and all correspondence for which confidential treatment has not been requested.
Purchaser shall use its best efforts to obtain all such regulatory approvals and
any other approvals from third parties, including those listed on Schedule 4.05,
at the earliest practicable time.
Section 6.08 Adverse Change. Purchaser shall promptly notify the
--------------
Company in writing if any change or development shall have occurred or been
threatened that would adversely affect, prevent or delay consummation of the
transactions contemplated by this Agreement or the other agreements contemplated
hereby.
Section 6.09 Employee Benefit Plans. Purchaser presently intends that,
----------------------
after the Merger, Purchaser and the Company will not make additional
contributions to the Employee Plans. Each employee of the Company or any
subsidiary of the Company shall receive credit for all time employed with the
Company or the subsidiary of the Company for purposes of the application of
Purchaser's severance and vacation policies. Each employee of the Company or any
subsidiary of the Company who remains an employee of the Company, Purchaser or
any subsidiary of the Company or Purchaser (each, a "Continuing Employee") will
be entitled to participate as a newly hired employee in the employee benefit
plans and programs maintained for employees of Purchaser and its affiliates, in
accordance with the respective terms of such plans and programs, and Purchaser
shall take all actions necessary or appropriate to facilitate coverage of the
Continuing Employees in such plans and programs from and after the Closing Date,
subject to the following:
A. Each Continuing Employee will be entitled to credit for prior
service with the Company or a Subsidiary of the Company for all purposes under
the employee welfare benefit plans and other employee benefit plans and programs
(other than those described in subsection B. below and any stock option plans)
sponsored by Purchaser or its Affiliates to the extent the Company or its
Affiliates sponsored a similar type of plan that the Continuing Employee
participated in immediately prior to the Closing Date. Any preexisting condition
exclusion applicable to such plans and programs shall be waived with respect to
any Continuing Employee. For purposes of determining each Continuing Employee's
benefit for the year in which the Merger occurs under the Purchaser's vacation
program, any vacation taken by a Continuing Employee preceding the Closing Date
for the year in which the Merger occurs will be deducted from the total
Purchaser vacation benefit available to such employee for such year. For
purposes of determining the number of vacation days available with respect to
each Continuing Employee for the year in which the Merger occurs, that the
number of vacation days for such year shall be determined under the Company's
vacation policies in effect as of December 31, 1999.
31
<PAGE>
B. Each Continuing Employee shall be entitled to credit for past
service with the Company or any subsidiary of the Company for the purpose of
satisfying any eligibility or vesting periods applicable to the Purchaser
employee pension benefit plans that are subject to (S)(S) 401(a) and 501(a) of
the Code. Notwithstanding the foregoing, Purchaser shall not grant any prior
years of service credit to Continuing Employees for benefit accrual purposes
with respect to any defined benefit plans sponsored (or contributed to) by
Purchaser.
On or before, but effective as of the Closing Date, the Company may
take such actions as may be necessary (a) to cause each individual employed by
the Company immediately prior to the Closing Date to have a fully vested and
nonforfeitable interest in such employee's account balance in the ESOP sponsored
by the Company as of the Closing Date and (b) to contribute amounts accrued on
the books of the Company from January 1, 2000 to the Closing Date to such plan.
The provisions of this Section are solely for the purpose of setting
forth the understanding between Purchaser and the Company, shall not create or
modify any employee benefit plan of Purchaser or any of its Affiliates, and
shall not be construed as creating any employment contract or right between
Purchaser or the Company, on one hand, and any such employee, on the other hand.
Section 6.10 Director and Officer Indemnification. On or prior to the
------------------------------------
Closing Date, the Company may obtain an extended reporting period (otherwise
known as "tail coverage") policy for a period of up to four (4) years from the
Closing Date, provided that the annual premium for such policy does not exceed
150% of the Company's current annual premium. Purchaser agrees that all rights
to limitation of liability and indemnification that the directors and officers
of the Company and the Bank have pursuant to the Articles of Incorporation or
Association (and their respective bylaws as of the date of this Agreement) of
the Company and the Bank shall survive the Merger. Nothing contained in this
Section 6.10 shall require Purchaser to indemnify any person who was a director
or officer of the Company or the Bank to a greater extent than the Company or
the Bank is, as of the date of this Agreement, required to indemnify any such
person. The indemnification provisions currently contained in the Articles of
Incorporation and Bylaws of the Company and the Bank shall not be amended after
the date of this Agreement.
Section 6.11 Assumption of Obligations Related to the Trust Preferred
--------------------------------------------------------
Securities. Purchaser shall enter into all documentation necessary for the
- ----------
Company to continue its obligations under the indenture and the preferred
guaranty agreement governing the Trust Preferred Securities and, in addition,
for Purchaser to assume the Company's obligations under such agreements and
instruments. Further Purchaser agrees to maintain or cause the Company to
maintain the listing of the Trust Preferred Securities on the AMEX until
September 22, 2003. The Company will use its commercially reasonable best
efforts to seek alternatives on structuring the assumption of the Trust
Preferred Securities to delay Purchaser's immediate Securities and Exchange
Commission reporting requirements; provided, however that in no event shall the
32
<PAGE>
Company be required to agree to something less than the full assumption by the
Purchaser of the Trust Preferred Securities at Closing.
ARTICLE VII.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY
All obligations of the Company under this Agreement are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions,
any or all of which may be waived in whole or in part by the Company:
Section 7.01 Compliance with Representations, Warranties and
-----------------------------------------------
Agreements. All representations and warranties made by Purchaser in this
- ----------
Agreement or in any document or schedule delivered to the Company pursuant
hereto shall have been true and correct when made and shall be true and correct
in all material respects as of the Closing with the same force and effect as if
such representations and warranties were made at and as of the Closing, except
with respect to those representations and warranties specifically made as of an
earlier date (in which case such representations and warranties shall be true as
of such earlier date). Purchaser shall have performed or complied in all
material respects with all agreements, terms, covenants and conditions required
by this Agreement to be performed or complied with by Purchaser prior to or at
the Closing.
Section 7.02 Shareholder Approvals. The holders of at least the minimum
---------------------
number of shares of the Company Stock necessary to approve the Merger and the
Merger Agreement under applicable law shall have approved the Merger and the
Merger Agreement.
Section 7.03 Government and Other Approvals. Purchaser and the Company
------------------------------
shall have received approvals, acquiescence or consents, all on terms and
conditions acceptable to Purchaser, of the transactions contemplated by this
Agreement, and the Merger Agreement, from all necessary governmental agencies
and authorities and other third parties, including but not limited to the
Federal Reserve, the FDIC, and the OCC, and all applicable waiting periods shall
have expired, and the approvals and consents of all third parties required to
consummate this Agreement and the other agreements contemplated hereby,
including, but not limited to, the Merger Agreement and the transactions
contemplated hereby and thereby, including all consents described on Schedules
3.07 and 4.05. Such approvals and the transactions contemplated hereby shall not
have been contested or threatened to be contested by any Federal or state
governmental authority or by any other third party (except shareholders
asserting statutory dissenters' appraisal rights) by formal proceedings.
Section 7.04 No Litigation. No action shall have been taken, and no
-------------
statute, rule, regulation or order shall have been promulgated, enacted,
entered, enforced or deemed applicable to the transaction by any Federal, state
or foreign government or governmental authority or by any court, domestic or
foreign, including the entry of a preliminary or permanent injunction, that
would (a) make the Agreement or any other agreement contemplated hereby,
including, but not limited to, the Merger Agreement, or the transactions
contemplated hereby or thereby illegal,
33
<PAGE>
invalid or unenforceable, (b) impose material limits in the ability of any party
to this Agreement to consummate the Agreement or any other agreement
contemplated hereby, including, but not limited to, the Merger Agreement, or the
transactions contemplated hereby or thereby, or (c) if the Agreement or any
other agreement contemplated hereby, including, but not limited to, the Merger
Agreement, or the transactions contemplated hereby or thereby are consummated,
subject the Company or subject any officer, director, shareholder or employee of
the Company to criminal or civil liability. No action or proceeding before any
court or governmental authority, domestic or foreign, by any government or
governmental authority or by any other person, domestic or foreign, shall be
threatened, instituted or pending that would reasonably be expected to result in
any of the consequences referred to in clauses (a) through (c) above.
Section 7.05 Fairness Opinion. The Company shall have received a letter
----------------
from a reputable investment banking firm chosen by the Company dated as of the
date of this Agreement and updated to a date not more than fifteen (15) days
prior to the Effective Time to the effect that in the opinion of such firm, the
Merger Consideration is fair to the Company's shareholders from a financial
point of view.
ARTICLE VIII.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER
All obligations of Purchaser under this Agreement are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions,
any or all of which may be waived in whole or in part by Purchaser.
Section 8.01 Compliance with Representations, Warranties and
-----------------------------------------------
Agreements. All representations and warranties made by the Company in this
- ----------
Agreement or in any document or schedule delivered to Purchaser pursuant hereto
shall have been true and correct when made and shall be true and correct in all
material respects as of the Closing with the same force and effect as if such
representations and warranties were made at and as of the Closing, except with
respect to those representations and warranties specifically made as of an
earlier date (in which case such representations and warranties shall be true as
of such earlier date). The Company shall have performed or complied in all
material respects with all agreements, terms, covenants and conditions required
by this Agreement to be performed or complied with by the Company prior to or at
the Closing.
Section 8.02 Shareholder Approvals. The holders of at least the minimum
---------------------
number of shares of the Company Stock necessary to approve the Merger and the
Merger Agreement under applicable law shall have approved the Merger and the
Merger Agreement.
Section 8.03 Government and Other Approvals. Purchaser and the Company
------------------------------
shall have received approvals, acquiescence or consents (including any
approvals, acquiescence or consents that may be required in order to fulfill the
transactions contemplated by Section 5.03), all on terms and conditions
acceptable to Purchaser, of the transactions contemplated by this Agreement and
the Merger Agreement from all necessary governmental agencies and authorities,
34
<PAGE>
including but not limited to the Federal Reserve, the OCC and the FDIC, and all
applicable waiting periods shall have expired, and Purchaser or the Company
shall have received the approvals and consents of all third parties required to
consummate this Agreement and the other agreements contemplated hereby,
including, but not limited to, the Merger Agreement and the transactions
contemplated hereby and thereby, including all consents described on Schedules
3.07 and 4.05. Such approvals and the transactions contemplated hereby shall not
have been contested or threatened to be contested by any Federal or state
governmental authority or by any other third party (except shareholders
asserting statutory dissenters' appraisal rights) by formal proceedings.
However, if such contest is brought by formal proceedings, Purchaser may, but
shall not be obligated to, answer and defend such contest or otherwise pursue
this transaction over such objection.
Section 8.04 No Litigation. No action shall have been taken, and no
-------------
statute, rule, regulation or order shall have been promulgated, enacted,
entered, enforced or deemed applicable to this Agreement, the Merger, or the
transactions contemplated hereby or thereby by any federal, state or foreign
government or governmental authority or by any court, domestic or foreign,
including the entry of a preliminary or permanent injunction, that would (a)
make this Agreement or any other agreement contemplated hereby, including, but
not limited to, the Merger Agreement, or the transactions contemplated hereby or
thereby illegal, invalid or unenforceable, (b) require the divestiture of a
material portion of the assets of the Company or the Bank, (c) impose material
limits on the ability of any party to this Agreement to consummate the Agreement
or any other agreement contemplated hereby, including, but not limited to, the
Merger Agreement, or the transactions contemplated hereby or thereby, (d)
otherwise result in a Material Adverse Change or (e) if this Agreement or any
other agreement contemplated hereby, including, but not limited to, the Merger
Agreement, or the transactions contemplated hereby or thereby are consummated,
subject Purchaser or Newco or subject any officer, director, shareholder or
employee of Purchaser or Newco to criminal or civil liability. No action or
proceeding before any court or governmental authority, domestic or foreign, by
any government or governmental authority or by any other person, domestic or
foreign, shall be threatened, instituted or pending that would reasonably be
expected to result in any of the consequences referred to in clauses (a) through
(e) above.
Section 8.05 Accounting Treatment. There shall not have occurred any
--------------------
change in accounting or tax treatment, entries or adjustments in connection with
the transactions contemplated by this Agreement and the other agreements
contemplated hereby that would result in a Material Adverse Change from the
accounting or tax treatment required as of the date of this Agreement, and
Purchaser shall not be notified by any proper regulatory authority to make any
accounting or tax adjustments that would constitute a Material Adverse Change.
Section 8.06 No Material Adverse Change. There shall have been no
--------------------------
Material Adverse Change since December 31, 1999.
35
<PAGE>
ARTICLE IX.
TERMINATION AND ABANDONMENT
Section 9.01 Right of Termination. This Agreement and the transactions
--------------------
contemplated hereby may be terminated and abandoned at any time prior to or at
the Closing (notwithstanding approval thereof by the shareholders of the
Company), as follows, and in no other manner:
A. By the mutual consent of Purchaser and the Company, duly
authorized by the board of directors of each of Purchaser and the
Company.
B. By either the Company or Purchaser if the conditions
precedent to such party's obligations to close specified in Articles
VII and VIII, respectively, hereof have not been met or waived or the
Closing shall not have occurred within 180 days of the date of this
Agreement, or such later date as has been approved by Purchaser and the
Company.
C. By either Purchaser or the Company if any of the
transactions contemplated by this Agreement or the Merger Agreement are
disapproved by any regulatory authority whose approval is required to
consummate such transactions or if any court of competent jurisdiction
in the United States or other United States (federal or state)
governmental body shall have issued an order, decree or ruling or taken
any other action restraining, enjoining, invalidating or otherwise
prohibiting the Agreement or the transactions contemplated hereby and
such order, decree, ruling or other action shall have been final and
nonappealable.
D. By Purchaser if it reasonably determines, in good faith,
after consulting with counsel and with the concurrence of the Company,
that there is substantial likelihood that any necessary regulatory
approval will not be obtained or will be obtained only upon a condition
or conditions that make it inadvisable to proceed with the transactions
contemplated by this Agreement.
E. By Purchaser if there shall have been any Material Adverse
Change.
F. By Purchaser if the Company shall fail to comply in any
material respect with any of its covenants or agreements contained in
this Agreement or in any other agreement contemplated hereby,
including, but not limited to, the Merger Agreement, and such failure
shall not have been cured within a period of twenty (20) calendar days
after notice from Purchaser, or if any of the representations or
warranties of the Company contained herein or therein shall be
inaccurate in any material respect.
G. By the Company if Purchaser shall fail to comply in any
material respect with any of its covenants or agreements contained in
this Agreement or in any other agreement contemplated hereby,
including, but not limited to, the Merger Agreement, and such failure
shall not have been cured within a period of twenty (20) calendar days
after notice from the Company, or if any of the representations or
warranties of Purchaser contained herein or therein shall be inaccurate
in any material respect.
36
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H. By the Company if the Board of Directors of the Company
shall in good faith determine that a Takeover Proposal constitutes a
Superior Proposal, provided, however, that the Company shall not be
permitted to terminate this Agreement pursuant to this Section 9.01H
unless (i) it has not breached any covenant contained in Section 1.06
and (ii) it delivers to Purchaser simultaneously with such notice of
termination, the fee referred to in Section 9.04 below. As used in this
Agreement: (i) "Takeover Proposal" means a bona fide proposal or offer
by a person to make a tender or exchange offer, or to engage in a
merger, consolidation or other business combination involving the
Company or to acquire in any manner a substantial equity interest in,
or all or substantially all of the assets of, the Company, and (ii)
"Superior Proposal" means a bona fide proposal or offer made by a
person to acquire the Company pursuant to a tender or exchange offer, a
merger, consolidation or other business combination or an acquisition
of all or substantially all of the assets of the Company and the Bank
on terms which the Board of Directors of the Company shall determine in
good faith, after taking into account the advice of counsel, to be more
favorable to the Company and its shareholders than the transactions
contemplated hereby.
I. By Purchaser upon written notice to the Company if (A) the
Board of Directors of the Company fails to recommend, withdraws, or
modifies in a manner materially adverse to Purchaser, its approval or
recommendation of this Agreement, or the transactions contemplated
hereby, (B) after the Company enters into an agreement to engage in or
the occurrence of an Acquisition Event (as defined below) or after a
third party shall have made a proposal to the Company or the Company's
shareholders to engage in an Acquisition Event, the transaction
contemplated hereby are not approved at the meeting of the Company
shareholders contemplated by Section 1.06, or (C) the meeting of the
Company shareholders contemplated by Section 1.06 is not held within
150 days from the date of this Agreement and the Company has failed to
comply with its obligations under Section 1.06. "Acquisition Event"
means any of the following: (i) a merger, consolidation or similar
transaction involving the Company or the Bank or any successor to the
Company or the Bank, as a result of which (x) shareholders of the
Company constitute holders of less than 50% of the resulting company's
shares of common stock and (y) the Company's directors represent less
than 50% of the resulting company's board of directors, (ii) a purchase
or other acquisition in one or a series of related transactions of
assets of the Company or the Bank representing 50% or more of the
consolidated assets of the Company and the Bank or (iii) a purchase or
other acquisition (including by way of merger, consolidation, share
exchange or any similar transaction) in one or a series of related
transactions of beneficial ownership of securities representing 50% or
more of the voting power of the Company or the Bank in each case with
or by a person or entity other than Purchaser or an affiliate of
Purchaser.
J. By the Company in the event that Purchaser is not
successful in raising the capital necessary for Purchaser to consummate
the transactions contemplated by this Agreement within 180 calendar
days of the date of this Agreement.
37
<PAGE>
Section 9.02 Notice of Termination. The power of termination provided
---------------------
for by Section 9.01 hereof may be exercised only by a notice given in writing,
as provided in Section 11.07 of this Agreement.
Section 9.03 Effect of Termination. Without limiting any other relief
---------------------
to which either party hereto may be entitled for breach of this Agreement, in
the event of the termination and abandonment of this Agreement pursuant to the
provisions of Section 9.01 hereof, no party to this Agreement shall have any
further liability or obligation in respect of this Agreement, except for (a)
liability of a party for expenses pursuant to Section 11.02 hereof, and (b) the
provisions of Article X hereof shall remain applicable.
Section 9.04 Termination Fee.
---------------
A. Notwithstanding any provision in this Agreement to the
contrary, if this Agreement is terminated pursuant to Section 9.01H or
9.01I and prior thereto or within twelve months after such termination:
(i) the Company or the Bank or any successor to the
Company or the Bank shall have entered into an agreement to
engage in an Acquisition Event or an Acquisition Event shall
have occurred; or
(ii) the Board of Directors of the Company shall have
authorized or approved an Acquisition Event or shall have
publicly announced an intention to authorize or approve or
shall have recommended that the shareholders of the Company
approve or accept any Acquisition Event,
then the Company shall promptly, but in no event later than five
business days after the first of such events to have occurred, pay
Purchaser a termination fee equal to $1,500,000. Each of Purchaser and
the Company acknowledge that Purchaser shall be entitled only to one
payment of the $1,500,000 termination fee, regardless of whether such
fee is paid pursuant to Section 9.01H or 9.01I.
B. Notwithstanding any provision in this Agreement to the
contrary, in the event that either (i) Purchaser is unable to obtain
regulatory approval for the Merger and such failure is related to
issues of the Purchaser's sufficiency of capital, or (ii) all of the
conditions precedent to the obligations of Purchaser outlined in
Article VIII have been met but the Purchaser refuses to consummate the
transaction, then the Purchaser shall promptly, but in no event later
than five business days after the first of such events shall have
occurred, pay to the Company, by check or wire transfer, a termination
fee in an amount equal to $1,500,000.
C. In the event that this Agreement is terminated pursuant to
either Section 9.01H or 9.01I above, Purchaser's exclusive remedy for
such termination shall be the payment of the termination fee provided
to Purchaser pursuant to Section 9.04A. Similarly, in the event that
this Agreement is terminated pursuant to Section 9.01J, the Company's
exclusive remedy for such termination shall be the payment of the
38
<PAGE>
termination fee provided to the Company pursuant to Section 9.04B. In
either such event, the Company and Purchaser will continue to be
responsible for their respective expenses pursuant to Section 11.02
hereof and the provisions of Article X hereof shall survive such
termination.
ARTICLE X.
CONFIDENTIAL INFORMATION
Section 10.01 Definition of "Recipient," "Disclosing Party",
------------- ------------------------------
"Representative" and "Person". For purposes of this Article X, the term
---------------------------
"Recipient" shall mean the party receiving the Subject Information (as defined
in Section 10.02) and the term "Disclosing Party" shall mean the party
furnishing the Subject Information. The terms "Recipient" or "Disclosing Party",
as used herein, include: (1) all persons and entities related to or affiliated
in any way with the Recipient or the Disclosing Party, as the case may be, and
(2) any person or entity controlling, controlled by or under common control with
the Recipient or the Disclosing Party, as the case may be. The term
"Representative" as used herein, shall include all directors, officers,
shareholders, employees, representatives, advisors, attorneys, accountants and
agents of any of the foregoing. The term "person" as used in this Article X
shall be broadly interpreted to include, without limitation, any corporation,
company, group, partnership, governmental agency or individual.
Section 10.02 Definition of "Subject Information". For purposes of this
----------------------------------
Article X, the term "Subject Information" shall mean all information furnished
to the Recipient or its Representatives (whether prepared by the Disclosing
Party, its Representatives or otherwise and whether or not identified as being
nonpublic, confidential or proprietary) by or on behalf of the Disclosing Party
or its Representatives relating to or involving the business, operations or
affairs of the Disclosing Party or otherwise in possession of the Disclosing
Party. The term "Subject Information" shall not include information that (i) was
already in the Recipient's possession at the time it was first furnished to
Recipient by or on behalf of Disclosing Party, provided that such information is
not known by the Recipient, after due inquiry, to be subject to another
confidentiality agreement with or other obligation of secrecy to the Disclosing
Party, its Subsidiaries or another party, or (ii) becomes generally available to
the public other than as a result of a disclosure by the Recipient or its
Representatives, or (iii) becomes available to the Recipient on a
non-confidential basis from a source other than the Disclosing Party, its
Representative or otherwise, provided that such source is not known by the
Recipient, after due inquiry, to be bound by a confidentiality agreement with or
other obligation of secrecy to the Disclosing Party, its Representative or
another party.
Section 10.03 Confidentiality. Each Recipient hereby agrees that the
---------------
Subject Information will be used solely for the purpose of reviewing and
evaluating the transactions contemplated by this Agreement and the other
agreements contemplated hereby, including the Merger Agreement, and that the
Subject Information will be kept confidential by the Recipient and the
Recipient's Representatives; provided, however, that (i) any of such Subject
Information may be disclosed to the Recipient's Representatives (including, but
not limited to, the Recipient's accountants and attorneys) who need to know such
information for the purpose of evaluating any
39
<PAGE>
such possible transaction between the Disclosing Party and the Recipient (it
being understood that such Representatives shall be informed by the Recipient of
the confidential nature of such information and that the Recipient shall direct
and cause such persons to treat such information confidentially); and (ii) any
disclosure of such Subject Information may be made to which the Disclosing Party
consents in writing prior to any such disclosure by Recipient.
Section 10.04 Securities Law Concerns. Each Recipient hereby
-----------------------
acknowledges that the Recipient is aware, and the Recipient will advise the
Recipient's Representatives who are informed as to the matters that are the
subject of this Agreement, that the United States securities laws prohibit any
person who has received material, non-public information from an issuer of
securities from purchasing or selling securities of such issuer or from
communicating such information to any other person under circumstances in which
it is reasonably foreseeable that such person is likely to purchase or sell such
securities.
Section 10.05 Return of Subject Information. In the event of
-----------------------------
termination of this Agreement or the Merger Agreement, for any reason, the
Recipient shall promptly return to the Disclosing Party all written material
containing or reflecting any of the Subject Information other than information
contained in any application, notice or other document filed with any
governmental agency and not returned to the Recipient by such governmental
agency. In making any such filing, the Recipient will request confidential
treatment of such Subject Information included in any application, notice or
other document filed with any governmental agency.
Section 10.06 Specific Performance/Injunctive Relief. Each Recipient
--------------------------------------
acknowledges that the Subject Information constitutes valuable, special and
unique property of the Disclosing Party critical to its business and that any
breach of Article X of this Agreement by it will give rise to irreparable injury
to the Disclosing Party that is not compensable in damages. Accordingly, each
Recipient agrees that the Disclosing Party shall be entitled to obtain specific
performance and/or injunctive relief against the breach or threatened breach of
Article X of this Agreement by the Recipient or its Representatives. Each
Recipient further agrees to waive, and use its reasonable efforts to cause its
Representatives to waive, any requirement for the securing or posting of any
bond in connection with such remedies. Such remedies shall not be deemed the
exclusive remedies for a breach of Article X of this Agreement, but shall be in
addition to all other remedies available at law or in equity to the Disclosing
Party.
ARTICLE XI.
MISCELLANEOUS
Section 11.01 Survival of Representations and Warranties. The parties
------------------------------------------
hereto agree that all of their respective representations and warranties
contained in this Agreement shall not survive the Closing Date.
Section 11.02 Expenses. The Company shall pay all of its expenses and
--------
costs (including, without limitation, all counsel fees and expenses), and
Purchaser shall pay all of its expenses and
40
<PAGE>
costs (including, without limitation, all counsel fees and expenses), incurred
in connection with this Agreement and the consummation of the transactions
contemplated hereby.
Section 11.03 Brokerage Fees and Commissions. Purchaser hereby
------------------------------
represents to the Company that no agent, representative or broker has
represented Purchaser in connection with the transactions described in this
Agreement. The Company shall not have any responsibility or liability for any
fees, expenses or commissions payable to any agent, representative or broker of
Purchaser, and Purchaser hereby agrees to indemnify and hold the Company
harmless for any amounts owed to any agent, representative or broker of
Purchaser. Except for any brokerage fee to be paid to Stifel Nicolaus & Company
Incorporated and any payments to be made in order to obtain a fairness opinion
for the Company, the Company hereby represents to Purchaser that no agent,
representative or broker has represented the Company, the Bank, their respective
directors and officers, or, to the knowledge of the Company, any of the other
shareholders of the Company in connection with the transactions described in
this Agreement, and neither Purchaser nor the Company shall have any
responsibility or liability for any fees, expenses or commissions payable to any
agent, representative or broker of the Company, the Bank or any shareholder of
the Company other than to such parties or for such purposes.
Section 11.04 Entire Agreement. Other than the Confidentiality
----------------
Agreement between Stifel, Nicolaus & Company, Incorporated on behalf of the
Company and Castle Creek Capital on behalf of Purchaser dated August 31, 1999,
this Agreement and the other agreements, documents, schedules and instruments
executed and delivered by the parties to each other at the Closing constitute
the full understanding of the parties, a complete allocation of risks between
them and a complete and exclusive statement of the terms and conditions of their
agreement relating to the subject matter hereof and supersede any and all prior
agreements, whether written or oral, that may exist between the parties with
respect thereto. Except as otherwise specifically provided in this Agreement, no
conditions, usage of trade, course of dealing or performance, understanding or
agreement purporting to modify, vary, explain or supplement the terms or
conditions of this Agreement shall be binding unless hereafter or
contemporaneously herewith made in writing and signed by the party to be bound,
and no modification shall be effected by the acknowledgment or acceptance of
documents containing terms or conditions at variance with or in addition to
those set forth in this Agreement.
Section 11.05 Further Cooperation. The parties agree that they will, at
-------------------
any time and from time to time after the Closing, upon request by the other and
without further consideration, do, perform, execute, acknowledge and deliver all
such further acts, deeds, assignments, assumptions, transfers, conveyances,
powers of attorney, certificates and assurances as may be reasonably required in
order to fully consummate the transactions contemplated hereby in accordance
with this Agreement or to carry out and perform any undertaking made by the
parties hereunder.
Section 11.06 Severability. In the event that any provision of this
------------
Agreement is held to be illegal, invalid or unenforceable under present or
future laws, then (a) such provision shall be fully severable and this Agreement
shall be construed and enforced as if such illegal, invalid or unenforceable
provision were not a part hereof; (b) the remaining provisions of this Agreement
41
<PAGE>
shall remain in full force and effect and shall not be affected by such illegal,
invalid or unenforceable provision or by its severance from this Agreement; and
(c) there shall be added automatically as a part of this Agreement a provision
as similar in terms to such illegal, invalid or unenforceable provision as may
be possible and still be legal, valid and enforceable.
Section 11.07 Notices. Any and all payments (other than payments at the
-------
Closing), notices, requests, instructions and other communications required or
permitted to be given under this Agreement after the date hereof by any party
hereto to any other party may be delivered personally or by nationally
recognized overnight courier service or sent by mail or (except in the case of
payments) by telex or facsimile transmission, at the respective addresses or
transmission numbers set forth below and shall be effective (a) in the case of
personal delivery, telex or facsimile transmission, when received; (b) in the
case of mail, upon the earlier of actual receipt or five (5) business days after
deposit in the United States Postal Service, first class certified or registered
mail, postage prepaid, return receipt requested; and (c) in the case of
nationally-recognized overnight courier service, one (1) business day after
delivery to such courier service together with all appropriate fees or charges
and instructions for such overnight delivery. The parties may change their
respective addresses and transmission numbers by written notice to all other
parties, sent as provided in this Section 11.07. All communications must be in
writing and addressed as follows:
IF TO THE COMPANY:
Mr. Bryan Stephenson
President
Independent Bankshares, Inc.
547 Chestnut
Abilene, Texas 79602
FAX: (915) 677-5943
WITH A COPY TO:
Joe Hoffman, Esq.
Arter & Hadden, LLP
1717 Main Street, Suite 4100
Dallas, Texas 75201
FAX: (214) 741-7139
IF TO PURCHASER:
Mr. Tom C. Nichols, President
State National Bancshares, Inc.
1617 Broadway
Lubbock, Texas 79401
FAX: (806) 749-5667
42
<PAGE>
WITH A COPY TO:
Charles E. Greef, Esq.
Jenkens & Gilchrist, P.C.
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
FAX: (214) 855-4300
Section 11.08 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS (INCLUDING THOSE
LAWS RELATING TO CHOICE OF LAW) APPLYING TO CONTRACTS ENTERED INTO AND TO BE
PERFORMED WITHIN THE STATE OF TEXAS.
Section 11.09 Multiple Counterparts. For the convenience of the parties
---------------------
hereto, this Agreement may be executed in multiple counterparts, each of which
shall be deemed an original, and all counterparts hereof so executed by the
parties hereto, whether or not such counterpart shall bear the execution of each
of the parties hereto, shall be deemed to be, and shall be construed as, one and
the same Agreement. A telecopy or facsimile transmission of a signed counterpart
of this Agreement shall be sufficient to bind the party or parties whose
signature(s) appear thereon.
Section 11.10 Certain Definitions.
-------------------
A. "Affiliate" means, with respect to any person or entity,
any person or entity that, directly or indirectly, controls, is
controlled by, or is under common control with, such person or entity
in question. For the purposes of this definition, "control" (including,
with correlative meaning, the terms "controlled by" and "under common
control with") as used with respect to any person or entity, shall mean
the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such person or entity,
whether through the ownership of voting securities or by contract or
otherwise.
B. "Subsidiary," when used with reference to an entity, means
any corporation, a majority of the outstanding voting securities of
which are owned directly or indirectly by such entity or any
partnership, joint venture or other enterprise in which any entity has,
directly or indirectly, any equity interest.
C. "Material Adverse Change" means any material adverse change
in the financial condition, assets, properties, liabilities (absolute,
accrued, contingent or otherwise), reserves, business or results of
operations of the Company or the Bank and specifically includes any
change that reduces the shareholders" equity of the Company (on a
consolidated basis) by an amount equaling or exceeding $1,250,000.
43
<PAGE>
D. "Environmental Laws" means the common law and all federal,
state, local and foreign laws or regulations, codes, orders, decrees,
judgments or injunctions issued, promulgated, approved or entered
thereunder, now or hereafter in effect, relating to pollution or
protection of public or employee health or safety or the environment,
including, without limitation, laws relating to (i) emissions,
discharges, releases or threatened releases of Hazardous Materials,
into the environment (including, without limitation, ambient air,
indoor air, surface water, ground water, land surface or subsurface
strata), (ii) the manufacture, processing, distribution, use,
generation, treatment, storage, disposal, transport or handling of
Hazardous Materials, and (iii) underground and above ground storage
tanks, and related piping, and emissions, discharges, releases or
threatened releases therefrom.
E. "Hazardous Material" means, without limitation, any
pollutant, contaminant, chemical, or toxic or hazardous substance,
constituent, material or waste, or any other chemical, substances,
constituent or waste including, without limitation, petroleum,
including crude oil or any fraction thereof, or any petroleum product.
F. "Property" or "Properties" shall include all real property
owned or leased by the Company or the Bank, including, but not limited
to properties that the Bank has foreclosed on as well as their
respective premises and all improvements and fixtures thereon.
Section 11.11 Specific Performance. Each of the parties hereto
--------------------
acknowledges that the other party would be irreparably damaged and would not
have an adequate remedy at law for money damages in the event that any of the
covenants contained in this Agreement were not performed in accordance with its
terms or otherwise were materially breached. Each of the parties hereto
therefore agrees that, without the necessity of proving actual damages or
posting bond or other security, the other party shall be entitled to temporary
or permanent injunction or injunctions to prevent breaches of such performance
and to specific enforcement of such covenants in addition to any other remedy to
which they may be entitled, at law or in equity.
Section 11.12 Attorneys' Fees and Costs. In the event attorneys' fees
-------------------------
or other costs are incurred to secure performance of any of the obligations
herein provided for, or to establish damages for the breach thereof, or to
obtain any other appropriate relief, whether by way of prosecution or defense,
the prevailing party shall be entitled to recover reasonable attorneys' fees and
costs incurred therein.
Section 11.13 Rules of Construction. Each use herein of the masculine,
---------------------
neuter or feminine gender shall be deemed to include the other genders. Each use
herein of the plural shall include the singular and vice versa, in each case as
the context requires or as it is otherwise appropriate. The word "or" is used in
the inclusive sense. All articles and sections referred to herein are articles
and sections, respectively, of this Agreement and all exhibits and schedules
referred to herein are exhibits and schedules, respectively, attached to this
Agreement. Descriptive headings as to the contents of particular sections are
for convenience only and shall not control or affect the meaning, construction
or interpretation of any provision of this Agreement. Any and all schedules,
exhibits, annexes, statements, reports, certificates or other
44
<PAGE>
documents or instruments referred to herein or attached hereto are and shall be
incorporated herein by reference hereto as though fully set forth herein
verbatim.
Section 11.14 Binding Effect; Assignment. All of the terms, covenants,
--------------------------
representations, warranties and conditions of this Agreement shall be binding
upon, and inure to the benefit of and be enforceable by, the parties hereto and
their respective successors, representatives and permitted assigns. Other than
the third party beneficiary rights granted to the Company's officers and
directors pursuant to Sections 6.9 and 6.10, nothing expressed or referred to
herein is intended or shall be construed to give any person other than the
parties hereto any legal or equitable right, remedy or claim under or in respect
of this Agreement, or any provision herein contained, it being the intention of
the parties hereto that this Agreement, the assumption of obligations and
statements of responsibilities hereunder, and all other conditions and
provisions hereof are for the sole benefit of the parties to this Agreement and
for the benefit of no other person. Nothing in this Agreement shall act to
relieve or discharge the obligation or liability of any third party to any party
to this Agreement, nor shall any provision give any third party any right of
subrogation or action over or against any party to this Agreement. No party to
this Agreement shall assign this Agreement, by operation of law or otherwise, in
whole or in part, without the prior written consent of the other party. Any
assignment made or attempted in violation of this Section 11.14 shall be void
and of no effect.
Section 11.15 Public Disclosure. The parties will cooperate in the
-----------------
preparation of a press release to be issued at the time of execution of this
Agreement. Neither Purchaser nor the Company will make, issue or release any
other announcement, statement, press release, acknowledgment or other public
disclosure of the existence of, or the terms, conditions or the status of, this
Agreement or the transactions contemplated hereby without the prior written
consent of the other party to this Agreement; provided, however, that
notwithstanding the foregoing, Purchaser and the Company will be permitted to
make any public disclosures or governmental filings as legal counsel may deem
necessary to maintain compliance with or to prevent violations of applicable
federal or state laws or regulations or that may be necessary to obtain
regulatory approval for the transactions contemplated hereby.
Section 11.16 Extension; Waiver. At any time prior to the Closing Date,
-----------------
the parties may (i) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (ii) waive any inaccuracies
in the representations and warranties contained herein or in any document,
certificate or writing delivered pursuant hereto, or (iii) waive compliance with
any of the agreements or conditions contained herein. Such action shall be
evidenced by a signed written notice given in the manner provided in Section
11.07 hereof. No party to this Agreement shall by any act (except by a written
instrument given pursuant to Section 11.07 hereof) be deemed to have waived any
right or remedy hereunder or to have acquiesced in any breach of any of the
terms and conditions hereof. No failure to exercise, nor any delay in exercising
any right, power or privilege hereunder by any party hereto shall operate as a
waiver thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver of any party of any right or
remedy on any one occasion shall not be construed as a bar to any right or
45
<PAGE>
remedy that such party would otherwise have on any future occasion or to any
right or remedy that any other party may have hereunder.
Section 11.17 Amendments. To the extent permitted by applicable law,
----------
this Agreement may be amended by action taken by or on behalf of the Board of
Directors of Purchaser and the Company at any time before or after adoption of
this Agreement by the shareholders of the Company but, after any submission of
this Agreement to such shareholders for approval, no amendment shall be made
that (i) decreases the consideration to be paid for the Company Stock as set
forth in Section 1.05, or (ii) materially and adversely affects the rights or
obligations of the shareholders hereunder, without the approval of the
shareholders. This Agreement may be amended, modified or supplemented only by an
instrument in writing executed by the party against which enforcement of the
amendment, modification or supplement is sought.
IN WITNESS WHEREOF, Purchaser and the Company have caused this
Agreement to be executed by their duly authorized officers as of the date first
above written.
STATE NATIONAL BANCSHARES, INC.
By: /s/ Tom C. Nichols
--------------------------------
Tom C. Nichols, President
INDEPENDENT BANKSHARES, INC.
By: /s/ Bryan Stephenson
--------------------------------
Bryan Stephenson, President
46
<PAGE>
EXHIBIT A
MERGER AGREEMENT
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (this "Merger Agreement"), is made as
of the _____ day of ____________, 2000, by and between NEW FSB, INC., a Texas
corporation ("Newco"), and INDEPENDENT BANKSHARES, INC., a Texas corporation
(the "Company") and joined in by STATE NATIONAL BANCSHARES, INC. ("Purchaser").
W I T N E S S E T H:
WHEREAS, the Company is a corporation duly organized and existing under
the laws of the State of Texas, having its principal office in Abilene, Texas,
and with 35,000,000 shares of authorized capital stock consisting solely of (i)
30,000,000 shares of common stock, par value $0.25 per share ("Company Stock"),
of which 2,333,647 are issued and 2,273,647 are outstanding as of the date
hereof and (ii) 5,000,000 shares of preferred stock, par value $10.00 per share,
which the Board of Directors of the Company may designate from time to time in
one or more series. Pursuant to action by the Board of Directors of the Company,
50,000 shares of preferred stock have been designated as the Series C Cumulative
Convertible Preferred Stock (the "Series C Preferred Stock"), which is
convertible at the option of the holder. As of the date hereof, all of the
previously outstanding shares of the Series C Preferred Stock have been
converted into Company Stock, and therefore, there are no shares of the Series C
Preferred Stock issued and outstanding.
WHEREAS, Newco is a corporation duly organized and existing under the
laws of the State of Texas, having its principal office in Lubbock, Texas, with
authorized capital stock consisting of 1,000 shares of common stock, $1.00 par
value ("Newco Stock"), of which 1,000 shares are issued and outstanding;
WHEREAS, the majorities of the Boards of Directors of the Company and
Newco, pursuant to the authority given by and in accordance with the provisions
of the Texas Business Corporation Act, as amended (the "TBCA"), have approved
this Merger Agreement under which Newco shall be merged with and into the
Company (the "Merger") and have authorized the execution hereof; and
WHEREAS, as and when required by the provisions of this Merger
Agreement, all such action as may be necessary or appropriate shall be taken by
Newco and the Company in order to consummate the Merger.
WHEREAS, this Merger Agreement is being entered into pursuant to the
Agreement and Plan of Reorganization by and between State National Bancshares,
Inc. and the Company.
NOW, THEREFORE, for and in consideration of the foregoing and of the
mutual representations, warranties, covenants and agreements contained in this
Merger Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and subject to the conditions set
forth below, the parties hereto undertake, promise, covenant and agree with each
other as follows:
<PAGE>
1. Merger of Newco and the Company. At the Effective Time (as
-------------------------------
defined in Section 14), Newco shall be merged with and into the Company pursuant
to the provisions of Part Five of the TBCA and with the effect provided in
Article 5.06 of the TBCA.
2. Effects of the Merger. The Merger shall have the effects set
---------------------
forth in Article 5.06 of the TBCA. Following the Merger, the Company shall
continue as the corporation resulting from the Merger (the "Resulting
Corporation"), and the separate corporate existence of Newco shall cease. The
name of the Resulting Corporation shall be "Independent Bankshares, Inc." The
existing offices and facilities of the Company immediately preceding the Merger
shall be the principal offices and facilities of Resulting Corporation following
the Merger. At the Effective Time (as defined in Section 14), all rights, title
and interests to all real estate and other property owned by each of Newco and
the Company shall be allocated to and vested in the Resulting Corporation
without reversion or impairment, without further act or deed, and without any
transfer or assignment having occurred, but subject to any existing liens or
encumbrances thereon. At the Effective Time, all liabilities and obligations of
Newco and the Company shall be allocated to the Resulting Corporation, and the
Resulting Corporation shall be the primary obligor therefor and no other party
to the Merger shall be liable therefor. At the Effective Time, a proceeding
pending by or against either Newco or the Company may be continued as if the
Merger did not occur, or the Resulting Corporation may be substituted in the
proceedings.
3. Articles of Incorporation and Bylaws. As a result of the Merger,
------------------------------------
the Articles of Incorporation and Bylaws of the Company shall continue in effect
as the Articles of Incorporation and Bylaws of the Resulting Corporation until
the same shall be amended and changed as provided by law.
4. Directors and Officers. The directors and officers of Newco at
----------------------
the Effective Time shall be the directors and officers of the Resulting
Corporation and shall hold office from the Effective Time until their respective
successors are duly elected or appointed and qualified in the manner provided in
the Articles of Incorporation and Bylaws of the Resulting Corporation or as
otherwise provided by law.
5. Conversion of Securities. At the Effective Time, (i) all of the
------------------------
shares of the Company Stock, issued and outstanding as of the Effective Time,
shall be converted into the right to receive from Purchaser, an aggregate amount
in cash equal to the sum of (i) $ 45,473,000, plus the consideration described
in Section 1.05A of the Reorganization Agreement; (ii) the number of shares of
Newco Stock outstanding at the Effective Time shall be converted as described in
Section 1.05B of the Reorganization Agreement; (iii) the shares of the Company
Stock issued and outstanding at the Effective Time shall, by operation of law
and without any action on the part of the holder thereof, unless dissenters'
rights under applicable law are being perfected with respect thereto, be
converted into the right to receive the consideration set forth in Section 1.05A
of the Reorganization Agreement; and (iv) until surrendered to the Purchaser, as
described in Section 1.07 of the Reorganization Agreement, each outstanding
certificate formerly representing shares of the Company Stock shall be deemed
for all purposes, subject only to dissenters' rights under applicable law, to
evidence solely the right to receive the consideration described in Section
1.05A of the Reorganization Agreement. The consideration to be paid pursuant to
Section 1.05A of the
2
<PAGE>
Reorganization Agreement shall be delivered pursuant to the procedures described
in Section 1.07 of the Reorganization Agreement.
6. Stock Transfer Books. The stock transfer books of Newco shall be
--------------------
closed as of the close of business at the Effective Time, and no transfer of
record of any of the shares of Newco Stock shall take place thereafter.
7. Shareholder Approval. This Merger Agreement shall be submitted to
--------------------
the shareholders of the Company at a meeting called to be held as promptly as
practicable and to the sole shareholder of Newco by written consent of the sole
shareholder. Upon approval by the requisite votes of each class of the
shareholders of the Company and the approval of the sole shareholder of Newco,
this Merger Agreement shall be made effective as soon as practicable thereafter
in the manner provided in Section 14 hereof.
8. Dissenters' Rights. Any shareholder of the Company who has not
------------------
voted in favor of the Merger at the meeting of shareholders of the Company and
who has given notice in writing at or prior to such meeting of his intent to
exercise his dissenters' rights with respect to the Merger, all in accordance
with Articles 5.11, 5.12 and 5.13 of the TBCA, shall be governed by such
provisions of the TBCA.
9. Conditions to Consummation of the Merger. Consummation of the
----------------------------------------
Merger as provided herein shall be conditioned upon the satisfaction of the
conditions set forth in the Reorganization Agreement, any or all of which may be
waived in accordance with the terms and provisions of the Reorganization
Agreement.
10. Termination. This Merger Agreement may be terminated and
-----------
abandoned at any time prior to or on the Closing Date, whether before or after
action thereon by the shareholders of the Company pursuant to the terms and
provisions of the Reorganization Agreement.
11. Effect of Termination. In the event of the termination and
---------------------
abandonment of this Merger Agreement pursuant to the provisions of Section 10,
the liability by reason of this Merger Agreement or the termination thereof on
the part of either the Company, or Newco or the directors, officers, employees,
agents or shareholders of either of them shall be determined pursuant to the
terms and provisions of the Reorganization Agreement. Such terms and provisions
are hereby incorporated herein by reference for all purposes.
12. Representations and Warranties of Newco. Newco is a corporation,
---------------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Texas. Newco has all requisite corporate power and authority (including
all licenses, franchises, permits and other governmental authorizations as are
legally required) to carry on its business as now being conducted, to own, lease
and operate its properties and assets as now owned, leased or operated and to
enter into and carry out its obligations under this Merger Agreement.
13. Waiver, Amendment and Modification. Any of the terms or
----------------------------------
conditions of this Merger Agreement may be waived at any time, whether before or
after action thereon by the
3
<PAGE>
shareholders of the Company by the party that is entitled to the benefits
thereof. This Merger Agreement may be modified or amended at any time, whether
before or after action thereon by the shareholders of the Company, by Purchaser
and the Company; provided, however, that in no event may any amendment hereto be
made after action by the shareholders of the Company that affects the value of
the consideration to be received by the shareholders of the Company specified in
Section 5 of this Merger Agreement (or Section 1.05A of the Reorganization
Agreement) or that materially and adversely affects the rights of the Company's
shareholders hereunder without the requisite approval of such shareholders. Any
waiver, modification or amendment of this Merger Agreement shall be in writing.
14. Closing Date and Effective Time. On a date selected by Newco and
-------------------------------
agreed to by the Company, which date shall be mutually agreeable to Newco after
the receipt of all necessary regulatory, corporate and other approvals and the
expiration of any mandatory waiting period, but in no event later than 180 days
after the date of the Reorganization Agreement (herein called the "Closing
Date"), a meeting (the "Closing") will take place at which the parties to this
Merger Agreement will exchange certificates, letters and other documents in
order to determine whether any condition exists that would permit the parties to
this Merger Agreement to terminate this Merger Agreement. If no such condition
then exists or if no party elects to exercise any right it may have to terminate
this Merger Agreement, then and thereupon the appropriate parties shall execute
such documents and instruments as may be necessary or appropriate in order to
effect the transactions contemplated by this Merger Agreement and the
Reorganization Agreement.
The Merger shall become effective on the date and at the time specified
in the Certificate of Merger to be issued by the Secretary of State of the State
of Texas under the seal of his office, such time being referred to herein as the
"Effective Time."
15. Multiple Counterparts. For the convenience of the parties hereto,
---------------------
this Merger Agreement may be executed in multiple counterparts, each of which
shall be deemed an original, and all counterparts hereof so executed by the
parties hereto, whether or not such counterpart shall bear the execution of each
of the parties hereto, shall be deemed to be, and shall be construed as, one and
the same Merger Agreement. A telecopy or facsimile transmission of a signed
counterpart of this Merger Agreement shall be sufficient to bind the party or
parties whose signature(s) appear thereon.
16. Governing Law. THIS MERGER AGREEMENT SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS (WITHOUT REGARD
TO THOSE LAWS RELATING TO CHOICE OF LAW) APPLYING TO CONTRACTS ENTERED INTO AND
TO BE PERFORMED WITHIN THE STATE OF TEXAS.
17. Further Cooperation. The parties agree that they will, at any
-------------------
time and from time to time after the Closing, upon request by the other and
without further consideration, do, perform, execute, acknowledge and deliver all
such further acts, deeds, assignments, assumptions, transfers, conveyances,
powers of attorney, certificates and assurances as may be reasonably required in
order
4
<PAGE>
to fully consummate the transactions contemplated hereby in accordance with this
Merger Agreement or to carry out and perform any undertaking made by the parties
hereunder.
18. Severability. In the event that any provision of this Merger
------------
Agreement is held to be illegal, invalid or unenforceable under present or
future laws, then (a) such provision shall be fully severable and this Merger
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision were not a part hereof; (b) the remaining provisions of
this Merger Agreement shall remain in full force and effect and shall not be
affected by such illegal, invalid or unenforceable provision or by its severance
from this Merger Agreement; and (c) there shall be added automatically as a part
of this Merger Agreement a provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible and still be legal, valid
and enforceable.
19. Specific Performance. Each of the parties hereto acknowledges
--------------------
that the other parties would be irreparably damaged and would not have an
adequate remedy at law for money damages in the event that any of the covenants
contained in this Merger Agreement were not performed in accordance with its
terms or otherwise were materially breached. Each of the parties hereto
therefore agrees that, without the necessity of proving actual damages or
posting bond or other security, the other party shall be entitled to temporary
and/or permanent injunction or injunctions to prevent breaches of such
performance and to specific enforcement of such covenants in addition to any
other remedy to which it may be entitled, at law or in equity.
20. Rules of Construction. Descriptive headings as to the contents of
---------------------
particular sections are for convenience only and shall not control or affect the
meaning, construction or interpretation of any provision of this Merger
Agreement. All articles and sections referred to herein are articles and
sections, respectively, of this Merger Agreement unless specifically referenced
to another agreement including, but not limited to, the Reorganization
Agreement. Each use herein of the masculine, neuter or feminine gender shall be
deemed to include the other genders. Each use herein of the plural shall include
the singular and vice versa, in each case as the context requires or as it is
otherwise appropriate. The word "or" is used in the inclusive sense.
21. Binding Effect; Assignment. All of the terms, covenants,
--------------------------
representations, warranties and conditions of this Merger Agreement shall be
binding upon, and inure to the benefit of and be enforceable by, the parties
hereto and their respective successors, representatives and permitted assigns.
Nothing expressed or referred to herein is intended or shall be construed to
give any person other than the parties hereto any legal or equitable right,
remedy or claim under or in respect of this Merger Agreement, or any provision
herein contained, it being the intention of the parties hereto that this Merger
Agreement, the assumption of obligations and statements of responsibilities
hereunder, and all other conditions and provisions hereof are for the sole
benefit of the parties to this Merger Agreement and for the benefit of no other
person. Nothing in this Merger Agreement shall act to relieve or discharge the
obligation or liability of any third party to any party to this Merger
Agreement, nor shall any provision give any third party any right of subrogation
or action over or against any party to this Merger Agreement. No party to this
Merger Agreement shall assign this Merger Agreement, by operation of law or
otherwise, in whole or in part, without the prior written
5
<PAGE>
consent of the other parties. Any assignment made or attempted in violation of
this Section 21 shall be void and of no effect.
IN WITNESS WHEREOF, the parties hereto have caused this Merger
Agreement to be executed by their duly authorized officers as of the date first
above written.
INDEPENDENT BANKSHARES, INC.
By: _______________________________
Bryan Stephenson, President
NEW INDEPENDENT HOLDINGS, INC.
By: _______________________________
Don E. Cosby, President
Joined in by:
STATE NATIONAL BANCSHARES, INC.
By: _______________________________
Tom C. Nichols, President
6
<PAGE>
(Form of Stifel, Nicolaus & Company, Incorporated Opinion)
June , 2000
Board of Directors
Independent Bankshares, Inc.
547 Chestnut Street
Abilene, Texas 79602
Members of the Board:
You have requested our opinion as to the fairness from a financial
point of view to the shareholders of Independent Bankshares, Inc. ("IBK") of the
right to receive an amount of cash equal to $20.00 from State National
Bancshares, Inc. ("State National") for each share of common stock, par value
$0.25 per share, of IBK ("IBK Common Stock") pursuant to the terms of the
Agreement and Plan of Reorganization by and between State National and IBK,
dated as of March 1, 2000 (the "Agreement.") For the purposes of our opinion,
we have assumed that the merger of IBK with a subsidiary of State National
pursuant to the Agreement (the "Merger") will constitute a taxable
reorganization as contemplated by the Agreement and the Merger will be accounted
for under the purchase accounting method.
Stifel, Nicolaus & Company, Incorporated ("Stifel"), as part of its
investment banking services, is regularly engaged in the independent valuation
of businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. In
the ordinary course of its business, Stifel actively trades equity securities of
IBK for its own account and for the accounts of its customers and, accordingly,
may at any time hold a long or short position in such securities.
In rendering our opinion, we have reviewed, among other things: the
Agreement; the financial statements of IBK in its Annual Reports on Form 10-K
for the 5 years ended December 31, 1999, and its Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999; the audited financial statements of State
National for the three years ended December 31, 1999 and the period from
inception (March 8, 1996) to December 31, 1996 and internal financial statements
for the three months ended March 31, 1999; certain internal financial analyses
and forecasts for IBK and State National prepared by their respective
managements; and certain internal financial forecasts for IBK and State National
on a combined basis, giving effect to the Merger, prepared by the management of
IBK and State National. We have conducted conversations with IBK's and State
National's senior management regarding their respective business plans and
financial forecasts. We have also compared certain financial and securities
data of IBK with various other companies whose securities are traded in public
markets, reviewed the historical stock prices and trading volumes of the common
stock of IBK, reviewed the financial terms of certain other business
combinations and conducted such other financial studies, analyses and
investigations as we deemed appropriate for purposes of this opinion. We also
took into account our assessment of general economic, market and financial
conditions and
<PAGE>
Board of Directors -- Independent Bankshares, Inc.
Page 2
our experience in other transactions, as well as our experience in securities
valuations and our knowledge of the banking industry generally.
In rendering our opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all of the financial
and other information that was provided to us or that was otherwise reviewed by
us and have not assumed any responsibility for independently verifying any of
such information. With respect to the financial forecasts supplied to us
(including without limitation, projected cost savings and operating synergies
resulting from the Merger), we have assumed that they were reasonably prepared
on the basis reflecting the best currently available estimates and judgments of
the management of IBK and State National as to the future operating and
financial performance of IBK and State National, that they would be realized in
the amounts and time periods estimated and that they provided a reasonable basis
upon which we could form our opinion. We also assumed that there were no
material changes in the assets, liabilities, financial condition, results of
operations, business or prospects of either IBK or State National since the date
of the last financial statements made available to us. We have also assumed,
without independent verification and with your consent, that the aggregate
allowances for loan losses set forth in the financial statements of IBK and
State National are in the aggregate adequate to cover all such losses. We did
not make or obtain any independent evaluation, appraisal or physical inspection
of IBK's or State National's assets or liabilities, the collateral securing any
of such assets or liabilities, or the collectibility of any such assets nor did
we review loan or credit files of IBK or State National. We relied on advice of
the Company's counsel and accountants as to all legal and accounting matters
with respect to IBK, the Agreement and the transactions and other matters
contained or contemplated therein. We have assumed, with your consent, that
there are no factors that would delay or subject to any adverse conditions any
necessary regulatory or governmental approval and that all conditions to the
Merger will be satisfied and not waived.
Our opinion is necessarily based on economic, market, financial and
other conditions as they exist on, and on the information made available to us
as of, the date of this letter. Our opinion is directed to the Board of
Directors of IBK for its information and assistance in connection with its
consideration of the financial terms of the transaction contemplated by the
Merger and does not constitute a recommendation to any shareholder as to how
such shareholder should vote on the proposed transaction, nor have we expressed
any opinion as to the prices at which any securities of IBK or State National
might trade in the future. Except as required by applicable law, including
without limitation federal securities laws, our opinion may not be published or
otherwise used or referred to, nor shall any public reference to Stifel be made,
without our prior written consent.
Based upon the foregoing and such other factors as we deem relevant,
we are of the opinion, as of the date hereof, that the right to receive an
amount of cash equal to $20.00 per share pursuant to the Agreement is fair to
the holders of IBK Common Stock from a financial point of view.
Very truly yours,
DRAFT
STIFEL, NICOLAUS & COMPANY, INCORPORATED
<PAGE>
APPENDIX C
ARTICLES 5.11-5.13
OF THE
TEXAS BUSINESS CORPORATION ACT
Art. 5.11 Rights of Dissenting Shareholders in the Event of Certain Corporate
Actions
A. Any shareholder of a domestic corporation shall have the right to dissent
from any of the following corporate actions:
(1) Any plan of merger to which the corporation is a party if shareholder
approval is required by Article 5.03 or 5.16 of this Act and the shareholder
holds shares of a class or series that was entitled to vote thereon as a class
or otherwise;
(2) Any sale, lease, exchange or other disposition (not including any pledge,
mortgage, deed of trust or trust indenture unless otherwise provided in the
articles of incorporation) of all, or substantially all, the property and
assets, with or without good will, of a corporation if special authorization of
the shareholders is required by this Act and the shareholder hold shares of a
class or series that was entitled to vote thereon as a class or otherwise;
(3) Any plan of exchange pursuant to Article 5.02 of this Act in which the
shares of the corporation of the class or series held by the shareholder are to
be acquired.
B. Notwithstanding the provisions of Section A of this Article, a shareholder
shall not have the right to dissent from any plan of merger in which there is a
single surviving or new domestic or foreign corporation, or from any plan of
exchange, if:
(1) the shares held by the shareholder are part of a class or series, shares of
which are on the record date fixed to determine the shareholders entitled to
vote on the plan of merger or plan of exchange:
(a) listed on a national securities exchange;
(b) listed on the Nasdaq Stock Market (or successor quotation) or designated as
a national market security on an interdealer quotation system by the National
Association of Securities Dealers, Inc., or successor entity; or
(c) held of record by not less than 2,000 holders;
(2) the shareholder is not required by the terms of the plan of merger or plan
of exchange to accept for the shareholder's shares any consideration that is
different than the consideration (other than cash in lieu of fractional shares
that the shareholder would otherwise be entitled to receive) to be provided to
any other holder of shares of the same class or series of shares held by such
shareholder; and
<PAGE>
(3) the shareholder is not required by the terms of the plan of merger or the
plan of exchange to accept for the shareholder's shares any consideration other
than:
(a) shares of domestic or foreign corporation that, immediately after the
effective time of the merger or exchange, will be part of a class or series,
shares of which are:
(i) listed, or authorized for listing upon official notice of issuance, on a
national securities exchange;
(ii) approved for quotation as a national market security on an interdealer
quotation system by the National Association of Securities Dealers, Inc., or
successor entity; or
(iii) held of record by not less than 2,000 holders;
(b) cash in lieu of fractional shares otherwise entitled to be received; or
(c) any combination of the securities and cash described in Subdivisions (a)
and (b) of this subsection.
Art. 5.12 Procedure for Dissent by Shareholder as to Said Corporate Actions
A. Any shareholder of any domestic corporation who has the right to dissent
only by complying with the following procedures:
(1)(a) With respect to proposed corporate action that is submitted to a vote of
shareholders at a meeting, the shareholder shall file with the corporation,
prior to the meeting, a written objection to the action, setting out that the
shareholder's right to dissent will be exercised if the action is effective and
giving the shareholder's address, to which notice thereof shall be delivered or
mailed in that event. If the action is effected and the shareholder shall not
have voted in favor of the action, the corporation, in the case of action other
than a merger, or the surviving or new corporation (foreign or domestic) or
other entity that is liable to discharge the shareholder's right of dissent, in
the case of a merger, shall, within ten (10) days after the action is effected,
deliver or mail to the shareholder written notice that the action has been
effected, and the shareholder may, within ten (10) days from the delivery or
mailing of the notice, make written demand on the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, for
payment of the fair value of the shareholder's shares. The fair value of the
shares shall be the value thereof as of the day immediately preceding the
meeting, excluding any appreciation or depreciation in anticipation of the
proposed action. The demand shall state the number and class of the shares owned
by the shareholder and the fair value of the shares as estimated by the
shareholder. Any shareholder failing to make demand within the ten (10) day
period shall be bound by the action.
(b) With respect to proposed corporate action that is approved pursuant to
Section A of Article 9.10 of this Act, the corporation, in the case of action
other than a merger, and the surviving or new corporation (foreign or domestic)
or other entity that is liable to discharge the shareholder's right of dissent,
in the case of a merger, shall, within ten (10) days after the date the action
is effected, mail to each shareholder of record as of the effective date of the
action notice
2
<PAGE>
of the fact and date of the action and that the shareholder may exercise the
shareholder's right to dissent from the action. If the shareholder shall not
have consented to the taking of the action, the shareholder may, within twenty
(20) days after the mailing of the notice, make written demand on the existing,
surviving, or new corporation (foreign or domestic) or other entity, as the case
may be, for payment of the fair value of the shareholder's shares. The fair
value of the shares shall be the value thereof as of the date the written
consent authorizing the action was delivered to the corporation pursuant to
Section A of Article 9.10 of this Act, excluding any appreciation or
depreciation in anticipation of the action. The demand shall state the number
and class of shares owned by the dissenting shareholder and the fair value of
the shares as estimated by the shareholder. Any shareholder failing to make
demand within the twenty (20) day period shall be bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of a
demand for payment made by a dissenting shareholder in accordance with
Subsection (1) of this Section, the corporation (foreign or domestic) or other
entity shall deliver or mail to the shareholder a written notice that shall
either set out that the corporation (foreign or domestic) or other entity
accepts the amount claimed in the demand and agrees to pay that amount within
ninety (90) days after the date on which the action was effected, and, in the
case of shares represented by certificates, upon the surrender of the
certificates duly endorsed, or shall contain an estimate by the corporation
(foreign or domestic) or other entity of the fair value of the shares, together
with an offer to pay the amount of that estimate within ninety (90) days after
the date on which the action was effected, upon receipt of notice within sixty
(60) days after that date from the shareholder that the shareholder agrees to
accept that amount and, in the case of shares represented by certificates, upon
the surrender of the certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate action was
effected, the value of the shares is agreed upon between the shareholder and the
existing, surviving, or new corporation (foreign or domestic) or other entity,
as the case may be, payment for the shares shall be made within ninety (90) days
after the date on which the action was effected and, in the case of shares
represented by certificates, upon surrender of the certificates duly endorsed.
Upon payment of the agreed value, the shareholder shall cease to have any
interest in the shares or in the corporation.
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty (60)
day period, file a petition in any court of competent jurisdiction in the county
in which the principal office of the domestic corporation is located, asking for
a finding and determination of the fair value of the shareholder's shares. Upon
the filing of any such petition by the shareholder, service of a copy thereof
shall be made upon the corporation (foreign or domestic) or other entity, which
shall, within ten (10) days after service, file in the office of the clerk of
the court in which the petition was filed a list containing the names and
addresses of all shareholders of the domestic corporation who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the corporation (foreign or domestic) or
3
<PAGE>
other entity. If the petition shall be filed by the corporation (foreign or
domestic) or other entity, the petition shall be accompanied by such a list. The
clerk of the court shall give notice of the time and place fixed for the hearing
of the petition by registered mail to the corporation (foreign or domestic) or
other entity and to the shareholders named on the list at the addresses therein
stated. The forms of the notices by mail shall be approved by the court. All
shareholders thus notified and the corporation (foreign or domestic) or other
entity shall thereafter be bound by the final judgment of the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The appraisers
shall have power to examine any of the books and records of the corporation the
shares of which they are charged with the duty of valuing, and they shall make a
determination of the fair value of the shares upon such investigation as to them
may seem proper. The appraisers shall also afford a reasonable opportunity to
the parties interested to submit to them pertinent evidence as to the value of
the shares. The appraisers shall also have such power and authority as may be
conferred on Masters in Chancery by the Rules of Civil Procedure or by the order
of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled to
payment of that value by the existing, surviving, or new corporation (foreign or
domestic) or other entity, together with interest thereon, beginning 91 days
after the date on which the applicable corporate action from which the
shareholder elected to dissent was effected to the date of such judgment, to the
shareholders entitled to payment. The judgment shall be payable to the holders
of uncertificated shares immediately but to the holders of shares represented by
certificates only upon, and simultaneously with, the surrender to the existing,
surviving, or new corporation (foreign or domestic) or other entity, as the case
may be, of duly endorsed certificates for those shares. Upon payment of the
judgment, the dissenting shareholders shall cease to have any interest in those
shares or in the corporation. The court shall allow the appraisers a reasonable
fee as court costs, and all court costs shall be allotted between the parties in
the manner that the court determines to be fair and equitable.
E. Shares acquired by the existing, surviving or new corporation (foreign or
domestic) or other entity, as the case may be, pursuant to the payment of the
agreed value of the shares or pursuant to payment of the judgment entered for
the value of the shares, as in this Article provided, shall in the case of a
merger, be treated as provided in the plan of merger and, in all other cases,
may be held and disposed of by the corporation as in the case of other treasury
shares.
F. The provisions of this Article shall not apply to a merger if, on the date
of the filing of the articles of merger, the surviving corporation is the owner
of all the outstanding shares of the other corporations, domestic or foreign,
that are parties to the merger.
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G. In the absence of fraud in the transaction, the remedy provided by this
Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action. If
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action.
Art. 5.13 Provisions Affecting Remedies of Dissenting Shareholders
A. Any shareholder who has demanded payment for his shares in accordance with
either Article 5.12 or 5.16 of this Act shall not thereafter be entitled to vote
or exercise any other rights of a shareholder except the right to receive
payment for his shares pursuant to the provisions of those articles and the
right to maintain an appropriate action to obtain relief on the ground that the
corporate action would be or was fraudulent, and the respective shares for which
payment has been demanded shall not thereafter be considered outstanding for the
purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
thereof shall bear similar notation together with the name of the original
dissenting holder of such shares and transferee of such shares shall acquire by
such transfer no rights in the corporation other than those which the original
dissenting shareholder had after making demand for payment of the fair value
thereof.
C. Any shareholder who has demanded payment for his shares in accordance with
either Article 5.12 or 5.16 of this Act may withdraw such demand at any time
before payment for his shares or before any petition has been filed pursuant to
Article 5.12 or 5.16 or this Act asking for a finding and determination of the
fair value of such shares, but no such demand may be withdrawn after such
payment has been made or, unless the corporation shall consent thereto, after
any such petition has been filed. If, however, such demand shall be withdrawn as
hereinbefore provided, or if pursuant to Section B of this Article the
corporation shall terminate the shareholder's rights under Article 5.12 or 5.16
of this Act, as the case may be, or if no petition asking for a finding and
determination of fair value of such shares by a court shall have been filed
within the time provided in Article 5.12 or 5.16 of this Act, as the case may
be, or if after the hearing of a petition filed pursuant to Article 5.12 or
5.16, the court shall determine that such shareholder is not entitled to the
relief provided by those articles, then, in any such case, such shareholder and
all persons claiming under him shall be conclusively presumed to have
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approved and ratified the corporate action from which he dissented and shall be
bound thereby, the right of such shareholder to be paid the fair value of his
shares shall cease, and his status as a shareholder shall be restored without
prejudice to any corporate proceedings which may have been taken during the
interim, and such shareholder shall be entitled to receive any dividends or
other distributions made to shareholders in the interim.
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INDEPENDENT BANKSHARES, INC.
547 Chestnut Street
Abilene, Texas 79602
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Bryan W. Stephenson, Scott L. Taliaferro
and C.G. Whitten and each or any of them, as proxies, each with the power to
appoint his substitute, and hereby authorizes each of them to represent and
vote, as designated below, all of the shares of the common stock of Independent
Bankshares, Inc. held of record by the undersigned on June 8, 2000, at the
Special Meeting of Shareholders to be held on July 12, 2000, or any
adjournment(s) thereof.
Proposal to approve and adopt the Agreement and Plan of Reorganization by
and between State National Bancshares, Inc. and Independent Bankshares,
Inc., dated as of March 1, 2000.
FOR[_] AGAINST[_] ABSTAIN[_]
Please execute this proxy as your name appears hereon. When shares are held
by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by the president or other
authorized officer. If a partnership, please sign in partnership name by
authorized persons. Please mark, sign, date and return this proxy promptly using
the enclosed envelope.
This proxy, when properly executed, will be voted
in the manner directed herein by the undersigned
shareholder(s). If no direction is made, this
proxy will be voted "for" the approval and
adoption of the Agreement and Plan of
Reorganization.
DATED:____________, 2000
_________________________________________
Signature
_________________________________________
Signature if Held Jointly
