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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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FIRST UNITED BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
ARKANSAS 6022 71-0538646
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE) IDENTIFICATION NO.)
MAIN AND WASHINGTON STREETS
EL DORADO, ARKANSAS 71730
(870) 863-3181
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------------------
JOHN E. BURNS
MAIN AND WASHINGTON STREETS
EL DORADO, ARKANSAS 71730
(870) 863-3181
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
--------------------------
COPIES TO:
STAN D. SMITH
MITCHELL, WILLIAMS, SELIG, GATES & WOODYARD, P.L.L.C.
320 WEST CAPITOL AVENUE, SUITE 1000
LITTLE ROCK, ARKANSAS 72201
(501) 688-8800
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS
SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
IF THE SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED IN
CONNECTION WITH THE FORMATION OF A HOLDING COMPANY AND THERE IS COMPLIANCE WITH
GENERAL INSTRUCTION G, CHECK THE FOLLOWING BOX. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED PROPOSED AGGREGATE
OF SECURITIES AMOUNT TO BE MAXIMUM OFFERING OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED (1) PRICE PER UNIT (2) PRICE (3) REGISTRATION FEE
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<S> <C> <C> <C> <C>
COMMON STOCK . . . . . . . . . . . . 1,610,000 $ 40.50 $ 65,205,000 $ 21,735.00
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(1) Estimated based on the maximum number of shares to be registered.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) The aggregate offering price is based the maximum number of shares
to be registered multiplied by the estimated market value of a share of First
United Common Stock.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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FIRST UNITED BANCSHARES, INC.
Cross Reference Sheet Showing Location in Prospectus of Information
Required by Item 501(b) of Regulation S-K
A. INFORMATION ABOUT THE TRANSACTION
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REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS AND PROXY STATEMENT
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1. Forepart of Registration Statement and Outside Front Cover Page
of Prospectus . . . . . . . . . . . . . . . . . . . . . . . .
Facing Page of Registration Statement;
Cross Reference Sheet; Cover Page of
Proxy Statement
2. Inside Front and Outside Back Cover Pages of Prospectus . . .
Available Information; Incorporation
of Certain Documents by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges and Other
Information . . . . . . . . . . . . . . . . . . . . . . . . .
Summary; Financial Information
4. Terms of the Transaction . . . . . . . . . . . . . . . . . .
The Merger
5. Pro Forma Financial Information . . . . . . . . . . . . . . .
Summary - Selected Financial Data;
Financial Information
6. Material Contacts with the Company Being Acquired . . . . . .
The Merger - Background of the Merger;
Fredonia Bancshares, Inc. - Resulting
Ownership in First United
7. Additional Information Required for Reoffering by Persons and
Parties Deemed to be Underwriters . . . . . . . . . . . . . .
Not Applicable
8. Interests of Named Experts and Counsel . . . . . . . . . . .
Legal Matters and Experts
9. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities . . . . . . . . . . . . . . . . .
Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants . . . . . . . . . First United Bancshares, Inc.
11. Incorporation of Certain Information by Reference . . . . . . Incorporation of Certain Documents by
Reference
12. Information with Respect to S-2 or S-3 Registrants . . . . . Not Applicable
13. Incorporation of Certain Information by Reference . . . . . . Not Applicable
14. Information with Respect to Registrants Other than S-3 or S-2
Registrants . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
</TABLE>
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C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
<TABLE>
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REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS AND PROXY STATEMENT
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15. Information with Respect to S-3 Companies . . . . . . . . . . Not Applicable
16. Information with Respect to S-2 or S-3 Companies . . . . . . Not Applicable
17. Information with Respect to Companies Other than S-3 or S-2
Companies
(1) Description of Business . . . . . . . . . . . . . . Fredonia Bancshares, Inc. -
Description of Business
(2) Market Price of and Dividends on the Registrant's
Common Equity . . . . . . . . . . . . . . . . . . . Summary - Comparative Per Share Data;
Fredonia Bancshares, Inc. - Principal
Shareholders of Fredonia
(3) Selected Financial Data . . . . . . . . . . . . . . Summary - Selected Financial Data
(4) Supplementary Financial Information . . . . . . . . Not Applicable
(5) Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . Fredonia Bancshares, Inc. - Management
Discussion and Analysis
(6) Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . Not Applicable
(7) Financial Statements . . . . . . . . . . . . . . . . Financial Information
(8) Quarterly Financial Information . . . . . . . . . . Financial Information
(9) Financial Statement Schedules . . . . . . . . . . . Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations Are to be
Solicited
(1) Date, Time and Place Information . . . . . . . . . . Cover Page of Proxy
(2) Revocability of Proxy . . . . . . . . . . . . . . . The Fredonia Special Meeting - Voting;
Solicitation of Proxies
(3) Dissenters' Rights of Appraisal . . . . . . . . . . The Merger - Right of Dissent Under
the TBCA
(4) Persons Making the Solicitation . . . . . . . . . . The Fredonia Special Meeting - Voting;
Solicitation of Proxies
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REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS AND PROXY STATEMENT
- --------------------------------------- -------------------------------------------
<S> <C> <C>
(5) Interest of Affiliates of the Registrant in the
Proposed Transaction; Voting Securities and Principal
Holders . . . . . . . . . . . . . . . . . . . . . . . Fredonia Bancshares, Inc. - Principal
Shareholders of Fredonia; The Merger -
Background of the Merger
(6) Vote Required for Approval . . . . . . . . . . . . . The Fredonia Special Meeting - Vote
Required.
(7) (i) Directors and Executive Officers . . . . . . Incorporation of Certain Documents by
Reference
(ii) Executive Compensation . . . . . . . . . . . Incorporation of Certain Documents by
Reference
(iii) Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . Incorporation of Certain Documents by
Reference
19. Information if Proxies, Consents or Authorizations Are Not to
be Solicited or in an Exchange Offer . . . . . . . . . . . . Not Applicable
</TABLE>
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FREDONIA BANCSHARES, INC.
To the Shareholders of
Fredonia Bancshares, Inc.
You are cordially invited to attend a Special Meeting of Shareholders of
Fredonia Bancshares, Inc. ("Fredonia") which will be held at 2400 North Street,
Nacogdoches, Texas on August 26,1997 at 3:00 P.M.
At the Special Meeting, Shareholders of Fredonia will consider and vote
upon the merger of Fredonia with and into First United of Texas, Inc. ("FTI"),
a wholly-owned subsidiary of First United Bancshares, Inc. ("First United").
The Agreement and Plan of Reorganization (the "Agreement") among First United,
FTI and Fredonia provides that the Shareholders of Fredonia will receive total
consideration consisting of one million six hundred thousand (1,600,000) shares
of fully paid and nonassessable shares of Common Stock, $1.00 par value, of
First United ("Purchase Price"). All of the issued and outstanding shares of
Fredonia Common Stock, other than shares owned by dissenting Shareholders of
Fredonia, shall be converted into the right to receive a pro rata portion of
the Purchase Price based upon each Fredonia Shareholder's pro rata ownership of
the total number of issued and outstanding shares of Fredonia Common Stock at
the effective time of the merger. Fractional shares of First United Common
Stock shall not be issued. Any Fredonia Shareholder entitled to receive a
fractional share shall receive a cash payment in lieu thereof equal to the
value of the fractional share based on the average sales price per share of
First United common stock. The average sales price of First United Common
Stock is defined as the average sales price per share for all trades occurring
during the period of ten (10) trading days on which one or more trades actually
takes place and which ends immediately prior to the second trading day
preceding the closing date ("Pricing Average").
If the Pricing Average of First United Common Stock is less than $32.00,
Fredonia may terminate the Agreement without liability.
If the merger is approved, Fredonia State Bank will become a
wholly-owned subsidiary of First United. First United is a bank holding
company which is engaged in the business of banking through its eight (8)
wholly-owned bank subsidiaries and its trust company subsidiary, with bank
offices in Union, Sebastian, Columbia, Ouachita, Izard, Arkansas, Prairie,
Monroe, Lonoke and Crawford Counties in Arkansas and in Bowie County, Texas,
each of which provides a full range of banking services to its customers.
After the merger, Fredonia State Bank will continue to operate a full-service,
community oriented bank.
The Board of Directors of Fredonia believes that the proposed merger
upon the terms and conditions set forth in the accompanying Proxy Statement is
in the best interests of the Fredonia Shareholders and therefore recommends
that you vote in favor of the merger. Hoefer & Arnett, Incorporated,
Fredonia's financial advisor in connection with the merger, has rendered an
opinion to Fredonia's Board of Directors to the effect that as of the date
hereof, the consideration to be received by Fredonia's Shareholders in the
merger is fair from a financial point of view. Additional information
regarding the proposed merger, First United and the rights of dissenting
Shareholders is set forth in the enclosed Proxy Statement and I urge you to
read all of this material carefully.
You are invited to attend the Special Meeting in person. Whether or not
you plan to attend the Special Meeting, please sign, date and return as soon as
possible the enclosed proxy in the enclosed self-addressed and stamped
envelope. If you attend the Special Meeting, you may vote in person if you
wish, even though you previously returned your proxy.
Very truly yours,
/s/ Gordon Lewis
Gordon Lewis
Chairman of the Board and President
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FREDONIA BANCSHARES, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
August 26, 1997
NOTICE is hereby given that a Special Meeting of Shareholders of
Fredonia Bancshares, Inc. has been called by the Board of Directors and will
be held at 2400 North Street, Nacogdoches, Texas on August 26, 1997 at 3:00
p.m. for the following purposes:
1. To consider and vote upon an Agreement and Plan of
Reorganization dated as of April 25, 1997, (the "Agreement"),
which provides for the merger of Fredonia Bancshares, Inc. into
First United of Texas, Inc., a wholly-owned subsidiary of First
United Bancshares, Inc. of El Dorado, Arkansas.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on May 31, 1997
as the record date for determining Shareholders who are entitled to receive
notice of and to vote at the Special Meeting. Proposal 1 above requires the
affirmative vote of a majority of the total number of issued and outstanding
shares of Fredonia Common Stock for approval.
IT IS IMPORTANT THAT YOUR SHARES OF FREDONIA COMMON STOCK BE REPRESENTED
AT THE SPECIAL MEETING REGARDLESS OF THE NUMBER OF SHARES THAT YOU OWN. PLEASE
COMPLETE, SIGN AND MAIL THE ENCLOSED PROXY IN THE ENCLOSED RETURN ENVELOPE
PROMPTLY. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED BY GIVING A
WRITTEN NOTICE OF REVOCATION TO THE SECRETARY OF FREDONIA OR BY EXECUTION OF A
PROXY OF A LATER DATE FILED WITH THE SECRETARY OF FREDONIA BEFORE THE MEETING.
IN ADDITION, IF YOU ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY BY VOTING IN
PERSON.
By Order of the Board of Directors
/s/ Gordon Lewis
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Gordon Lewis
Chairman of the Board and President
Dated: July 24, 1997
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FREDONIA BANCSHARES, INC.
PROXY STATEMENT FOR A SPECIAL MEETING
OF SHAREHOLDERS TO BE HELD ON AUGUST 26, 1997
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FIRST UNITED BANCSHARES, INC.
PROSPECTUS
1,610,000 Shares of Common Stock
Par Value $1.00
This Proxy Statement and Prospectus ("Proxy Statement") is being
furnished to the Shareholders of Fredonia Bancshares, Inc. ("Fredonia") in
connection with the solicitation of proxies by the Board of Directors of
Fredonia for use at a Special Meeting of Shareholders of Fredonia to be held on
August 26, 1997, including any adjournments or postponements of the Special
Meeting. At the Special Meeting or any adjournments or postponements thereof,
the Shareholders of Fredonia will be asked to consider and vote on a proposal
to authorize and approve the transactions contemplated by the Agreement and
Plan of Reorganization among First United Bancshares, Inc., First United of
Texas, Inc., and Fredonia, dated April 25, 1997 (the "Agreement"). Pursuant to
the Agreement and the related Plan of Merger ("Plan of Merger") which is
Exhibit A to the Agreement, First United Bancshares, Inc. ("First United" or
the "Company") would acquire all of the issued and outstanding stock of
Fredonia and satisfy any unexercised Fredonia stock options through a merger
transaction (the "Merger") in which Fredonia would merge with and into First
United of Texas, Inc., a wholly-owned subsidiary of First United, in exchange
for the issuance to the Shareholders of Fredonia and Optionholders of up to
1,610,000 shares of First United common stock, par value $1.00 ("First United
Common Stock").
First United has agreed to register under the Securities Act of 1933, as
amended (the "Securities Act"), the shares of First United Common Stock that
may be issued to Shareholders of Fredonia in exchange for their stock in
Fredonia. Consequently, this Proxy Statement also serves as a Prospectus of
First United under the Securities Act for the issuance of shares of First
United Common Stock to Shareholders of Fredonia.
This Proxy Statement and the accompanying form of proxy are first being
mailed to Shareholders of Fredonia on or about July 24, 1997. On May 30,1997,
the closing price on the National Association of Securities Dealers Automatic
Quotation National Market System of a share of First United Common Stock was
$40.25.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT.
SHAREHOLDERS ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS
PROXY STATEMENT IN ITS ENTIRETY.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------
THE DATE OF THIS PROXY STATEMENT IS JULY 24, 1997.
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NO PERSON IS AUTHORIZED BY FIRST UNITED OR FREDONIA TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS
PROXY STATEMENT, IN CONNECTION WITH THE SOLICITATION AND THE OFFERING MADE BY
THIS PROXY STATEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT DOES
NOT CONSTITUTE THE SOLICITATION OF A PROXY OR AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES IN ANY JURISDICTION IN
WHICH SUCH SOLICITATION OR OFFERING MAY NOT LAWFULLY BE MADE.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT NOR ANY DISTRIBUTION OF
SECURITIES MADE HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF FIRST UNITED OR FREDONIA
SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
First United is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and, in
accordance therewith, files proxy statements, reports and other information
with the Securities and Exchange Commission ("Commission"). This filed
material can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices in Chicago (500 West
Madison, Northwestern Atrium Center, 14th Floor, Chicago, Illinois 60661) and
in New York (75 Park Place, New York, New York 10007) and copies of such
material can be obtained by mail from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. First United's Common Stock is traded on the National Association of
Securities Dealers Automated Quotation National Market System and the Company's
Exchange Act reports and other information can be inspected and copied at the
National Association of Securities Dealers, 1735 "K" Street, N.W., Washington,
D.C. 20006.
First United has filed with the Commission a Registration Statement on
Form S-4 (together with any amendments thereto, the "Registration Statement")
under the Securities Act with respect to a maximum 1,610,000 shares of First
United Common Stock to be issued upon consummation of the transactions
contemplated by the Agreement. This Proxy Statement does not contain all the
information set forth in the Registration Statement and the exhibits thereto,
certain portions of which have been omitted as permitted by rules and
regulations of the Commission. Copies of the Registration Statement are
available from the Commission, upon payment of prescribed rates. For further
information, reference is made to the Registration Statement and the exhibits
filed therewith. Statements contained in this Proxy Statement or any document
incorporated by reference in this Proxy Statement relating to the contents of
any contract or other document referred to herein or therein are not
necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON
REQUEST FROM MR. JOHN E. BURNS, VICE PRESIDENT AND CHIEF FINANCIAL OFFICER,
FIRST UNITED BANCSHARES, INC., MAIN AND WASHINGTON STREETS, EL DORADO, ARKANSAS
71730, (870) 863-3181. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUEST, ALTHOUGH NOT REQUIRED, SHOULD BE MADE, BY CERTIFIED MAIL, ON OR
BEFORE AUGUST 15, 1997.
2
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The following documents of First United, which have been filed with the
Commission under the Exchange Act, are incorporated by reference into this
Proxy Statement:
1. The Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, filed with the Commission on March 28,
1997.
2. The Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997, filed with the Commission on May 14, 1997.
Each document filed subsequent to the date of this Proxy Statement
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
holding of the Special Meeting of the Shareholders of Fredonia, shall be deemed
to be incorporated by reference in this Proxy Statement and shall be part
hereof from the date of filing of such document. Any statement contained in a
document incorporated or deemed to be incorporated in this Proxy Statement
shall be deemed to be modified or superseded for purposes of this Proxy
Statement to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference modifies or supersedes such document.
All information contained in this Proxy Statement relating to First
United has been supplied by First United and all information relating to
Fredonia has been supplied by Fredonia.
3
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TABLE OF CONTENTS
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SUMMARY
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The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Fredonia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Combined Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Fredonia Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Background and Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Opinion of Fredonia's Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Conditions to the Merger; Termination of the Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Effective Time and Closing of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Interest of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Management and Operations After the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Comparison of Rights of Holders of Fredonia Common Stock and First United Common Stock . . . . . . . . . . . 9
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Market Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Comparative Per Share Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
THE FREDONIA SPECIAL MEETING
Date, Time and Place . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Purpose of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Shares Outstanding and Entitled to Vote; Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Voting; Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
THE MERGER
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Reason for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Opinion of Fredonia's Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
The Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Surrender of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Antitrust Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Right of Dissent Under the TBCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Exchange Ratio for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Expenses of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
FINANCIAL INFORMATION
Pro Forma Combining Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Pro Forma Combining Income Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Notes to Pro Forma Combining Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
4
<PAGE> 11
<TABLE>
<CAPTION>
Page
----
FIRST UNITED BANCSHARES, INC.
<S> <C>
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Pending Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Description of First United Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Resale of First United Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
FREDONIA BANCSHARES, INC.
Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Management Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Directors and Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Certain Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Transactions with Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Principal Shareholders of Fredonia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Resulting Ownership in First United . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Regulation and Supervision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Description of Fredonia Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Comparison of Rights of Holders of Fredonia Common Stock and First United Common Stock . . . . . . . . . . . . 48
LEGAL MATTERS AND EXPERTS
Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
INDEX TO FREDONIA FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
ANNEXES
I - Agreement and Plan of Reorganization I-1
II - Texas Business Corporation Act Articles 5.11 - 5.13 II-1
III - Fairness Opinion of Hoefer & Arnett, Incorporated III-3
</TABLE>
5
<PAGE> 12
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. Reference is made to, and this summary is qualified in
its entirety by, the more detailed information contained elsewhere in this
Proxy Statement, in the attached Annexes and in the documents incorporated by
reference. Shareholders are urged to read carefully this Proxy Statement and
the attached Annexes in their entirety.
THE COMPANY
The Company is a multi-bank holding company located in El Dorado,
Arkansas with eight wholly-owned subsidiary banks and a trust company operating
in twenty-eight communities throughout the States of Arkansas and Texas. The
Company's subsidiaries consist of First National Bank of El Dorado, El Dorado,
Arkansas; First National Bank of Magnolia, Magnolia, Arkansas; City National
Bank of Fort Smith, Fort Smith, Arkansas; Merchants and Planters Bank, N.A.,
Camden, Arkansas; Commercial Bank at Alma, Alma, Arkansas; The Bank of North
Arkansas, Melbourne, Arkansas; First United Bank, Stuttgart, Arkansas;
FirstBank, Texarkana, Texas; and First United Trust Company, N.A., El Dorado,
Arkansas (collectively called the "Subsidiary Banks"). The Company had
consolidated assets of $1,560,044,000 and shareholders' equity of $151,052,000
as of March 31, 1997. First United has also entered into an agreement to
acquire a bank in Louisiana and has entered into a letter of intent to acquire
a bank holding company in Arkansas. See "Pending Acquisitions."
On May 20, 1996, the Board of Directors of First United declared a
3-for-2 stock split effected in the form of a 50% stock dividend. The dividend
was distributed on June 28, 1996 to holders of record as of June 7, 1996.
Unless otherwise indicated, all per share data, numbers of common shares and
capital accounts contained herein have been restated to reflect this stock
split.
The Company's Common Stock is traded on the National Association of
Securities Dealers Automated Quotation National Market System Over-the-Counter
Market ("NASDAQ-NMS") under the symbol "UNTD." The Company's principal
executive offices are located at Main and Washington Streets, El Dorado,
Arkansas, 71730 and its telephone number is (870) 863-3181.
FREDONIA
Fredonia is a Texas corporation and a bank holding company which
indirectly owns 100% of Fredonia State Bank, Nacogdoches, Texas ("FSB") through
its middle-tier subsidiary, Fredonia Bancshares of Delaware, Inc. Fredonia had
consolidated assets of $249,416,000 and shareholders' equity of $23,572,000 as
of March 31, 1997. FSB was chartered in 1964 and has two banking offices in
Nacogdoches and one banking office in each of Alto, Texas and Garrison, Texas.
After the Merger, FSB will be a wholly-owned subsidiary of First United but
will continue to operate as a full-service, community oriented bank. See
"Fredonia Bancshares, Inc. -- Description of Business."
On January 9, 1996, the Board of Directors of Fredonia declared a 20%
stock dividend. The dividend was distributed on January 31, 1996 to holders of
record as of January 15, 1996. Unless otherwise indicated, all per share data,
numbers of common shares and capital accounts contained herein have been
restated to reflect this stock dividend.
There is no public market for shares of Fredonia's outstanding capital
stock. Fredonia's principal executive offices are located at 2400 North
Street, Nacogdoches, Texas, and its telephone number is (409) 564-6191.
THE MERGER
On April 25, 1997, the Company, First United of Texas, Inc. ("FTI") and
Fredonia entered into the Agreement pursuant to which the Company proposes to
acquire all of the issued and outstanding stock of Fredonia by merger of
Fredonia with and into FTI, a wholly-owned subsidiary of the Company. The
acquisition of Fredonia will be consummated through the issuance to Fredonia's
Shareholders and Optionholders of approximately 1,610,000 shares of First
United Common Stock. First United's reason for entering into the Merger is to
expand the markets of the Company and thereby increase the earning potential of
the Company. The Agreement requires that the Merger be accounted for as a
pooling of interests. See "The Merger -- The Agreement."
6
<PAGE> 13
On April 23, 1997, the trading date immediately prior to the execution
of the Agreement, shares of First United Common Stock traded on the NASDAQ-NMS
at a closing sales price of $38.75. There is no established market value for
the stock of Fredonia.
COMBINED COMPANY
The pro forma combined financial statements, and its constituent parts
of First United and Fredonia as of and for the periods indicated reflect
assets, shareholders' equity, net interest income and income from continuing
operations as follows (dollars in thousands):
<TABLE>
<CAPTION>
% %
FIRST PRO FORMA PRO FORMA PRO FORMA
UNITED COMBINED FREDONIA COMBINED COMBINED
------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Assets
March 31, 1997 . . . . . . . . . . . $1,560,044 86.22 $249,416 13.78 $1,809,460
Shareholders' equity
March 31, 1997 . . . . . . . . . . . 151,052 86.50 23,572 13.50 174,624
Net interest income
Year ended December 31, 1996 . . . . 57,257 87.31 8,325 12.69 65,582
Three months ended March 31, 1997 . . 14,579 85.70 2,433 14.30 17,012
Income from continuing operations
Year ended December 31, 1996 . . . . 18,259 81.62 4,113 18.38 22,372
Three months ended March 31, 1997 . . 4,824 83.49 954 16.51 5,778
</TABLE>
If a maximum of 1,610,000 shares of common stock of First United are
issued to Fredonia Shareholders, First United will have a total of
approximately 9,856,000 shares of common stock issued and outstanding. Present
First United stockholders will control 83.67% of such shares and Fredonia
Shareholders will control 16.33% of such shares. See "Financial Information
- --Pro Forma Balance Sheet and Pro Forma Income Statements."
THE FREDONIA SPECIAL MEETING
Approval of the Merger by the Shareholders of Fredonia will be
considered at a Special Meeting to be held at 2400 North Street, Nacogdoches,
Texas on August 26, 1997, at 3:00 p.m. Central Daylight Time. Only the
holders of record of Fredonia Common Stock as of the close of business on May
31, 1997 (the "Record Date") will be entitled to notice of and to vote at the
Special Meeting. At such date, there were 472,342 shares of Fredonia's Common
Stock issued and outstanding. Each share of Fredonia Common Stock is entitled
to one vote. See "The Fredonia Special Meeting."
The affirmative vote of the holders of a majority of the outstanding
shares of Fredonia Common Stock is required for the approval of the Merger.
Directors, executive officers and their affiliates hold a total of 10.42% of
the outstanding stock of Fredonia. Shareholders of Fredonia are entitled to
dissenters' rights. See "The Merger - Right of Dissent Under the TBCA."
BACKGROUND AND REASONS FOR THE MERGER
At a meeting of the Fredonia Board held on April 24, 1997, after
considering the terms and conditions of the Agreement and obtaining the advice
of its financial advisor, the Fredonia Board approved the Agreement. The
Fredonia Board believes that the Merger is advisable and in the best interests
of Fredonia and its Shareholders and recommends that Fredonia Shareholders vote
in favor of the adoption of the Agreement. For a discussion of the
circumstances surrounding the Merger and the factors considered by the Fredonia
Board in making its recommendation, see "The Merger--Background of the Merger"
and "Reasons for the Merger."
7
<PAGE> 14
OPINION OF FREDONIA'S FINANCIAL ADVISOR
The Fredonia Board retained Hoefer & Arnett, Incorporated ("Hoefer &
Arnett") to act as financial advisor in connection with the Merger. Hoefer &
Arnett has delivered its written opinion to the Fredonia Board that, as of the
date of this Proxy Statement, the consideration to be paid to Fredonia's
Shareholders is fair from a financial point of view. The opinion of Hoefer &
Arnett is attached by Annex to this Proxy Statement. Shareholders are urged to
read this opinion in its entirety for a description of the procedures followed,
matters considered and limitation on the reviews undertaken in connection
therewith. See "The Merger--Opinion of Fredonia's Financial Advisor."
CONDITIONS TO THE MERGER; TERMINATION OF THE AGREEMENT
The obligations of First United and Fredonia to effect the Merger are
subject to the satisfaction or waiver of a number of conditions, in addition to
the approval of the Agreement by Fredonia's Shareholders. The Agreement allows
one or more parties to the Merger to terminate the Agreement if one or more of
these conditions are not satisfied or waived. The Agreement may also be
terminated at any time before the Merger becomes effective by the mutual
consent of First United and Fredonia and by either First United or Fredonia if
the Merger has not been effected on or before December 31, 1997. See "The
Merger--The Agreement."
EFFECTIVE TIME AND CLOSING OF THE MERGER
If the Agreement is approved at the Special Meeting and all other
conditions to the Merger have been satisfied or waived, the parties expect the
Merger to become effective (the "Effective Time") upon the filing with the
Arkansas Secretary of State and the Texas Secretary of State of articles of
merger relating to the Merger (the "Articles of Merger") and the issuance by
each of the Arkansas Secretary of State and the Texas Secretary of State of a
certificate of merger acknowledging that the Articles of Merger are in the form
required by and have been executed in accordance with the relevant provisions
of applicable law. The parties expect to file the Articles of Merger in both
Arkansas and Texas as soon as practicable following approval of the Agreement
at the Special Meeting. The closing of the Merger will be held on the date the
Articles of Merger are filed with the Arkansas Secretary of State and the Texas
Secretary of State. See "The Merger--The Agreement."
NO SOLICITATION
Subject to certain exceptions, Fredonia and its directors and officers
have agreed pursuant to the Agreement not to directly or indirectly initiate,
solicit, encourage or enter into any discussions with any third party
concerning a competing acquisition of Fredonia. The Fredonia Board may enter
into such discussions only if, after taking into account the written advice of
counsel, the Fredonia Board concludes in good faith that the failure to do so
would violate its fiduciary duties under applicable law.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of the Record Date, Fredonia's directors and executive officers and
their affiliates owned a total of 49,213 shares of Fredonia Common Stock,
representing 10.42% of all outstanding shares on such date. In the Merger,
Fredonia's directors and officers will receive the same consideration for their
shares as other Shareholders of Fredonia receive for theirs. Certain members
of the Fredonia Board and management of Fredonia have interests in the Merger
that are in addition to and separate from the interests of Shareholders of
Fredonia generally. These interests include, among others, provisions in the
Agreement relating to the continuation of director and officer indemnification
rights, the acceleration of vesting of employee stock options and the
continuation of certain employee benefits generally. See "The Merger -
Interests of Certain Persons in the Merger."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Following the Merger, First United intends to operate FSB as a full
service, community oriented bank at each of FSB's existing locations. It is
anticipated that First United's Chairman, Mr. James V. Kelley, will be elected
to FSB's Board of Directors
8
<PAGE> 15
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is a condition to Fredonia's obligation to consummate the Merger that
for federal income tax purposes the Merger will be treated as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and, accordingly, for federal income tax purposes, no
gain or loss will be recognized by either First United or Fredonia as a result
of the Merger and Fredonia's Shareholders will not recognize gain or loss upon
the receipt of First United Common Stock in exchange for Fredonia Common Stock.
Fredonia expects to receive an opinion of counsel, dated as of the Effective
Date of the Merger, opining that no gain or loss will be recognized by the
Fredonia Shareholders upon the receipt of First United Common Stock in exchange
for Fredonia Common Stock in connection with the Merger. The parties to this
transaction will not request a ruling from the Internal Revenue Service
concerning the taxability of this transaction. See "The Merger -- Certain
Federal Income Tax Consequences."
DISSENTERS' RIGHTS
Holders of Fredonia Common Stock are entitled to dissenter's rights with
respect to the Merger. Holders of Fredonia Common Stock may exercise their
right of dissent under the Texas Business Corporation Act (the "TBCA"). See
"The Merger -- Right of Dissent Under the TBCA."
REGULATORY APPROVALS
First United has received the preliminary approval of the Board of
Governors of the Federal Reserve to merge Fredonia into FTI. First United has
also received the preliminary approval of the Texas Banking Commissioner to
consummate the Merger. See "The Merger -- Regulatory Approvals."
ACCOUNTING TREATMENT
First United intends to treat the Merger as a pooling of interests for
accounting purposes. Consummation of the Merger is conditioned upon the
receipt of the opinion of Arthur Andersen LLP that the Merger will qualify for
the pooling of interests accounting treatment. See "The Merger -- Accounting
Treatment."
COMPARISON OF RIGHTS OF HOLDERS OF FREDONIA COMMON STOCK AND FIRST UNITED
COMMON STOCK
As of the date of this Proxy Statement, the rights of Fredonia's
Shareholders are governed by the TBCA and by Fredonia's Articles of
Incorporation and Bylaws. After the Merger, Fredonia's Shareholders will
become shareholders of First United and as such, their rights will be governed
by the laws of Arkansas and First United's Articles and Bylaws. See
"Comparison of Rights of Holders of Fredonia Common Stock and First United
Common Stock."
MARKET PRICES
First United Common Stock is traded over-the-counter in the NASDAQ-NMS.
Fredonia Common Stock is not traded publicly and there is no quoted market for
the stock. The table below shows the high and low closing sales prices for
First United Common Stock adjusted for stock splits.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1994 $ 22.00 $ 17.67
1995 28.67 19.00
1996 33.00 26.50
1997 (through May 30, 1997) 40.88 31.50
</TABLE>
On April 23, 1997, the trading date immediately prior to the execution
of the Agreement between First United and Fredonia as to the proposed merger
transaction, the closing sales price for First United Common Stock was $38.75.
On May 30, 1997, the closing sales price for First United Common Stock was
$40.25.
9
<PAGE> 16
COMPARATIVE PER SHARE DATA
The following table sets forth for the periods indicated selected
historical per share data of First United and Fredonia and the corresponding
pro forma and pro forma equivalent per share amounts giving effect to the
proposed Merger. The data presented are based upon the consolidated financial
statements and related notes of First United which are incorporated by
reference in this Proxy Statement, and the consolidated financial statements
and related notes of Fredonia and the pro forma combining balance sheet and
income statements, including the notes thereto, appearing elsewhere herein.
This information should be read in conjunction with such historical and pro
forma financial statements and related notes thereto. The assumptions used in
the preparation of this table appear elsewhere in this Proxy Statement. See "
Financial Information." These data are not necessarily indicative of the
results of the future operations of the combined organization or the actual
results that would have occurred if the Merger had been consummated prior to
the periods indicated.
<TABLE>
<CAPTION>
First
United Fredonia Pro Forma Fredonia Pro Forma
Historical(1) Historical(2) Combined (3) Equivalent (4)
------------- ------------- ------------ ------------------
<S> <C> <C> <C> <C>
Book value per common share:
December 31, 1996 . . . . . . . $18.14 $49.09 $ 17.55 $59.48
March 31, 1997 . . . . . . . . 18.51 49.90 17.89 60.66
Cash Dividends per common share:
Year ended December 31, 1994 0.49 .84 0.45 1.51
Year ended December 31, 1995 0.57 .90 0.52 1.76
Year ended December 31, 1996 0.64 1.05 0.59 1.99
Three Months ended March 31,
1997 0.17 1.25 0.20 0.69
- ----------
</TABLE>
(1) On May 20, 1996, the Board of Directors of First United declared a
3-for-2 stock split effected in the form of a 50% stock dividend.
The dividend was distributed on June 28, 1996 to holders of record
as of June 7, 1996. All per share data have been restated to
reflect this stock split.
(2) On January 9, 1996, the Board of Directors of Fredonia declared a
20% stock dividend. The dividend was distributed on January 31,
1996 to holders of record as of January 15, 1996. All per share
data have been restated to reflect this stock dividend.
(3) The First United/Fredonia Pro Forma Combined amounts do not
consider the number of shares of First United Common Stock that
may be issued in such amounts as is equal to the intrinsic value
of any unexercised Fredonia stock options at the time of the
Merger. First United estimates the intrinsic value of such
Fredonia stock options to approximate $218,000.
(4) The Fredonia pro forma equivalents represent the respective First
United/Fredonia pro forma combined earnings, dividends and book
value per common share multiplied by the applicable exchange ratio
of 3.39 shares of First United Common Stock for each share of
Fredonia Common Stock so that the First United/Fredonia pro forma
equivalent amounts are equated to the respective values for one
share of Fredonia Common Stock. The exchange ratio is determined
by dividing First United Common Stock to be received by the
Fredonia Shareholders by the 472,342 shares of Fredonia Common
Stock currently outstanding.
10
<PAGE> 17
SELECTED FINANCIAL DATA
The following table presents selected historical financial data of
First United and Fredonia and selected unaudited pro forma financial data after
giving effect to the Merger as a pooling of interests for accounting purposes,
assuming the Merger had occurred at the beginning of the earliest period
presented, but without giving effect to costs associated with the consummation
of the Merger, which currently are estimated to total $200,000. The First
United historical data for each of the years in the five-year period ended
December 31, 1996 is based on the historical financial statements of First
United as audited by Arthur Andersen LLP, independent public accountants. The
Fredonia historical data for each of the years in the three-year period ended
December 31, 1996 is derived from the historical financial statements of
Fredonia as audited by Axley & Rode LLP, independent auditors. The selected
financial data for First United for the three month periods ended March 31,
1996 and 1997, and for Fredonia for the three month periods ended March 31,
1996 and 1997 have been obtained from unaudited financial statements and, in
the opinion of the respective managements of First United and Fredonia, include
all adjustments necessary to present fairly the data for such periods. The pro
forma data is not necessarily indicative of the results of operations or the
financial condition that would have been reported had the Merger been in effect
during those periods, or as of those dates, or that may be reported in the
future. Pro forma combined per share data of First United and Fredonia give
effect to the exchange of each share of Fredonia Common Stock for 3.39 shares
of First United Common Stock.
These data should be read in conjunction with the consolidated
financial statements of each of First United and Fredonia, and the related
notes thereto, incorporated by reference herein and in conjunction with the
unaudited pro forma financial information, including the notes thereto,
appearing elsewhere in this Proxy Statement. See "Incorporation of Certain
Documents by Reference" and "Financial Information."
All other financial data is presented in descending order of time
periods.
11
<PAGE> 18
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
FIRST UNITED - HISTORICAL 1992 1993 1994 1995 1996 1996 1997
- ------------------------------------ ----------------------------------------------------------- ----------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data
Total interest income $ 77,570 $ 71,968 $ 73,214 $ 92,735 $ 108,027 $ 26,109 $ 27,418
Net interest income 42,511 43,063 42,961 49,485 57,257 13,649 14,579
Provision for possible loan losses 2,486 1,815 334 574 1,475 93 359
Income from continuing operations 12,676 13,215 14,008 15,204 18,259 4,747 4,824
Per Share Data
Income from continuing operations $ 1.64 $ 1.71 $ 1.81 $ 1.96 $ 2.21 $ 0.58 $ 0.59
Cash dividend paid 0.40 0.44 0.49 0.57 0.64 0.15 0.17
Selected Balance Sheet Items
Total assets $1,086,467 $1,123,598 $ 1,106,610 $1,336,020 $1,531,039 $1,471,820 $1,560,044
Total securities 509,552 513,399 489,036 540,121 639,240 597,065 648,791
Net loans 442,661 489,333 502,826 631,537 709,920 690,578 717,063
Total deposits 943,097 969,749 953,904 1,127,914 1,297,273 1,238,576 1,315,402
Long-term debt 8,821 7,723 12,825 16,832 22,426 23,791 22,414
Capital accounts 95,438 108,122 109,509 130,405 149,601 139,432 151,052
FREDONIA - HISTORICAL
Operating Data
Total interest income $ 12,292 $ 11,962 $ 13,400 $ 15,344 $ 15,920 $ 4,222 $ 4,342
Net interest income 6,616 6,954 7,517 8,025 8,325 2,318 2,433
Provision for possible loan losses 525 - - - (750) (750) 30
Income from continuing operations 2,627 2,972 2,703 3,350 4,113 1,422 954
Per Share Data
Income from continuing operations $ 5.28 $ 5.99 $ 5.43 $ 6.83 $ 8.71 $ 3.01 $ 2.02
Cash dividend paid - .84 .84 .90 1.05 1.05 1.25
Selected Balance Sheet Items
Total assets $ 173,420 $ 210,785 $ 232,830 $ 236,662 $ 241,953 $ 235,977 $ 249,416
Total securities 78,876 101,883 109,093 107,381 92,562 100,052 91,692
Net loans 77,237 91,352 95,345 109,543 121,680 113,047 127,580
Total deposits 159,415 193,954 214,911 212,578 216,765 212,701 223,080
Long-term debt - - 1,067 - - - -
Capital accounts 13,205 15,754 15,957 19,758 23,193 20,623 23,572
PRO FORMA - COMBINED
Operating Data
Total interest income $ 89,862 $ 83,930 $ 86,614 $ 108,079 $ 123,947 $ 30,331 $ 31,760
Net interest income 49,127 50,017 50,478 57,510 65,582 15,967 17,012
Provision for possible loan losses 3,011 1,815 334 574 725 (657) 389
Income from continuing operations 15,303 16,187 16,711 18,554 22,372 6,169 5,778
Per Share Data
Income from continuing operations $ 1.64 $ 1.74 $ 1.79 $ 1.99 $ 2.27 $ 0.63 $ 0.59
Cash dividend paid 0.33 0.41 0.45 0.52 0.59 0.18 0.20
Selected Balance Sheet Items
Total assets $1,259,887 $1,334,383 $1,339,440 $1,572,682 $1,772,992 $1,707,797 $1,809,460
Total securities 588,428 615,282 598,129 647,502 731,802 697,117 740,483
Net loans 519,898 580,685 598,171 741,080 831,600 803,625 844,643
Total deposits 1,102,512 1,163,703 1,168,815 1,340,492 1,514,038 1,451,277 1,538,482
Long-term debt 8,821 7,723 13,892 16,832 22,426 23,791 22,414
Capital accounts 108,643 123,876 125,466 150,163 172,794 160,055 174,624
</TABLE>
12
<PAGE> 19
THE FREDONIA SPECIAL MEETING
DATE, TIME AND PLACE
The Fredonia Special Meeting will be held on August 26, 1997,
commencing at 3:00 p.m. Central Daylight Time, at the offices of Fredonia
located at 2400 North Street, Nacogdoches, Texas.
PURPOSE OF MEETING
The purpose of the Fredonia Special Meeting is to consider and vote
upon the adoption of the Agreement among Fredonia, First United and FTI.
SHARES OUTSTANDING AND ENTITLED TO VOTE; RECORD DATE
The close of business on May 31,1997 has been fixed by the Board of
Directors of Fredonia as the record date ("Record Date") for the determination
of holders of Fredonia Common Stock entitled to notice of and to vote at the
Fredonia Special Meeting. At the close of business on the Record Date, there
were 472,342 shares of Fredonia Common Stock outstanding held by 392
shareholders of record. Holders of record of Fredonia Common Stock on the
Record Date are entitled to one vote per share and are entitled to dissenters'
rights. See "The Merger -- Right of Dissent under the TBCA."
VOTE REQUIRED
The affirmative vote of a majority of all the shares of Fredonia
Common Stock outstanding on the Record Date is required to adopt the Agreement.
As of May 31,1997, directors and executive officers of Fredonia and
their affiliates own 10.42% of the outstanding stock of Fredonia.
VOTING; SOLICITATION OF PROXIES
Proxies for use at the Fredonia Special Meeting accompany copies of
this Proxy Statement delivered to record holders of Fredonia Common Stock and
such proxies are solicited on behalf of the Board of Directors of Fredonia. A
holder of Fredonia Common Stock may use his proxy if he is unable to attend the
Fredonia Special Meeting in person or wishes to have his shares voted by proxy
even if he does attend the Special Meeting. The proxy may be revoked in writing
by the person giving it at any time before it is exercised by notice of such
revocation to the secretary of Fredonia, or by submitting a proxy having a
later date, or by such person appearing at the Fredonia Special Meeting and
electing to vote in person. All proxies validly submitted and not revoked will
be voted in the manner specified therein. If no specification is made, the
proxies will be voted in favor of the Merger.
Fredonia will bear the cost of solicitation of proxies from its
Shareholders. In addition to using the mails, proxies may be solicited by
personal interview. Officers and other employees of Fredonia acting on
Fredonia's behalf may solicit proxies personally.
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THE MERGER
BACKGROUND OF THE MERGER
From time to time the Board of Directors and management of Fredonia
have considered various strategies for Fredonia, including remaining
independent and concentrating on existing markets, expanding geographically
through acquisitions of existing banks or branches, establishing branches in
new markets, and merging with a larger company. Each alternative has always
been considered in light of its expected impact on Shareholders and the
potential maximization of shareholder value.
In February of 1997, Mr. Gordon Lewis, Chairman of the Board and
President of Fredonia, was approached by First United with an offer to merge
Fredonia into First United. First United and Fredonia exchanged certain
financial and other information and a period of discussions and negotiations
ensued. An agreement in principle outlining the basic terms of Merger was
approved March 18, 1997. Fredonia employed Hoefer & Arnett to evaluate the
fairness of First United's offer to Shareholders of Fredonia from a financial
point of view, and First United conducted an onsite due diligence review of
Fredonia's business and operations. Further discussions and negotiations, all
of which were conducted on an arms-length basis with both parties represented
by legal counsel, resulted in the Agreement which was approved by Fredonia's
Board of Directors on April 24, 1997 and executed as of April 25, 1997.
REASONS FOR THE MERGER
In reaching its determination to enter into the Agreement, Fredonia's
Board of Directors consulted with Hoefer & Arnett and Fredonia's legal and tax
advisors, and considered a number of factors, including but not limited to the
following: (i) the written opinion of Hoefer & Arnett that the consideration to
be received by Shareholders of Fredonia pursuant to the Agreement was fair to
such Shareholders from a financial point of view; (ii) the price to be received
by the Fredonia Shareholders in relation to prices received by other similarly
situated banking organizations, and the relation of such price to the Board's
view of the value to Shareholders of choosing possible alternatives to the
Merger and the risks associated with seeking to obtain the values provided by
those alternatives; (iii) the prospects for remaining independent, including
the current and prospective economic environment and competitive restraints
facing Fredonia; (iv) the increased liquidity provided by the receipt of First
United Common Stock in a tax-free reorganization; (v) the protection afforded
to Fredonia by the Agreement in the event of a decline in the price of First
United Common Stock; (vi) the potential for increased dividends; and (vii) the
non-economic terms of the Merger.
In its deliberations, the Fredonia Board did not assign any specific
weights to these or any other factors.
The acquisition of Fredonia will expand First United's current
markets. Fredonia's banking subsidiary currently has full service banking
locations in Nacogdoches, Alto and Garrison, Texas. Currently, there are no
banking offices in the First United system located in these areas. Thus, the
acquisition of Fredonia expands First United's market into a new area.
Management of First United believes that by expanding its markets, it will
increase the range and competitiveness of its banking services to persons
residing in Fredonia's market area while increasing the earning power of First
United.
OPINION OF FREDONIA'S FINANCIAL ADVISOR
Fredonia's Board of Directors retained Hoefer & Arnett to render to
the Board of Directors a written opinion (the "Fairness Opinion") as investment
bankers as to the fairness, from a financial point of view, to the Board of
Directors of Fredonia of the terms of the proposed Merger of Fredonia with and
into First United, as defined in the Agreement. No limitations were imposed by
Fredonia's Board of Directors upon Hoefer & Arnett with respect to the
investigations made or procedures followed in rendering the Fairness Opinion.
A copy of the Fairness Opinion of Hoefer & Arnett, dated as of April
14, 1997, which sets forth certain assumptions made, matters considered and
limits on the review undertaken by Hoefer & Arnett, is attached as Annex III to
this Proxy Statement. Fredonia's Shareholders are urged to read the Fairness
Opinion in its entirety. The following summary of the procedures and analysis
performed, and assumptions used by Hoefer & Arnett is qualified in its
entirety by reference to the text of such Fairness Opinion. The Fairness
Opinion is directed to Fredonia's Board of
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Directors only and is directed only o the financial terms of the transaction
and does not constitute a recommendation to any Fredonia Shareholder as to how
such Shareholder should vote at the Special Meeting.
In arriving at its opinion, Hoefer & Arnett reviewed and analyzed,
among other things, the following: (i) the Agreement; (ii) Annual Reports to
Shareholders of Fredonia for the years ended December 31, 1995 and December 31,
1996; (iii) quarterly FDIC Call reports for the quarters ended March 31, 1996,
June 30, 1996, September 30, 1996 and December 31, 1996 filed by FSB; (iv)
certain other publicly available financial and other information concerning
Fredonia; (v) publicly available information concerning other banks and holding
companies, the trading markets for their securities and the nature and terms of
certain other merger transactions Hoefer & Arnett believes relevant to its
inquiry; and (vi) evaluations and analyses prepared and presented to the Board
of Directors of Fredonia or a committee thereof in connection with this
business combination with First United. Hoefer & Arnett held discussions with
senior management of Fredonia and First United concerning its past and current
operations, financial condition and prospects, as well as the results of
regulatory examinations.
Hoefer & Arnett reviewed with senior management of Fredonia earnings
projections for 1997 through 2001 for Fredonia as a stand-alone entity,
assuming the Merger does not occur, prepared by Fredonia. Certain pro forma
financial projections for the years 1997 through 2001 for the combined entity
were derived by Hoefer & Arnett based partially upon the information discussed
above, as well as Hoefer &Arnett's assessment of general economic, market and
financial conditions.
In conducting its review and in arriving at its opinion, Hoefer &
Arnett relied upon and assumed the accuracy and completeness of the financial
and other information provided to it or publicly available, and did not attempt
to independently verify the same. Hoefer & Arnett relied upon the managements of
Fredonia and First United as to the reasonableness of the financial and
operating forecasts, projections (and the assumptions and bases therefor)
provided to it, and Hoefer & Arnett assumed that such forecasts and projections
reflect the best currently available estimates and judgments of the management
of Fredonia. Hoefer & Arnett also assumed, without independent verification,
that the aggregate allowances for loan losses for Fredonia are adequate to
cover such losses. Hoefer & Arnett did not make or obtain any evaluations or
appraisals of the properties of Fredonia, not did it examine any individual
loan credit files. For purposes of its opinion. Hoefer & Arnett assumed that
the Merger will have the tax, accounting and legal effects described in the
Agreement and relied, as to legal matters, exclusively on counsel to Fredonia
as to the accuracy of the disclosures set forth in the Agreement. Hoefer &
Arnett's opinion is limited to the fairness, from a financial point of view, to
the holders of the Common Stock of Fredonia of the terms of the proposed Merger
with First United and does not address Fredonia's underlying business decision
to proceed with the Merger.
As more fully discussed below, Hoefer & Arnett considered such
financial and other factors as Hoefer & Arnett deemed appropriate under the
circumstances, including among others the following: (i) the historical and
current financial position and results of operations of Fredonia, including
interest income, interest expense, net interest income, net interest margin,
provision for loan losses, non-interest income, non-interest expense, earnings,
dividends, internal capital generation, book value, intangible assets, return
on assets, return on shareholders' equity, capitalization, the amount and type
of non-performing assets, loan losses and the reserve for loan losses, all as
set forth in the financial statements for Fredonia; (ii) the assets and
liabilities of Fredonia, including the loan, investment and mortgage
portfolios, deposits, other liabilities, historical and current liability
sources and costs and liquidity; and (iii) the nature and terms of certain
other merger transactions involving banks and bank holding companies. Hoefer &
Arnett 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 valuation and its knowledge of the banking industry
generally. Hoefer & Arnett's opinion is necessarily based upon conditions as
they existed and can be evaluated on the date of its opinion and the
information made available to it through that date.
In connection with rendering its Fairness Opinion to Fredonia's Board
of Directors, Hoefer & Arnett performed certain financial analyses, which
are summarized below. Hoefer & Arnett believes that its analysis must be
considered as a whole and that selecting portions of such analysis and the
factors considered therein, without considering all factors and analysis, could
create an incomplete view of the analysis and the processes underlying Hoefer &
Arnett's Fairness Opinion. The preparation of a fairness opinion is a complex
process involving subjective judgments and it is not necessarily susceptible to
partial analysis or summary description. In its analyses Hoefer & Arnett made
numerous assumptions with respect to industry performance, business and
economic conditions, and other matters, many of which are beyond the control of
Fredonia. Any estimates contained in Hoefer & Arnett's analyses are not
necessarily indicative
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<PAGE> 22
of future results or values, which may be significantly more or less favorable
than such estimates. Estimates of values of companies do not purport to be
appraisals or necessarily reflect the prices at which companies or their
securities may actually be sold. None of the financial analyses performed by
Hoefer & Arnett was assigned a greater significance by Hoefer & Arnett than any
other.
The financial forecasts and projections of Fredonia and First United
prepared by Hoefer & Arnett were based on projections provided by the
respective companies as well as Hoefer & Arnett's own assessment of general
economic, market and financial conditions. All such information was reviewed
with the respective managements of Fredonia and First United. Fredonia and
First United do not publicly disclose internal management financial forecasts
and projections of the type provided to Hoefer & Arnett in connection with its
review of the proposed Merger. Such forecasts and projections were not prepared
with a view towards public disclosure. The forecasts and projections prepared
by Hoefer & Arnett were based on numerous variables and assumptions which are
inherently uncertain, including without limitation, factors related to general
economic and market conditions. Accordingly, actual results could vary
significantly from those set forth in such forecasts and projections.
In order to determine the fairness of the proposed offer by First
United, Hoefer & Arnett utilized net asset value, market value and investment
value approaches, as explained below.
Net Asset value is the value of the net equity of a bank, including
every kind of property and value. This approach normally assumes liquidation on
the date of appraisal with recognition of securities gains or losses, real
estate appreciation or depreciation and any adjustments to the loan loss
reserve, discounts to the loan portfolio or changes in the net value of other
assets. As such, it is not the best approach to use when valuing a going
concern, because it is based on historical costs and varying accounting
methods. Even if the assets and liabilities are adjusted to reflect prevailing
prices and yields (which is often of limited accuracy because readily available
data is often lacking), it still results in a liquidation value for the
concern. Furthermore, since this method does not take into account the values
attributable to the going concern such as the interrelationship among the
company's assets, liabilities, customer relations, market presence, image and
reputation, and staff expertise and depth, little weight is given to the net
asset value method of valuation.
Market value is defined as the price, established on an "arm's-length"
basis, at which knowledgeable, unrelated buyers and sellers would agree. The
market value is frequently used to determine the price of a minority block of
stock when both the quantity and the quality of the "comparable" data are
deemed sufficient. However, the relative thinness of the specific market for
the stock of the banking company being appraised may result in the need to
review alternative markets of comparative pricing purposes. The "hypothetical"
market value for a small bank with a thin market for its stock is normally
determined by comparison to the average price to earnings, price the equity and
dividend yield of local or regional publicly-traded bank issues, adjusted for
lack of marketability or liquidity.
The market value in connection with the evaluation of control of a
bank is determined by the previous sales of banks in the state or region. In
valuing a business enterprise, when sufficient comparable trade data is
available, the market value deserves greater weighting than the net asset value
and equal or possibly greater weighting than the investment value. In analyzing
the fair market value of Fredonia, Hoefer & Arnett has considered the market
approach and has evaluated price to equity and price to earnings multiples of
banking organizations that were sold in Texas during 1996 and 1997. This data
was obtained from SNL Securities, L.P.
Hoefer & Arnett calculated an "Adjusted Book Value" based on December
31, 1996 equity and the price to book value multiples paid for Texas banks in
1996 and 1997 at $92.79. Hoefer & Arnett calculated an "Adjusted Earnings
Value" based on Fredonia's 1996 earnings and the price to earnings multiples
paid for Texas banks in 1996 and 1997 at $107.70. The financial performance
characteristics of the banking organizations sold in 1996 and 1997 vary,
sometimes substantially from those of Fredonia. When the variance is
significant for relevant performance factors, adjustment of the values computed
using price multiples is appropriate when comparing them to the fair market
value conclusion. These "Adjusted Book Value" and "Adjusted Earnings Value"
approaches are utilized in supporting the fairness of the price to be offered
for shares of Fredonia's Common Stock as provided for in the Agreement.
Hoefer & Arnett analyzed the value of the aggregate consideration to
be received in the transactions that were announced in 1996 and 1997 in
relationship to the stated book value and earnings as compared to the value of
the aggregate consideration to be received by holders of Fredonia's Common
Stock.
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Investment value is sometimes referred to as the income value or the
earnings value. The investment value is frequently defined as an estimate of
the present value of future benefits. Another popular investment value method
is to determine the level of the current annual benefits and then capitalize
one or more of the benefit types using an appropriate capitalization rate such
as an earnings or dividend yield. Using a net present value discount rate of
12%, an acceptable discount rate considering the risk-return relationship most
investors would demand for an investment of this type as of the valuation date,
the net present value of future earnings equaled $57.70.
In order to analyze the reasonableness of the fair market value, the
return on investment is calculated to determine the return that would accrue to
a potential buyer at the fair market value. The return on investment assuming
sale at the current Texas average multiple of book value in 2001 equaled 2.77%.
Additionally, the fair market value to assets was calculated and compared to
the average purchase price to assets for banking organizations sold in 1996 and
1997. Based on the proposed offer of $131.24 per share (based on the current
market value of First United's stock of $38.75), the price to assets equaled
25.58%. Lastly, Hoefer & Arnett calculated the net present value to fair market
value, as it has been recognized that there is a relationship between the net
present value of a community banking organization and the fair market value of
a majority block of the banking organization's stock. The net present value to
fair market value ratio equaled 43.97%.
Based upon input from senior management of First United and Fredonia,
as well as Hoefer & Arnett's own assessment of general economic, market and
financial conditions, and all financial and other factors it deemed appropriate
under the circumstances, Hoefer & Arnett prepared financial projections for
First United and Fredonia on a stand alone basis. The projections were based on
numerous variables and assumptions which are inherently uncertain, and
accordingly, actual results could vary from those set forth in such
projections.
First United is projected to generate a return on average assets of
1.30% in the years 1997 through 2001. First United's assets are projected to
increase by 5% in 1997 through 2001. Fredonia is projected to generate a return
on average assets of 1.40% in 1997, 1.30% in 1998 and 1.25% in 1999 through
2001. Fredonia's assets are projected to increase by 1% in 1997 and 2% in 1998
through 2001.
Proforma financial projections for the combined entity were derived by
Hoefer & Arnett based upon the projections discussed above. Hoefer & Arnett
analyzed the book value and earnings per share impact of the proposed
transaction on Fredonia's Shareholders over the next five years. At an exchange
ratio of 3.3868 shares of First United's Common Stock for each share of
Fredonia's Common Stock, Fredonia Shareholders are projected to experience
equity per share appreciation ranging from 17.63% to 19.84% in the years 1997
through 2001. On an earnings per share basis, Fredonia Shareholders are
projected to incur appreciation ranging from 13.48% to 39.13% in the years 1997
through 2001.
For services rendered in connection with the Merger, Fredonia has paid
Hoefer & Arnett a fee of $17,000 and agreed to reimburse Hoefer & Arnett for
all reasonable expenses incurred in connection with its services. Fredonia has
also agreed to indemnify Hoefer & Arnett against certain liabilities relating
to or arising out of its engagement, including liabilities under securities
laws.
THE AGREEMENT
The following description of certain features of the Agreement is
qualified in its entirety by the full text of the Agreement, which is
incorporated herein by reference and attached hereto as Annex I.
Under the terms of the Agreement, Fredonia will be merged with and
into First United of Texas, Inc. in exchange for the issuance by the Company of
approximately 1,610,000 newly issued shares of First United Common Stock in
exchange for all of the outstanding Common Stock of Fredonia and satisfaction
of options to purchase Common Stock of Fredonia in the future.
The Agreement provides that the Shareholders of Fredonia will receive
total consideration consisting of one million six hundred thousand (1,600,000)
shares of fully paid and nonassessable shares of First United Common Stock
("Purchase Price"). All of the issued and outstanding shares of Fredonia Common
Stock, other than shares owned by dissenting Shareholders, shall be converted
into the right to receive a pro rata portion of the Purchase Price based upon
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each Shareholder of Fredonia's pro rata ownership of the total number of issued
and outstanding shares of Fredonia Common Stock at the Effective Time of the
Merger. Fractional shares of First United Common Stock shall not be issued. Any
Fredonia Shareholder or holder of options to purchase Fredonia Common Stock
("Options") entitled to receive a fractional share shall receive a cash payment
in lieu thereof equal to the value of the fractional share based on the average
sales price per share of First United Common Stock. The average sales price of
First United Common Stock is defined as the average sales price per share for
all trades occurring during the period of ten (10) trading days on which one or
more trades actually takes place and which ends immediately prior to the second
trading day preceding the closing date ("Pricing Average"). Each outstanding
Option to purchase Fredonia Common Stock shall be converted into the right to
receive First United Common Stock equal to the appreciated value of the said
Option as of the Effective Time of the Merger as follows: The number of issued
and outstanding shares of Fredonia Common Stock as of the Effective Time shall
be divided into 1,600,000 to determine an option ratio. Said option ratio shall
be multiplied by the number of shares subject to option to determine the
interim shares. The interim shares shall be multiplied by the Pricing Average,
the total option purchase price shall be subtracted from said amount and the
result shall be divided by the Pricing Average to determine the number of
shares of First United Common Stock to be issued to the optionholder. The
intrinsic value of the Options is estimated to be $218,000.
The Agreement can be terminated by Fredonia if the First United Common
Stock Pricing Average is less than $32.00. In addition, either party may
terminate the Agreement if the Merger is not closed on or before December 31,
1997 provided that the failure to close is not caused by a breach of the
Agreement by the party seeking to terminate it.
Fredonia has agreed, for the period prior to the consummation of the
Merger, to operate its businesses only in the usual, regular and ordinary
course. In addition, Fredonia will use reasonable efforts to maintain and keep
its properties in as good repair and condition as at present, except for
ordinary wear and tear and to perform all obligations required under all
material contracts, leases, and documents relating to or affecting their
respective assets prior to the consummation of the Merger. Fredonia has further
agreed that, prior to consummation of the Merger, it will not incur any
material liabilities or obligations, except in the ordinary course of business,
or take any action which would or is reasonably likely to adversely affect the
ability of either First United or Fredonia to obtain any necessary approvals,
adversely affect the ability of First United or Fredonia to perform their
covenants and agreements under the Agreement, or result in any of the
conditions to the Merger not being satisfied. Fredonia has further agreed that,
unless after taking into account the written advice of counsel, the Fredonia
Board concludes in good faith that the failure to do so would violate its
fiduciary duties under applicable law, it shall not initiate, solicit or
encourage any inquiry or proposal which constitutes a competing transaction.
The Agreement requires that certain conditions occur or be waived
prior to the closing date, including (a) approval by Fredonia Shareholders
owning at least a majority of all outstanding shares of Fredonia Common Stock;
(b) approval by the appropriate federal and state bank regulatory authorities;
(c) receipt by Fredonia's Board of Directors of letters from Hoefer & Arnett
dated the date of the mailing of the Proxy Statement to the Fredonia
Shareholders and dated the date of the Special Meeting of Fredonia Shareholders
confirming such financial advisor's prior opinion to the Board of Directors of
Fredonia that the consideration to be paid in the Merger is fair to the
Fredonia Shareholders from a financial point of view; (d) receipt by First
United of an opinion from Arthur Andersen LLP that the Merger will qualify for
pooling of interests treatment under the applicable accounting principles; (e)
receipt by Fredonia of an opinion that for federal income tax purposes no gain
or loss will be recognized by holders of Fredonia Common Stock upon their
exchange for shares of First United Common Stock; (f) authorization for listing
on NASDAQ-NMS of the shares of First United Common Stock to be received by
Fredonia's Shareholders; and (g) satisfaction of other normal conditions to
closing a merger transaction. It is also a condition to the Merger that First
United have an effective registration statement on file with the Securities and
Exchange Commission covering the issuance of shares to be exchanged pursuant to
the Merger. Prior to the effective date of the Merger, any condition of the
Agreement, except those required by law, may be waived by the party benefited
by the condition.
The Effective Time of the Merger will be the date the Articles of
Merger are filed with the Arkansas Secretary of State and the Texas Secretary
of State, or the date so stated in the Articles of Merger. The Agreement
provides that a closing date will be set by mutual agreement to occur within a
reasonable time following the date on which the last of all regulatory and
other approvals necessary to consummate the Merger have been received and all
necessary time periods imposed by regulatory authorities have elapsed.
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SURRENDER OF CERTIFICATES
Promptly following the Effective Time, the Trust Department of First National
Bank of El Dorado, El Dorado, Arkansas, acting in the capacity of exchange
agent for First United, will mail to each holder of shares of Fredonia Common
Stock a form of letter of transmittal, together with instructions for the
exchange of each Fredonia Shareholder's stock certificates for certificates
representing shares of First United acquired pursuant to the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Indemnification and Insurance. First United has agreed for a period of six
years after the Effective Time to indemnify and hold harmless the present and
former directors, officers, employees and agents of Fredonia and FSB against
all liabilities arising out of actions or omissions occurring at or prior to
the Effective Time to the full extent permitted by Texas law and the respective
Articles of Incorporation or Association and Bylaws of Fredonia and FSB. In the
event that First United merges with another entity and is not the surviving
entity, First United will provide that the successor to First United will
assume the above described obligations.
Employee Benefits and Contracts. Following the Effective Time, First United
will provide to officers of Fredonia or FSB who become employees of First
United or its affiliates those benefits available to existing employees of
First United and its affiliates under existing employee pension and welfare
benefit plans. First United shall also cause Fredonia and FSB to honor on terms
reasonably agreed upon by First United and Fredonia all employment, severance
and consulting agreements in existence at the Effective Time and all provisions
for vested benefits or other vested amounts earned through the Effective Time
under Fredonia's benefit plans.
Acceleration of Vesting of Opinions. First United has agreed to a decision by
Fredonia's Board to accelerate the vesting of options to purchase 1,531 shares
of Fredonia Common Stock to Mr. Gordon Lewis in order to allow Mr. Lewis to
exchange the shares of Fredonia Common Stock which he would have received upon
exercise of those options for shares of First United Common Stock pursuant to
the terms of the Agreement.
Employment Agreement. Mr. Lewis currently has an employment agreement with FSB
which provides for a three year term and provides that Mr. Lewis will be paid
certain amounts based on his base salary in the event of certain events which
result in termination of his employment. At the request of First United, Mr.
Lewis has agreed to modify his employment agreement to provide for a two year
term rather than a three year term.
REGULATORY APPROVALS
The Merger is subject to prior approval by the appropriate banking
regulatory authorities. An application has been filed for approval of the
Merger with the Board of Governors of the Federal Reserve System ("Board") for
First United to acquire Fredonia. In conjunction with the Board application,
the Merger is also subject to review by the Department of Justice as to its
competitive effects. An application has also been filed with the Texas Banking
Commissioner ("TBC") for approval of the Merger. The applications made to the
Board and TBC have been given preliminary approval.
ANTITRUST MATTERS
The Department of Justice has fifteen (15) calendar days after
approval by the Board in which to challenge the proposed Merger on anti-trust
considerations. The approval letter or Order from the Board, therefore will
provide that the Merger may not be consummated until fifteen (15) calendar days
after the effective date of such letter or Order. The letter or Order will also
provide that the transaction must be consummated no later than ninety (90)
calendar days from that effective date unless the period is extended for good
cause by the Board upon request by First United.
FEDERAL INCOME TAX CONSEQUENCES
THE FEDERAL INCOME TAX DISCUSSION SET FORTH BELOW IS INCLUDED HEREIN FOR
GENERAL INFORMATION ONLY. FREDONIA SHAREHOLDERS ARE URGED TO CONSULT WITH THEIR
OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM
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OF THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN
INCOME OR OTHER TAX LAWS.
Set forth below is a summary of the opinion provided by Bracewell & Patterson,
L.L.P. concerning certain federal income tax consequences to holders of
Fredonia Common Stock who dispose of their Fredonia Common Stock in the Merger.
This discussion is primarily based on the Internal Revenue Code of 1986, as
amended (the "Code") and the Treasury Regulations promulgated thereunder.
The following discussion is limited to the material federal income tax aspects
of the Merger to a holder of Fredonia Common Stock who is a citizen or resident
of the United States and who, on the date of disposition of his shares of
Fredonia Common Stock, holds such shares as a capital asset. This discussion
does not purport to deal with all aspects of taxation that may be relevant to
particular investors in light of their personal investment circumstances, or to
certain types of investors, including insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, "S" corporations,
limited liability corporations, foreign corporations, and taxpayers subject to
alternative minimum tax. Further, this discussion does not consider the state,
local, or foreign tax consequences of the Merger to a holder of Fredonia Common
Stock.
Fredonia has been advised by its special counsel, Bracewell & Patterson,
L.L.P., that based on the Code, judicial decisions, and certain factual
assumptions, the Merger will qualify as a "reorganization" within the meaning
of Section 368(a)(1)(A) of the Code. The following is a summary of the federal
income tax consequences set forth in the form of proposed legal opinion to be
delivered by Bracewell & Patterson, L.L.P., a copy of which is included as an
exhibit to the Registration Statement filed by First United. In rendering this
opinion, Bracewell & Patterson, L.L.P. has assumed, among other matters, that
no Shareholder of Fredonia receiving First United Common Stock in the Merger
has the intention, at the time of the Merger, of disposing of any First United
Common Stock received or requesting registration of any shares except as
permitted under the Agreement or the agreement executed by the affiliates of
Fredonia in favor of First United. See "Resale of First United Common Stock."
The Merger should qualify for federal income tax purposes as a "reorganization"
within the meaning of Section 368(a)(1)(A) of the Code, and, as such, will
result in the following federal income tax consequences to holders of Fredonia
Common Stock:
1. No gain or loss will be realized by holders of Fredonia Common Stock
to the extent their shares of Fredonia Common Stock are converted
into shares of First United Common Stock pursuant to the terms of the
Merger.
2. The basis of First United Common Stock received by each Fredonia
Shareholder in the Merger will be the same as the basis of the
Fredonia Common Stock surrendered and exchanged therefor, decreased
by the amount of cash received and increased by the amount of gain
realized by the Shareholder under the exchange.
3. The holding period of First United Common Stock received by each
Fredonia Shareholder will include the period during which Fredonia
Common Stock surrendered therefor was held, provided the Fredonia
Common Stock is a capital asset in the hands of the Fredonia
Shareholder on the date of the exchange. The payment of cash in lieu
of fractional shares of First United Common Stock will be treated as
a sale or exchange of such fractional shares eligible for capital
gains treatment.
4. Dissenting Shareholders whose shares of Fredonia Common Stock are
disposed of pursuant to the exercise of appraisal rights will realize
gain or loss equal to the difference between the amount of cash
received from the exercise of such dissenters rights and such
Dissenting Shareholder's aggregate adjusted tax basis in the stock
exchanged.
5. Unless an exemption applies, under the backup withholding rules of
Section 3406 of the Code, an exchange agent shall be required to
withhold, and will withhold, 31% of all cash payments to which a
Fredonia Shareholder is entitled pursuant to the Merger (unless such
Shareholder provides his taxpayer identification number -- social
security number in the case of an individual, or Employer
20
<PAGE> 27
Identification Number in other cases) and certifies that such number
is correct. Each Fredonia Shareholder should complete and sign
Treasury Form W-9 included as part of the letter of transmittal (to
be provided after the Merger becomes effective) so as to provide the
information and certification necessary to avoid backup withholding,
unless an applicable exemption exists and is provided in a manner
satisfactory to the exchange agent in connection with the Merger.
Neither the foregoing discussion nor the opinion of Bracewell & Patterson,
L.L.P. to Fredonia is binding on the Internal Revenue Service ("IRS") or the
courts. AS SUCH, THE FOREGOING PRESENTS ONLY A GENERAL DESCRIPTION OF CERTAIN
OF THE FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF FREDONIA COMMON STOCK OF
THE TRANSACTIONS CONTEMPLATED BY THE MERGER. ACCORDINGLY, EACH SHAREHOLDER IS
URGED TO CONSULT HIS OWN TAX ADVISOR WITH RESPECT TO ALL TAX CONSEQUENCES
STEMMING FROM THE MERGER THAT MAY AFFECT THE SHAREHOLDERS.
ACCOUNTING TREATMENT
First United intends to treat the Merger as a pooling of interests for
accounting purposes. Consequently, in accordance with generally accepted
accounting principles, First United anticipates that it will restate its 1997
consolidated financial statements to include the assets, liabilities,
stockholders' equity and results of operations of Fredonia as reflected in its
consolidated financial statements, subject to appropriate adjustments, if any,
to conform accounting principles of the two companies.
RIGHT OF DISSENT UNDER THE TBCA
Holders of shares of Fredonia Common Stock have a statutory right to dissent
from the Merger by following the specific procedures set forth below. If the
Merger is approved and consummated, holders of shares of Fredonia Common Stock
who properly perfect their dissenters' rights will be entitled to receive an
amount of cash equal to the fair value of their shares of Fredonia Common Stock
rather than being required to accept the consideration therefor provided in the
Agreement. The following summary is not a complete statement of the statutory
dissenters' rights of appraisal, and such summary is qualified in its entirety
by reference to the applicable provisions of the Texas Business Corporation Act
("TBCA"), which are reproduced in full at Annex II hereto. A SHAREHOLDER MUST
FOLLOW THE EXACT PROCEDURE REQUIRED BY THE TBCA IN ORDER TO PROPERLY EXERCISE
HIS DISSENTER'S RIGHTS OF APPRAISAL AND AVOID WAIVER OF THOSE RIGHTS.
Holders of shares of Fredonia Common Stock who desire to dissent from
the Merger must file a written objection to the Merger with the Secretary of
Fredonia, Mr. J. R. Honea, 2400 North Street, Nacogdoches, Texas 75963, prior
to the Meeting at which a vote on the Merger shall be taken. The written notice
must state that the Shareholder will exercise his right to dissent if the
Merger is consummated and give the Shareholder's address to which notice of
effectiveness of the Merger shall be sent. A vote against the Merger is not
sufficient to perfect a Shareholder's statutory right to dissent from the
Merger. If the Merger is consummated, each Shareholder who sent notice to
Fredonia as described above and who did not vote in favor of the Merger will be
deemed to have dissented from the Merger ("Dissenting Shareholder"). Failure to
vote against the Merger will not constitute a waiver of the dissenters' rights
of appraisal; on the other hand, a vote in favor of the Merger will constitute
such a waiver.
First United will be liable for any payments to Dissenting
Shareholders and shall, within ten (10) days of the Effective Date, notify the
Dissenting Shareholders in writing that the Merger has been effected. Each
Dissenting Shareholder so notified must, within ten (10) days of the delivery
or mailing of such notice, make a written demand on First United at Main and
Washington Streets, El Dorado, Arkansas 71730, Attention: John E. Burns, Vice
President and Chief Financial Officer,for payment of the fair value of the
Dissenting Shareholder's shares of Fredonia Common Stock as estimated by the
Dissenting Shareholder. Failure to follow this procedure will constitute a
waiver of his dissenter's rights of appraisal by such Dissenting Shareholder.
The demand shall state the number of shares of Fredonia Common Stock owned by
the Dissenting Shareholder and the fair value of the shares as estimated by the
Dissenting Shareholder. The fair value of the shares shall be the value thereof
as of the date immediately preceding the Meeting, excluding any appreciation or
depreciation in anticipation of the Merger. Dissenting Shareholders who
21
<PAGE> 28
fail to make a written demand within the ten (10) day period will be bound by
the Merger and lose their rights to dissent. Within twenty (20) days after
making a demand, the Dissenting Shareholder must submit certificates
representing his shares of Fredonia Common Stock to First United for notation
thereon that such demand has been made. Dissenting Shareholders who have made a
demand for payment of their shares shall not thereafter be entitled to vote or
exercise any other rights of a shareholder except the right to receive payment
for their shares pursuant to the provisions of the TBCA and the right to
maintain an appropriate action to obtain relief on the basis of fraud.
Within twenty (20) days after receipt of a Dissenting Shareholder's
demand letter as described above, First United shall deliver or mail to the
Dissenting Shareholder written notice (i) stating that First United accepts the
amount claimed in the demand letter and agrees to pay that amount, within
ninety (90) days after the Effective Date, upon surrender of the relevant
certificates of Fredonia Common Stock duly endorsed by the Dissenting
Shareholder, or (ii) containing the First United's written estimate of the fair
value of the shares of Fredonia Common Stock together with an offer to pay such
amount within ninety (90) days after the Effective Date if First United
receives notice, within sixty (60) days after the Effective Date, stating that
the Dissenting Shareholder agrees to accept that amount and upon surrender of
the relevant certificates of Fredonia Common Stock duly endorsed by the
Dissenting Shareholder. In either case, the Dissenting Shareholder shall cease
to have any ownership interest in First United or Fredonia following payment of
the agreed value.
If the Dissenting Shareholder and First United cannot agree on the
fair value of the shares within sixty (60) days after the Effective Date, the
Dissenting Shareholder or First United may, within sixty (60) days of the
expiration of the initial sixty (60) day period, file a petition ("Petition")
in any court of competent jurisdiction in Nacogdoches County, Texas, requesting
a finding and determination of the fair value of the Dissenting Shareholder's
shares. Each Dissenting Shareholder is not required to file a separate
Petition. If one Dissenting Shareholder files a Petition, First United must
file, with the clerk of the court in which the Petition was filed, a list
containing the names and addresses of the Dissenting Shareholders with whom
agreements as to the value of their shares have not been reached. The court
will give notice of the time and place of the hearing on the Petition to the
Dissenting Shareholders named on the list. Dissenting Shareholders so notified
by the court will be bound by the final judgment of the court regarding fair
value of the shares. If no petition is filed within the appropriate time
period, then all Dissenting Shareholders who have not reached an agreement with
First United on the value of their shares shall be bound by the Merger and lose
their right to dissent.
After a hearing concerning the petition, the court shall determine
which Dissenting Shareholders have complied with the provisions of the TBCA and
have become entitled to the valuation of, and payment for, their shares, and
shall appoint one or more qualified appraisers to determine the value of the
shares of Fredonia Common Stock in question. The appraisers shall determine
such value and file a report with the court. The court shall then in its
judgment determine the fair value of the shares of Fredonia Common Stock, which
judgment shall be binding on First United and on all Dissenting Shareholders
receiving notice of the hearing. The court shall direct First United to pay
such amount, together with interest thereon, beginning 91 days after the
Effective Date of the Merger to the date of judgment, to the Dissenting
Shareholders entitled thereto. The judgment shall be payable upon the surrender
to First United of certificates representing shares of Fredonia Common Stock
duly endorsed by the Dissenting Shareholder. Upon payment of the judgment, the
Dissenting Shareholders shall cease to have any interest in First United.
Any Dissenting Shareholder who has made a written demand on First
United for payment of the value of his Fredonia Common Stock may withdraw such
demand at any time before payment for his shares has been made or before a
petition has been filed with an appropriate court for determination of the fair
value of such shares. If a Dissenting Shareholder withdraws his demand, or if
he is otherwise unsuccessful in asserting his dissenters' rights of appraisal,
such Dissenting Shareholder shall be bound by the Merger and his status as a
former shareholder of Fredonia shall be restored without prejudice to any
corporate proceedings, dividends, or distributions which may have occurred
during the interim.
In the absence of fraud in the transaction, a Dissenting Shareholder's
statutory right of appraisal is the exclusive remedy for the recovery of the
value of his shares or money damages to the shareholder with respect to the
Merger.
22
<PAGE> 29
EXCHANGE RATIO FOR THE MERGER
The Agreement among First United, FTI and Fredonia provides that the
Shareholders of Fredonia will receive total consideration consisting of one
million six hundred thousand (1,600,000) shares of fully paid and nonassessable
shares of First United Common Stock, $1.00 par value ("Purchase Price"). All of
the issued and outstanding shares of Fredonia Common Stock, other than shares
owned by dissenting Shareholders, shall be converted into the right to receive
a pro rata portion of the Purchase Price based upon each Shareholder of
Fredonia's pro rata ownership of the total number of issued and outstanding
shares of Fredonia Common Stock at the Effective Time of the Merger. Fractional
shares of First United Common Stock shall not be issued. Any Fredonia
Shareholder or holder of options to purchase Fredonia Common Stock ("Options")
entitled to receive a fractional share shall receive a cash payment in lieu
thereof equal to the value of the fractional share based on the average sales
price per share of First United Common Stock. The average sales price of First
United Common Stock is defined as the average sales price per share for all
trades occurring during the period of ten (10) trading days on which one or
more trades actually takes place and which ends immediately prior to the second
trading day preceding the closing date ("Pricing Average"). Each outstanding
Option to purchase Fredonia Common Stock shall be converted into the right to
receive First United Common Stock equal to the appreciated value of the said
Option as of the effective time of the Merger as follows: The number of issued
and outstanding shares of Fredonia Common Stock as of the effective time shall
be divided into 1,600,000 to determine an option ratio. Said option ratio shall
be multiplied by the number of shares subject to option to determine the
interim shares. The interim shares shall be multiplied by the Pricing Average,
the total option purchase price shall be subtracted from said amount and the
result shall be divided by the Pricing Average to determine the number of
shares of First United Common Stock to be issued to the optionholder. Based on
the 1,600,000 shares of First United Common Stock to be exchanged (an exchange
ratio of 3.387 to 1), the following table illustrates a range of aggregate and
per share values received in exchange for Fredonia Common Stock based on a
range of average sales prices for First United Common Stock. As set forth
below, Fredonia Shareholders will receive shares of First United Common Stock
having a minimum value of $32.00 in exchange for each share of Fredonia Common
Stock. THIS TABLE IS FOR ILLUSTRATION PURPOSES ONLY AND SHOULD NOT BE RELIED
UPON AS THE ACTUAL AMOUNT OF SHARES TO BE ISSUED, THE ACTUAL AVERAGE SALES
PRICE, THE ACTUAL EXCHANGE RATIO, OR THE ACTUAL AMOUNT OF CONSIDERATION TO BE
EXCHANGED.
Calculation of Values of Fredonia Common Stock
<TABLE>
<S> <C> <C> <C>
First United Average Sales Price $ 32.00 $ 37.00 $ 42.00
First United Common Stock Issued (1) 1,600,000 1,600,000 1,600,000
Total Purchase Price (1) 51,200,000 59,600,000 67,200,000
Value Received per Share of Fredonia (1) 108.40 125.33 142.27
</TABLE>
(1) The First United Common Stock issued excludes the number of shares of
First United Common Stock that may be issued in such amount as is equal to
the intrinsic value of any unexercised Fredonia stock options at the time
of the Merger. First United estimates the intrinsic value of such Fredonia
stock options to approximate $218,000.
EXPENSES OF THE MERGER
First United and Fredonia will each bear their own expenses incident
to preparing for entering into and carrying out the Agreement and the
consummation of the Merger, except that First United will pay all expenses
incident to the preparation of this Proxy Statement and its printing and
distribution and for the filing of necessary applications for approval of the
Merger with the Board and TBC.
FINANCIAL INFORMATION
The following unaudited Pro Forma Combining Balance Sheet as of March
31, 1997, and unaudited Pro Forma Combining Income Statements for the three
months ended March 31, 1997 and 1996 and for the years ended
23
<PAGE> 30
December 31, 1996, 1995, and 1994 illustrate the effect of the proposed Merger
as if the Merger had occurred at the beginning of the earliest period
presented.
These Pro Forma Combining Financial Statements should be read in
conjunction with the historical financial statements of First United which are
incorporated by reference herein and of Fredonia which are included herein.
The Pro Forma Combining Financial Statements are presented for
comparative purposes only and are not intended to be indicative of actual
results had the transactions occurred as of the dates indicated above nor do
they purport to indicate actual results which may be attained in the future.
24
<PAGE> 31
<TABLE>
<CAPTION>
PRO FORMA COMBINING BALANCE SHEET
As of March 31, 1997
--------------------------------------------------------------
Pro Forma Pro Forma
First United Fredonia Adjustments(1) Combined
-------------- ------------ -------------------------------
(in thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 73,053 $ 11,968 $ -- $ 85,021
Short-term investments 58,085 10,509 -- 68,594
Securities available-for-sale 429,401 39,036 -- 468,437
Investment securities 219,390 52,656 -- 272,046
Net loans 717,063 127,580 -- 844,643
Premises and equipment 29,530 3,133 -- 32,663
Goodwill 10,969 486 -- 11,455
Other real estate owned 412 539 -- 951
Other assets 22,141 3,509 -- 25,650
----------- --------- -------- -----------
TOTAL ASSETS $ 1,560,044 $ 249,416 $ -- $ 1,809,460
=========== ========= ======== ===========
LIABILITIES
Total deposits $ 1,315,402 $ 223,080 $ -- $ 1,538,482
Federal funds purchased and securities
sold under agreements to repurchase 57,007 -- -- 57,007
Other liabilities 14,169 2,764 -- 16,933
Notes payable 22,414 -- -- 22,414
----------- --------- -------- -----------
TOTAL LIABILITIES 1,408,992 225,844 -- 1,634,836
----------- --------- -------- -----------
CAPITAL ACCOUNTS
Preferred stock -- -- -- --
Common stock 8,246 4,992 (4,992)(2) 9,846
1,600 (2)
Surplus 13,297 6,222 (6,222)(2) 21,971
8,674 (2)
Undivided profits 131,104 13,589 -- 144,693
Less: Treasury stock -- (940) 940 (2) --
Unrealized gains (losses) of securities
available-for-sale (1,595) (291) -- (1,886)
----------- --------- -------- -----------
TOTAL CAPITAL ACCOUNTS 151,052 23,572 -- 174,624
----------- --------- -------- -----------
TOTAL LIABILITIES and CAPITAL ACCOUNTS $ 1,560,044 $ 249,416 $ -- $ 1,809,460
----------- --------- -------- -----------
</TABLE>
25
<PAGE> 32
PRO FORMA COMBINING INCOME STATEMENT
<TABLE>
<CAPTION>
For the three months ended
March 31, 1997
(in thousands, except for per share data)
----------------------------------------
First United Fredonia Total
------------ -------- --------
<S> <C> <C> <C>
Interest income $ 27,418 $ 4,342 $ 31,760
Interest expense 12,839 1,909 14,748
------------ ------- --------
Net interest income 14,579 2,433 17,012
Provision for loan losses 359 30 389
------------ ------- --------
Net interest income after provision for loan
losses 14,220 2,403 16,623
------------ ------- --------
Other income
Service charges on deposit accounts 1,198 410 1,608
Trust department income 689 -- 689
Security gains 12 -- 12
Other operating income 885 136 1,021
------------ ------- --------
Total other income 2,784 546 3,330
------------ ------- --------
Other expense
Salaries 4,207 767 4,974
Pension and other employee benefits 1,419 163 1,582
Net occupancy expense 886 109 995
Equipment expense 624 42 666
Data processing expense 709 21 730
Other operating expenses 2,558 467 3,025
------------ ------- --------
Total other expense 10,403 1,569 11,972
------------ ------- --------
Income before income taxes 6,601 1,380 7,981
Income tax expense 1,777 426 2,203
------------ ------- --------
Income from continuing operations $ 4,824 $ 954 $ 5,778
============ ======= ========
Earnings per share $ 0.59 $ 2.02 $ 0.59
============ ======= ========
Weighted average shares outstanding 8,246 472 9,846
============ ======= ========
</TABLE>
26
<PAGE> 33
PRO FORMA COMBINING INCOME STATEMENT
<TABLE>
<CAPTION>
For the three months ended
March 31, 1996
(in thousands, except for per share data)
--------------------------------------------
First United Fredonia Total
------------ -------- --------
<S> <C> <C> <C>
Interest income $ 26,109 $ 4,222 $ 30,331
Interest expense 12,460 1,904 14,364
------------ -------- --------
Net interest income 13,649 2,318 15,967
Provision for Loan Losses 93 (750) (657)
------------ -------- --------
Net interest income after provision for loan
losses 13,556 3,068 16,624
------------ -------- --------
Other income
Service charges on deposit accounts 1,212 397 1,609
Trust department income 443 -- 443
Security gains (losses) 59 -- 59
Other operating income 888 132 1,020
------------ -------- --------
Total other income 2,602 529 3,131
------------ -------- --------
Other expense
Salaries 3,818 681 4,499
Pension and other employee benefits 1,252 162 1,414
Net occupancy expense 835 128 963
Equipment expense 607 51 658
Data processing expense 450 2 452
Other operating expenses 2,419 510 2,929
------------ -------- --------
Total other expense 9,381 1,534 10,915
------------ -------- --------
Income before income taxes 6,777 2,063 8,840
Income tax expense 2,030 641 2,671
------------ -------- --------
Income from continuing operations $ 4,747 $ 1,422 $ 6,169
============ ======== ========
Earnings per share $ 0.58 $ 3.01 $ 0.63
============ ======== ========
Weighted average shares outstanding 8,246 472 9,846
============ ======== ========
</TABLE>
27
<PAGE> 34
PRO FORMA COMBINING INCOME STATEMENT
<TABLE>
<CAPTION>
For the year ended
December 31, 1996
(in thousands, except for per share data)
-------------------------------------------
First United Fredonia Total
------------ --------- ---------
<S> <C> <C> <C>
Interest income $ 108,027 $ 15,920 $ 123,947
Interest expense 50,770 7,595 58,365
------------ --------- ---------
Net interest income 57,257 8,325 65,582
Provision for loan losses 1,475 (750) 725
------------ --------- ---------
Net interest income after provision for loan
losses 55,782 9,075 64,857
------------ --------- ---------
Other income
Service charges on deposit accounts 4,953 1,656 6,609
Trust department income 2,180 -- 2,180
Security gains (losses) 122 -- 122
Other operating income 3,037 328 3,365
------------ --------- ---------
Total other income 10,292 1,984 12,276
------------ --------- ---------
Other expense
Salaries 15,595 1,910 17,505
Pension and other employee benefits 5,022 657 5,679
Net occupancy expense 3,670 492 4,162
Equipment expense 2,480 204 2,684
Data processing expense 1,934 44 1,978
Other operating expenses 11,781 1,882 13,663
------------ --------- ---------
Total other expense 40,482 5,189 45,671
------------ --------- ---------
Income before income taxes 25,592 5,870 31,462
Income tax expense 7,333 1,757 9,090
------------ --------- ---------
Income from continuing operations $ 18,259 $ 4,113 $ 22,372
============ ========= =========
Earnings per share $ 2.21 $ 8.71 $ 2.27
============ ========= =========
Weighted average shares outstanding 8,246 472 9,846
============ ========= =========
</TABLE>
28
<PAGE> 35
PRO FORMA COMBINING INCOME STATEMENT
<TABLE>
<CAPTION>
For the year ended
December 31, 1995
(in thousands, except for per share data)
---------------------------------------------
First United Fredonia Total
------------ -------- ----------
<S> <C> <C> <C>
Interest income $ 92,735 $ 15,344 $ 108,079
Interest expense 43,250 7,319 50,569
------------ -------- ----------
Net interest income 49,485 8,025 57,510
Provision for loan losses 574 -- 574
------------ -------- ----------
Net interest income after provision for loan
losses 48,911 8,025 56,936
------------ -------- ----------
Other income
Service charges on deposit accounts 4,227 1,649 5,876
Trust department income 1,799 -- 1,799
Security gains (losses) (108) (247) (355)
Other operating income 1,887 424 2,311
------------ -------- ----------
Total other income 7,805 1,826 9,631
------------ -------- ----------
Other expense
Salaries 13,288 1,762 15,050
Pension and other employee benefits 4,209 710 4,919
Net occupancy expense 2,924 426 3,350
Equipment expense 1,766 187 1,953
Data processing expense 1,705 10 1,715
Other operating expenses 10,752 2,041 12,793
------------ -------- ----------
Total other expense 34,644 5,136 39,780
------------ -------- ----------
Income before income taxes 22,072 4,715 26,787
Income tax expense 6,868 1,365 8,233
------------ -------- ----------
Income from continuing operations $ 15,204 $ 3,350 $ 18,554
============ ======== ==========
Earnings per share $ 1.96 $ 6.83 $ 1.99
============ ======== ==========
Weighted average shares outstanding 7,738 491 9,338
============ ======== ==========
</TABLE>
29
<PAGE> 36
PRO FORMA COMBINING INCOME STATEMENT
<TABLE>
<CAPTION>
For the year ended
December 31, 1994
(in thousands, except for per share data)
------------------------------------------
First United Fredonia Total
------------ ---------- ----------
<S> <C> <C> <C>
Interest income $ 73,214 $ 13,400 $ 86,614
Interest expense 30,253 5,883 36,136
------------ ---------- ----------
Net interest income 42,961 7,517 50,478
Provision for loan losses 334 -- 334
------------ ---------- ----------
Net interest income after provision for loan
losses 42,627 7,517 50,144
------------ ---------- ----------
Other income
Service charges on deposit accounts 3,229 1,432 4,661
Trust department income 1,379 -- 1,379
Security gains (losses) 9 (4) 5
Other operating income 1,530 285 1,815
------------ ---------- ----------
Total other income 6,147 1,713 7,860
------------ ---------- ----------
Other expense
Salaries 11,071 2,197 13,268
Pension and other employee benefits 3,644 627 4,271
Net occupancy expense 2,435 388 2,823
Equipment expense 1,318 186 1,504
Data processing expense 1,511 15 1,526
Other operating expenses 8,818 2,064 10,882
------------ ---------- ----------
Total other expense 28,797 5,477 34,274
------------ ---------- ----------
Income before income taxes 19,977 3,753 23,730
Income tax expense 5,969 1,050 7,019
------------ ---------- ----------
Income from continuing operations $ 14,008 $ 2,703 $ 16,711
============ ========== ==========
Earnings per share $ 1.81 $ 5.43 $ 1.79
============ ========== ==========
Weighted average shares outstanding 7,738 497 9,338
============ ========== ==========
</TABLE>
30
<PAGE> 37
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
(1) The adjustments to the Pro Forma Combining Financial Statements do not
include direct expenses related to the Merger, which will be recorded
at the time of the Merger. The pro forma data are not necessarily
indicative of the operating results or financial position that would
have occurred had the Merger been consummated at the dates indicated,
nor necessarily indicative of future operating results of financial
position.
(2) The First United Common Stock issued excludes the number of shares of
First United Common Stock that may be issued in such amount as is
equal to the intrinsic value of any unexercised Fredonia stock options
at the time of the Merger. First United estimates the intrinsic value
of such Fredonia stock options to approximate $218,000.
(3) Pro forma per share data are based on the number of shares of First
United Common Stock that would have been outstanding had the Merger
occurred at the beginning of the earliest period presented.
31
<PAGE> 38
FIRST UNITED BANCSHARES, INC.
GENERAL
First United is a multi-bank holding company incorporated in 1980 for
the purpose of holding all of the outstanding stock of The First National Bank
of El Dorado, El Dorado, Arkansas. Between 1981 and 1996, First United acquired
nine other banks in different cities within Arkansas and Texas. The banks
acquired were the First National Bank of Magnolia, Magnolia, Arkansas;
Merchants and Planters Bank, N.A. of Camden, Camden, Arkansas; City National
Bank of Fort Smith, Fort Smith, Arkansas; Commercial Bank at Alma, Alma,
Arkansas; The Bank of North Arkansas, Melbourne, Arkansas; First United Bank,
Stuttgart, Arkansas; FirstBank, Texarkana, Texas; Citizens Bank & Trust,
Carlisle, Arkansas; Hazen First State Bank, Hazen, Arkansas; and First Bank of
Arkansas, Brinkley, Arkansas. On May 16, 1997, the Carlisle, Hazen and Brinkley
banks were merged with and into First United Bank. Each of the banks are
wholly-owned by First United, and, furthermore, are banks organized under the
laws of the United States, Arkansas or Texas and are regulated by the Office of
the Comptroller of the Currency, the Federal Reserve Board, the Arkansas Bank
Department or the Texas Department of Banking. As of March 31, 1997, First
United, on a consolidated basis, had a total of $730,726,000 of loans
outstanding, an allowance for loan losses of $11,481,000, total deposits of
$1,315,402,000 and total stockholders' equity of $151,052,000. In 1996 First
United Trust Company was chartered as a wholly-owned subsidiary of First United
to handle and expand trust business formerly done by First United's subsidiary
banks.
The banks offer customary services of banks of similar size and
similar markets, including interest-bearing and non-interest-bearing deposit
accounts, commercial, real estate and personal loans, trust services,
correspondent banking services and safe deposit box activities.
The banking business is highly competitive. The Subsidiary Banks of
First United compete actively with national and state banks, savings and loan
associations, securities dealers, mortgage bankers, finance companies and
insurance companies.
PENDING ACQUISITIONS
City Bank & Trust of Shreveport. On June 18, 1997 First United entered
into an Agreement and Plan of Reorganization to acquire for shares of First
United's Common Stock all of the issued and outstanding shares of City Bank &
Trust of Shreveport, a commercial bank headquartered in Shreveport, Louisiana
("City Bank"). At March 31, 1997 City Bank had total assets of approximately
$61 million and shareholders' equity of approximately $6.6 million. Upon
consummation of the transaction City Bank would become a wholly-owned
subsidiary of First United. The total number of shares of First United Common
Stock to be issued in the transaction would be 425,000 shares, which represents
less than five percent of the total number of shares of First United
outstanding as of the date hereof. The City Bank acquisition, which is subject
to shareholder and regulatory approvals, is expected to be completed in the
fourth quarter of 1997 or the first quarter of 1998. There can be no assurance
that the transaction will be consummated. Consummation of the Merger is not
conditioned upon consummation of the City Bank acquisition.
Citizens National Bancshares, Inc. On June 12, 1997 First United
announced that it had signed a letter of intent with Citizen's National
Bancshares, Inc., a bank holding company headquartered in Hope, Arkansas
("Citizens") that calls for First United to acquire for shares of First
United's Common Stock all of the issued and outstanding shares of Citizens and
its two wholly-owned bank subsidiaries, Citizens National Bank of Hope, Hope,
Arkansas ("CNB"), and Peoples Bank & Loan Company, Lewisville, Arkansas
("Peoples"). At March 31, 1997 Citizens had consolidated assets of
approximately $263 million and shareholders' equity of approximately $26.3
million. Upon consummation of the transaction CNB and Peoples would become
wholly-owned subsidiaries of First United. The total number of shares of First
United Common Stock to be issued in the transaction would be 1,570,000shares,
which represents less than 19.04 percent of the total number of shares of First
United outstanding as of the date hereof. The Citizens acquisition, which is
subject to the parties entering into a definitive agreement and to shareholder
and regulatory approvals, is expected to be completed in the first quarter of
1998. There can be no assurance that the transaction will be consummated.
Consummation of the Merger is not conditioned upon consummation of the Citizens
acquisition.
32
<PAGE> 39
REGULATION
First United is a registered bank holding company pursuant to the Bank
Holding Company Act of 1956, as amended (the "Act"), and as such, is subject to
regulation and examination by the Federal Reserve Board and is required to file
with the Federal Reserve Board annual reports and other information regarding
the business operations of itself and its subsidiaries. The Act provides that a
bank holding company may be required to obtain Federal Reserve Board approval
for the acquisition of more than 5% of the voting securities of substantially
all of the assets of any bank or bank holding company, unless it already owns a
majority of the voting securities of such bank or bank holding company. The Act
prohibits First United from engaging in any business other than banking or
bank-related activities specifically allowed by the Federal Reserve Board. The
Act also prohibits First United and its subsidiaries from engaging in certain
tie-in arrangements in connection with the extension of credit, the lease of
sale of property or the provision of any services.
As a registered bank holding company, First United is subject to the
Federal Reserve Board's position that a bank holding company should serve as a
"source of strength" for its bank subsidiaries. In an early appreciation of the
doctrine the Federal Reserve Board announced that failure to assist a troubled
bank subsidiary when its holding company was in a position to do so was an
unsafe and unsound practice and the Federal Reserve Board claimed the authority
to order a bank holding company to capitalize its subsidiary banks.
In 1991, Congress modified the source of strength doctrine by creating
a system of prompt corrective actions under which the federal banking agencies
are required to take certain actions to resolve the problems of depository
institutions based on their level of capitalization. In a bank holding company
organization, an undercapitalized insured depository institution must submit a
capital restoration plan to the appropriate agency which may not accept the
plan unless the company controlling the institution has guaranteed that the
institution will comply with the plan until the institution has been adequately
capitalized on average during each of four consecutive calendar quarters. The
aggregate liability to the guaranteeing companies is the lesser of an amount
equal to 5 percent of the institution's total assets at the time the
institution became undercapitalized, or the amount which is necessary to bring
the institution into compliance with applicable capital standards.
For a significantly undercapitalized institution, the appropriate
agency must prohibit a bank holding company from making any capital
distribution without prior Federal Reserve Board approval. The agency also may
require a bank holding company to divest or liquidate the institution.
First United and its subsidiaries are subject to various federal
banking laws including the Financial Institutions, Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") which, among other things, made substantive
changes to the deposit insurance system. As a part of the reorganization of the
deposit insurance funds, the deposit premiums for insurance of Bank Insurance
Fund members were significantly increased. FIRREA also authorized bank holding
companies to acquire savings and thrift institutions without tandem operation
restrictions. Furthermore, FIRREA expanded the authority of regulatory agencies
to assess severe penalties ranging from $5,000 per day to $1,000,000 per day,
on persons or institutions that the agency finds in violation of a broad range
of activities.
First United and its subsidiaries are also subject to the provisions
of the Federal Deposit Insurance Corporation Improvement Act of 1991, which
provided for industry-wide standards in such areas as real estate lending,
further restrictions on brokered deposits and insider lending, establishment of
a risk-based deposit insurance system, enhanced examinations and audits of
banking institutions, the adoption of a Truth-in-Savings Act, various
merger-and-acquisitions related provisions, and the implementation of
legislation on foreign bank operations in the United States.
The provisions of the Community Reinvestment Act of 1977, as amended,
are applicable to the subsidiary of First United. Federal Regulators are
required to consider performance under the Community Reinvestment Act before
approving an application to establish a branch or acquire another financial
institution. The Federal Reserve Board has promulgated regulations governing
compliance with the Community Reinvestment Act in Regulation BB. Recent
regulatory and statutory developments show that compliance with the Community
Reinvestment Act is subject to strict scrutiny and is often grounds for denial
of an application to federal regulators. First United's subsidiary banks are
all rated "satisfactory" for CRA purposes.
On January 19, 1989, the Federal Reserve Board issued final guidelines
to implement risk-based capital requirements for bank holding companies. The
guidelines establish a systematic analytical framework that makes regulatory
33
<PAGE> 40
capital requirements more sensitive to differences in risk profiles among
banking organizations, takes off-balance sheet exposures into account in
assessing capital adequacy, and minimizes disincentives to holding liquid,
low-risk assets. The guidelines provided for phasing in risk-basked capital
standards through the end of 1992, at which time the standards became fully
effective. The Company's year end 1996 Tier 1 ratio of 16.36% and Total capital
ratio of 9.75% exceeds the current minimum regulatory requirements of 4.00% and
6.00% respectively.
The table below illustrates all of the capital requirements applicable
to First United and its subsidiaries.
REGULATORY COMPARISON OF CAPITAL RATIOS (1)
<TABLE>
<CAPTION>
REGULATORY
MARCH 31, 1997 FIRST UNITED REQUIREMENTS
- -------------- ------------ ------------
<S> <C> <C>
Total Capital/Total Assets ...................................... 10.43% 6.00%
Primary Capital/Total Assets .................................... 10.43% 5.50%
Total Risk-Based Capital ........................................ 18.06% 8.00%
Tier 1 Capital .................................................. 16.81% 4.00%
Leverage Ratio .................................................. 9.15% 3.00%
</TABLE>
(1) Excludes unrealized gains and losses on securities available-for-sale.
First United's Subsidiary Banks are subject to a variety of
regulations concerning the maintenance of reserves against deposits,
limitations on the rates that can be charged on loans or paid on deposits,
branching, restrictions on the nature and amounts of loans and investments that
can be made and limits on daylight overdrafts
The Subsidiary Banks are limited in the amount of dividends they may
declare. Prior approval must be obtained from the appropriate regulatory
authorities before dividends can be paid by the Subsidiary Banks to First
United if the amount of adjusted capital, surplus and retained earnings is
below defined regulatory limits. As of December 31, 1996 First United's
Subsidiary Banks had available for payment of dividends without regulatory
approval, approximately $6,520,000 of undistributed earnings plus the net
income earned in 1997. The Subsidiary Banks are also restricted from extending
credit or making loans to or investments in First United and certain other
affiliates as defined in the Act. Furthermore, loans and extensions of credit
are subject to certain other collateral requirements.
OFFICES
First United's executive offices are located in the offices of First
National Bank of El Dorado at Main and Washington Streets, El Dorado, Arkansas
71730.
EMPLOYEES
As of December 31, 1996, First United and its Subsidiary Banks had
approximately 639 full-time equivalent employees.
DESCRIPTION OF FIRST UNITED COMMON STOCK
The following summary of the terms of First United Common Stock does
not purport to be complete and is qualified in its entirety by reference to the
1987 Act and First United's Amended and Restated Articles of Incorporation.
First United's Amended and Restated Articles of Incorporation authorizes the
issuance of 24,000,000 shares of Common
34
<PAGE> 41
Stock, $1.00 par value. As of May 31, 1997 there were 8,246,209 fully paid and
non-assessable shares of First United Common Stock issued and outstanding.
Each share of First United Common Stock is entitled to one vote on all
matters to be voted on by stockholders, including the right to cumulate votes
for the election of the Board of Directors, and to dividends when and if
declared from time to time by the Board of Directors. There is no right of
preemption associated with the First United Common Stock. Upon liquidation,
each share would be entitled to share pro rata in all of the assets of First
United available for distribution to the holders of Common Stock. The transfer
agent for First United Common Stock is First National Bank of El Dorado, El
Dorado, Arkansas. First United Common Stock is traded on NASDAQ-NMS
over-the-counter under the symbol of "UNTD."
RESALE OF FIRST UNITED COMMON STOCK
The First United Common Stock issued pursuant to the Merger will be
freely transferable under the Securities Act of 1933 (the "Securities Act"),
except for shares issued to any Fredonia Shareholder who may be deemed to be an
"affiliate" of Fredonia for purposes of Rule 145 under the Securities Act. Each
such Shareholder has entered into an agreement with First United providing that
such affiliate will not transfer any First United Common Stock received in the
Merger except in compliance with the Securities Act and will not sell or
otherwise transfer such Common Stock (or any interest therein) until financial
results of First United and its subsidiaries (including Fredonia) for at least
30 days of combined operations are published. This restriction is expected to
expire by October 24, 1997. See also "Fredonia Bancshares, Inc. - Resulting
Ownership in First United."
FREDONIA BANCSHARES, INC.
DESCRIPTION OF BUSINESS
Fredonia is a Texas corporation and a bank holding company which
indirectly owns 100% of Fredonia State Bank, Nacogdoches, Texas ("FSB") through
its middle-tier subsidiary, Fredonia Bancshares of Delaware, Inc. Fredonia may
engage, directly or through subsidiaries, in those activities closely related
to banking which are specifically permitted under the Bank Holding Company Act
of 1956, as amended. FSB grants commercial, installment and real estate
loans to customers principally in Nacogdoches and Cherokee Counties, Texas. As
of March 31, 1997, on a consolidated basis Fredonia had a total of $127,580,000
of loans outstanding, net of an allowance for loan losses of $1,418,000, total
deposits of $223,080,000 and total stockholders' equity of $23,572,000.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis highlights the significant
factors affecting Fredonia's consolidated financial statements. For a more
complete understanding of the following discussion, reference should be made to
Fredonia's consolidated financial statements and related notes thereto
presented elsewhere in this Proxy Statement.
BALANCE SHEET ANALYSIS
Financial Condition. The total assets of Fredonia increased by
$5,291,000 or 2.2% from December 31, 1995 to December 31, 1996 and by
$7,463,000 or 3.1% from December 31, 1996 to the March 31, 1997 level of
$249,416,000. The increase in assets during both comparison periods was due
primarily to growth in the loan portfolio. At March 31, 1997 assets were
$249,416,000 compared to the December 31, 1996 level of $241,953,000. Fredonia
receives a major portion of its income from earning assets which consist of
federal funds sold, investment securities and loans. See Tables 1 and 2 for an
analysis of the average balances of interest-earning assets and
interest-bearing liabilities for the years ended December 31, 1996 and 1995.
35
<PAGE> 42
Inherent in Fredonia's loan portfolio is credit risk. Fredonia
maintains an allowance for loan losses which is evaluated periodically for
adequacy by management. Management's methodology to determine the adequacy of
the allowance considers reviews of individual loans, recent loan loss
experience, current economic conditions and the risk characteristics of the
various categories of loans. See Tables 5 through 9 for detailed information
concerning the loan portfolio and the allowance for loan losses.
Investment securities are the second largest component of the earning
asset base. The average volume of investment securities has remained relatively
stable during the three months ended March 31, 1997. The decrease in investment
securities from December 31, 1995 to December 31, 1996 funded the increase in
loans during the same time period. See Tables 3 and 4 for details concerning
the composition and maturity ranges of the investment portfolio.
Deposits, the primary source of funding earning assets, increased by
$4,187,000 or 2.0% between December 31, 1995 and December 31, 1996 and by
$6,315,000 or 2.9% between December 31, 1996 and March 31, 1997. The majority
of the increase in deposits for the indicated periods has occurred in the NOW
and money market accounts. See Table 10 for a maturity analysis of certificates
of deposits in excess of $100,000 as of December 31, 1996.
Liquidity and Interest Rate Sensitivity Management. Liquidity is the
ability of an institution to fund the needs of its borrowers, depositors and
creditors. Based on the maturity structure and anticipated loan and deposit
funding requirements, Fredonia anticipates that its liquidity requirements will
continue to be met in the foreseeable future. Fredonia's management believes
that the traditional funding sources of maturing loans and investment
securities, federal funds, the base of core deposits and federal funds lines of
credit with two correspondent banks ($6 million at December 31, 1996) will be
adequate to provide liquidity needs. See Tables 4, 6 and 10 for additional
information on certain investment, loan and time deposit maturities.
Capital. The Federal Reserve Board requires banks to maintain capital
based on "risk-adjusted" assets so that categories of assets with potentially
higher risk will require more capital backing than assets with lower risk. In
addition, banks are required to maintain capital to support, on a risk-adjusted
basis, certain off-balance sheet activities such as loan commitments.
At March 31, 1997, Fredonia's Tier 1 capital and total capital as a
percentage of total risk-adjusted assets exceeded the required minimum levels.
See Table 11 for additional information concerning Fredonia's capital ratios.
EARNINGS ANALYSIS
Net income for the first three months of 1997 was approximately
$954,000, a decrease of $468,000 or 32.9% over the same period in 1996. The
decrease was due primarily to a $495,000 (net of federal income tax) credit to
loan loss expense to reverse an overaccrual to the provision for loan losses.
For the years ended December 31, 1996, 1995, and 1994, net income was
approximately $4,113,000, $3,350,000, and $2,703,000, respectively. The
annualized return on average assets and return on average equity for the first
three months of 1997 was 1.6% and 16.3%, respectively, compared to 2.4% and
28.5% for the first three months of 1996. For the years ended December 31,
1996, 1995 and 1994 the return on average assets was 1.7%,1.4%, and 1.2%,
respectively, while the return on average equity was 19.2%, 17.8%, and 17.0%
respectively.
The primary components of total income and expense which affect net
income are net interest income, the provision for loan losses, non-interest
income, non-interest expense and the provision for income taxes.
Significant factors affecting these categories are presented below.
Net Interest Income. Net interest income for the first three months of
1997 was $2,433,000, a 5.0% increase over the same period in 1996. The primary
reason for the increase was an increase of approximately 10.3% in the volume on
average loans during the period. Interest on loans for the three months ended
March 31, 1997 increased by $172,000 or 6.4% compared to the corresponding
period of 1996. As a percentage of total assets at March 31, 1997, loans
totaled 51.2% while investment securities were 36.8%.
36
<PAGE> 43
For the years ended December 31, 1996, 1995, and 1994, net interest
income was $8,325.000, $8,025,000 and $7,517,000, respectively. The increase
during 1996 compared to 1995 was due primarily to the increase in the net yield
on interest earning assets. See Tables 1 and 2 for more detailed information
regarding rate and volume factors which affected net interest income during the
three-year period ended December 31, 1996.
Provision for Loan Losses. For the first three months of 1997 Fredonia
provided $30,000 for loan losses compared to $(750,000) for the comparable
period in 1996. The provision for loan losses was $1,414,000, $2,301,000 and
$2,583,000 for the years ended December 31, 1996, 1995 and 1994.
Net charge-offs on loans were $137,000 in 1996, $282,000 in 1995 and
$235,000 in 1994. For the three months ended March 31, 1997, net charge-offs
totaled $26,000. The allowance for loan losses was $1,418,000 or 1.1% of loans
at March 31, 1997, compared to $1,414,000 or 1.2% at December 31, 1996, and
$2,301,000 or 2.1% at December 31, 1995. See Tables 7, 8 and 9 for more
information regarding loan quality and the allowance for loan losses.
Non-Interest Income. Total non-interest income for the three months
ended March 31, 1997 and 1996, was $546,000 and $529,000, respectively. Total
non-interest income for the year ended December 31, 1996 was $1,984,000, as
compared to $1,826,000 for 1995 and $1,713,000 in 1994.
Gains on the sale of other real estate included in non-interest income
for the three months ended March 31, 1997 and 1996, was $12,000 and $12,000,
respectively. For the three months ended March 31, 1997 and 1996, there were no
gains or losses on the sale of securities included in non-interest income.
Gains on the sale of other real estate included in non-interest income
for the years ended December 31, 1996, 1995 and 1994 was $12,000, $143,000 and
$47,000, respectively. Losses on the sale of securities included in
non-interest income for the years ended December 31, 1996, 1995 and 1994 was
$0, $247,000 and $4,000, respectively.
Non-Interest Expense. Total non-interest expense for the three months
ended March 31, 1997 and 1996 was $1,569,000 and $1,534,000, respectively.
Total non-interest expense for the year ended December 31, 1996 was
$5,189,000 as compared to $5,136,000 for 1995 and $5,477,000 in 1994.
Expense for Federal Deposit Insurance coverage included in
non-interest expense for the three months ended March 31, 1997 and 1996, was
$1,000 and $10,000, respectively. Federal Deposit Insurance expense for the
years ended December 31, 1996 was $15,000, as compared to $245,000 for 1995 and
$447,000 in 1994.
Salary and employee benefits expense included in non-interest expense
for the three months ended March 31, 1997 and 1996, was $930,000 and $843,000,
respectively. Salary and employee benefits expense for the year ended December
31, 1996 was $2,567,000, as compared to $2,472,000 for 1995 and $2,824,000 in
1994.
Provision for Income Taxes. Income tax expense for the three months
ended March 31, 1997 and 1996 was $426,000 and $641,000, respectively, or
effective tax rates of 30.9% and 31.1%, respectively. Income tax expense for
the years ended December 31, 1996, 1995 and 1994 was $1,757,000, $1,365,000 and
$1,050,000, respectively. Effective tax rates were 29.9%, 29.0%, and 28.0% for
1996, 1995, 1994, respectively. Note 12 of Notes to the Consolidated Financial
Statements provides further details of the applicable income tax expense for
1996, 1995 and 1994.
ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board issued SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities." SFAS No. 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishment of
liabilities based on consistent application of a "financial-components
approach" that focuses on control. The impact of SFAS No. 125, when adopted on
January 1, 1997, will not be material to Fredonia's financial condition or
results of operations.
37
<PAGE> 44
STATISTICAL DISCLOSURES
FREDONIA BANCSHARES, INC.
STATISTICAL DISCLOSURES
TABLE 1 - COMPARATIVE AVERAGE BALANCES - YIELDS AND RATES ($ in thousands)
The table below shows the average balances of the assets and
liabilities of Fredonia, the interest income or expense associated with those
assets and liabilities, and the computed yield or rate based upon the interest
income or expense for each of the last two years.
<TABLE>
<CAPTION>
1996 1995
-------------------------------------- -----------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans............................. $117,733 $ 9,881 8.39% $103,330 $ 8,650 8.37%
Investment securities:
Taxable......................... 80,329 4,824 6.01% 91,797 5,420 5.90%
Tax-Exempt...................... 16,359 780 4.77% 16,479 797 4.84%
Federal funds sold................ 8,159 435 5.33% 8,210 477 5.81%
Other............................. 0
-------- ------- -------- -------
Total interest-earning assets........ 222,580 15,920 7.15% 219,816 15,344 6.98%
Non-interest-earning assets:
Cash and due from banks........... 9,631 9,066
Other assets...................... 7,637 7,399
Allowance for loan losses......... (1,664) (2,387)
-------- --------
Total...................... $238,184 $233,894
LIABILITIES AND SHAREHOLDERS' EQUITY ======== ========
Interest-bearing liabilities:
Demand deposits................... $ 38,081 $ 1,031 2.71% $ 39,329 $ 1,058 2.69%
Savings deposits.................. 36,234 1,044 2.88% 37,855 1,093 2.89%
Time deposits..................... 106,126 5,518 5.20% 102,482 5,106 4.98%
Federal funds purchased (1)....... 28 2 7.14% 159 7 4.40%
Note payable...................... 0 0 0.00% 768 55 0.00%
FHLB advances..................... 0 0 0.00% 0 0 0.00%
Other............................. 0 0 0.00% 0 0 0.00%
-------- ------- -------- ------
Total interest-bearing liabilities... 180,469 7,595 4.21% 180,593 7,319 4.05%
Non-interest-bearing liabilities:
Demand deposits................... 34,221 34,304
Other............................. 2,384 1,933
-------- --------
36,605 36,237
Shareholders' equity................. 21,110 17,832
-------- --------
Total...................... $238,184 $234,662
======== ========
Net interest earnings................ $ 8,325 $ 8,025
======= =======
Net yield on interest-earning
assets............................. 3.74% 3.65%
</TABLE>
(1) The amount of federal funds purchased at December 31, 1996 was $-0-.
The maximum amount of such borrowings outstanding at any month-end
during 1996 was $470,000.
Non-accruing loans have been included in the average loan balances and
interest collected prior to these loans having been placed on non-accrual has
been included in interest income.
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<PAGE> 45
TABLE 2 - VOLUME AND YIELD/RATE VARIANCE ANALYSIS
The following table shows the change from year to year for each
component of the net interest margin separated into the amount generated by
volume changes and the amount generated by changes in the yield or rate ($ in
thousands):
<TABLE>
<CAPTION>
1996 Compared to 1995 1995 Compared to 1994
Change Due To: Change Due To:
--------------------------- -----------------------------
Yield/ Yield/
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNED ON:
Loans............................ $ 1,206 $ 25 $ 1,231 $ 591 $ 359 $ 950
Investment securities:
Taxable........................ (677) 81 (596) 51 777 828
Tax-exempt..................... (6) (11) (17) 22 14 36
Federal funds sold............. (3) (39) (42) 22 108 130
Other.......................... 0 0 0 0 0 0
------- ----- ----- ----- ------ ------
Total interest-earning assets $ 520 $ 56 576 686 $1,258 $1,944
======= ===== ===== ===== ====== ======
INTEREST PAID ON:
Interest-bearing demand deposits... $ (34) $ 7 $ (27) $ (27) $ 89 $ 62
Savings deposits................... (47) (2) (49) (26) 74 48
Time deposits...................... 182 230 412 (54) 1,359 1,305
Federal funds purchased............ (6) 1 (5) 7 0 7
Note payable....................... (55) 0 (55) 14 0 14
Other.............................. 0 0 0 0 0 0
------- ----- ----- ----- ------ ------
Total interest-bearing liabilities... $ 40 $ 236 $ 276 ($ 86) $1,522 $1,436
======= ===== ===== ===== ====== ======
</TABLE>
The change in interest due to both volume and yield/rate has been
allocated to change due to volume and change due to yield/rate in proportion to
the absolute value of the change of each. The balances of nonaccrual loans and
related income recognized have been included for purposes of these
computations.
39
<PAGE> 46
TABLE 3 - INVESTMENT PORTFOLIO
The table below indicates carrying values of investment securities by
type at year-end for each of the last two years ($ in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
HELD-TO-MATURITY ------- -------
<S> <C> <C>
U.S. Treasury and U.S. Government agencies ................................. $33,658 $43,694
Obligations of states and political subdivisions ........................... 14,755 19,720
Mortgage-backed securities and collateralized mortgage obligations ......... 8,769 6,396
Other Securities ........................................................... 845 832
------- -------
Total Held-to-Maturity Investment Securities .......................... $58,027 $70,642
======= =======
AVAILABLE-FOR-SALE
U.S. Treasury and U.S. Government agencies ................................. $ 7,989 $ 0
Obligations of states and political subdivisions ........................... 0 7,620
Mortgage-backed securities and collateralized mortgage obligations ......... 26,453 28,971
Other securities ........................................................... 93 148
------- -------
Total Available-for-Sale Investment Securities ........................ $34,535 $36,739
======= =======
</TABLE>
40
<PAGE> 47
TABLE 4 - MATURITY DISTRIBUTION AND YIELDS OF INVESTMENT PORTFOLIO
The following table details the maturities of investment securities at
December 31, 1996 and the weighted average yield for each range of maturities
($ in thousands):
<TABLE>
<CAPTION>
Maturing
---------------------------------------------------------------------------------------------
After One After Five After
Within But Within But Within Ten
One Year Yield Five Years Yield Ten Years Yield Years Yield Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HELD-TO-MATURITY
U.S. Treasury and U.S. Government
Agencies ...................... $ 9,571 5.00% $24,087 6.56% $ 0 0.00% $ 0 0.00% $33,658
Obligations of states and
political ....................... 5,444 4.95% 5,981 4.79% 3,129 4.81% 201 3.97% 14,755
securities
Mortgage-backed securities and
collateralized mortgage ...... 34 7.00% 480 7.21% 0 0.00% 8,255 6.28% 8,769
obligations
Other securities ................ 0 0.00% 0 0.00% 0 0.00% 845 5.64% 845
------- ------- -------- ------- -------
Total Held-to-Maturity
Investment Securities....... $15,049 $30,548 $ 3,129 $ 9,301 $58,027
======= ======= ======= ======== =======
Available-for-Sale
U.S. Treasury and U.S. Government
Agencies ...................... $ 0 0.00% $ 7,989 5.60% $ 0 0.00% $ 0 0.00% $ 7,989
Obligations of states and
political subdivisions ........ 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0
Mortgage-backed securities and
collateralized mortgage ...... 0 0.00% 0 0.00% 0 0.00% 26,453 6.23% 26,453
obligations
Other securities ................ 0 0.00% 0 0.00% 0 0.00% 93 6.70% 93
------- ------- -------- ------- -------
Total Available-for-Sale
Investment Securities ... $ 0 $ 7,989 $ 0 $ 26,546 $34,535
======= ======= ======= ======== =======
</TABLE>
TABLE 5 - COMPOSITION OF THE LOAN PORTFOLIO ($ in thousands)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Commercial and Real Estate ...................................... $107,477 $101,067
Installment ..................................................... 10,877 9,045
Credit Card ..................................................... 1,262 1,281
Overdrafts ...................................................... 243 206
Student Loans ................................................... 4,443 1,228
-------- --------
Total Loans .............................................. $124,302 $112,827
======== ========
</TABLE>
41
<PAGE> 48
TABLE 6 - LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES ($ in
thousands):
<TABLE>
<CAPTION>
MATURING
------------------------------------
ONE YEAR
WITHIN ONE THROUGH AFTER
YEAR OR LESS FIVE YEARS FIVE YEARS TOTAL
------------ ---------- ---------- -----
<S> <C> <C> <C> <C>
Commercial and Real Estate ....................... $64,764 $38,849 $3,864 $107,477
Consumer Loans ................................... 5,322 9,992 1,511 16,825
------- ------- ------ --------
Total Loans ........................... $70,086 $48,841 $5,375 $124,302
======= ======= ====== ========
</TABLE>
<TABLE>
<CAPTION>
MATURING
---------------------------
ONE YEAR
THROUGH AFTER
FIVE YEARS FIVE YEARS
---------- ----------
<S> <C> <C>
Above loans due after one year which have:
Predetermined interest rates ................... $33,958 $5,375
Floating interest rates ........................ 14,883 0
------- ------
$48,841 $5,375
======= ======
</TABLE>
TABLE 7 - NON-PERFORMING LOANS AND PAST DUE LOANS
The table below shows Fredonia's non-performing loans and past due
loans at the end of each of the last two years ($ in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
---- ----
<S> <C> <C>
Loans accounted for on a nonaccrual basis ........ $722 $680
Restructured loans ............................... 0 0
---- ----
Non-performing loans ......................... $722 $680
==== ====
Accruing loans past due 90 days or more .......... $137 $221
==== ====
</TABLE>
42
<PAGE> 49
TABLE 8 - ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
The table below summarizes Fredonia's loan loss experience for each of
the last two years ($ in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
------- ------
<S> <C> <C>
Amount of loan loss reserve at beginning of period .................................. $ 2,301 $2,583
Loans charged off:
Commercial and Real Estate ..................................................... 106 307
Consumer ....................................................................... 158 121
------- ------
Total charge-offs ................................................................... 264 428
Recoveries on loans previously charged off:
Commercial and Real Estate ..................................................... 108 117
Consumer ....................................................................... 19 29
------- ------
Total recoveries .................................................................... 127 146
Net charge-offs ..................................................................... 137 282
Additions to allowance charged to operating expense (1) ............................. (750) 0
------- ------
Amount of loan loss reserve at end of period ........................................ $ 1,414 $2,301
======= =======
Percentage of net charge-offs during period to average loans
outstanding during the period .................................................... 0.12% 0.27%
======= =======
</TABLE>
(1) The amount charged to operations and the related balance in the
allowance for loan losses is based upon periodic evaluations of the
loan portfolio by management. These evaluations consider several
factors including, but not limited to, general economic conditions,
loan portfolio composition, prior loan loss experience, and
management's reviews of individual loans.
43
<PAGE> 50
TABLE 9 - ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The following table is a summary by allocation category of Fredonia's
allowance for loan losses ($ in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
% LOANS % LOANS
IN EACH IN EACH
1996 CATEGORY 1995 CATEGORY
---- -------- ---- --------
<S> <C> <C> <C> <C>
Commercial and Real Estate........................ $ 549 86.46% $ 579 89.58%
Consumer.......................................... 55 13.54% 34 10.42%
Unallocated....................................... 810 1,688
----- -----
$ 1,414 $ 2,301
======= =======
</TABLE>
TABLE 10 - TIME DEPOSITS OF $100,000 OR MORE
The table below shows maturities on outstanding time deposits of
$100,000 or more at December 31, 1996 ($ in thousands):
<TABLE>
<CAPTION>
CERTIFICATES
OF DEPOSIT
------------
<C> <C>
3 months or less................................................................................$ 12,813
Over 3 months through 6 months.................................................................. 6,695
Over 6 months through 12 months................................................................. 6,455
Over 12 months.................................................................................. 4,389
--------
$ 30,352
========
</TABLE>
TABLE 11 - RETURN ON EQUITY AND ASSETS
The following table shows consolidated operating and equity ratios of
Fredonia for each of the last two years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995
------- -------
<S> <C> <C>
Return on assets ............................ 1.70% 1.34%
Return on equity ............................ 17.73% 16.05%
Dividend payout ratio ....................... 12.18% 13.87%
Equity to assets ratio ...................... 9.59% 8.35%
</TABLE>
44
<PAGE> 51
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of Fredonia will be dissolved and positions
held by executive officers of Fredonia will no longer exist upon the
consummation of the Merger. The present directors and executive officers of FSB
are expected to remain in their respective positions. Upon consummation of the
Merger, James V. Kelley, First United's Chairman, will be added to the board of
directors of FSB and George Middlebrook, III, a current director of Fredonia
will be added to First United's Board. The current directors of Fredonia and
FSB are set forth below:
DIRECTORS AND EXECUTIVE OFFICERS OF FREDONIA AND FSB
<TABLE>
<CAPTION>
Shares of Fredonia
Common Stock Owned
Beneficially as of
Principal Occupation, May 31, 1997 and
Director(1) Executive Officer Position Percent of Class if
Name Age Since and Directorship more than 1%
- ---- --- --------- ----------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Roy Blake 69 1986 Investments; Director of Fredonia & 5,043 1.07%
FSB
W. H. Crouse 55 1994 CEO, Burns Morris & Stewart Inc.; 723
Director of Fredonia & FSB
J. R. Honea 59 1986 Vice President of Fredonia; 1,544
Executive Vice President of FSB;
Director of Fredonia & FSB
Gordon Lewis 47 1989 Chairman of the Board and President 5,245 1.10%
of Fredonia; CEO & President of FSB;
Director of Fredonia & FSB
G. F. Middlebrook III 46 1986 Investments; Director of Fredonia & 20,227 4.28%
FSB
Arthur L. Speck, MD 60 1986 Physician; Director of Fredonia & 618
FSB
Dan Stansel 52 1986 President, Harrell & Stansel 484
Properties; Director of Fredonia &
FSB
Craig Stripling 50 1994 Attorney; Director of Fredonia & 9,215 1.95%
FSB
Roger Van Horn 52 1986 Dentist; Director of Fredonia & FSB 5,928 1.26%
EXECUTIVE OFFICERS
Stan Sisco 44 Senior Vice President of FSB 186
Howard Stoneking 50 Treasurer of Fredonia; Controller of 0
FSB
</TABLE>
During 1996, the Board of Directors of Fredonia held two (2) meetings.
Two of the incumbent directors then in office did not attend one of these
meetings. The Board of Directors has an executive and audit committee.
- ----------------
(1) This column represents the year in which the directorship commenced.
If a person serves as director for both Fredonia and FSB, the year
disclosed reflects the date the directorship in Fredonia commenced.
45
<PAGE> 52
CERTAIN EMPLOYEE PLANS
Fredonia's subsidiary, FSB, has a salary deferred retirement savings plan
qualified under Section 401(k) of the Code for the benefit of all qualifying
employees who have completed one year of service. Participants in the Plan may
make deferral contributions to the plan which are 100% vested at all times.
FSB's Directors determine annually the amount of contributions to be made to
the plan. During 1995 and 1996, FSB matched a minimum of 50% of the employee's
contributions up to 5% of salary. These contributions are fully vested after
seven years of service. FSB made matching and other contributions to the 401(k)
plan of $223,000 in 1995 and $300,000 in 1996.
FSB has salary continuation agreements with certain key employees which provide
for payments for a maximum of 15 years beginning when the employee reaches age
65 or at his or her death. FSB has purchased life insurance policies on those
certain key employees for which FSB is the beneficiary. For the years 1995 and
1996 FSB's compensation expenses under its salary continuation agreements were
$95,464 and $104,136 respectively.
TRANSACTIONS WITH MANAGEMENT
Directors and executive officers of Fredonia and its subsidiaries,
their associates and members of their immediate families were customers of and
had transactions including loans and commitments to lend with subsidiaries of
Fredonia in the ordinary course of business during 1996. All such loans and
commitments were made by the subsidiaries on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and did not involve more than normal
risk of collectibility or present other unfavorable features. Similar
transactions may be expected to take place in the ordinary course of business
in the future. On March 31, 1997, the aggregate of these related party loans
was approximately $1,088,000 or approximately 0.85% of total loans outstanding
of the subsidiaries.
PRINCIPAL SHAREHOLDERS OF FREDONIA
All persons known by Fredonia who as of May 31, 1997, owned of record
or beneficially more than five (5%) of the Fredonia Common Stock and the number
of shares owned beneficially by each of them are reflected in the foregoing
table:
<TABLE>
<CAPTION>
NAME SHARES DIRECTLY OWNED PERCENT OF CLASS
- ---- --------------------- ----------------
<S> <C> <C>
Fredonia Bancshares, Inc. 401(k) Plan 34,121 7.22%
The Estate of Homer L. Bryce (1)
Citizens National Bank, Executor 25,704 5.44%
Mrs. Velma G. Bryce (1) 25,703 5.44%
Citizens National Bank, Agent
for Mrs. Bryce
</TABLE>
(1) Reflects ownership that will occur upon final probate.
All directors and executive officers of Fredonia and its subsidiaries
as a group (11 persons) and members of their immediate families and associates
as of May 31, 1997 owned 49,213 or 10.42% of the outstanding shares of Fredonia
Common Stock. No director or executive officer of Fredonia owns any shares of
First United Common Stock. Neither First United nor any of its subsidiaries nor
any director or executive officer of First United owns any shares of Fredonia
Common Stock.
RESULTING OWNERSHIP IN FIRST UNITED
No Shareholder of Fredonia will own five percent (5%) or more of First
United's outstanding Common Stock subsequent to the Merger.
46
<PAGE> 53
COMPETITION
Fredonia and FSB encounter strong competition both in making loans and
attracting deposits. The deregulation of the banking industry and the
widespread enactment of state laws which permit multi-bank holding companies as
well as a degree of interstate banking has created a highly competitive
environment for commercial banking in FSB's primary market areas. Moreover, FSB
competes with other commercial and savings banks, savings and loan
associations, credit unions, finance companies, asset-based lenders, mutual
funds, insurance companies, brokerage and investment banking companies, and
certain other nonfinancial entities, including retail stores and automobile
dealers which maintain their own credit programs and certain governmental
organizations. Certain of these competitors have substantially greater
resources and lending limits and other certain services which FSB does not
currently provide. Many of FSB's non-bank competitors are not subject to the
same extensive federal and state regulations that govern bank holding companies
and state chartered and insured banks.
LITIGATION
There is no material pending litigation in which Fredonia or FSB is a
party.
OFFICES
Fredonia's executive offices are located at 2400 North Street,
Nacogdoches, Texas 75961 and its branches are located at 2600 South Street in
Nacogdoches, West Side Town Square and Highway 59 in Garrison; and 102 North
Marcus in Alto.
EMPLOYEES
As of December 31, 1996, Fredonia and its subsidiaries had 123
employees, 103 of whom are located in Nacogdoches, Texas.
REGULATION AND SUPERVISION
As a bank holding company, Fredonia is subject to regulation by and
files annual and quarterly reports with the Federal Reserve Board, which is
authorized to conduct examinations of Fredonia and its subsidiaries. The
Federal Reserve Board may also exercise cease and desist powers over bank
holding companies if their actions are deemed to represent unsafe or unsound
practices or violations of law.
FSB and its operations are affected by various restrictions and
requirements under the laws of the United States and the State of Texas. Under
these generally applicable federal and state restrictions and requirements, FSB
must maintain reserves against deposits and is restricted with respect to the
nature and amount of the loans which it may make, the interest that it may
charge on those loans and the conditions under which it may pay dividend on its
capital stock.
DESCRIPTION OF FREDONIA STOCK
Fredonia has one class of common stock issued and outstanding. As of
May 31, 1997, Fredonia had 2,000,000 shares of authorized common stock, $10.00
par value, and 472,342 shares outstanding and 26,838 shares held in treasury.
Currently, approximately 392 Shareholders own shares of the Common Stock of
Fredonia.
<TABLE>
<CAPTION>
Dividends Paid Per Share
1994 1995 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Common Stock $.84 $.90 $1.05 $1.25
</TABLE>
47
<PAGE> 54
COMPARISON OF RIGHTS OF HOLDERS OF FREDONIA COMMON STOCK AND FIRST UNITED
COMMON STOCK
Fredonia is a corporation organized and existing under the laws of the
State of Texas, including the TBCA. First United is a corporation organized and
existing under the laws of the State of Arkansas, including the Arkansas
Business Corporation Act of 1987 ("1987 Act"). Holders of Fredonia common stock
have the rights, privileges and duties provided by the TBCA, while the holders
of First United Common Stock have the rights, privileges and duties provided by
the 1987 Act.
A majority of the outstanding shares of Fredonia common stock may
authorize the Merger pursuant to the TBCA. Approval by the First United
Shareholders is not required because the Articles of Incorporation of First
United, paragraph Seventh, allows the corporation to effect a merger or share
exchange with another entity pursuant to which the corporation would issue
shares of Common Stock in amount less than or equal to twenty percent (20%) of
the number of shares of Common Stock issued and outstanding immediately prior
to the consummation. The maximum number of 1,610,000 shares of First United
Common Stock which would be issued upon consummation of this transaction
represent approximately 19.5% of First United's issued and outstanding shares
of common stock.
The holders of Fredonia Common Stock are not entitled to cumulative
voting, whereas, holders of First United Common Stock are entitled to
cumulative voting for directors. Pursuant to First United's By-Laws, the number
of directors of the corporation may not be less than three nor more than
twenty-five. The Fredonia By-Laws require that the number of directors be at
least one, with the actual number set each year by resolution. Furthermore,
holders of Fredonia Common Stock and First United Common Stock do not have
preemptive rights with respect to issuance of additional securities.
Both Fredonia and First United have corporate power to indemnify their
officers and directors with respect to certain liabilities. Such power is
limited, however, by applicable federal laws and regulations including federal
banking laws and regulations and the applicable state law.
First United's Articles of Incorporation contain a paragraph that may
have the effect of operating as an anti-takeover provision. Paragraph SEVENTH
contains a super-majority voting requirement of two-thirds (2/3) of all shares
issued and outstanding that are entitled to vote for approval of (1) a merger
or share exchange with another corporation unless such merger or share exchange
can be effected under the authority of state law without shareholder approval,
(2) a transaction to sell, exchange, lease or otherwise dispose of all, or
substantially all, of the corporation's assets and property except where
accomplished in the usual and regular course of business, (3) a transaction
effecting a dissolution or liquidation of the corporation, or (4) any amendment
of the Articles of Incorporation. The Fredonia Articles of Incorporation do not
contain a like provision.
LEGAL MATTERS AND EXPERTS
LEGAL OPINIONS
The legality of the First United Common Stock to be issued after the
Merger has been consummated by and between First United and Fredonia will be
passed upon for First United by Mitchell, Williams, Selig, Gates & Woodyard,
P.L.L.C., 320 West Capitol Avenue, Suite 1000, Little Rock, Arkansas 72201.
Certain legal and tax matters relating to the Merger will be passed upon for
Fredonia by Bracewell & Patterson, L.L.P., 711 Louisiana Street, Suite 2900,
Houston, Texas 77002-2781.
EXPERTS
The consolidated financial statements of First United as of December
31, 1996 and 1995 and for each of the years in the three-year period ended
December 31, 1996 incorporated by reference in this Proxy Statement have been
audited by Arthur Andersen LLP, independent public accountants, as set forth in
their report with respect thereto and have been incorporated by reference
herein in reliance upon the authority of said firms as experts in accounting
and auditing.
The consolidated financial statements of Fredonia as of December 31,
1996 and 1995 and for each of the years in the three-year period ended December
31, 1996, have been audited by Axley & Rode LLP, independent auditors.
48
<PAGE> 55
GENERAL
As of the date of this Proxy Statement, the board of directors of
Fredonia does not intend to present, and has not been informed that another
person intends to present, any matter for action at the special meeting of
stockholders other than as discussed in this Proxy Statement. If any other
matters properly come before the meeting, it is intended that the holders of
the proxies will act in accordance with their best judgment.
49
<PAGE> 56
INDEX TO FREDONIA FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Financial Statements
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets - December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Income - Years ended December 31, 1996, 1995 and 19934 . . . . . . . . . . . . . F-4
Consolidated Statements of Shareholders' Equity - Years ended December 31, 1996, 1995 and 1994 . . . . . . F-5
Consolidated Statements of Cash Flows - Years ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . F-6
Notes to Financial Statements - December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Financial Statements
Consolidated Balance Sheets - March 31, 1997 (Unaudited) and December 31, 1996 . . . . . . . . . . . . . F-19
Consolidated Statements of Income (Unaudited) - Three Months ended March 31, 1997 and 1996 . . . . . . . F-20
Consolidated Statements of Shareholders' Equity (Unaudited) - Three Months ended March 31, 1997 . . . . . F-21
Consolidated Statements of Cash Flows (Unaudited) - Three Months ended March 31, 1997 and 1996 . . . . . F-22
Notes to Financial Statements (Unaudited) - March 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . F-23
</TABLE>
<PAGE> 57
AXLEY & RODE LLP
CERTIFIED PUBLIC ACCOUNTANTS
LUFKIN o NACOGDOCHES o CROCKETT o LIVINGSTON
TEXAS
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Fredonia Bancshares, Inc.
Nacogdoches, Texas
We have audited the consolidated balance sheets of Fredonia
Bancshares, Inc. and Subsidiary at December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Fredonia Bancshares, Inc. and Subsidiary at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
As discussed more fully in Note 10, Fredonia Bancshares, Inc. has
adopted the accrual method of accounting for certain salary continuation
agreements. Previously the Bank accounted for these agreements using the cash
basis method of accounting.
AXLEY & RODE LLP
/s/ Axley & Rode LLP
----------------------------
CERTIFIED PUBLIC ACCOUNTANTS
Lufkin, Texas
February 20, 1997
F-2
<PAGE> 58
FREDONIA BANCSHARES, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 1996 1995
--------- ---------
<S> <C> <C>
Cash and due from banks $ 10,881 $ 11,331
Federal funds sold 9,392 239
Investment Securities:
Available-for-sale 34,535 36,739
Held-to-maturity (approximate fair value of $58,437
and $71,286, respectively) (Note 2) 58,027 70,642
Loans, less allowance for loan losses of $1,414 and $2,301,
respectively (Note 3) 121,680 109,543
Bank premises and equipment, net (Note 4) 3,164 3,281
Accrued interest receivable 1,952 2,255
Other real estate 574 595
Other assets (Note 6) 1,748 2,037
--------- ---------
TOTAL ASSETS $ 241,953 $ 236,662
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 32,953 $ 33,537
NOW and money market deposit accounts 66,514 63,223
Savings 10,989 10,882
Time, $100,000 and over (Note 5) 30,352 27,233
Other time (Note 5) 75,957 77,703
--------- ---------
TOTAL DEPOSITS 216,765 212,578
Federal funds purchased -- 2,350
Accrued interest and other liabilities 1,995 1,976
--------- ---------
TOTAL LIABILITIES 218,760 216,904
--------- ---------
Stockholders' Equity (Notes 6, 7, 8, 10, 11, 12 and 13):
Common stock $10.00 par value, 2,000,000 shares
authorized, 499,180 and 420,554 shares issued, respectively 4,992 4,206
Surplus 6,222 6,222
Retained earnings 13,226 10,400
Treasury stock, at cost, 26,738 shares (936) (936)
Unrealized holding losses on securities available-for-sale
net of tax benefit of $159 in 1996 and $69 in 1995 (311) (134)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 23,193 19,758
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 241,953 $ 236,662
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 59
FREDONIA BANCSHARES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Interest Income:
Interest and Fees on loans (Note 3) $ 9,881 $ 8,650 $ 7,700
Interest on Investment Securities:
U. S. Treasury securities 1,098 1,541 2,010
Obligations of other U. S. government agencies 1,542 1,499 668
Mortgage-backed securities and collateralized mortgage obligations 2,135 2,323 1,852
Obligations of states and political subdivisions 780 797 761
Other investments 49 57 62
Interest on federal funds sold 435 477 346
Interest on deposits in banks -- -- 1
-------- -------- --------
15,920 15,344 13,400
-------- -------- --------
Interest Expense:
Interest on savings, NOW and money market deposit accounts 2,075 2,151 2,041
Interest on note payable -- 55 41
Interest on time deposits 5,518 5,106 3,801
Interest on federal funds purchased 2 7 --
-------- -------- --------
7,595 7,319 5,883
-------- -------- --------
Net interest income 8,325 8,025 7,517
Provision for loan losses (Note 3) (750) -- --
-------- -------- --------
Net interest income after provision for loan losses 9,075 8,025 7,517
-------- -------- --------
Other Income:
Service fees 1,656 1,649 1,432
Securities gains (losses), net -- (247) (4)
Gains (losses), net - Other real estate, other assets, fixed assets 12 143 47
Other income 316 281 238
-------- -------- --------
1,984 1,826 1,713
-------- -------- --------
Other Expenses:
Salaries and employee benefits (Notes 3, 7 and 10) 2,567 2,472 2,824
Occupancy expenses, net 492 426 388
Other operating expenses 2,115 1,993 1,818
FDIC insurance 15 245 447
-------- -------- --------
5,189 5,136 5,477
-------- -------- --------
Income before federal income taxes and change in accounting principle 5,870 4,715 3,753
Federal income taxes (Note 6) 1,757 1,365 1,050
-------- -------- --------
Income before change in accounting principle 4,113 3,350 2,703
Cumulative effect of change in accounting principle (Note 10) -- (178) --
-------- -------- --------
NET INCOME $ 4,113 $ 3,172 $ 2,703
======== ======== ========
Earnings Per Share:
Income before cumulative effect of change in accounting principle $ 8.71 $ 6.83 $ 5.43
Cumulative effect of change in accounting principle -- (0.36) --
-------- -------- --------
NET INCOME $ 8.71 $ 6.47 $ 5.43
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 60
FREDONIA BANCSHARES, INC., AND SUBSIDIARY
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK NET UNREALIZED
----------------------- LOSSES ON
RETAINED AVAILABLE FOR TREASURY
SHARES PAR VALUE SURPLUS EARNINGS SALE SECURITIES STOCK TOTAL
---------- ---------- ---------- ---------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 420,554 $ 4,206 $ 6,210 $ 5,384 $ -- $ (45) $ 15,755
Net income -- -- -- 2,703 -- -- 2,703
Cash dividend -- -- -- (419) -- -- (419)
Unrealized loss on investment
securities available-for-sale, -- -- -- -- (2,082) -- (2,082)
net of tax benefit of $1,072
Balance, December 31, 1994 420,554 4,206 6,210 7,668 (2,082) (45) 15,957
Net income -- -- -- 3,172 -- -- 3,172
Cash dividend -- -- -- (440) -- -- (440)
Sale of treasury stock -- -- 12 -- -- 45 57
Purchase of treasury stock -- -- -- -- -- (936) (936)
Change in unrealized loss on
securities available-for-sale -- -- -- -- 1,948 -- 1,948
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 420,554 4,206 6,222 10,400 (134) (936) 19,758
Net income -- -- -- 4,113 -- -- 4,113
Cash dividend -- -- -- (501) -- -- (501)
Stock dividend 78,626 786 -- (786) -- -- 0
Change in unrealized loss on
securities available-for-sale -- -- -- -- (177) -- (177)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 499,180 $ 4,992 $ 6,222 $ 13,226 $ (311) $ (936) $ 23,193
========== ========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 61
FREDONIA BANCSHARES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Cash Flows From Operating Activities 1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net income $ 4,113 $ 3,172 $ 2,703
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 314 407 332
Provision charged (credited) to operating expense (750) -- --
Amortization of goodwill 39 39 13
Deferred Federal income tax (benefit) 379 (221) 71
Net amortization on investment securities 390 349 695
Loss on sale of available-for-sale investments -- 247 4
(Gain) on sale of ORE (10) (152) (66)
Deferred loan costs, net (119) (164) (90)
Federal Home Loan Bank stock dividends (44) (46) (28)
Change in Assets and Liabilities:
(Increase) decrease in interest receivable 303 (341) (174)
(Increase) decrease in prepaid expenses and other assets (39) (742) 88
Increase in accrued interest payable 47 187 60
Increase (decrease) in accrued expenses and other liabilities 72 754 (49)
Increase (decrease) in Federal income tax payable (100) 140 (193)
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,595 3,629 3,366
---------- ---------- ----------
Cash Flows From Investing Activities
(Increase) decrease in federal funds sold (9,153) 10,544 (5,810)
Purchases of securities available-for-sale (973) (6,136) (19,409)
Proceeds from sales of securities available-for-sale -- 8,505 8,635
Proceeds from maturities of securities available-for-sale 500 6,000 2,100
Purchases of securities to be held-to-maturity (7,529) (22,116) (19,617)
Proceeds from maturities of securities held-to-maturity 18,143 15,228 9,790
Principal payments received on securities 4,034 2,565 7,466
Redemption of Federal Home Loan Bank stock 31 67 --
Net (increase) in loans (11,373) (14,022) (4,228)
Net (increase) in bank premises and equipment (197) (861) (333)
Payments received on previously charged-off loans 127 146 390
Proceeds from the sale of ORE 9 180 92
Goodwill resulting from acquisition -- -- (587)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (6,381) 100 (21,511)
---------- ---------- ----------
Cash Flows From Financing Activities
Net increase (decrease) in demand deposits, NOW accounts and
savings accounts 2,814 (6,388) 18,105
Net increase in time deposits 1,373 4,055 2,852
Increase (decrease) in federal funds purchased (2,350) 2,350 --
Increase in notes payable -- 936 1,186
Payments on notes payable -- (2,003) (119)
Dividends paid (501) (440) (419)
Proceeds from sale of treasury stock -- 57 --
Purchase of treasury stock -- (936) --
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,336 (2,369) 21,605
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (450) 1,360 3,460
Cash and cash equivalents at beginning of year 11,331 9,971 6,511
---------- ---------- ----------
Cash and cash equivalents at end of year $ 10,881 $ 11,331 $ 9,971
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cah Paid During the Year For:
Interest $ 7,548 $ 7,132 $ 5,823
Income taxes 1,471 1,211 1,236
Noncash Investing and Financing Activities:
Noncash transfers from loans to other real estate 78 86 --
Proceeds from sales of other real estate - financed 110 224 --
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE> 62
FREDONIA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fredonia Bancshares, Inc. ("Fredonia"), a bank holding company, owns all
of the capital stock of Fredonia Bancshares of Delaware, Inc. (a middle-tier
holding company) which owns all of the capital stock of Fredonia State Bank
(the "Bank"). The accounting and reporting policies of Fredonia conform to
generally accepted accounting principles and practices within the banking
industry. The following is a description of the more significant of those
policies.
Principles of Consolidation:
The consolidated financial statements include the accounts of Fredonia
and its subsidiary. All significant intercompany accounts and transactions have
been eliminated.
Nature of Operations:
The Bank operates under a state bank charter and provides full banking
services, including trust services. As a state bank, the Bank is subject to
regulation of the Texas Department of Banking, and the Federal Deposit
Insurance Corporation. The area served by the Bank is eastern Texas and
services are provided through the Bank's home office and four branch offices.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents:
For the purpose of presentation in the Statements of Cash Flows, cash and
cash equivalents are defined as those amounts included in the balance sheet
caption "Cash and due from banks."
Investment Securities:
Investment securities are categorized as either trading,
available-for-sale, or held-to-maturity. Management determines the appropriate
classification at the time of purchase. Securities for which the Bank has the
positive intent and ability to hold until maturity are classified as
held-to-maturity and carried at cost adjusted for premiums and discounts.
Securities to be held for indefinite periods of time and not intended to be
held until maturity are classified as available-for-sale and carried at fair
value. Securities held as trading assets are carried at fair value. At December
31, 1996, the Bank had no investment securities that qualified as trading.
Unrealized holding gains and losses, net of federal income tax effect, on
securities available-for-sale are reported as a net amount in a separate
component of stockholders' equity until realized.
Investment Securities - Continued:
Realized gains and losses on the sale of securities available-for-sale
are determined using the specific identification method.
Premiums and discounts are recognized in interest income using the
interest method and the straight-line method over the period to maturity.
F-7
<PAGE> 63
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
The Bank invests in stock of the Federal Reserve Bank and the Federal
Home Loan Bank. These stocks do not have a readily determinable fair value
because their ownership is restricted and they lack a market. They are stated
at cost on the balance sheet, and included in investment securities under the
caption "other investments" (see Note 2).
Loans:
Loans receivable that management has the intent and ability to hold for
the foreseeable future or until maturity or payoff are reported at their
outstanding principal balance adjusted for any charge-offs, allowance for loan
losses, unearned discount and any deferred fees or costs on originated loans.
Unearned discount on installment loans is recognized as income over the
terms of the loans by the interest method. Interest on other loans is
calculated by using the simple interest method on daily balances of the
principal amount outstanding. The recognition of income on a loan is
discontinued, and previously accrued interest is reversed, when interest or
principal payments become 90 days past due unless, in the opinion of
management, the outstanding interest remains collectible. Interest is
subsequently recognized only as received until the loan is returned to accrual
status.
Assets acquired through repossession are recorded at the lower of the
estimated realizable value or the balance of the loan and are carried in other
assets.
Effective January 1, 1995, the Bank adopted Statement of Financial
Accounting Standards (SFAS) No. 114 Accounting by Creditors for Impairment of a
Loan as amended by SFAS No. 118. SFAS No. 114 requires that impaired loans
within the scope of this statement be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or
as a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. Interest income on
impaired loans is recognized in accordance with the accounting principles
employed in the recognition of interest income on nonimpaired loans.
Student loans originated and intended for sale in the secondary market
are carried at the lower of cost or estimated market value in the aggregate.
Any net unrealized losses would be recognized through a valuation allowance by
charges to income. At December 31, 1996 and 1995 there were no net unrealized
losses on these loans.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield on the related loan.
Allowance for Loan Losses:
The allowance is maintained at a level which, in management's judgment,
is adequate to absorb potential losses in the loan portfolio. The amount of the
allowance is based on management's evaluation of the collectibility of the loan
portfolio, including the nature of the portfolio, credit concentrations, trends
in historical loss experience, economic conditions and other relevant factors.
The allowance is increased by a provision for loan losses, which is charged to
expense and reduced by charge-offs, net of recoveries. Losses are charged and
recoveries are credited to the allowance for loan losses at the time the loss
or recovery is incurred.
Other Real Estate:
Real estate properties acquired through, or in lieu of, loan foreclosure
are to be sold and are initially recorded at fair value at the date of
foreclosure establishing a new cost basis. After foreclosure, valuations are
periodically performed by management and the real estate is carried at the
lower of carrying amount of fair value less cost to sell. Revenue and expenses
from operations and changes in the valuation allowance are included in loss on
foreclosed real estate.
Advertising:
The Bank expenses the production costs of advertising as these costs are
incurred.
F-8
<PAGE> 64
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Income Taxes:
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Bank Premises and Equipment:
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation expense is computed on the straight-line method over
the estimated useful lives of the assets. Maintenance and repairs which do not
extend the life of bank premises and equipment are charged to expense.
Fair Value of Financial Instruments:
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
Cash, Due from Banks and Federal Funds Sold - For these financial
instruments, the carrying amount is a reasonable estimate of fair value.
Investment Securities - For securities held as investments, fair value
equals quoted market price, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
securities.
Fair Value of Financial Instruments - Continued:
Loan Receivables - The fair value of loans is estimated using discounted
cash flow analysis, based on interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality. Loan fair value
estimates included judgments regarding future expected loss experience and risk
characteristics.
Deposit Liabilities - The fair value of demand deposits, savings
accounts, and money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of deposit is
estimated using the rates currently offered for deposits of similar remaining
maturities.
Accrued Interest - The carrying amounts of accrued interest approximates
their fair values.
Net Income Per Share of Common Stock:
Net income per share of common stock is computed by dividing net income
by the weighted average number of shares of common stock outstanding during the
period.
Stock Dividend:
All share and per share amounts for 1996, 1995 and 1994, set forth in the
consolidated financial statements and notes thereto have been retroactively
adjusted for a twenty percent stock dividend paid January 31, 1996.
Intangible Assets:
The excess cost of a purchased bank over the book value of net tangible
assets at date of acquisition is recorded as goodwill and is being amortized
using the straight-line method over a period of fifteen years.
F-9
<PAGE> 65
NOTE 2 - INVESTMENT SECURITIES
The investment securities as shown in the balance sheet are comprised of
securities classified as available-for-sale and held-to-maturity. Investment
securities classified as available-for-sale are carried at market value.
Investment securities classified as held-to-maturity are carried at cost,
adjusted for amortization of premiums and accretion of discounts.
The amortized cost and approximate fair values of securities
available-for-sale at December 31 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1996: COST GAINS LOSSES VALUE
--------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
U. S. Treasury securities $ 977 $ 10 $ -- $ 987
Obligations of other U. S
government agencies 7,120 36 (154) 7,002
Obligations of states and
political subdivisions -- -- -- --
Mortgage-backed securities and
collateralized mortgage
obligations 26,815 261 (623) 26,453
Other investments 93 -- -- 93
--------- --------- --------- ---------
TOTALS $ 35,005 $ 307 $ (777) $ 34,535
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1995: COST GAINS LOSSES VALUE
--------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
U. S. Treasury securities $ -- $ -- $ -- $ --
Obligations of other U. S
government agencies 7,648 89 (117) 7,620
Obligations of states and
political subdivisions -- -- -- --
Mortgage-backed securities and
collateralized mortgage
obligations 29,147 265 (441) 28,971
Other investments 147 1 -- 148
--------- --------- --------- ---------
TOTALS $ 36,942 $ 355 $ (558) $ 36,739
========= ========= ========= =========
</TABLE>
The amortized cost and approximate fair values of investment securities
held-to-maturity at December 31 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1995: COST GAINS LOSSES VALUE
--------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
U. S. Treasury securities $ 17,545 $ 72 $ (35) $ 17,582
Obligations of other U. S
government agencies 16,113 205 (29) 16,289
Obligations of states and
political subdivisions 14,755 244 -- 14,999
Mortgage-backed securities and
collateralized mortgage
obligations 8,769 29 (124) 8,674
Other investments 845 48 -- 893
--------- --------- --------- ---------
TOTALS $ 58,027 $ 598 $ (188) $ 58,437
========= ========= ========= =========
</TABLE>
F-10
<PAGE> 66
NOTE 2 - INVESTMENT SECURITIES - CONTINUED
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1995: COST GAINS LOSSES VALUE
--------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
U. S. Treasury securities $ 24,958 $ 167 $ (131) $ 24,994
Obligations of other U. S
government agencies 18,736 457 (2) 19,191
Obligations of states and
political subdivisions 19,720 189 (30) 19,879
Mortgage-backed securities and
collateralized mortgage
obligations 6,396 38 (90) 6,344
Other investments 832 46 -- 878
--------- --------- --------- ---------
TOTALS $ 70,642 $ 897 $ (253) $ 71,286
========= ========= ========= =========
</TABLE>
Investment securities with a carrying amount of approximately $27,831,000
and $27,996,000 at December 31, 1996 and 1995, respectively, and an approximate
market value of $28,009,000 and $28,170,000 at December 31, 1996 and 1995,
respectively, were pledged to secure public deposits and for other purposes
required or permitted by law.
The amortized cost and approximate fair values of investment securities
available- for-sale and held-to-maturity at December 31, 1996, by expected
maturity, are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
SECURITIES HELD TO SECURITIES AVAILABLE
MATURITY FOR SALE
--------------------- ---------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 14,827 $ 14,842 $ -- $ --
Due after one year but less
than five years 30,094 30,430 8,097 7,989
Due after five years but
less than ten years 3,291 3,397 -- --
Due after ten years 201 201 -- --
--------- --------- --------- ---------
48,413 48,870 8,097 7,989
Mortgage-backed securities and
collateralized mortgage
obligations 8,769 8,674 26,815 26,453
Other securities 845 893 93 93
--------- --------- --------- ---------
$ 58,027 $ 58,437 $ 35,005 $ 34,535
========= ========= ========= =========
</TABLE>
Proceeds from sales of investment securities available-for-sale during
1996, 1995 and 1994 were approximately $-0-, $8,505,000, and $8,635,000
respectively. Gross losses of approximately $247,000 and $4,000 respectively
were realized on 1995 and 1994 sales.
F-11
<PAGE> 67
NOTE 3 - LOANS
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
---------- ----------
(Dollars in Thousands)
<S> <C> <C>
Commercial and real estate $ 107,477 $ 101,067
Installment 10,877 9,045
Credit card 1,262 1,281
Overdrafts 243 206
Student loans 4,443 1,228
---------- ----------
124,302 112,827
Unearned discount (1,208) (983)
---------- ----------
123,094 111,844
Allowance for loan losses (1,414) (2,301)
---------- ----------
$ 121,680 $ 109,543
========== ==========
</TABLE>
At December 31, 1996 and 1995, the amount of loans owed to the Bank by
their directors, executive officers, principal holders of Fredonia Bancshares,
Inc. equity securities and their related entities totaled approximately
$1,850,000 and $1,886,000, respectively. All of the transactions entered into
between the Bank and these parties were made on substantially the same terms
and conditions as those prevailing at the time for comparable transactions with
other parties.
At December 31, 1996 and 1995, the Bank had loans of approximately
$757,000 and $712,000 on which the accrual of interest income has been
suspended.
Effective January 1, 1995, the Bank was required to adopt the provisions
of SFAS No. 114 Accounting by Creditors for Impairment of a Loan as amended by
SFAS No. 118. The accounting change was adopted prospectively. The total
recorded investment in impaired loans was approximately $417,000 and $447,000
at December 31, 1996 and 1995, respectively. The total amount of impaired loans
is subject to an allowance for loan losses of approximately $104,000 and
$116,000 at December 31, 1996 and 1995, respectively. The average recorded
investment in impaired loans was approximately $435,000 and $525,000 during
1996 and 1995, respectively. There was no interest income recognized on the
impaired loans during 1996 or 1995.
In accordance with the provisions established in Statement of Financial
Accounting Standards No. 91, certain nonrefundable loan fees and related direct
costs associated with the lending function are deferred. The deferral of these
fees and costs is accounted for as an adjustment to salaries and employee
benefits and the amounts deferred were approximately $1,260,000 and $1,213,000
in 1996 and 1995, respectively. The amortization of these deferred costs is
amortized to income over the term of the respective loan and loan commitment
periods as a yield adjustment to interest income on loans. The amount of these
costs amortized were approximately $1,065,000 and $1,022,000 in 1996 and 1995,
respectively.
The Bank had approximately $4,443,000 and $1,228,000 of student loans
held for sale at December 31, 1996 and 1995, respectively. The market value of
these loans approximated the carrying value.
NOTE 3 - LOANS - CONTINUED
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
YEARS
--------------------------------------
1996 1995 1994
---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
Balance, beginning of year $ 2,301 $ 2,583 $ 2,732
Provision (recapture) charged to operations (750) -- --
Loans charged off (264) (428) (625)
Recoveries 127 146 390
Merger and acquisition -- -- 86
---------- ---------- ----------
Balance, end of year $ 1,414 $ 2,301 $ 2,583
========== ========== ==========
</TABLE>
F-12
<PAGE> 68
NOTE 4 - BANK PREMISES AND EQUIPMENT
Major classifications of these assets are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
USEFUL LIVES ------------------
YEARS 1996 1995
-------------- ------ ------
(Dollars in Thousands)
<S> <C> <C> <C>
Land $1,267 $1,267
Building 10 - 40 2,351 2,291
Equipment and automobiles 5 - 20 2,528 2,421
------ ------
6,146 5,979
Accumulated depreciation (2,982) (2,698)
------ ------
$3,164 $3,281
====== ======
</TABLE>
Depreciation expense amounted to $313,966, $407,476 and $331,886 in 1996,
1995 and 1994, respectively.
NOTE 5 - DEPOSITS
The aggregate amount of short-term jumbo CDs, each with a minimum
denomination of $100,000, was approximately $25,963,000 and $22,015,000 at
December 31, 1996 and 1995, respectively.
At December 31, 1996, the scheduled maturities of CDs are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
<S> <C>
1997 $ 85,972
1998 10,611
1999 3,788
2000 4,331
2001 and thereafter 1,607
--------
$106,309
========
</TABLE>
Deposits due executive officers, directors and principal shareholders of
Fredonia Bancshares, Inc. equity securities totaled approximately $356,000 and
$323,000 at December 31, 1996 and 1995, respectively.
NOTE 6 - FEDERAL INCOME TAXES
The provision for federal income taxes from continuing operations
consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------
DECEMBER 31,
----------------------------------
1996 1995 1994
--------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C>
Current tax expense $ 1,378 $ 1,586 $ 979
Deferred tax expense (benefit) 379 (221) 71
--------- --------- ---------
$ 1,757 $ 1,365 $ 1,050
========= ========= =========
</TABLE>
The following reconciliation provides an analysis of the reasons for the
variation between income tax expense allocated to continuing operations and the
expected provision on pretax income:
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------
DECEMBER 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C>
Expected tax provision on pretax income at 34% $ 1,996 $ 1,603 $ 1,276
Effect of Permanent Differences:
Tax-exempt interest income (266) (270) (263)
Disallowed expenses 27 32 37
--------- --------- ---------
$ 1,757 $ 1,365 $ 1,050
========= ========= =========
</TABLE>
F-13
<PAGE> 69
At December 31, 1996 and 1995, the Bank had a net deferred tax asset of
approximately $74,000 and $363,000, respectively, included in other assets in
the accompanying consolidated balance sheet. The tax effects of the application
of a 34% statutory rate on the following temporary differences which gave rise
to the deferred asset are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1996 1995
--------- ---------
(Dollars in Thousands)
<S> <C> <C>
Financial basis of securities in excess of tax basis $ (156) $ (98)
Financial basis of fixed assets in excess of tax basis (76) (78)
Tax basis of loans in excess of financial basis 210 489
Tax basis of other real estate in excess of
financial basis 36 45
Tax basis of deferred loan costs in excess of
financial basis (379) (339)
Unrealized net holding loss on securities
available-for-sale 159 69
Financial basis of accrued deferred compensation
liability in excess of tax basis 246 242
Other, net 34 33
--------- ---------
$ 74 $ 363
========= =========
</TABLE>
NOTE 7 - PENSION PLAN
The Bank had a defined benefit pension plan covering substantially all of
its employees. The plan called for benefits to be paid to eligible employees at
retirement based primarily upon years of service with the Bank and compensation
rates near retirement. The Bank's funding policy was to contribute annually the
minimum amount that could be deducted for federal income tax purposes.
Contributions were intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future.
The Board of Directors of the Bank adopted a resolution December 21, 1994
to terminate the defined benefit pension plan effective March 13, 1995. As a
result of the termination, all plan assets were distributed according to
guidelines established at the inception of the plan.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1996 1995 1994
----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C>
Pension expense Includes the Following Components:
Service cost of the current period $-- $ 25 $ 71
Interest cost on the projected benefit obligation -- 53 61
Less: Actual return on assets held in the plan -- (63) (21)
Asset (gain) loss deferred for later recognition -- 22 (27)
Net amortization of transition liability and
net gain (loss) -- 6 6
----- ----- -----
Pension expense $-- $ 43 $ 90
===== ===== =====
</TABLE>
The Bank has a salary deferral retirement savings plan qualified under
Section 401(k) of the Internal Revenue Code of 1986 for the benefit of all
qualifying employees who have completed one year of service. Participants in
the Plan may make deferral contributions to the Plan which are 100% vested at
all times. The Bank's directors determine annually the amount of contributions
to be made to the Plan. During 1996 and 1995, the Bank matched a minimum of 50%
of the employee's contributions up to 5% of salary. Bank matching contributions
are fully vested after seven years of service. In 1996, 1995 and 1994, the Bank
made contributions of $300,000, $223,000, and $162,000, respectively, to the
401(k) Plan.
F-14
<PAGE> 70
NOTE 8 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the consolidated financial instruments at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
--------- ---------
(Dollars in Thousands)
<S> <C> <C>
Financial assets:
Cash, due from banks, and federal funds sold $ 20,273 $ 20,273
Investment securities 92,562 92,972
Loans 123,094 122,899
Less allowance for loan losses (1,414) (1,414)
--------- ---------
$ 234,515 $ 234,730
========= =========
Financial liabilities - Deposits $ 216,765 $ 217,120
========= =========
</TABLE>
NOTE 8 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
The estimated fair values of the consolidated financial instruments at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
--------- ---------
(Dollars in Thousands)
<S> <C> <C>
Financial assets:
Cash, due from banks, and federal funds sold $ 11,570 $ 11,570
Investment securities 107,381 108,025
Loans 111,844 110,788
Less: allowance for loan losses (2,301) (2,301)
--------- ---------
$ 228,494 $ 228,082
========= =========
Financial liabilities - Deposits $ 212,578 $ 212,939
========= =========
</TABLE>
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers
and to reduce its own exposure to fluctuations in interest rates. These
financial instruments include commitments to extend credit and standby letters
of credit. Those instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the statement of
financial position. The contract amounts of those instruments reflect the
extent of involvement the Bank has in particular classes of financial
instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit,
standby letters of credit and credit card arrangements is represented by the
contractual amount of those instruments. The Bank uses the same credit policies
in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
At December 31, 1996, the Bank had the following financial instruments
whose contract amounts represent credit risk:
<TABLE>
<CAPTION>
(Dollars in Thousands)
<S> <C>
Commitments to extend credit $15,105
Standby letters of credit 184
Credit card arrangements 3,614
-------
$18,903
=======
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained if deemed necessary by the Bank upon extension of credit is based on
management's credit evaluation of the counterparty. Collateral held varies but
largely consists of real estate, inventory, equipment and accounts receivable.
Credit card loan commitments are unsecured.
F-15
<PAGE> 71
NOTE 9 - COMMITMENTS AND CONTINGENCIES - CONTINUED
Standby letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. Collateral held for
the standby letters of credit primarily consists of deposits, inventory and
equipment; however, some letters are unsecured.
The Bank is also subject to claims and lawsuits which arise primarily in
the ordinary course of business. Based on information presently available and
advice received from legal counsel representing the Bank in connection with
such claims and lawsuits, it is the opinion of management that the disposition
or ultimate determination of such claims and lawsuits will not have a material
adverse effect on the financial position of the Bank.
The Bank has two lines of credit totaling $6,000,000 at December 31, 1996
for the purchase of Federal funds. At December 31, 1996, the amount outstanding
under these lines of credit was $-0-.
NOTE 10 - SALARY CONTINUATION AGREEMENTS
The Bank has salary continuation agreements with certain key employees
which provide for annual payments for a maximum of 15 years beginning when the
employee reaches age 65 or at his/her death. The Bank has purchased life
insurance policies on those certain key employees for which the Bank is the
beneficiary.
In 1995, the Bank changed its method of accounting for the salary
continuation agreements, whereby the discounted present value of the estimated
future payments are accrued. Previously, the amount of payments made had been
expensed as paid. The cumulative effect of this change has been shown as a
charge to income of approximately $178,000 on the prior year's statement of
income.
For the years 1996, 1995 and 1994, compensation expense under the Bank's
salary continuation agreement was $104,136, $95,464 and $69,976, respectively.
NOTE 11 - CONCENTRATION OF CREDIT RISK
The Bank grants agribusiness, commercial, consumer and residential loans
to customers located primarily in Nacogdoches County. Although the Bank has a
diversified loan portfolio, its debtors' ability to honor their contracts is
primarily dependent upon the economy of Nacogdoches County.
NOTE 12 - RESTRICTIONS ON RETAINED EARNINGS
The Bank is subject to certain restrictions on the amount of dividends
that it may declare without prior regulatory approval. At December 31, 1996,
approximately $9,988,000 of retained earnings were available for dividend
declaration without prior regulatory approval.
NOTE 13 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary actions, by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1996, that
the Bank meets all capital adequacy requirements to which it is subject.
F-16
<PAGE> 72
As of December 31, 1996, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as
well capitalized the Bank must maintain minimum total risk-based, Tier I
risk-based and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institution's category.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
----------------------- --------------------------- ---------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- --------- ----- --------- -----
(Dollars in (Dollars in (Dollars in
Thousands) Thousands) Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital
(to risk weighted
assets) $23,866 19.47% $9,804 less than 8.0% $12,255 greater than 10.0%
Tier I Capital or equal to or equal to
(to risk weighted
assets) $22,452 18.32% $4,902 less than 4.0% $ 7,353 greater than 6.0%
Tier I Capital or equal to or equal to
(to average
assets) $22,452 9.27% $9,686 less than 4.0% $12,108 greater than 5.0%
or equal to or equal to
</TABLE>
NOTE 13 - REGULATORY MATTERS - CONTINUED
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
----------------------- --------------------------- ---------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- --------- ----- --------- -----
(Dollars in (Dollars in (Dollars in
Thousands) Thousands) Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1995:
Total Capital
(to risk weighted
assets) $19,725 17.44% $9,047 less than 8.0% $11,309 greater than 10.0%
Tier I Capital or equal to or equal to
(to risk weighted
assets) $18,300 16.18% $4,523 less than 4.0% $ 6,785 greater than 6.0%
Tier I Capital or equal to or equal to
(to average
assets) $18,300 7.82% $9,363 less than 4.0% $11,704 greater than 5.0%
or equal to or equal to
</TABLE>
NOTE 14 - PARENT COMPANY FINANCIAL INFORMATION
Presented below are the condensed balance sheets and statements of income
and cash flows for the Parent Company, Fredonia Bancshares, Inc.:
F-17
<PAGE> 73
Balance Sheets (Dollars in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
ASSETS 1996 1995
--------- ---------
<S> <C> <C>
Cash and cash equivalents $ 548 $ 1,049
Investment in subsidiary 22,645 18,702
Other assets -- 7
--------- ---------
TOTAL ASSETS $ 23,193 $ 19,758
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Common stockholders' equity $ 23,193 $ 19,758
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 23,193 $ 19,758
========= =========
</TABLE>
<TABLE>
<CAPTION>
Statements of Income (Dollars in Thousands) YEARS ENDED
DECEMBER 31,
----------------------
1996 1995
--------- ---------
<S> <C> <C>
Income:
Dividends from subsidiary $ -- $ 1,700
Interest income -- 35
--------- ---------
TOTAL INCOME -- 1,735
--------- ---------
Expenses:
Interest expense -- 65
Federal income taxes 7 --
--------- ---------
TOTAL EXPENSES 7 65
--------- ---------
Income (loss) before equity in undistributed net
income of subsidiary (7) 1,670
Equity in undistributed net income of subsidiary 4,120 1,502
--------- ---------
NET INCOME $ 4,113 $ 3,172
========= =========
</TABLE>
<TABLE>
<CAPTION>
Statements of Cash Flows (Dollars in Thousands) YEARS ENDED
DECEMBER 31,
----------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 4,113 $ 3,172
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Equity in undistributed net income of
subsidiary bank (4,120) (1,502)
Net accretion on investment securities -- (19)
(Increase) decrease in accrued interest receivable -- 15
Decrease in other assets 7 --
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES -- 1,666
--------- ---------
Cash Flows from Investing Activities:
Purchase of investment securities -- (1,495)
Maturities of held-to-maturity securities -- 3,000
--------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES -- 1,505
--------- ---------
Cash Flows From Financing Activities:
Increase in notes payable -- 936
Payments made on notes payable -- (2,003)
Dividends paid (501) (440)
Proceeds from sale of treasury stock -- 57
Purchase of treasury stock -- (936)
--------- ---------
NET CASH (USED IN) FINANCING ACTIVITIES (501) (2,386)
--------- ---------
Net increase (decrease) in cash and cash equivalents (501) 785
Cash and cash equivalents at beginning of year 1,049 264
--------- ---------
Cash and cash equivalents at end of year $ 548 $ 1,049
========= =========
</TABLE>
F-18
<PAGE> 74
FREDONIA BANCSHARES, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 (UNAUDITED) AND DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Cash and due from banks $ 11,968 $ 10,881
Federal funds sold 10,509 9,392
Investment Securities:
Available-for-sale 39,036 34,535
Held-to-maturity (approximate fair value of $52,678
and $58,437, respectively) 52,656 58,027
Loans, less allowance for loan losses of $1,418 and $1,414,
respectively 127,580 121,680
Bank premises and equipment, net 3,133 3,164
Accrued interest receivable 1,932 1,952
Other real estate 539 574
Other assets 2,063 1,748
--------- ---------
TOTAL ASSETS $ 249,416 $ 241,953
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 34,309 $ 32,953
NOW and money market deposit accounts 70,625 66,514
Savings 10,982 10,989
Time, $100,000 and over 30,643 30,352
Other time 76,521 75,957
--------- ---------
TOTAL DEPOSITS 223,080 216,765
Accrued interest and other liabilities 2,764 1,995
--------- ---------
TOTAL LIABILITIES 225,844 218,760
--------- ---------
Stockholders' Equity :
Common stock $10.00 par value, 2,000,000 shares
authorized, 499,180 shares issued 4,992 4,992
Surplus 6,222 6,222
Retained earnings 13,589 13,226
Treasury stock, at cost, 26,838 shares in 1997
and 26,738 shares in 1996 (940) (936)
Unrealized holding losses on securities available-for-sale
net of tax benefit of $150 in 1997 and $159 in 1996 (291) (311)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 23,572 23,193
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 249,416 $ 241,953
========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
F-19
<PAGE> 75
FREDONIA BANCSHARES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(Unaudited) (Unaudited)
Interest Income:
<S> <C> <C>
Interest and Fees on loans $ 2,857 $ 2,685
Interest on Investment Securities:
U. S. Treasury securities 288 308
Obligations of other U. S. government agencies 354 402
Mortgage-backed securities and collateralized mortgage obligations 558 546
Obligations of states and political subdivisions 161 219
Other investments 11 12
Interest on federal funds sold 113 50
--------- ---------
4,342 4,222
--------- ---------
Interest Expense:
Interest on savings, NOW and money market deposit accounts 549 522
Interest on time deposits 1,360 1,380
Interest on federal funds purchased -- 2
--------- ---------
1,909 1,904
--------- ---------
Net interest income 2,433 2,318
Provision for loan losses 30 (750)
--------- ---------
Net interest income after provision for loan losses 2,403 3,068
--------- ---------
Other Income:
Service fees 410 397
Gains (losses), net - Other real estate, other assets, fixed assets 10 13
Other income 126 119
--------- ---------
546 529
--------- ---------
Other Expenses:
Salaries and employee benefits 930 843
Occupancy expenses, net 109 128
Other operating expenses 529 553
FDIC insurance 1 10
--------- ---------
1,569 1,534
--------- ---------
Income before federal income taxes 1,380 2,063
Federal income taxes 426 641
--------- ---------
NET INCOME $ 954 $ 1,422
========= =========
Earnings Per Share:
NET INCOME (Note 2) $ 2.02 $ 3.18
========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
F-20
<PAGE> 76
FREDONIA BANCSHARES, INC., AND SUBSIDIARY
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK NET UNREALIZED
----------------------- LOSSES ON
RETAINED AVAILABLE FOR TREASURY
SHARES PAR VALUE SURPLUS EARNINGS SALE SECURITIES STOCK TOTAL
---------- ---------- ---------- ---------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 499,180 $ 4,992 $ 6,222 $ 13,226 $ (311) $ (936) $ 23,193
Net income -- -- -- 954 -- -- 954
Cash dividend -- -- -- (591) -- -- (591)
Purchase of Treasury Stock -- -- -- -- -- (4) (4)
Change in unrealized loss on
securities available-for-sale -- -- -- -- 20 -- 20
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, March 31, 1997 499,180 $ 4,992 $ 6,222 $ 13,589 $ (291) $ (940) $ 23,572
========== ========== ========== ========== ========== ========== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
F-21
<PAGE> 77
FREDONIA BANCSHARES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
Cash Flows From Operating Activities (Unaudited) (Unaudited)
<S> <C> <C>
Net income $ 954 $ 1,422
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation 81 80
Provision charged (credited) to operating expense 30 (750)
Amortization of goodwill 10 10
Deferred Federal income tax (benefit) (391) 4
Net amortization on investment securities 73 117
(Gain) on sale or ORE (12) (12)
Deferred loan costs,net (12) (17)
Federal Home Loan Bank stock dividends (11) (12)
Change in Assets and Liabilities:
Decrease in interest receivable 20 84
Decrease in prepaid expenses and other assets 57 84
Increase (decrease) in accrued interest payable (45) 54
Increase (decrease) in accrued expenses and other liabilities (11) 89
Increase in Federal income tax payable 825 534
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,568 1,687
-------- --------
Cash Flows From Investing Activities
(Increase) in federal funds sold (1,117) (5,485)
Purchases of securities available-for-sale (4,054) --
Purchases of securities to be held-to-maturity (1,004) --
Proceeds from maturities of securities held-to-maturity 5,185 5,735
Principal payments received on securities 710 1,404
Net (increase) in loans (5,960) (2,809)
Net (increase) in bank premises and equipment (50) (44)
Payments received on previously charged-off loans 42 45
Proceeds from the sale of ORE 47 17
-------- --------
NET CASH (USED IN) INVESTING ACTIVITIES (6,201) (1,137)
-------- --------
Cash Flows From Financing Activities
Net increase (decrease) in demand deposits, NOW accounts and savings accounts 5,460 (2,014)
Net increase in time deposits 855 2,137
(Decrease) in federal funds purchased -- (2,350)
Dividends paid (591) (501)
Purchase of treasury stock (4) --
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 5,720 (2,728)
-------- --------
Net increase (decrease) in cash and cash equivalents 1,087 (2,178)
Cash and cash equivalents at beginning of year 10,881 11,331
-------- --------
Cash and cash equivalents at end of year $ 11,968 $ 9,153
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash Paid For:
Interest $ 1,980 $ 1,915
Income taxes 20 103
</TABLE>
See notes to unaudited consolidated financial statements.
F-22
<PAGE> 78
FREDONIA BANCSHARES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 1: FINANCIAL STATEMENT PRESENTATION
The consolidated balance sheet as of March 31, 1997, the consolidated
statements of income and cash flows for the three months ended March 31, 1997
and 1996 and the statement of stockholders' equity for the three months ended
March 31, 1997, have been prepared by Fredonia, without audit. In the opinion
of management, all adjustments (consisting only of normal recurring items)
necessary to present fairly the financial position, results of operations and
cash flows at March 31, 1997 and for all period presented have been made.
Operating results for the three months ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1997.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted in accordance with Article 10 of Regulation S-X.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended December
31, 1996 included elsewhere herein.
NOTE 2: NET INCOME PER SHARE
Net income per share of common stock is computed by dividing net income
by the weighted average number of shares of common stock outstanding during the
period (472,411 shares and 472,442 shares for the three-month periods ended
March 31, 1997 and 1996, respectively).
F-23
<PAGE> 79
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Arkansas Business Corporation Act of 1987 (the "Act") codified
at Ark. Code Ann. Section 4-27-101 et. seq. and more specifically at Ark.
Code Ann. Section 4-27-850 permits an Arkansas Corporation to indemnify
directors, officers, employees and agents under some circumstances, and
mandates indemnification under certain limited circumstances. The Act
permits a corporation to indemnify a director, officer, employee, or agent
for expenses (including attorneys' fees), judgements, fines and amounts
paid in settlement actually and reasonably incurred if such person acted in
good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation. Indemnification against expenses
incurred by a director, officer, employee or agent in connection with his
defense of a proceeding against such person for actions in such capacity is
mandatory to the extent that such person has been successful on the merits.
If a director, officer, employee, or agent is determined to be liable to
the corporation, indemnification for expenses is not allowable, subject to
limited exceptions where a court deems the award of expenses appropriate.
The Act grants express power to an Arkansas corporation to purchase
liability insurance for its directors, officers, employees and agents,
regardless of whether any such person is otherwise eligible for
indemnification by the corporation. Advancement of expenses is permitted,
but a person receiving such advances must repay those expenses if it is
ultimately determined that he is not entitled to indemnifications.
The Amended and Restated Articles of Incorporation and the Bylaws
of First United provides that the directors, officers, employees and agents
of First United shall be indemnified as set forth below.
AMENDED AND RESTATED ARTICLES OF INCORPORATION
TWELFTH. The corporation may indemnify any person who was, or is,
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding to the fullest extent permitted by the
Arkansas Business Corporation Act as it now exists or may hereafter be
amended.
BY-LAWS
Article VII, Section 6. INDEMNIFICATION. Every person who was or
is a party or is threatened to be made a party to or is involved in any
action, suit, proceeding, whether civil, criminal, administrative, or
investigative, by reason of the fact that he is or was a director or
officer of the Corporation or is or was serving at the request of the
Corporation as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust, or other enterprise,
shall be indemnified and held harmless to the fullest extent legally
permissible under and pursuant to any procedure specified in the Arkansas
Business Corporation Act of the State of Arkansas, as amended and as the
same may be amended hereafter, against all expenses, liabilities, and
losses (including attorney's fees, judgments, fines and amounts paid or to
be paid in settlement) reasonably incurred or suffered by him in connection
therewith. Such right of indemnification shall be a contract right that
may be enforced in any lawful manner by such person. Such right of
indemnification shall not be exclusive of any other right which such
director or officer may have or hereafter acquire and, without limiting the
generality of such statement, he shall be entitled to his rights of
indemnification under any agreement, vote of stockholders, provisions of
law, or otherwise, as well as his rights under this paragraph.
The board of directors may cause the Corporation to purchase and
maintain insurance on behalf of any person who is or was a Director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise
against any liability asserted against such person and incurred in any such
capacity or arising out of such status, whether or not the Corporation
would have power to indemnify such person.
II-1
<PAGE> 80
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
---------- ----------------------
<S> <C>
2 Agreement and Plan of Reorganization Between First
United Bancshares, Inc., First United of Texas,
Inc. and Fredonia Bancshares, Inc. and Plan of
Merger attached as Exhibit A thereto.
3(i) Articles of Incorporation of First United
Bancshares, Inc.
3(ii) Bylaws of First United Bancshares, Inc.
5 Opinion of Mitchell, Williams, Selig, Gates &
Woodyard, P.L.L.C.
8 Tax Opinion of Bracewell & Patterson, L.L.P.
regarding Fredonia Bancshares, Inc.
Acquisition
21 Subsidiaries of First United Bancshares, Inc.
23(a) Consent of Arthur Andersen LLP
23(b) Consent of Axley & Rode LLP
23(c) Consent of Hoefer & Arnett, Incorporated
24 Power of Attorney - Signature Page of the Registration Statement
99 Fredonia Bancshares, Inc. Form of Proxy
</TABLE>
----------------
ITEM 22. UNDERTAKINGS
(1) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933,
each filing of the registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(2) The undersigned registrant hereby undertakes to deliver or
cause to be delivered with the prospectus, to each person to whom the
prospectus is sent or given, the latest annual report to security holders
that is incorporated by reference in the prospectus and furnished pursuant
to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Securities Exchange Act of 1934; and, where interim financial information
required to be presented by Article 3 of Regulation S-X are not set forth
in the prospectus, to deliver, or cause to be delivered to each person to
whom the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such
interim financial information.
(3) The undersigned registrant hereby undertakes as follows:
that prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(4) The registrant undertakes that every prospectus (i) that
is filed pursuant to paragraph (3) immediately preceding, or (ii) that
purports to meet the requirements of section 10(a)(3) of the Act and is
used in connection with an offering of securities subject to Rule 415, will
be filed as a part of an amendment to the registration statement and will
not
II-2
<PAGE> 81
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(5) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(6) The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein, that was not
the subject of and included in the registration statement when it became
effective.
(7) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date
of the registration statement through the date of responding to the
request.
(8) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this registration
statement.
(i) To include any prospectus required by
section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts
or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the information set
forth in the registration statement;
(iii) To include any material information
with respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement;
Provided, however, that paragraphs (a)(1)(i) and
(a)(1)(ii) do not apply if the registration statement is on Form S-3
(Section 239.13 of this chapter) or Form S-8 (Section 239.16b of this
chapter), and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this
registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
II-3
<PAGE> 82
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized in the City of El Dorado, State
of Arkansas, on June __, 1997.
FIRST UNITED BANCSHARES, INC.
/s/ James V. Kelley
----------------------------------------------------------
James V. Kelley
Chairman, President and Chief Executive Officer
/s/ John E. Burns
----------------------------------------------------------
John E. Burns,
Vice President, Chief Financial Officer
and Principal Accounting Officer
KNOW ALL MEN BY THESE PRESENTS: That the undersigned, a Director or
Officer, or both, of First United Bancshares, Inc. (the "Corporation"),
acting pursuant to authorization of the Board of Directors of the
Corporation hereby appoints James V. Kelley and John E. Burns,
attorney-in-fact and agents for me and in my name and on behalf,
individually and as a Director or Officer, or both, of the Corporation to
sign a Registration Statement on Form S-4 and any amendments (including
post effective amendments) and supplements thereto, of the Corporation to
be filed with the Securities and Exchange Commission pursuant to any
applicable rule under the Securities Act of 1933, as amended (the "Act")
with respect to the issue and sale of not more than 1,610,000 shares of
common stock, par value $1.00 of the Corporation, said shares to be
exchanged to the shareholder of Fredonia Bancshares, Inc. with respect to
the merger by and between Fredonia Bancshares, Inc. will be merged with and
into First United of Texas, Inc., a wholly-owned subsidiary of the
Corporation, and generally to do and perform all things necessary to be
done in connection with the foregoing as fully in all respects as I could
do personally.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
IN WITNESS WHEREOF, I have hereunto set my hand this 25 day of June,
1997.
<PAGE> 83
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James V. Kelley Chairman, President, June 25, 1997
--------------------------- Chief Executive Officer
James V. Kelley and Director
/s/ John E. Burns Vice President, Chief June 25, 1997
--------------------------- Financial Officer and
John E. Burns Principal Accounting Officer
/s/ E. Larry Burrow Director June 25, 1997
---------------------------
E. Larry Burrow
Director June 25, 1997
---------------------------
Claiborne P. Deming
/s/ Tommy Hillman Director June 25, 1997
---------------------------
Tommy Hillman
</TABLE>
<PAGE> 84
<TABLE>
<S> <C> <C>
/s/ Roy E. Ledbetter Director June 25, 1997
-----------------------------
Roy E. Ledbetter
/s/ Michael F. Mahony Director June 25, 1997
-----------------------------
Michael F. Mahony
/s/ Richard H. Mason Director June 25, 1997
-----------------------------
Richard H. Mason
/s/ Jack W. McNutt Director June 25, 1997
-----------------------------
Jack W. McNutt
/s/ R. Madison Murphy Director June 25, 1997
-----------------------------
R. Madison Murphy
/s/ Robert C. Nolan Director June 25, 1997
-----------------------------
Robert C. Nolan
/s/ Cal Partee, Jr. Director June 25, 1997
-----------------------------
Cal Partee, Jr.
/s/ Carolyn Tennyson Director June 25, 1997
-----------------------------
Carolyn Tennyson
/s/ John D. Trimble, Jr. Director June 25. 1997
-----------------------------
John D. Trimble, Jr.
</TABLE>
<PAGE> 85
FIRST UNITED BANCSHARES, INC.
FORM S-4 REGISTRATION STATEMENT
Index to Exhibits
<TABLE>
<S> <C>
2 Agreement and Plan of Reorganization Between First United Bancshares, Inc., First United of Texas,
Inc. and Fredonia Bancshares, Inc. and Plan of Merger attached as Exhibit A thereto.
3(i) Articles of Incorporation of First United Bancshares, Inc.
3(ii) Bylaws of First United Bancshares, Inc.
5 Opinion of Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C.
8 Tax Opinion of Bracewell & Patterson, L.L.P. regarding Fredonia Bancshares, Inc. Acquisition
21 Subsidiaries of First United Bancshares, Inc.
23(a) Consent of Arthur Andersen LLP
23(b) Consent of Axley & Rode LLP
23(c) Consent of Hoefer & Arnett, Incorporated
24 Power of Attorney - Signature Page of the Registration Statement
99 Fredonia Bancshares, Inc. Form of Proxy
</TABLE>
<PAGE> 1
EXHIBIT 2
Agreement and Plan of Reorganization
Between
First United Bancshares, Inc.,
First United of Texas, Inc.
and
Fredonia Bancshares, Inc.
with Exhibits
<PAGE> 2
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made as of
April 25, 1997 by and between First United Bancshares, Inc., an Arkansas
corporation ("Bancshares"),First United of Texas, Inc., an Arkansas
corporation ("FTI"), and Fredonia Bancshares, Inc., a Texas corporation
("Fredonia").
WHEREAS, Fredonia owns indirectly through its wholly owned subsidiary
Fredonia Bancshares of Delaware, Inc. ("Sub") one hundred percent (100%)
of the issued and outstanding shares of capital stock of Fredonia State
Bank, Nacogdoches, Texas ("FSB"); and
WHEREAS, Bancshares desires to acquire one hundred percent (100%) of the
capital stock of Fredonia (the "Fredonia Common Stock") upon the terms and
conditions hereinafter set forth through the merger of Fredonia with and
into FTI(the "Merger"), pursuant to a Plan of Merger in substantially the
form attached hereto as Exhibit A (the "Plan of Merger"); and
WHEREAS, the respective Boards of Directors of Bancshares , FTI, and
Fredonia believe that such proposed Merger and the exchange of shares of
Bancshares Stock (as defined in Section 2.01(a) hereof) for the Fredonia
Common Stock, pursuant and subject to the terms of this Agreement and the
Plan of Merger (the "Merger Agreements"), is desirable and in the best
interests of their respective corporations and shareholders; and
WHEREAS, Bancshares, FTI and Fredonia intend that the merger shall
qualify for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the"Code") and shall be recorded for accounting purposes as a pooling of
interests; and
WHEREAS, Bancshares, FTI, and Fredonia desire to make certain
representations, warranties and agreements in connection with the Merger
and also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the promises, representations,
warranties and agreements herein contained, the parties hereto agree as
follows:
ARTICLE I
THE MERGER
1.01. The Merger. Subject to the terms and conditions of this Agreement,
Bancshares, FTI, and Fredonia agree to effect the Merger of Fredonia with
and into FTI in accordance with the Arkansas Business Corporation Act (the
"ABCA") and the Texas Business Corporation Act ("TBCA").
<PAGE> 3
1.02. Effective Time of the Merger. Subject to the provisions of this
Agreement, articles of merger (the "Articles of Merger") shall be duly
prepared and executed by FTI and Fredonia and thereafter delivered to the
Secretaries of State of Arkansas and Texas for filing, as provided in the
ABCA, and the TBCA, as soon as practicable on or after the Closing Date (as
defined in Section 1.03). The Merger shall become effective upon the
filing of the Articles of Merger with the Secretaries of State of Arkansas
and Texas or at such time within two business days thereafter as is
provided in the Articles of Merger (the "Effective Time").
1.03. Closing. The closing of the Merger (the "Closing") will take place
at the offices of Bancshares at a time and on a date (the "Closing Date")
to be specified in writing by the parties as soon as reasonably practicable
after the later to occur of all regulatory and other approvals and the
expiration of all waiting periods. Fredonia and Bancshares shall use their
respective best efforts to cause the Closing to occur as soon after
September 1, 1997 as is practicable.
ARTICLE II
EFFECT OF THE MERGER
2.01. Effect on Common Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of
Fredonia Common Stock:
(a) Conversion of Fredonia Common Stock. The purchase price
paid by Bancshares to the owners of Fredonia Common Stock ("Fredonia
Shareholders") shall be One Million Six Hundred Thousand (1,600,000) shares
of fully paid and nonassessable shares of voting Common Stock, $1.00 par
value of Bancshares (the "Purchase Price" or "Bancshares Stock"). All of
the issued and outstanding shares of Fredonia Common Stock, other than
Dissenting Shares (as defined below), shall be converted into the right to
receive a pro rata portion of the Purchase Price based upon each
Shareholder's pro rata ownership of the total number of issued and
outstanding shares of Fredonia Common Stock at the Effective Time.
(b) Fractional Shares. Fractional shares of Bancshares Stock
shall not be issued. Any Fredonia Shareholder or holder of options to
purchase Fredonia Common Stock ("Options") entitled to receive a fractional
share shall receive a cash payment in lieu thereof equal to the value of
the fractional share based on the average sales price per share of
Bancshares common stock for all trades occurring on NASDAQ during the
period of ten (10) trading days on which one
2
<PAGE> 4
or more trades take place and which ends immediately prior to the second
trading day preceding the Closing Date ("Pricing Average").
(c) Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, shares of Fredonia Common Stock which are issued
and outstanding immediately prior to the Effective Time and which are held
by Shareholders who have not voted such shares in favor of the Merger and
who shall have delivered a written demand for payment of the fair value of
such shares within the time and in the manner provided in Article 5.12 of
the TBCA (the "Dissenting Shares") shall not be converted into or
exchangeable for the right to receive the Purchase Price provided in
Section 2.01(a) of this Agreement, and such Shareholders shall only be
entitled to receive payment of the fair cash value of such shares in
accordance with the provisions of the TBCA unless and until such holder
shall have failed to perfect or shall have effectively withdrawn or lost
such right, at which time such holder's Fredonia Common Stock shall
thereupon be deemed to have been converted into and have become
exchangeable for, at the Effective Time, the right to receive the Purchase
Price without any interest thereon.
(d) Cancellation of Shares. All shares of Fredonia Common
Stock issued and outstanding and all Options outstanding immediately prior
to the Effective Time shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each
holder of a certificate representing any such shares or Options shall cease
to have any rights with respect thereto, except the right to receive a pro
rata number of shares of Bancshares Stock (or cash in the case of
Dissenting Shares) to be issued in consideration therefor upon the
surrender of such certificate in accordance with the Plan of Merger or to
receive Option Conversion Shares as defined below.
(e) Anti-Dilution. If prior to the Effective Time shares of
Bancshares Stock shall be changed into a different number of shares or a
different class of shares by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares, readjustment
or similar transaction, or if a stock dividend shall be declared,
appropriate and proportionate adjustment or adjustments will be made in
the conversion rates set forth in subsections (a) and (h).
(f) Registration. The Bancshares Stock shall when issued be
subject to and covered by an effective registration statement as filed
under the Securities Act of 1933, as amended, and the rules and regulations
thereunder (the "Securities Act"), and such issuance shall comply with any
applicable state "Blue Sky" laws.
(g) Termination of 401(k) Plan. As soon as practicable after
execution of this Agreement, Fredonia shall and shall cause FSB to make all
filings, take all action and receive all approvals necessary and
appropriate to allow termination of the Fredonia 401(k) plan immediately
prior to the Closing Date. Bancshares shall assist Fredonia in
3
<PAGE> 5
accomplishing the above procedures and shall assist Fredonia employees in
any distribution or rollover of their 401(k) benefits to a self-directed
retirement plan or to a Bancshares plan as set forth in Section 6.07 of
this Agreement to the extent such rollovers are permissible under the
Bancshares Plan, ERISA (as defined below) and applicable rules and
regulations.
(h) Stock Options. Each outstanding Option to purchase
Fredonia Common Stock shall be converted into the right to receive
Bancshares Common Stock equal to the appreciated value of the said Option as
of the Effective Time as follows : The number of issued and outstanding
shares of Fredonia Common Stock as of the Effective Time shall be divided
into 1,600,000 to determine an option ratio. Said option ratio shall be
multiplied by the number of shares subject to option to determine the
interim shares. The interim shares shall be multiplied by the Pricing
Average, the total option purchase price shall be subtracted from said
amount and the result shall be divided by the Pricing Average to determine
the number of shares of Bancshares Common Stock to be issued to the
optionholder ("Option Conversion Shares").
2.02. Approval By Shareholders. Consummation of the Merger shall be
contingent upon its approval by the legally required votes of the shares of
Fredonia Common Stock at a shareholders meeting duly called for the purpose
of voting on the Merger. The Board of Directors of Fredonia shall
recommend approval of the Merger to the Fredonia Shareholders.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FREDONIA
Fredonia hereby represents and warrants to Bancshares and FTI the
following:
3.01. Organization, Standing and Power of Fredonia. Fredonia is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Texas and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its
business as now being conducted, except where the failure to have such
power or authority would not have a material adverse effect on the
business, operations or financial condition of Fredonia or any Fredonia
Subsidiary (as hereinafter defined). Fredonia is not qualified to do
business in any other state or foreign jurisdiction, and its ownership or
leasing of property or the conduct of its business does not require it to
be so qualified, except where such failure to be so qualified would not
have a material adverse effect on the business, operations or financial
condition of Fredonia or any Fredonia Subsidiary. Fredonia is registered
as a bank holding company with the Federal Reserve Board ("FRB") under the
Bank Holding Company Act of 1956, as amended (the "BHC Act"). Fredonia has
delivered to Bancshares true, accurate and complete copies of its currently
effective Articles of Incorporation and Bylaws, including all amendments
thereto.
4
<PAGE> 6
3.02. Ownership, Organization, Standing and Power of Fredonia
Subsidiaries. Fredonia directly and beneficially owns all of the shares of
the outstanding capital stock of Sub which owns all of the shares of the
outstanding capital stock of FSB. FSB owns all of the shares of the
outstanding capital stock of Fredonia Building Corporation ("FBC"), a
trusteed affiliate of FSB. FSB, FBC and Sub are hereinafter called
collectively the "Fredonia Subsidiaries" or individually a "Fredonia
Subsidiary". FSB, FBC and Sub are Fredonia's only subsidiaries. No
equity securities of FSB, FBC or Sub are or may become required to be
issued by reason of any option, warrant, call, right or agreement of any
character whatsoever; there are outstanding no securities or rights
convertible into or exchangeable for shares of any capital stock of FSB,
FBC or Sub; and there are no other contracts, commitments, understandings
or arrangements by which either FSB, FBC or Sub is bound to issue
additional shares of its capital stock or options, warrants, calls, rights
or agreements to purchase or acquire any additional shares of its capital
stock. All of the outstanding shares of capital stock of Sub owned by
Fredonia, of FSB owned by Sub and of FBC owned by FSB are fully paid and
nonassessable and are owned free and clear of any claim, lien, encumbrance
or agreement with respect thereto. No consent of any person must be
obtained by FSB, FBC or Sub prior to consummation of the Merger. FSB is a
banking association duly organized, validly existing and in good standing
under the laws of Texas, and has the corporate power and authority to own
or lease its properties and assets and to carry on its businesses as it is
now being conducted, except where the failure to have such power or
authority would not have a material adverse effect on the business,
operations or financial condition of Fredonia or FSB. The deposits of FSB
are insured by the Federal Deposit Insurance Corporation ("FDIC") to the
extent provided by law. Sub is a corporation duly organized, validly
existing and in good standing under the laws of Delaware, and has the
corporate power and authority to own and lease its properties and assets
and to carry on its business as it is now being conducted, except where the
failure to have such power or authority would not have a material adverse
effect on the business, operations or financial condition of Fredonia or
Sub. Sub is registered as a bank holding company with the FRB under the
BHC. FBC is a corporation duly organized, validly existing and in good
standing under the laws of Texas, and has the corporate power and authority
to own and lease its properties and assets and to carry on its business as
it is now being conducted, except where the failure to have such power or
authority would not have a material adverse effect on the business,
operations or financial condition of Fredonia or FBC. Fredonia has
delivered to Bancshares true, accurate and complete copies of the currently
effective Articles of Incorporation and Bylaws of FSB, FBC and Sub,
including all amendments thereto. Except for securities held in their
capacities as fiduciaries, FSB, FBC and Sub do not own beneficially,
directly or indirectly, any class of equity securities, partnership
interests or similar interests of any corporation, bank, partnership,
limited partnership, business trust, association
5
<PAGE> 7
or similar organization. The authorized capital stock of FSB consists of
287,496 shares of common stock, $10.00 par value, all of which shares are
outstanding and are owned by Sub. The authorized capital stock of Sub
consists of 3,000 shares of common stock, $.01 par value, all of which
shares of common stock are outstanding and are owned by Fredonia. FSB or
its predecessor banks have been chartered as banking institutions for
more than 5 years. The authorized capital stock of FBC consists of 25,000
shares of common stock, $10.00 par value, of which 100 shares of common
stock are outstanding and are owned by FSB.
3.03. Capital Structure of Fredonia. The authorized capital stock of
Fredonia consists of 2,000,000 shares of common stock, $10.00 par
value, 472,342 of which shares are issued and outstanding and 26,838 shares
are held by Fredonia in its treasury, and 1,000,000 shares of preferred
stock, $1.00 par value, no shares of which are issued and outstanding.
Neither Fredonia, FSB, FBC nor Sub has issued and has outstanding bonds,
debentures, notes or other indebtedness having the right to vote (or
convertible into securities having the right to vote) on any matters on
which shareholders may vote ("Voting Debt"). All outstanding shares of
Fredonia Common Stock are validly issued, fully paid, nonassessable, and
not subject to preemptive rights. Except as set forth in Exhibit 3.03,
there are no options, warrants, calls, rights, or agreements of any
character whatsoever to which Fredonia, FSB, FBC or Sub is a party or by
which Fredonia, FSB, FBC or Sub is obligated to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock
or any Voting Debt securities or by which Fredonia, FSB, FBC or Sub is
obligated to grant, extend or enter into any such option, warrant, call,
right or agreement. Except as set forth in Exhibit 3.03, immediately
before and after the Effective Time there will be no option, warrant, call,
right or agreement obligating Fredonia, FSB, FBC or Sub to issue, deliver
or sell, or cause to be issued, delivered or sold, any shares of capital
stock or obligating Fredonia, FSB, FBC or Sub to grant, extend or enter
into any such option, warrant, call, right or agreement.
3.04. Authority. Fredonia has all requisite corporate power and
authority to enter into this Agreement and the Plan of Merger and, subject
only to approval of this Agreement and the Plan of Merger by the
shareholders of Fredonia and of applicable regulatory authorities, to
consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement and the Plan of Merger and the consummation
of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of Fredonia's
board of directors. This Agreement and the Plan of Merger have been duly
executed and delivered by Fredonia, and, subject to such regulatory and
shareholder approval, each constitutes a valid and binding obligation of
Fredonia enforceable in accordance with its terms, except as the
enforceability of the Agreement may be subject to or limited by bankruptcy,
insolvency, reorganization,
6
<PAGE> 8
arrangement, moratorium or other similar laws relating to or affecting the
rights of creditors and by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at
law). The execution and delivery of this Agreement and the Plan of Merger
do not, and the consummation of the transactions contemplated hereby and
thereby will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or the
loss of a material benefit under, or the creation of a lien, pledge,
security interest or other encumbrance on assets (any such conflict,
violation, default, right of termination, cancellation or acceleration loss
or creation, a "Violation"), pursuant to any provision of (a) the Articles
of Incorporation or Bylaws of Fredonia, FSB, FBC or Sub or (b) any loan or
credit agreement, note, mortgage, indenture, lease, or other agreement,
obligation, instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Fredonia, FSB, FBC or Sub or their respective properties or assets, except
where such violation would not have a material adverse effect on the
business, operations or financial condition of Fredonia or any Fredonia
Subsidiary. Other than in connection or in compliance with the provisions
of the ABCA, the TBCA, the Securities Act and the regulations thereunder,
the Securities and Exchange Act of 1934, as amended, and the rules and
regulations thereunder (the "Exchange Act"), the securities or blue sky
laws of the various states, and consents, authorizations, approvals,
notices or exemptions required under the BHC Act, the National Bank Act,
Arkansas banking laws, Texas banking laws, and from other regulatory
agencies, no consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission
or other governmental authority or instrumentality, domestic or foreign (a
"Governmental Entity"), is required by or with respect to Fredonia, FSB,
FBC or Sub in connection with the execution and delivery of this Agreement
and the Plan of Merger by Fredonia or the consummation by Fredonia of the
transactions contemplated hereby and thereby.
3.05. Fredonia Financial Statements.
(a) The (i) consolidated balance sheets of Fredonia as of
December 31, 1996, and December 31, 1995 and the related consolidated
statements of income, consolidated statements of cash flows and
consolidated statements of shareholders equity for the years then ended
certified by Axley & Rode LLP, and (ii) the internally prepared and
unaudited financial statements for FSB, FBC and Sub dated March 31, 1997
(items (i) - (ii) being called collectively the "Fredonia Financial
Statements"), copies of which have been furnished by Fredonia to
Bancshares, have been prepared in accordance with (A) generally accepted
accounting principles and practices with respect to item (i) and (B)
accounting principles and practices applied on a consistent basis
throughout the periods involved (except as otherwise noted therein and
except for
7
<PAGE> 9
year-end adjustments of the unaudited financial statements of a
non-material nature) with respect to item (ii). The Fredonia Financial
Statements present fairly the consolidated financial condition of Fredonia
and the financial condition of FSB, FBC and Sub, at the dates, and the
results of operations and cash flows for the periods, stated therein.
Neither Fredonia, FSB, FBC nor Sub has any liability of any nature, whether
direct, indirect, accrued, absolute, contingent or otherwise, which is
material to Fredonia except as provided for or disclosed in the Fredonia
Financial Statements and except for such of the following liabilities as
are incurred in the ordinary course of business:
(i) deposit liabilities and interest payable
thereon,
(ii) federal funds purchased and securities
sold under repurchase agreements and
interest payable thereon,
(iii) other short term borrowings,
(iv) contingent liability upon negotiable
instruments endorsed for the purpose of
collection,
(v) taxes,
(vi) accounts payable of the operating
business,
(vii) salaries and benefits payable,
(viii) unearned income and premiums,
(ix) abandoned and garnished accounts, and
(x) letters of credit and similar commitments.
(b) Without limitation of the foregoing, except as described
in Exhibit 3.05(b), Fredonia has no reserve allowance for self-insured
health and dental benefit claims and knows of no facts which should cause
it to create such a reserve.
3.06. Fredonia Reports. Fredonia, FSB, FBC and Sub have filed all
reports, registrations and statements, together with any amendments
required to be made with respect thereto, that were and are required to be
filed with (i) the FRB, (ii) the FDIC, (iii) the Texas Banking
Commissioner (the "TBC") and (iv) any other applicable securities, banking
or regulatory authorities (all such reports and statements are collectively
referred to herein as the "Fredonia Reports"), except where such failure to
file would not have a material adverse effect on the business operations or
financial condition of Fredonia or any Fredonia Subsidiary. The Fredonia
Reports complied in all material respects with all of the statutes, rules
and regulations enforced or promulgated by the regulatory authority with
which they were filed and did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
8
<PAGE> 10
3.07. Information Supplied. None of the information supplied or to be
supplied by Fredonia for inclusion or incorporation by reference in any
document to be filed with the Securities and Exchange Commission, the FRB,
or any regulatory agency in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of a material fact or
omits or will omit a material fact required to be stated therein in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading. Fredonia has made available to Bancshares
all financial and other information reasonably requested by Bancshares.
3.08. Authorizations; Compliance with Applicable Laws. Fredonia, FSB,
FBC and Sub hold all authorizations, permits, licenses, variances,
exemptions, orders and approvals of all Governmental Entities which are
material to the operations of the businesses of Fredonia, FSB, FBC or Sub
(the "Fredonia Permits"), including appropriate authorizations from the
TBC. Fredonia, FSB, FBC and Sub are in compliance with the terms of the
Fredonia Permits, except where the failure so to comply would not have a
material adverse effect on Fredonia, FSB, FBC or Sub. The business of FSB
is not being conducted in violation of any federal, state or local law,
statute, ordinance or regulation of any Governmental Entity (collectively
"Laws"), including, without limitation, Regulation O of the FRB, except for
possible violations which individually or in the aggregate do not and,
insofar as reasonably can be foreseen, in the future will not, have a
material adverse effect on Fredonia, FSB, FBC or Sub. No investigation or
review by any Governmental Entity with respect to Fredonia, FSB, FBC or Sub
is pending or, to the best of their knowledge, threatened, nor has any
Governmental Entity indicated an intention to conduct the same. Without
limiting the foregoing, there have been no acts or omissions occurring on
or with respect to real estate currently or previously owned, leased or
otherwise used in the ordinary course of business by Fredonia, FSB, FBC or
Sub or, to the best of their knowledge, in which Fredonia, FSB, FBC or Sub
has or had an investment or security interest (by mortgage, deed of trust,
or otherwise), including, without limitation, properties under foreclosure,
properties held by Fredonia, FSB, FBC or Sub in its capacity as a trustee,
or properties in which any venture capital or similar unit of Fredonia,
FSB, FBC or Sub has or had an interest (the "Fredonia Property"), which
constitute or result, or may have constituted or resulted, in the creation
of any federal, state or common law nuisance (whether or not the nuisance
condition is, or was, foreseen or unforeseen) or which do not comply or
have not complied with federal, state or local environmental laws
including, without limitation, the Clean Water Act, the Clean Air Act, the
Resource Conservation and Recovery Act, the Toxic Substances Control Act
and the Comprehensive Environmental, Response, Compensation and Liability
Act, as amended, and their state and local law counterparts, all rules and
regulations promulgated thereunder and all other legal requirements
associated with the ownership and use of the Fredonia Property
9
<PAGE> 11
(collectively, "Environmental Laws"), and as a result of which acts or
omissions Fredonia, FSB, FBC or Sub is subject to or reasonably likely to
incur a material liability or suffer a diminution in value of any interest
exceeding $100,000.00. Neither Fredonia, FSB, FBC nor Sub is subject to or
reasonably likely to incur a material liability or suffer a diminution in
value of any interest exceeding $100,000.00 as a result of its ownership,
lease, operation, or use of any Fredonia Property or as a result of its
investment or security interest (as described above) in any Fredonia
Property (a) that is contaminated by or contains any hazardous waste, toxic
substances or related materials, including without limitation asbestos,
PCBs, pesticides, herbicides, petroleum products, substances defined as
"hazardous substances" or "toxic substances" in the Environmental Laws, and
any other substances or waste that is hazardous to human health or the
environment (collectively, "Toxic Substances"), or (b) on which any Toxic
Substance has been stored, disposed of, placed, or used in the construction
thereof. No claim, action, suit or proceeding is pending against Fredonia,
FSB, FBC or Sub relating to the Fredonia Property before any court or
other governmental authority or arbitration tribunal relating to Toxic
Substances, pollution or the environment, and there is no outstanding
judgment, order, writ, injunction, decree, or award against or affecting
Fredonia, FSB, FBC or Sub with respect thereto.
3.09. Litigation and Claims. Except as disclosed in Exhibit 3.09 (a)
neither Fredonia, FSB, FBC nor Sub is subject to any continuing order of,
or written agreement or memorandum of understanding with, or continuing
material investigation by, any federal or state banking or insurance
authority or other Governmental Entity, or any judgment, order, writ,
injunction, decree or award of any Governmental Entity or arbitrator,
including, without limitation, cease-and-desist or other orders of any bank
regulatory authority, (b) there is no claim of any kind, action, suit,
litigation, proceeding, arbitration, investigation, or controversy
affecting Fredonia, FSB, FBC or Sub pending or, to the best of their
knowledge, threatened, which will have or can reasonably be expected to
have a material adverse effect on Fredonia, FSB, FBC or Sub and (c) there
are no uncured material violations, or violations with respect to which
material refunds or restitutions may be required, cited in any compliance
report to Fredonia, FSB, FBC or Sub as a result of the examination by any
bank regulatory authority.
3.10. Taxes. Fredonia, FSB, FBC and Sub have filed all tax returns
required to be filed by them and have paid or have set up an adequate
reserve for the payment of, all taxes required to be paid as shown on such
returns, and the most recent Fredonia Financial Statements reflect an
adequate reserve for all taxes payable by Fredonia, FSB, FBC and Sub
accrued through the date of such financial statements. There has been no
examination by the United States Internal Revenue Service ("IRS") of
Fredonia, FSB, FBC or Sub for over seven years. There is no examination
pending by the IRS with respect to Fredonia, FSB, FBC or Sub. Neither
Fredonia, FSB, FBC nor Sub has executed or filed with the IRS any
agreement which
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is still in effect extending the period for assessment and collection of
any federal tax, and there are no existing material disputes as to federal,
state, or local taxes due from Fredonia, FSB, FBC or Sub. There are no
material liens for taxes upon the assets of Fredonia, FSB, FBC or Sub
except for statutory liens for taxes not yet delinquent. Neither Fredonia,
FSB, FBC nor Sub is a party to any action or proceeding by any governmental
authority for assessment and collection of taxes, and no claim for
assessment and collection of taxes has been asserted against any of them.
For the purpose of this Agreement, the term "Tax" (including, with
correlative meaning, the terms "taxes" and "taxable") shall include all
federal, state, and local income, profits, franchise, gross receipts,
payroll, sales, employment, use, personal and real property, withholding,
excise and other taxes, duties or assessments of any nature whatsoever,
together with all interest, penalties and additions imposed with respect to
such amounts. Fredonia, FSB, FBC and Sub have withheld from their
employees and timely paid to the appropriate governmental agency proper and
accurate amounts for all periods through the date hereof in material
compliance with all Tax withholding provisions of applicable federal,
state, and local laws (including without limitation income, social security
and employment tax withholding for all types of compensation).
3.11. Certain Agreements.
(a) Except as disclosed in Exhibit 3.11(a) or 3.12(a), neither
Fredonia, FSB, FBC nor Sub is a party to any (i) consulting, professional
services , employment or other agreement not terminable at will providing
any term of employment, compensation, guarantee, severance, supplemental
retirement benefits, or other employment benefits or rights, (ii) agreement
or plan, any of the benefits of which will be increased, or the vesting of
the benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of the transactions
contemplated by this Agreement, (iii) any stock option plan, stock
appreciation rights plan, restricted stock plan, stock purchase plan or
similar plan granting rights to acquire stock in Fredonia, FSB, FBC or Sub,
or (iv) contract containing covenants which limit the ability of Fredonia,
FSB, FBC or Sub to compete in any line of business or with any person or
which involve any restriction of the geographical area in which, or method
by which, Fredonia, FSB, FBC or Sub may carry on its business (other than
as may be required by law or applicable regulatory authorities). Except as
set forth in Exhibit 3.11(a), Fredonia, FSB, FBC and Sub shall terminate
all existing consulting, professional services and employment contracts,
other than at will employment contracts by no later than the Closing Date.
(b) Except as set forth on Exhibit 3.11(b), neither the Fredonia, FSB,
FBC nor Sub is a party to any oral or written union, guild or collective
bargaining agreement or to any conciliation agreement with the Department
of Labor, the Equal
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Employment Opportunity Commission or any federal, state or local agency
which requires equal employment opportunities or affirmative action in
employment. To the best of Fredonia's knowledge, there are no unfair labor
practice complaints pending against Fredonia, FSB, FBC or Sub before the
National Labor Relations Board and there are no similar claims pending
before any similar state, local or foreign agency. There is no activity or
proceeding of any labor organization (or representative thereof) or
employee group to organize any employees of Fredonia, FSB, FBC or Sub, nor
any strikes, slowdowns, work stoppages, lockouts, or threats thereof, by or
with respect to any such employees. Fredonia, FSB, FBC and Sub are in
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and
neither the Fredonia, FSB, FBC nor Sub is engaged in any unfair labor
practice except where any violation would not have a material adverse
effect on the business, operations or financial condition of Fredonia or
any Fredonia Subsidiary.
3.12. Benefit Plans.
(a) With respect to any collective bargaining agreement or any bonus,
pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, medical or
other plan, policy, program, arrangement or understanding (whether or not
legally binding) including "employee pension benefit plans" (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) (sometimes referred to herein as "Pension Plans"),
"employee welfare benefit plans" (as defined in Section (3)(1) of ERISA)
(sometimes referred herein as "Welfare Plans")(collectively, "Plans")
providing benefits to any current or former employee, officer or director
of Fredonia or any of the Fredonia Subsidiary that are in effect on the
date hereof, and all Plans currently maintained, or contributed to, or
required to be maintained or contributed to, by Fredonia or any other
person or entity that, together with Fredonia, FSB, FBC or Sub, is treated
as a single employer under Section 414(b), (c), (m) or (o) of the Internal
Revenue Code of 1986, as amended (the "Code") or Section 4001(a) (14) or
4001(b) of ERISA (each a "Commonly Controlled Entity") (including each
Pension Plan that Fredonia or any commonly controlled entity that is, or
within the last six years was, subject to Title IV of ERISA and for which
Fredonia, FSB, FBC or Sub could have material liability) (all of the
foregoing such plans being herein referred to as the "Fredonia Benefit
Plans"), Fredonia has delivered, or caused to be delivered, to Bancshares
true, complete and correct copies of (i) each Fredonia Benefit Plan, (ii)
annual reports (Forms 5500) and all schedules thereto filed with the IRS
with respect to each Fredonia Benefit Plan for the past five years (if any
such report was required), (iii) the most recent summary plan description
for each Fredonia Benefit Plan for which such summary plan description is
required, (iv) each trust agreement,
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group annuity contract, investment management agreement, and any other
insurance contract or funding arrangement relating to any Fredonia Benefit
Plan; (v) the most recent actuarial report or valuation relating to a
Fredonia Benefit Plan subject to Title IV of ERISA; (vi) the most recent
determination letter as to qualification of each Fredonia Benefit Plan and
the forms and attachments submitted to the IRS for such determination
letter; (vii) a list of the Fredonia Benefit Plans; (viii) copies of all
tests for compliance for the past five years under Code Sections 401(a)(4),
401(a)(26), 401(k), 401(m), 404, 410(b), and 415, if applicable, for the
Fredonia Benefit Plans; and (ix) copies of all closing agreements and
documentation regarding any IRS, Department of Labor or Pension Benefit
Guaranty Corporation or self-correction procedures affecting the
qualification and/or operation of each Fredonia Benefit Plan.
(b) Exhibit 3.12(b) lists each deferred compensation plan, bonus and
incentive arrangement, stock option plan, restricted stock arrangement,
"cafeteria plan" as described in Section 125 of the Code and any other
"employee welfare benefit plan" (as defined in Section 3(1) of ERISA) and
each "employee pension benefit plan" (as defined in Section 3 (2) of ERISA)
maintained by Fredonia, FSB, FBC or Sub or to which Fredonia, FSB, FBC or
Sub contributes or is required to contribute, and sets forth the amount of
any liability of Fredonia, FSB, FBC or Sub for contributions more than 30
days past due with respect to each as of the date hereof and as of the end
of any subsequent month ending prior to the Closing.
(c) Unless otherwise listed in Exhibit 3.12(b), neither Fredonia nor
any Commonly Controlled Entity nor any entity that has ever been a Commonly
Controlled Entity has ever maintained any Pension Plan which is a defined
benefit plan.
(d) No Welfare Plan provides for continuing benefits or coverage for
any participant, beneficiary or former employee after such participant's or
former employee's termination of employment except as may be required by
Section 4980B of the Code and Sections 601-608 of ERISA.
(e) Each Fredonia Benefit Plan has been administered in accordance with
its terms. All of the Fredonia Benefit Plans and any related funding
instruments comply, and have complied in the past, both as to form and
operation in all material respects (including, but not limited to
applicable reporting and disclosure requirements) with the provisions of
ERISA, the Code and with all other applicable laws, rules and regulations.
Unless otherwise listed in Exhibit 3.12(e), with respect to each Pension
Plan that is intended to be tax-qualified under Section 401(a) of the
Code, a favorable determination letter as to the qualification under the
Code of each such Pension Plan and each amendment thereto has been issued
by the IRS, including any such letter that covers the amendments required
by the Tax Reform Act of 1986 (and nothing has occurred since the date of
the last such determination letter which resulted in, or is likely to
result in, the revocation of such
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determination). No event or condition exists which could reasonably be
expected to adversely affect the qualified status of a Fredonia Benefit
Plan that is a Pension Plan.
(f) Neither Fredonia nor any Commonly Controlled Entity, nor any plan
fiduciary of any Fredonia Benefit Plan or, to the best knowledge of
Fredonia, any other party in interest of any Fredonia Benefit Plan, has
engaged in any transaction in violation of Section 406 of ERISA (for which
transaction no exemption exists under Section 408 of ERISA) or in any
"prohibited transaction" as defined in Section 4975(c)(1) of the Code (for
which no exemption exists under Section 4975(c)(2) or 4975(d) of the Code)
or engaged in any other breach of fiduciary responsibility that could
subject Fredonia, FSB, FBC or Sub or any officer of Fredonia, FSB, FBC or
Sub to tax or penalty under ERISA, the Code or other applicable law.
Except as disclosed in Exhibit 3.11(a), neither any Fredonia Benefit Plan
that is a Pension Plan or a funded Welfare Plan nor any trust of such plan
has been terminated, nor has there been any "reportable event" (as that
term is defined in Section 4043 of ERISA) with respect to a Fredonia
Benefit Plan that is a Pension Plan, as to which Fredonia, FSB, FBC or Sub
could have any liability.
(g) Neither Fredonia nor any Commonly Controlled Entity has ever
maintained or contributed to, or has participated in or agreed to
participate in, a multi-employer plan (as defined in Section 3(37) of
ERISA), and neither Fredonia nor any Commonly Controlled Entity could have
any liability under a multi-employer plan.
(h) None of the Fredonia Benefit Plans that is a Pension Plan has an
"accumulated funding deficiency" (as such term is defined in Section 302 of
ERISA or Section 412 of the Code), and there has been no application for a
waiver of the minimum funding standards imposed by Section 412 of the Code
with respect to any such Pension Plan.
(i) Except as set forth in Exhibit 3.12(i) there are no claims pending
with respect to, or under, any Fredonia Benefit Plan other than routine
claims for plan benefits, and there are no disputes or litigation pending
or threatened with respect to any such plans, and no such claim, dispute or
litigation appears reasonably likely to arise.
(j) Except as set forth in Exhibit 3.12(j), neither the execution and
delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (i) result in any payment to be made by Fredonia,
Bancshares or FTI, as successor to Fredonia, FSB, FBC or Sub, or any
Commonly Controlled Entity (including, without limitation, severance,
unemployment compensation, golden parachute (defined in Section 280G of the
Code), or otherwise becoming due to any employee, or (ii) increase or vest
any benefits otherwise payable under any Fredonia Benefit Plan.
(k) With respect to any Fredonia Benefit Plan that is a Welfare Plan
(i) no such Benefit Plan is funded through a "welfare benefit fund," as
such term is defined in Section 419(e) of the Code, (ii) each such Fredonia
Benefit Plan that is
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a "group health plan," as such term is defined in Section 5000(b)(1) of the
Code, complies in all material respects with the applicable requirements of
Section 4980B of the Code and Sections 601-609 of ERISA, and (iii) each
such Fredonia Benefit Plan may be amended or terminated without any
liability to Fredonia, FSB, FBC or Sub on or at any time after the
consummation of this Agreement.
(l) Neither Fredonia, FSB, FBC nor Sub nor a Commonly Controlled Entity
has incurred any material liability with respect to a Pension Plan (other
than for contributions not yet due) and to the Pension Benefit Guaranty
Corporation (other than for the payment of premiums not yet due), which
liability has not been fully paid as of the date hereof.
(m) Except as set forth in Exhibit 3.12(m) or as required by applicable
law, since June 30, 1996 there has not been any adoption of amendment in
any material respect of any Fredonia Benefit Plan. Except as disclosed in
Exhibit 3.12(m), there exist no employment, consulting, severance,
termination or indemnification agreements, arrangements or understandings
between Fredonia, FSB, FBC or Sub and any current or former employee,
officer or director of Fredonia, FSB, FBC or Sub.
(n) Except as set forth in Exhibit 3.12(n), any amount that could be
received (whether in cash or property or the vesting of property) as a
result of any of the transactions contemplated by this Agreement by any
employee, officer or director of Fredonia, FSB, FBC or Sub who is a
"disqualified individual" (as such term is defined in proposed Treasury
Regulation Section 1.280G-1) under any employment, severance or termination
agreement, other compensation arrangement or Fredonia Benefit Plan
currently in effect would not be characterized as an "excess parachute
payment" (as such term is defined in Section 280G(b)(1) of the Code).
3.13. Insurance. Fredonia has delivered to Bancshares correct and
complete copies of all material policies of insurance of Fredonia, FSB, FBC
and Sub currently in effect, including, but not limited to, directors and
officers liability policies and blanket bond policies. Neither Fredonia,
FSB, FBC nor Sub has any liability for unpaid premiums or premium
adjustments not properly reflected on the Fredonia Financial Statements.
3.14. Conduct of Fredonia to Date. Except as contemplated by this
Agreement and the Plan of Merger, from and after December 31, 1996 through
the date of this Agreement: (a) Fredonia, FSB, FBC and Sub have carried on
their respective businesses in the ordinary and usual course consistent
with past practices, (b) Fredonia, FSB, FBC and Sub have not issued or sold
any capital stock or issued or sold any corporate debt securities which
would be classified as long term debt on the balance sheet of Fredonia,
FSB, FBC or Sub, (c) except as disclosed in Exhibit 3.03, Fredonia, FSB,
FBC and Sub have not granted any option for the purchase of capital stock,
effected any stock split, or otherwise changed their capitalization, (d)
except as disclosed in Exhibit 3.14(d), Fredonia has not declared, set
aside, or paid any cash or stock dividend or other
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distribution in respect to its capital stock, (e) neither Fredonia, FSB,
FBC nor Sub has incurred any material obligation or liability (absolute or
contingent), except normal trade or business obligations or liabilities
incurred in the ordinary course of business or mortgaged, pledged, or
subjected to lien, claim, security interest, charge, encumbrance or
restriction any of its assets or properties, (f) neither Fredonia, FSB, FBC
nor Sub has discharged or satisfied any material lien, mortgage, pledge,
claim, security interest, charges, encumbrance, or restriction or paid any
material obligation or liability (absolute or contingent), other than in
the ordinary course of business, (g) neither Fredonia, FSB, FBC nor Sub has
since December 31, 1996, sold, assigned, transferred, leased, exchanged, or
otherwise disposed of any of its properties or assets other than for a fair
consideration in the ordinary course of business, (h) except as set forth
in Exhibit 3.14(h), neither Fredonia, FSB, FBC nor Sub has increased the
rate of compensation of, or paid any bonus to, any of its directors,
officers, or other employees, except merit or promotion increases in
accordance with existing policy; entered into any new, or amended or
supplemented any existing, employment, management, consulting, deferred
compensation, severance, or other similar contract; adopted, entered into,
terminated, amended or modified any Fredonia Benefit Plan in respect of any
of present or former directors, officers or other employees; or agreed to
do any of the foregoing, (i) neither Fredonia, FSB, FBC nor Sub has
suffered any material damage, destruction, or loss, whether as the result
of flood, fire, explosion, earthquake, accident, casualty, labor trouble,
requisition or taking of property by any government or any agency of any
government, windstorm, embargo, riot, act of God, or other similar or
dissimilar casualty or event or otherwise, whether or not covered by
insurance, (j) neither Fredonia, FSB, FBC nor Sub has cancelled or
compromised any debt to an extent exceeding $50,000.00 owed to Fredonia,
FSB, FBC or Sub or claim to an extent exceeding $50,000.00 asserted by
Fredonia, FSB, FBC or Sub, (k) neither Fredonia, FSB, FBC nor Sub has
entered into any transaction, contract, or commitment outside the ordinary
course of its business, (1) neither Fredonia, FSB, FBC nor Sub has entered,
or agreed to enter, into any agreement or arrangement granting any
preferential right to purchase any of its material assets, properties or
rights or requiring the consent of any party to the transfer and assignment
of any such material assets, properties or rights, (m) there has not been
any change in the method of accounting or accounting practices of Fredonia,
FSB, FBC and Sub, and (n) Fredonia, FSB, FBC and Sub have kept all records
substantially in accordance with all regulatory and statutory requirements
and substantially in accordance with industry standards specified by the
American Bankers Association, and have retained such records for the
periods required by statute, regulation or American Bankers Association
industry standards.
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3.15. Material Adverse Change. Since December 31, 1996, there has been
no material adverse change in the financial condition, results of
operations or business of Fredonia or its subsidiaries.
3.16. Properties, Leases and Other Agreements. Except (i) with respect
to debts reflected in the Fredonia Financial Statements, (ii) for any lien
for current taxes not yet delinquent, (iii) for pledges to secure deposits
and (iv) for such other liens, security interests, claims, charges, options
or other encumbrances and imperfections of title which do not materially
affect the value or interfere with or impair the present and continued use
of personal or real property reflected in the Fredonia Financial Statements
or acquired since the date of such Statements, Fredonia, FSB, FBC and Sub
have good title, free and clear of any liens, security interests, claims,
charges, options or other encumbrances to all of the personal and real
property reflected in the Fredonia Financial Statements, and all personal
and real property acquired since the date of such Fredonia Financial
Statements, except such personal and real property as has been disposed of
in the ordinary course of business. Substantially all of the buildings and
equipment in regular use by Fredonia, FSB, FBC and Sub have been reasonably
maintained and are in good and serviceable condition, reasonable wear and
tear excepted. All leases material to Fredonia, FSB, FBC and Sub pursuant
to which Fredonia, FSB, FBC or Sub, as lessee, leases real or personal
property are valid and effective in accordance with their respective terms
and there is not, under any of such leases, any material existing default
by Fredonia, FSB, FBC or Sub, or any other party thereto, or any event
which with notice or lapse of time or both would constitute such a material
default. No options to renew said leases have lapsed and the terms of the
leases govern the rights of the respective landlords of Fredonia, FSB, FBC
and Sub.
3.17. Accounting. Fredonia will not, and will use its best efforts to
cause any of its affiliates to not knowingly take any action that would, in
the reasonable opinion of Bancshares, prevent the Merger from qualifying
for pooling of interests accounting treatment.
3.18. No Untrue Statements. No representation or warranty hereunder or
information contained in any financial statement or any other document
delivered to Bancshares pursuant to this Agreement contains any untrue
statement of a material fact or omits to state a material fact necessary to
make the statements contained herein or therein not misleading.
3.19. Proper Documentation. With respect to all loans to borrowers which
are payable to Fredonia, FSB, FBC or Sub either directly or as a
participant and except for such imperfections in documentation which when
considered as a whole would not have a material adverse effect on the
business, operations or financial condition of Fredonia, FSB, FBC and Sub
taken as a whole:
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(a) All loans were made for good, valuable and adequate
consideration in the normal and ordinary course of business, and the
notes and other evidences of indebtedness and any loan agreements or
security documents executed in connection therewith are true and genuine
and constitute the valid and legally binding obligations of the borrowers
to whom the loans were made and are legally enforceable against such
borrowers in accordance with their terms subject to applicable
bankruptcy, insolvency, reorganization, moratorium, and similar debtor
relief laws from time to time in effect, as well as general principles of
equity applied by a court of proper jurisdiction (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
For purposes of the foregoing sentence, it is understood and agreed that
the phrase "enforceable against such borrowers in accordance with their
terms" shall not mean that the borrower has the financial ability to
repay a loan or that the collateral is sufficient in value to result in
payment of the loan secured thereby;
(b) The amounts represented to Bancshares as the balances
owing on the loans are the correct amounts actually and unconditionally
owing, are undisputed, and are not subject to any offsets, credits,
deductions or counterclaims;
(c) The collateral securing each loan as referenced in a loan
officer worksheet, loan summary report or similar interoffice loan
documentation is in fact the collateral held by Fredonia, FSB, FBC or Sub
to secure each loan;
(d) Fredonia, FSB, FBC or Sub has possession of all loan
document files and credit files for all loans held by them containing
promissory notes and other relevant evidences of indebtedness with
original signatures of their borrowers and guarantors;
(e) Fredonia, FSB, FBC and Sub hold validly perfected liens
or security interests in the collateral granted to them to secure all
loans as referenced in the loan officer worksheets, loan summary reports
or similar interoffice loan documentation and the loan or credit files
contain the original security agreements, mortgages, or other lien
creation and perfection documents unless originals of such documents are
filed of public record;
(f) Each lien or security interest of Fredonia, FSB, FBC or
Sub in the collateral held for each loan is properly perfected in the
priority described as being held by Fredonia, FSB, FBC or Sub in the loan
officer worksheets, loan summary reports or similar interoffice loan
documentation contained in the loan document or credit files;
(g) Fredonia, FSB, FBC and Sub are in possession of all
collateral that the loan document files or credit files indicate they
have in their possession;
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(h) All guaranties granted to Fredonia, FSB, FBC and Sub to
insure payment of loans constitute the valid and legally binding
obligations of the guarantors and are enforceable in accordance with
their terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, and similar debtor relief laws from time to
time in effect, as well as general principles of equity applied by a
court of proper jurisdiction (regardless of whether such enforceability
is considered in a proceeding in equity or at law); and
(i) With respect to any loans in which Fredonia, FSB, FBC and
Sub have sold participation interests to another bank or other financial
institution, none of the buyers of such participation interests are in
default under any participation agreements.
3.20. No Default. Neither Fredonia, FSB, FBC nor Sub is in default under
any material agreement, ordinance, resolution, decree, bond, note,
indenture, order or judgment to which it is a party,
by which it is bound, or to which its properties or assets are subject.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BANCSHARES
Bancshares hereby represents and warrants to Fredonia as follows:
4.01. Organization, Standing and Power. Bancshares and FTI are
corporations duly organized, validly existing and in good standing under
the laws of the State of Arkansas and have all requisite corporate power
and authority to own, lease and operate their properties and to carry on
their businesses as now being conducted, except where the failure to have
such power or authority would not have a material adverse effect on the
business, operations or financial condition of Bancshares and its
subsidiaries. Bancshares and FTI are registered as bank holding companies
with the FRB under the BHC Act. Bancshares has delivered or made available
to Fredonia a true, accurate and complete copy of its currently effective
Articles of Incorporation and Bylaws, including all amendments thereto.
4.02. Authority. Subject to the approval of this Agreement and the Plan
of Merger by applicable regulatory authorities, Bancshares and FTI have all
requisite corporate power and authority to enter into this Agreement and
the Plan of Merger and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Plan of
Merger and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the
part of Bancshares' and FTI's boards of directors, and FTI's shareholder.
This Agreement and the Plan of Merger have been duly executed and delivered
by Bancshares and FTI and, subject to regulatory approval, each constitutes
a valid and binding obligation of Bancshares and FTI enforceable in
accordance with its terms,
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except as the enforceability of the Agreement may be subject to or limited
by bankruptcy, insolvency, reorganization, arrangement, moratorium or other
similar laws relating to or affecting the rights of creditors. The
execution and delivery of this Agreement and the Plan of Merger do not, and
the consummation of the transactions contemplated hereby and thereby will
not, result in any Violation pursuant to any provision of the Articles of
Incorporation or Bylaws of Bancshares or FTI or any of their subsidiaries
or result in any Violation of any loan or credit agreement, note, mortgage,
indenture, lease, or other agreement, obligation, instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Bancshares, FTI or any of their
subsidiaries or their respective properties or assets. Other than as
described below in connection or in compliance with the provisions of the
ABCA,TBCA, the Securities Act, the Exchange Act, the securities or blue sky
laws of the various states, and consents, authorizations, approvals,
notices or exemptions required under the BHC Act, the National Bank Act,
Arkansas banking laws, Texas banking laws, and from other regulatory
authorities, no consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is
required by or with respect to Bancshares or FTI in connection with the
execution and delivery of this Agreement and the Plan of Merger by
Bancshares and FTI or the consummation by Bancshares and FTI of the
transactions contemplated hereby and thereby, the failure to obtain which
would have a material adverse effect on Bancshares, FTI or any Bancshares
or FTI subsidiary.
4.03. Capital Structure of Bancshares. The authorized capital stock of
Bancshares consists of 24,000,000 shares of common stock, $1.00 par value,
and 500,000 shares of preferred stock, $1.00 par value, of which 8,246,209
shares of common stock are issued and outstanding. The authorized capital
stock of FTI consists of 1,000 shares of common stock, $1.00 par value, of
which 1,000 shares of common stock are issued and outstanding. Bancshares
and FTI have no issued and outstanding bonds, debentures, notes or other
indebtedness having the right to vote (or convertible into securities
having the right to vote) on any matters on which shareholders may vote.
All outstanding shares of Bancshares and FTI common stock are validly
issued, fully paid, nonassessable, and not subject to preemptive rights.
There are no options, warrants, calls, rights, or agreements of any
character whatsoever to which Bancshares or FTI is a party or by which
Bancshares or FTI is obligated to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or any voting
debt securities, or by which Bancshares or FTI is obligated to grant,
extend or enter into any such option, warrant, call, right or agreement,
except for options of three employees to purchase a total of 67,880 shares
of Bancshares common stock. Immediately before and after the Effective
Time there will be no option, warrant, call, right or agreement obligating
Bancshares or FTI to issue, deliver or sell, or cause to be issued,
delivered or sold, any shares of capital stock, or obligating
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<PAGE> 22
Bancshares or FTI to grant, extend or enter into any such option, warrant,
call, right or agreement, except as disclosed in Exhibit 4.03.
Notwithstanding the foregoing or any other provision of this Agreement,
(i) no issuance of options to purchase common stock of Bancshares to
executive officers of Bancshares and its subsidiaries, (ii) no issuance of
shares of common stock pursuant to the exercise of outstanding options, and
(iii) no increase in the authorized or outstanding common stock of
Bancshares, or commitment to issue additional shares of Bancshares common
stock, in connection with any acquisition by Bancshares of a bank or
corporation, through merger or otherwise, shall constitute a breach of any
representation, warranty or other provision of this Agreement.
4.04. Bancshares Financial Statements. The consolidated balance sheets
of Bancshares as of December 31, 1996 and 1995 and the related consolidated
statements of income, consolidated statements of cash flows and
consolidated statements of shareholders equity for the years then ended
certified by Arthur Andersen LLP ("Bancshares Financial Statements") copies
of which have been furnished by Bancshares to Fredonia, have been prepared
in accordance with generally accepted accounting principles and practices
applied on a consistent basis throughout the periods involved (except as
otherwise noted therein and except for year end adjustments of a
non-material nature), and present fairly the consolidated financial
condition of Bancshares, at the dates, and the consolidated results of
operations and cash flows for the periods, stated therein. Neither
Bancshares nor any Bancshares subsidiary has any liability of any nature,
whether direct, indirect, accrued, absolute, contingent or otherwise, which
is material to Bancshares, except as provided for or disclosed in the
Bancshares Financial Statements and except for such of the following
liabilities as are incurred in the ordinary course of business:
(i) deposit liabilities and interest payable thereon,
(ii) federal funds purchased and securities sold under
repurchase agreements and interest payable thereon,
(iii) other short term borrowings,
(iv) contingent liability upon negotiable instruments
endorsed for the purpose of collection,
(v) taxes,
(vi) accounts payable of the operating business,
(vii) salaries and benefits payable,
(viii) unearned income and premiums,
(ix) abandoned and garnished accounts, and
(x) letters of credit and similar commitments.
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4.05. Bancshares Reports. Bancshares and its subsidiaries have filed all
reports, registrations and statements, together with any amendments
required to be made with respect thereto, that were and are required to be
filed with (i) the FRB, (ii) the Office of the Comptroller of the Currency,
(iii) the FDIC, (iv) the Arkansas State Bank Department (the "ASBD"), (v)
the TBC, (vi) the Securities and Exchange Commission, and(vii) any other
applicable securities, banking or regulatory authorities (all such reports
and statements are collectively referred to herein as the "Bancshares
Reports") except where such failure to file would not have a material
adverse effect on the business operations or financial condition of
Bancshares. The Bancshares Reports complied in all material respects with
all of the statutes, rules and regulations enforced or promulgated by the
regulatory authority with which they were filed and did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
4.06. Authorizations; Compliance with Applicable Laws. Bancshares and
its subsidiaries hold all authorizations, permits, licenses, variances,
exemptions, orders and approvals of all Governmental Entities which are
material to the operations of the businesses of Bancshares and its
subsidiaries (the "Bancshares Permits"). Bancshares and its subsidiaries
are in compliance with the terms of the Bancshares Permits, except where
the failure to comply would not have a material adverse effect on
Bancshares. The businesses of Bancshares and its subsidiaries are not
being conducted in violation of any Laws, including, without limitation,
Regulation O of the FRB, except for possible violations which individually
or in the aggregate do not and, insofar as reasonably can be foreseen, in
the future will not, have a material adverse effect on Bancshares. No
investigation or review by any Governmental Entity with respect to
Bancshares or its subsidiaries is pending or threatened, nor has any
Governmental Entity indicated an intention to conduct the same. Without
limiting the foregoing, there have been no acts or omissions occurring on
or with respect to real estate currently or previously owned, leased or
otherwise used by Bancshares or any Bancshares subsidiary or in which
Bancshares or any Bancshares subsidiary has or had an investment or
security interest (by mortgage, deed of trust, or otherwise), including,
without limitation, properties under foreclosure, properties held by
Bancshares or a Bancshares subsidiary in its capacity as a trustee, or
properties in which any venture capital or similar unit of Bancshares or a
Bancshares subsidiary has or had an interest (the "Bancshares Property"),
which constitute or result, or may have constituted or resulted, in the
creation of any federal, state or common law nuisance (whether or not the
nuisance condition is, or was, foreseen or unforeseen) or which do not
comply or have not complied with federal, state or local Environmental
Laws, and as a result of which acts or omissions Bancshares or a Bancshares
subsidiary is subject to or reasonably likely to incur a material
liability. Neither Bancshares nor any
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Bancshares subsidiary is subject to or reasonably likely to incur a
material liability as a result of its ownership, lease, operation, or use
of any Bancshares Property or as a result of its investment or security
interest (as described above) in any Bancshares Property (a) that is
contaminated by or contains any hazardous waste, toxic substances or
related materials, including without limitation asbestos, PCBs, pesticides,
herbicides, petroleum products, substances defined as "hazardous
substances" or "toxic substances" in the Environmental Laws, and any other
Toxic Substances, or (b) on which any Toxic Substance has been stored,
disposed of, placed, or used in the construction thereof. No claim,
action, suit or proceeding is pending against Bancshares or any Bancshares
subsidiary relating to the Bancshares Property before any court or other
governmental authority or arbitration tribunal relating to Toxic
Substances, pollution or the environment, and there is no outstanding
judgment, order, writ, injunction, decree, or award against or affecting
Bancshares or any Bancshares subsidiary with respect thereto.
4.07. Litigation and Claims. Except as disclosed in Exhibit 4.07, (a)
neither Bancshares nor any Bancshares subsidiary is subject to any
continuing order of, or written agreement or memorandum of understanding
with, or continuing material investigation by, any federal or state banking
or insurance authority or other Governmental Entity, or any judgment,
order, writ, injunction, decree or award of any Governmental Entity or
arbitrator, including, without limitation, cease-and-desist or other orders
of any bank regulatory authority, (b) there is no claim of any kind,
action, suit, litigation, proceeding, arbitration, investigation, or
controversy affecting Bancshares or any Bancshares subsidiary pending or
threatened, which will have or can reasonably be expected to have a
material adverse effect on Bancshares and (c) there are no uncured material
violations, or violations with respect to which material refunds or
restitutions may be required, cited in any compliance report to Bancshares
or any Bancshares subsidiary as a result of the examination by any bank
regulatory authority.
4.08. Material Adverse Change. Since December 31, 1996, there has been
no material adverse change in the financial condition, results of
operations or business of Bancshares.
4.09. No Default. Neither Bancshares nor any Bancshares subsidiary is in
default under any material agreement, ordinance, resolution, decree, bond,
note, indenture, order or judgment to which it is a party, by which it is
bound, or to which its properties or assets are subject.
4.10 Regulatory Approvals. Bancshares and FTI have no reason to
believe that they will not be able to obtain all requisite regulatory
approvals necessary to consummate the transactions set forth in this
Agreement.
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4.11. Proxy Statement. None of the information supplied or to be
supplied by Bancshares, or, to the best knowledge of Bancshares, any of its
directors, officers, employees or agents for inclusion in: (a) the Proxy
Statement to be delivered to shareholders of Fredonia in connection with
their approval of the Merger; or (b) any registration statement or other
documents filed with the SEC or any regulatory or governmental agency or
authority in connection with the transactions contemplated herein, at the
respective times such documents are filed, and, with respect to the Proxy
Statement, when first mailed to the shareholders of Fredonia, will be false
or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading, or, in the
case of the Proxy Statement or any amendment thereof or supplement thereto,
at the time of the Shareholder's Meeting, be false or misleading with
respect to any material fact, or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of any proxy for the Shareholders' Meeting. All documents
that Bancshares is responsible for filing with any regulatory or
governmental agency in connection with the Merger will comply in all
material respects with the provisions of applicable law.
4.12 Availability of Bancshares Stock. Bancshares has available a
sufficient number of authorized and unissued shares of Bancshares Stock to
pay the Purchase Price, and Bancshares will not take any action during the
term of this Agreement that will cause it not to have a sufficient number
of authorized and unissued shares of Bancshares Stock to pay the Purchase
Price.
ARTICLE V
COVENANTS OF FREDONIA
5.01. Affirmative Covenants. Fredonia hereby covenants and agrees with
Bancshares that prior to the Effective Time, unless the prior written
consent of Bancshares shall have been obtained, which consent shall not be
unreasonably withheld, and except as otherwise contemplated herein,
Fredonia will and Fredonia will cause FSB, FBC and Sub to:
(a) operate their businesses only in the usual, regular and
ordinary course consistent with past practices;
(b) use reasonable efforts to preserve intact their business
organization and assets, maintain their rights and franchises, retain the
services of their officers and key employees (except that they shall have
the right to lawfully terminate the employment of any officer or key
employee if such termination is in accordance with Fredonia's existing
employment procedures) and maintain their relationships with customers;
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(c) use reasonable efforts to maintain and keep their
properties in as good repair and condition as at present, except for
depreciation due to ordinary wear and tear;
(d) use reasonable efforts to keep in full force and effect
insurance and bonds comparable in amount and scope of coverage to that now
maintained;
(e) perform in all material respects all obligations required
to be performed by them under all material contracts, leases, and documents
relating to or affecting their assets, properties, and business;
(f) comply with and perform in all material respects all
obligations and duties imposed upon them by all Laws; and
(g) give Bancshares notice of all boards of directors
meetings, allow Bancshares to have a non-voting representative at each such
meeting except to the extent that Fredonia's legal counsel advises the
directors that permitting Bancshares's presence would constitute a breach
of their fiduciary duties, and provide Bancshares with all written
materials and communications provided to the directors in connection with
such meetings.
5.02. Negative Covenants. Except as specifically contemplated by this
Agreement, from the date hereof until the earlier of the termination of the
Agreement or the Effective Time, Fredonia shall not do, and Fredonia will
cause FSB, FBC and Sub not to do, without the prior written consent of
Bancshares, which consent shall not be unreasonably withheld, any of the
following:
(a) incur any material liabilities or material obligations,
whether directly or by way of guaranty, including any obligation for
borrowed money whether or not evidenced by a note, bond, debenture or
similar instrument, except in the ordinary course of business consistent
with past practice;
(b) (i) except as disclosed in Exhibit 3.14(h), grant any
bonuses or increase in compensation to their employees, officers or
directors, (ii) effect any change in retirement or any other benefits to
any class of employees or officers (unless any such change shall be
required by this Agreement or applicable law) which would increase their
retirement benefit liabilities, (iii) adopt, enter into, amend or modify
any Fredonia Benefit Plan except as provided herein, or (iv) hire any
executive officer or elect any new director;
(c) Except as set forth in Exhibit 3.14(d), declare or pay
any dividend on, or make any other distribution in respect of, their
outstanding shares of capital stock except dividends by FSB, FBC or Sub;
(d) (i) redeem, purchase or otherwise acquire any shares of
their capital stock or any securities or obligations convertible into or
exchangeable for any shares of their capital stock, or any options,
warrants, conversion or other rights
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to acquire any shares of their capital stock or any such securities or
obligations; (ii) merge with or into or consolidate with any other
corporation or bank, or effect any reorganization or recapitalization;
(iii) purchase or otherwise acquire any substantial portion of the assets
or any class of stock, of any corporation, bank or other business; (iv)
liquidate, sell, dispose of, or encumber any assets or acquire any assets,
other than in the ordinary course of business consistent with past
practice; or (v) split, combine or reclassify any of their capital or issue
or authorize or propose the issuance of any other securities in respect of,
in lieu of or in substitution for shares of their capital stock;
(e) issue, deliver, award, grant or sell, or authorize or
propose the issuance, delivery, award, grant or sale of, any shares of
their capital stock of any class (including shares held in treasury), any
Voting Debt or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, Voting Debt or convertible securities;
(f) except as required by applicable law, or upon a written
opinion of legal counsel that failure to take such action would violate the
directors' fiduciary duties, initiate, solicit or encourage (including by
way of furnishing information or assistance), or take any other action to
facilitate, any inquiries or the making of any proposal which constitutes,
or may reasonably be expected to lead to, any Competing Transaction (as
such term is defined below), or negotiate with any person in furtherance of
such inquiries or to obtain a Competing Transaction, or agree to or endorse
any Competing Transaction, or authorize any of their officers, directors or
employees or any investment banker, financial advisor, attorney, accountant
or other representative retained by Fredonia, FSB, FBC or Sub to take any
such action and, upon learning of such action by any representative, shall
take appropriate steps to terminate such action, Fredonia shall promptly
notify Bancshares orally of all of the relevant details relating to all
inquiries and proposals which it may receive relating to any of such
matters; for purposes of this Agreement, "Competing Transaction" shall mean
any of the following involving Fredonia, FSB, FBC or Sub; any merger,
consolidation, share exchange or other business combination; a sale, lease,
exchange, mortgage, pledge, transfer or other disposition of a substantial
portion of assets; a sale of shares of capital stock (or securities
convertible or exchangeable into or otherwise evidencing, or any agreement
or instrument evidencing, the right to acquire capital stock);
(g) propose or adopt any amendments to their corporate
charters or bylaws except as provided in this Agreement;
(h) authorize, recommend, propose or announce an intention to
authorize, recommend or propose, or enter into an agreement in principle
with respect to any acquisition of a material amount of assets or
securities or any release or relinquishment of any material contract rights
not in the ordinary course of business;
(i) except in their fiduciary capacities, purchase any shares
of Bancshares common stock;
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(j) change any method of accounting in effect at December 31,
1996, or change any method of reporting income or deductions for federal
income tax purposes from those employed in the preparation of the federal
income tax returns for the taxable year ending December 31, 1996, except as
may be required by law or generally accepted accounting principles;
(k) take action which would or is reasonably likely to (i)
adversely affect the ability of either of Bancshares or Fredonia to obtain
any necessary approvals of governmental authorities required for the
transactions contemplated hereby; (ii) adversely affect Fredonia's ability
to perform its covenants and agreements under this Agreement; or (iii)
result in any of the conditions to the Merger set forth in Article VIII not
being satisfied;
(l) change the lending, investment, asset/liability
management and other material policies concerning the business of Fredonia,
FSB, FBC or Sub, unless required by Law or order or unless such change does
not cause a material adverse effect on Fredonia, FSB, FBC or Sub;
(m) agree in writing or otherwise to do any of the foregoing;
(n) make any single new loan or series of loans not in
accordance with existing loan policies to one borrower or related series of
borrowers in an aggregate amount greater than $250,000.00;
(o) sell or otherwise dispose of securities owned as
investments except at maturity dates or in accordance with past practices
for securities held for sale or trading or in accordance with Generally
Accepted Accounting Principles for securities classified as "held to
maturity"; or
(p) except as set forth in Exhibit 5.02(p), sell or dispose
of any real estate or other assets having a value in excess of $100,000.00.
5.03. Access and Information. Upon reasonable notice, Fredonia shall
(and shall cause FSB, FBC and Sub to) afford to Bancshares's officers,
employees, accountants, counsel and other representatives, access, during
normal business hours during the period prior to the Effective Time, to all
its properties, books, contracts, commitments and records. During such
period, Fredonia shall (and shall cause FSB, FBC and Sub to) furnish
promptly to Bancshares (i) a copy of each Fredonia Report filed or received
by it during such period pursuant to the requirements of the BHC Act and
any other federal or state banking laws promptly after such documents are
available, (ii) the monthly financial statements of FSB, FBC and Sub
promptly after such financial statements are available, (iii) a summary of
any action taken by the Boards of Directors, or any committee thereof, of
Fredonia, FSB, FBC and Sub, and (iv) all other information concerning its
business, properties and personnel as Bancshares may reasonably request.
Unless otherwise required by law, each party will hold any
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information obtained from the other in connection with the transaction
which is nonpublic in confidence until such time as such information
otherwise becomes publicly available through no wrongful act of the party
holding nonpublic information of the other party, and in the event of
termination of this Agreement for any reason each party shall promptly
return all nonpublic documents obtained from the other party, and any
copies made of such documents, to such other party or destroy such
documents and copies.
5.04. Update Disclosure; Breaches. From and after the date hereof until
the earlier of the termination of this Agreement or the Effective Time,
Fredonia and Bancshares shall provide to the other party prompt notice of
any matters which have become known or which have occurred from and after
the date hereof which are material to the financial condition or operations
of the disclosing party or which have a material bearing on any matter
dealt with herein.
5.05. Merger of Sub Into Fredonia. Prior to the Closing Date Fredonia
shall take and shall cause Sub to take such actions as are necessary to
cause Sub to be merged with and into Fredonia.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.01. Shareholders Meeting. Fredonia shall call a meeting of its
shareholders to be held as promptly as practicable for the purpose of
voting upon the Merger Agreements.
6.02. Legal Conditions to Merger. Each of Fredonia, Bancshares and FTI
will take all reasonable actions necessary to comply promptly with all
legal requirements it may have with respect to the Merger (including
furnishing all information required by the FRB or in connection with
approvals of or filings with any other Governmental Entity) and will
promptly cooperate with and furnish information to each other in connection
with any such requirements imposed upon either of them or any of their
subsidiaries in connection with the Merger. Each of Fredonia and Bancshares
will, respectively, cause their subsidiaries to take in a prompt manner all
reasonable actions necessary to obtain (and will cooperate with each other
in obtaining) any agreement, consent, authorization, order or approval of,
or any exemption by, any Governmental Entity or other public or private
third party, required to be obtained or made by Bancshares, FTI, Fredonia
or any of their subsidiaries in connection with the Merger or the taking of
any action contemplated thereby or by this Agreement and the Plan of
Merger.
6.03. Reports.
(a) Prior to the Effective Time, Fredonia, Bancshares and FTI
shall respectively, prepare and file as and when required all Fredonia
Reports and Bancshares Reports.
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(b) Fredonia, Bancshares and FTI shall prepare such Fredonia
Reports and Bancshares Reports such that (i) they comply in all material
respects with all of the statutes, rules and regulations enforced or
promulgated by the regulatory authority with which they are filed and do
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, and (ii) with respect to any Fredonia Report or
Bancshares Report containing financial information of the type included in
the Fredonia Financial Statements or the Bancshares Financial Statements,
the financial information (A) is prepared in accordance with accounting
principles and practices as utilized in the Fredonia Financial Statements
or the Bancshares Financial Statements, applied on a consistent basis
(except as stated therein or in the notes thereto) (B) presents fairly the
consolidated financial condition of Fredonia or Bancshares, at the dates,
and the consolidated results of operations and cash flows for the periods,
stated therein and (C) in the case of interim fiscal periods, reflects all
adjustments, consisting only of normal recurring items necessary for a fair
presentation, subject to year-end audit adjustments.
6.04. Brokers or Finders. Bancshares and Fredonia represent, as to
itself or themselves, and their subsidiaries, that no agent, broker,
investment banker, financial advisor or other firm or person is or will be
entitled to any broker's or finder's fee or any other commission or similar
fee in connection with any of the transactions contemplated by this
Agreement.
6.05. Reasonable Efforts. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use all reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done,
all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
by this Agreement, including cooperating fully with the other parties. In
case at any time after the Effective Time any further action is reasonably
necessary or desirable to carry out the purposes of this Agreement or to
vest Bancshares with full title to all properties, assets, rights,
approvals, immunities and franchises of either of Fredonia, FSB, FBC or
Sub, the proper officers and directors of each party to this Agreement
shall take all such necessary action.
6.06. Governmental and Other Third Party Approvals. Fredonia, Bancshares
and FTI shall each use their reasonable best efforts to obtain all
governmental and other third party approvals, authorizations and consents
that may be necessary or reasonably required of them in order to effect the
transactions contemplated by this Agreement. Fredonia, Bancshares and FTI
agree to make all filings and applications for such approvals and reviews
as soon as practicable, to prosecute the same with reasonable diligence and
to notify each other when such approvals, authorizations and consents have
been received. Fredonia, Bancshares and FTI will provide each other with
copies of all regulatory notices and filings made in
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connection with the transactions contemplated by this Agreement prior to
filing. Bancshares and Fredonia will each provide to the other copies of
any correspondence received from any regulatory agency relating to such
filings, and shall use its best efforts to keep the other parties advised
of the progress of obtaining all regulatory and third party approvals
required for the consummation of all transactions contemplated by this
Agreement.
6.07 Employee Benefits and Contracts. Following the Effective Time,
Bancshares shall provide generally to officers and employees of Fredonia
and FSB, who at or after the Effective Time become employees of Bancshares
or any of its affiliates, employee benefits under Bancshares employee
pension and welfare benefit plans, on terms and conditions as provided by
said plan agreements. Bancshares also shall cause Fredonia and its
Subsidiaries to honor on terms reasonably agreed upon by Bancshares and
Fredonia all employment, severance, consulting, and other compensation
contracts disclosed in Exhibit 3.11(a) to this Agreement between Fredonia
or FSB and any current or former director, officer, or employee thereof,
and all provisions for vested benefits or other vested amounts earned or
accrued through the Effective Time under the Fredonia Benefit Plans. For
purposes of vesting employees of Fredonia or FSB will be given credit under
Bancshares' Employee Stock Ownership Plan for prior service rendered to
Fredonia or FSB.
6.08 Indemnification.
(a) For a period of six years after the Effective Time,
Bancshares shall indemnify, defend, and hold harmless the present and
former directors, officers, employees, and agents of Fredonia and FSB
(each, an "Indemnified Party") against all liabilities arising out of
actions or omissions occurring at or prior to the Effective Time
(including the transactions contemplated by this Agreement) to the full
extent permitted under Texas Law and by the Articles of Incorporation or
Association and Bylaws of Fredonia and FSB as in effect on the date
hereof, including provisions relating to advances of expenses incurred in
the defense of any litigation. Without limiting the foregoing, in any
case in which approval by Bancshares is required to effectuate any
indemnification, Bancshares shall direct, at the election of the
Indemnified Party, that the determination of any such approval shall be
made by independent counsel mutually agreed upon between Bancshares and
the Indemnified Party.
(b) If Bancshares or any of its successors or assigns shall
consolidate with or merge into any other entity and shall not be the
continuing or surviving entity of such consolidation or merger or shall
transfer all or substantially all of its assets to any entity, then and
in each case, proper provision shall be made so that the successors and
assigns of Bancshares shall assume the obligations set forth in this
Section 6.08.
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(c) The provisions of this Section 6.08 are intended to be
for the benefit of and shall be enforceable by, each Indemnified Party,
his or her heirs and representatives.
ARTICLE VII
CONDITIONS PRECEDENT
7.01. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject
to the satisfaction prior to the Closing Date of the following conditions:
(a) Shareholder Approval. The Merger Agreements shall have
been approved and adopted by the legally required vote of the holders of
the outstanding shares of Fredonia Common Stock at a shareholders meeting
duly called for the purpose of voting on the Merger.
(b) Federal Reserve Board. The Merger Agreements and the
transactions contemplated hereby shall have been approved by the FRB and
other necessary banking authorities without any condition not acceptable to
Bancshares, all conditions required to be satisfied prior to the Effective
Time imposed by the terms of such approvals shall have been satisfied and
all waiting periods relating to such approvals shall have expired.
(c) State Banking Commissioners. The TBC and Arkansas
State Banking Commissioner shall have approved the transfer of ownership of
FSB to FTI without any condition not acceptable to Bancshares.
(d) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the Merger shall be in effect.
(e) No Proceeding or Litigation. No material action, suit or
proceeding before any court or any governmental or regulatory authority
shall have been commenced against Bancshares, Fredonia or any affiliate,
subsidiary, associate, officer or director of either of them, seeking to
restrain, enjoin, prevent, change or rescind the transactions contemplated
hereby or questioning the validity or legality of any such transactions.
(f) Closing Date. The Closing Date shall occur as soon as
practicable but in no event later than December 31, 1997 unless extended by
Fredonia and Bancshares.
(g) Consents Under Agreements. Bancshares, Fredonia and
their subsidiaries shall have obtained the consent or approval of each
person whose consent or approval shall be required in connection with the
transactions contemplated hereby under any loan or credit agreement, note,
mortgage, indenture, lease or other agreement or instrument.
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(h) Securities Laws. A registration statement for the
Bancshares Stock shall have become effective under the Securities Act and
shall not be the subject of any stop order or proceedings seeking a stop
order. Bancshares shall have obtained all securities or "blue sky" permits
and other authorizations necessary under state securities laws for
Bancshares to issue the Bancshares Stock and consummate the Merger.
7.02. Conditions to Obligations of Bancshares. The obligation of
Bancshares to effect the Merger is subject to the satisfaction of the
following conditions unless waived in writing by Bancshares:
(a) Representations and Warranties. Each of the
representations and warranties of Fredonia set forth in this Agreement
shall be true and correct in all material respects (except that where any
statement in a representation or warranty expressly includes a standard of
materiality, such statement shall be true and correct in all respects) as
of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, except for
changes expressly contemplated by this Agreement.
(b) Performance of Obligations of Fredonia. Fredonia shall
have performed in all material respects each of the obligations required to
be performed by it under this Agreement and the Plan of Merger at or prior
to the Closing Date, and Bancshares shall have received a certificate
signed on behalf of Fredonia by the chief executive officer and by the
chief financial officer of Fredonia to such effect.
(c) Opinion of Counsel. Fredonia shall have delivered to
Bancshares an opinion of its counsel, Bracewell & Patterson, L.L.P., dated
as of the Closing Date and in form and substance satisfactory to counsel
for Bancshares, to the aggregate effect that: (i) Fredonia has been duly
incorporated and organized and is a corporation validly existing in good
standing under the laws of Texas with full corporate power and authority to
enter into this Agreement and the Plan of Merger and to consummate the
transactions contemplated thereby; (ii) all corporate proceedings and other
actions on the part of Fredonia necessary to be taken in connection with
the Merger and (except for the filing of the Articles of Merger) necessary
to make same effective have been duly and validly taken; (iii) this
Agreement and the Plan of Merger have been duly and validly authorized,
executed and delivered on behalf of Fredonia and constitute (subject to
standard exceptions to enforceability arising from the bankruptcy laws and
rules of equity) valid and binding agreements of Fredonia; (iv) the
execution of the Articles of Merger by Fredonia has been duly and validly
authorized; and (v) Fredonia is governed by the TBCA.
(d) No Material Adverse Change. There shall have been no
material adverse change since December 31, 1996 in the financial condition,
results of operations or business of Fredonia.
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(e) Environmental Audits. Phase I environmental audits of
the Fredonia Property shall have been conducted at Bancshares's expense and
shall, to Bancshares's satisfaction, reflect no material problems under
Environmental Laws. Unless Bancshares notifies Fredonia on or before
August 1, 1997, that Bancshares is not satisfied with the results of any
such audit performed, Bancshares shall waive its right to assert this
condition to Closing.
(f) Pooling Opinion. Bancshares shall have received an
opinion from Arthur Andersen LLP to the effect that the Merger qualifies
for pooling-of-interests accounting treatment under applicable accounting
principles and that it will be so treated by the SEC if consummated in
accordance with the Merger Agreements.
(g) Merger of Sub Into Fredonia. Sub shall have been merged
with and into Fredonia.
(h) Affiliates. Each person who receives a portion of the
Bancshares Stock and who might reasonably be considered to be an affiliate
of Fredonia, as defined in paragraph (a) of Rule 144 of the Rules of the
Securities and Exchange Commission under the Securities Act, shall have
executed and delivered at Closing a letter substantially in the form set
forth in Exhibit 7.02(h).
(i) Consents Under Agreements. Bancshares and its
subsidiaries shall have obtained the consent or approval of each person
whose consent or approval of any transaction contemplated herein is
required under any loan or credit agreement, note, mortgage, indenture,
lease or other agreement or instrument.
(j) Dissenting Shares. The number of Dissenting Shares shall
not exceed 10% of the Fredonia Common Stock.
(k) Dissolution of FBC. FBC shall have been dissolved.
(l) Fredonia Optionholders. Each holder of Options to
purchase shares of Fredonia Common Stock shall have entered into a written
agreement with Bancshares, FTI and Fredonia providing that each
optionholder will accept in full satisfaction of Fredonia's obligations
under all stock Options granted to said optionholder the option conversion
shares determined in accordance with Section 2.01(h) above.
7.03. Conditions to Obligations of Fredonia . The obligations of
Fredonia to effect the Merger are subject to the satisfaction of the
following conditions unless waived by Fredonia:
(a) Representations and Warranties. Each of the
representations and warranties of Bancshares set forth in this Agreement
shall be true and correct in all material respects (except that where any
statement in a representation or warranty expressly includes a standard of
materiality, such statement shall be true and correct in all respects) as
of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the
Closing
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<PAGE> 35
Date as though made on and as of the Closing Date, except for changes
expressly contemplated by this Agreement, and Fredonia shall have received
a certificate signed on behalf of Bancshares by the chief executive officer
and by the chief financial officer of Bancshares to such effect.
(b) Performance of Obligations of Bancshares. Bancshares
shall have performed in all material respects each of the obligations
required to be performed by it under this Agreement and the Plan of Merger
at or prior to the Closing Date, and Fredonia shall have received a
certificate signed on behalf of Bancshares by the chief executive officer
and by the chief financial officer of Bancshares to such effect.
(c) Opinion of Counsel. Bancshares shall have delivered to
Fredonia an opinion of its counsel, Mitchell, Williams, Selig, Gates &
Woodyard, P.L.L.C., dated as of the Closing Date and in form and substance
satisfactory to counsel for Fredonia, to the aggregate effect that: (i)
Bancshares and FTI are corporations validly existing under the laws
Arkansas with full corporate power and authority to enter into this
Agreement and the Plan of Merger and to consummate the transactions
contemplated thereby; (ii) all corporate proceedings and other actions on
the part of Bancshares or FTI necessary to be taken in connection with the
Merger and (except for the filing of the Articles of Merger) necessary to
make same effective have been duly and validly taken; (iii) this Agreement
has been duly and validly authorized, executed and delivered on behalf of
Bancshares and FTI and constitutes (subject to standard exceptions to
enforceability arising from the bankruptcy laws and rules of equity) a
valid and binding agreement of Bancshares and FTI; and (iv) the execution
of the Articles of Merger by FTI has been duly and validly authorized.
(d) No Material Adverse Change. There shall have been no
material adverse change since December 31, 1996 in the financial condition,
results of operations or business of Bancshares.
(e) Authorized Shares. The shares of Bancshares Stock to be
delivered to Fredonia Shareholders pursuant to this Agreement shall have
been authorized for listing on the Nasdaq Market.
(f) Federal Income Tax Opinion. Fredonia shall have received
an opinion from counsel to Fredonia that, for federal income tax purposes,
(i) the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code; (ii) no gain or loss will be recognized by
holders of Fredonia Common Stock upon receipt of Bancshares Stock except
for cash received in lieu of fractional shares; (iii) the aggregate tax
basis of Bancshares Stock received by a Fredonia Shareholder will be the
same as the aggregate basis of the Fredonia Common Stock surrendered in
exchange therefor, and (iv) the holding period of the Bancshares Stock to
be received by each Fredonia Shareholder will include the period during
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<PAGE> 36
which the Shareholder held the Fredonia Common Stock surrendered in
exchange therefor, provided that the Fredonia Common Stock is held as a
capital asset as of the date of exchange.
(g) Fairness Opinion. Fredonia shall have received letters
from Hoefer & Arnett, Incorporated dated the date of the mailing of the
Proxy Statement to the Fredonia Shareholders and dated the date of the
meeting of Fredonia Shareholders, in each case in form and substance
acceptable to Fredonia, confirming such financial advisor's prior opinion
to the Board of Directors of Fredonia that the consideration to be paid in
the Merger is fair to the Fredonia Shareholders from a financial point of
view.
(h) Pricing Average. The Pricing Average shall not have
decreased below $32.00.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.01. Termination. This Agreement and the Plan of Merger may be
terminated at any time prior to the Effective Time:
(a) by mutual consent of the Board of Directors of Bancshares
and the Board of Directors of Fredonia;
(b) by either Bancshares or Fredonia (A) if there has been a
breach in any material respect (except that where any statement in a
representation or warranty expressly includes a standard of materiality,
such statement shall have been breached in any respect) of any
representation, warranty, covenant or agreement on the part of Fredonia, on
the one hand, or Bancshares or FTI on the other hand, respectively, set
forth in this Agreement, or (B) if any representation or warranty of
Fredonia on the one hand, or Bancshares or FTI on the other hand,
respectively, shall be discovered to have become untrue in any material
respect (except that where any statement in a representation or warranty
expressly includes a standard of materiality, such statement shall have
become untrue in any respect), in either case which breach or other
condition has not been cured within 10 business days following receipt by
the nonterminating party of notice of such breach or other condition from
the terminating party;
(c) by either Bancshares or Fredonia if any permanent
Injunction preventing the consummation of the Merger shall have become
final and nonappealable;
(d) by either Bancshares or Fredonia if the Merger shall not
have been consummated on or before December 31, 1997, for a reason other
than the failure of the terminating party to comply with its obligations
under this Agreement;
(e) by either Bancshares or Fredonia if the FRB has denied
approval of the Merger and such denial has become final and nonappealable;
or
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<PAGE> 37
(f) either by Bancshares or Fredonia if any condition
precedent to the terminating party's obligation to effect the Merger has
not been satisfied and such condition cannot reasonably be expected to be
satisfied prior to the date specified in Subsection 8.01(d).
8.02. Effect of Termination. In the event of termination of this
Agreement by either Fredonia or Bancshares as provided in Section 8.01,
this Agreement and the Plan of Merger shall forthwith become void and there
shall be no liability or obligation on the part of Fredonia, Bancshares,
FTI or their respective officers or directors, except to the extent that
such termination results from the willful breach by a party hereto of any
of its or their representations, warranties, covenants or agreements set
forth in this Agreement.
8.03. Amendment. Subject to the next following sentence, this Agreement
and the Plan of Merger may be amended by the parties hereto by action taken
or authorized by the respective Boards of Directors of Bancshares and
Fredonia at any time prior to the Closing Date. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
8.04. Extension; Waiver. At any time prior to the Effective Time,
Bancshares, on the one hand, and Fredonia, on the other hand, by action
taken or authorized by their respective Boards of Directors, may, to the
extent legally allowed, (i) extend the time for the performance of any of
the obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties of the other contained
herein or in any document delivered by the other pursuant hereto, and (iii)
waive compliance by the other with any of the agreements or conditions
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party.
ARTICLE IX
GENERAL PROVISIONS
9.01. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally (with receipt
confirmed) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
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<PAGE> 38
(a) if to Bancshares, to
First United Bancshares, Inc.
Attention: John E. Burns
Chief Financial Officer
P. O. Box 751
El Dorado, Arkansas 71731
with a copy to:
Hermann Ivester, Esq.
Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C.
320 West Capitol Avenue, Suite 1000
Little Rock, Arkansas 72201
(b) if to Fredonia to:
Fredonia Bancshares, Inc.
Attention: Mr. Gordon Lewis, Chairman and President
P. O. Box 630887
Nacogdoches, Texas 75963
with a copy to:
William T. Luedke IV
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
9.02. Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall
be deemed to be followed by the words "without limitation." The phrase
"made available" in this Agreement shall mean that the information referred
to has been made available if requested by the party to whom such
information is to be made available.
9.03. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed
by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
9.04. Entire Agreement. This Agreement (including the documents and the
instruments referred to herein, including the Plan of Merger) constitutes
the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to
the subject matter hereof.
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<PAGE> 39
9.05. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Arkansas.
9.06. Publicity. The parties hereto agree that they will consult with
each other concerning any proposed press release or public announcement
pertaining to the Merger and will use their best efforts to agree upon the
text of such press release or public announcement prior to the publication
of such press release or the making of such public announcement. However,
the determination by Bancshares as to when and whether it will make a
public statement and the contents of any such public statement shall be
final and binding.
9.07. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties and their respective heirs, successors and assigns.
9.08. Knowledge of the Parties. Wherever in this Agreement any
representation or warranty is made upon the knowledge of a party hereto
that is not an individual, such knowledge shall include the actual
knowledge, after due inquiry, of any executive officer of such party or an
executive officer of any subsidiary thereof.
9.09. Expenses. Except as otherwise provided herein, all Expenses
incurred by Bancshares and Fredonia in connection with or related to the
authorization, preparation and execution of this Agreement, the Plan of
Merger, and all other matters related to the closing of the transactions
contemplated hereby, including, without limitation of the generality of the
foregoing, all fees and expenses of agents, representatives, counsel and
accountants employed by either such party or its affiliates, shall be borne
solely and entirely by the party which has incurred the same.
9.10. Non-Survival of Representations and Warranties. Except as
hereinafter provided, the representations and warranties contained in this
Agreement and all other terms, covenants and conditions hereof shall merge
in the closing documents and shall not survive Closing or, after Closing be
the basis for any action by any party, except as to any matter which is
based upon willful fraud by a party with respect to which the
representations, warranties, terms, covenants and conditions set forth in
this Agreement shall expire only upon expiration of the applicable statute
of limitations.
9.11. Break Up Fee. In the event that all of the conditions to Closing
set forth in Sections 7.01 and 7.02 of this Agreement (excluding Subsection
7.01(f)) have been satisfied in time to allow for Closing on or before
December 31, 1997 and Bancshares, without right to terminate this Agreement
pursuant to Article VIII, elects not to close, then Bancshares shall pay to
Fredonia Three Million Dollars ($3,000,000.00) as liquidated damages, it
being agreed that actual damages are
38
<PAGE> 40
impossible to quantify or estimate. Said amount shall be in lieu of and in
full satisfaction of all rights of Fredonia to damages or other
compensation under this Agreement.
IN WITNESS WHEREOF, Fredonia, Bancshares and FTI have caused this
Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
FIRST UNITED OF TEXAS, INC.
By: /s/ James V. Kelley
----------------------------------------
James V. Kelley
President
ATTEST:
/s/ Robert G. Dudley
------------------------------
Robert G. Dudley, Secretary
FIRST UNITED BANCSHARES, INC.
By: /s/ James V. Kelley
-----------------------------------------
James V. Kelley
Chairman, President and
Chief Executive Officer
ATTEST:
/s/ Robert G. Dudley
------------------------------
Robert G. Dudley, Secretary
FREDONIA BANCSHARES, INC.
By: /s/ Gordon Lewis
----------------------------------------
Gordon Lewis
Chairman and President
ATTEST:
/s/ J.R. Honea
------------------------------
J.R. Honea, Vice President
39
<PAGE> 41
EXHIBIT A
PLAN OF MERGER
This Plan of Merger, dated as of ______, 1997 ("Plan of Merger"),
by and between First United Bancshares, Inc., an Arkansas corporation
("Bancshares"), First United of Texas, Inc., an Arkansas corporation
("FTI"), and Fredonia Bancshares, Inc., a Texas corporation ("Fredonia").
WHEREAS, Fredonia is a corporation with authorized capital stock
consisting of 2,000,000 shares of common stock, $10.00 par value of which
472,342 shares of common stock ("Fredonia Common Stock") are validly issued
and outstanding and 26,838 shares are held by Fredonia in its treasury on
the date hereof;
WHEREAS, FTI is a corporation with authorized capital stock of
1,000 shares of common stock, $1.00 par value, of which 1,000 shares of
common stock are validly issued and outstanding on the date hereof;
WHEREAS, FTI is a corporation duly organized and existing under the
laws of Arkansas;
WHEREAS, concurrently with the execution and delivery of this Plan
of Merger, Bancshares, FTI and Fredonia have entered into an Agreement and
Plan of Reorganization (the "Agreement" and, together with this Plan of
Merger, the "Merger Agreements") that contemplates the merger of Fredonia
with and into FTI (the "Merger") upon the terms and conditions provided in
this Plan of Merger and the Agreement and pursuant to the Arkansas Business
Corporation Act (the "ABCA") and the Texas Business Corporation Act (the
"TBCA");
WHEREAS, the Boards of Directors of Bancshares, FTI and Fredonia
deem it fair and equitable to, and in the best interests of, their
respective corporations and shareholders that Fredonia be merged with and
into FTI with FTI being the surviving corporation, and each such Board of
Directors has approved this Plan of Merger, has authorized its execution
and delivery, and has directed that this Plan of Merger and the Merger be
submitted to Fredonia's, FTI's and Bancshares' shareholders for approval,
and has recommended that the shareholders approve the Merger.
NOW, THEREFORE, in consideration of the promises and the agreements
herein contained, the parties hereto adopt and agree to the following
agreements, terms and conditions relating to the Merger and the mode of
carrying the same into effect:
ARTICLE I
THE MERGER
1.01. The Merger. Subject to the terms and conditions of the
Merger Agreements, Fredonia will be merged with and into FTI , which will
continue as the surviving corporation, in accordance with and with the
effect provided in the ABCA.
<PAGE> 42
1.02. Effective Time of the Merger. Subject to the provisions
of the Merger Agreements, articles of merger (the "Articles of Merger")
shall be duly prepared and executed by FTI and Fredonia and thereafter
delivered to the Secretaries of State of States of Arkansas and Texas for
filing, as provided in the ABCA, and the TBCA as soon as practicable on or
after the Closing Date (as defined in the Agreement). The Merger shall
become effective upon the filing of the Articles of Merger with the
Secretaries of State of Arkansas and Texas or at such time within two
business days thereafter as is provided in the Articles of Merger (the
"Effective Time").
1.03. Effects of the Merger. (a) At the Effective Time, (i)
the separate existence of Fredonia shall cease and Fredonia shall be merged
with and into FTI ( FTI and Fredonia are sometimes referred to herein as
the "Constituent Corporations" and FTI is sometimes referred to herein as
the "Surviving Corporation"), (ii) the Articles of Incorporation of FTI in
effect as of the Effective Time (the "Articles") shall be the Articles of
Incorporation of the Surviving Corporation, and (iii) the Bylaws of FTI in
effect as of the Effective Time (the "Bylaws") shall be the Bylaws of the
Surviving Corporation.
(b) At and after the Effective Time, the Surviving
Corporation shall possess all the rights, privileges, powers and franchises
of a public as well as of a private nature, and be subject to all the
restrictions, disabilities and duties of each of the Constituent
Corporations; and all and singular rights, privileges, powers and
franchises of each of the Constituent Corporations, and all property, real,
personal and mixed and all debts due to either of the Constituent
Corporations on whatever account, as well as for stock subscriptions and
all other things in action or belonging to each of the Constituent
Corporations, shall be vested in the Surviving Corporation; and all
property, rights, privileges, powers and franchises, and all and every
other interest shall be thereafter as effectually the property of the
Surviving Corporation as they were of the Constituent Corporations, and the
title to any real estate vested by deed or otherwise, in either of the
Constituent Corporations, shall not revert or be in any way impaired; but
all rights of creditors and all liens upon any property of either of the
Constituent Corporations shall be preserved unimpaired, and all debts,
liabilities and duties of the Constituent Corporations shall thenceforth
attach to the Surviving Corporation, and may be enforced against it to the
same extent as if said debts and liabilities had been incurred by it. Any
action or proceeding, whether civil, criminal or administrative, pending by
or against either Constituent Corporation shall be prosecuted as if the
Merger had not taken place, and the Surviving Corporation may be
substituted as a party in such action or proceeding in place of any
Constituent Corporation.
2
<PAGE> 43
ARTICLE II
EFFECT OF THE MERGER ON THE COMMON STOCK OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
2.01. Conversion of Fredonia Common Stock. As of the Effective
Time, by virtue of the Merger and without any action on the part of the
holder of any shares of Fredonia Common Stock, but subject to the rights of
dissenting shareholders of Fredonia:
(a) Conversion of Fredonia Common Stock and Options.
The issued and outstanding shares of Fredonia Common Stock and options to
purchase Fredonia Common Stock ("Options") shall be converted in accordance
with the Agreement into the right to receive the consideration provided in
Section 2.01 of the Agreement.
(b) Cancellation of Shares. All shares of Fredonia
Common Stock and Options issued and outstanding immediately prior to the
Effective Time shall no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each holder of a
certificate representing any such or Options shares shall cease to have any
rights with respect thereto, except the right to receive a pro rata amount
of the consideration provided therefor upon the surrender of such
certificate in accordance with the Plan of Merger.
2.02. Exchange of Certificates. (a) Exchange Agent. As of the
Effective Time, Bancshares shall deposit with the Trust Department of First
National Bank of El Dorado, El Dorado, Arkansas or such other bank or trust
company designated by Bancshares (the "Exchange Agent") for the benefit of
the holders of shares of Fredonia Common Stock, for exchange in accordance
with this Article II through the Exchange Agent, the number of shares of
Bancshares common stock and cash (the "Exchange Fund") to be paid pursuant
to Section 2.01 in exchange for shares of Fredonia Common Stock and Options
outstanding immediately prior to the Effective Time.
(b) Exchange Procedures. As soon as reasonably
practicable after the Effective Time, the Exchange Agent shall mail to each
holder of record of a certificate or certificates which immediately prior
to the Effective Time represented outstanding shares of Fredonia Common
Stock or Options (the "Certificates") whose shares or Options were
converted into the right to receive shares of Bancshares common stock and
cash pursuant to Section 2.01, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
Bancshares may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for the Bancshares
common stock and cash payment due. Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may
be appointed by Bancshares, together with such letter of transmittal, duly
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<PAGE> 44
executed, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing the number of whole shares of
Bancshares common stock and cash which such holder has the right to receive
pursuant to Section 2.01 of the Agreement, and the Certificate so
surrendered shall forthwith be cancelled. Until surrendered as
contemplated by this Section 2.02, each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon
such surrender the consideration specified in Section 2.01 of the
Agreement.
(c) Distributions with Respect to Unexchanged Shares.
No delivery of Bancshares common stock or cash payment of any kind shall be
made to the holder of any unsurrendered Certificate until the holder of
record of such Certificate shall surrender such Certificate.
(d) No Further Ownership Rights in Fredonia Common
Stock. The consideration paid upon the surrender of shares of Fredonia
Common Stock or Options in accordance with the terms hereof including any
cash shall be deemed to have been paid in full satisfaction of all rights
pertaining to such shares of Fredonia Common Stock or Options, and there
shall be no further registration of transfers on the stock transfer books
of the Surviving Corporation of the shares of Fredonia Common Stock or
Options which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be cancelled and payment shall be
made as provided in this Plan of Merger.
(e) Termination of Exchange Fund. Any portion of the
Exchange Fund which remains undistributed to the shareholders of Fredonia
for six months after the Effective Time shall be delivered to Bancshares,
upon demand, and any shareholders of Fredonia who have not theretofore
complied with this Section 2.02 shall thereafter look only to Bancshares
for payment of the Bancshares common stock and cash due for their Fredonia
stock.
(f) No Liability. Neither Bancshares, FTI nor
Fredonia shall be liable to any holder of shares of Fredonia Common Stock
for shares of Bancshares common stock or cash from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
ARTICLE III
CONDITIONS; TERMINATION; AMENDMENT
3.01. Conditions to the Merger. Consummation of the Merger is
conditional upon the fulfillment or waiver of the conditions precedent set
forth in Article VII of the Agreement.
3.02. Termination. This Plan of Merger may be terminated and
the Merger abandoned by mutual consent of the respective Boards of
Directors of Fredonia and Bancshares at any time prior to the Effective
Time. If the Agreement
4
<PAGE> 45
is terminated in accordance with Article VIII thereof, then this Plan of
Merger will terminate simultaneously and the Merger will be abandoned
without further action by Fredonia or United.
3.03. Amendment. Subject to the next following sentence, this
Plan of Merger may be amended by the parties hereto by action taken or
authorized by their respective Boards of Directors at any time before the
Closing Date. This Plan of Merger may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
3.04. Extension; Waiver. At any time prior to the Closing Date,
Bancshares and Fredonia, by action taken or authorized by their respective
Board of Directors, may, to the extent legally allowed, (i) extend the time
for the performance of any of the obligations or other acts of the other
party hereto and (ii) waive compliance by the other with any of the
agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set
forth in a written instrument on behalf of such party.
ARTICLE IV
GENERAL PROVISIONS
4.01. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally (with
receipt confirmed) or mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to FTI or Bancshares, to
First United Bancshares, Inc.
Attention: John E. Burns
Chief Financial Officer
P. O. Box 751
El Dorado, Arkansas 71731
with a copy to:
Hermann Ivester, Esq.
Mitchell, Williams, Selig, Gates & Woodyard,
P.L.L.C.
320 West Capitol Avenue, Suite 1000
Little Rock, Arkansas 72201
(b) if to Fredonia, to
Fredonia Bancshares, Inc.
Attention: Mr. Gordon Lewis, Chairman and
President
P. O. Box 630887
Nacogdoches, Texas 75963
with a copy to:
William T. Luedke IV
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
5
<PAGE> 46
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
4.02. Interpretation. When a reference is made in this Plan of
Merger to Sections, such reference shall be to a Section of this Plan of
Merger unless otherwise indicated. The headings contained in this Plan of
Merger are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Plan of Merger.
4.03. Counterparts. This Plan of Merger may be executed in two
or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when two or more counterparts have
been signed by each of the parties and delivered to the other parties, it
being understood that all parties need not sign the same counterpart.
4.04. Governing Law. This Plan of Merger shall be governed and
construed in accordance with the laws of the State of Arkansas.
IN WITNESS WHEREOF, Fredonia, FTI and Bancshares have caused this
Plan of Merger to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
FIRST UNITED OF TEXAS, INC.
By:
------------------------
James V. Kelley
President
ATTEST:
- ------------------------------
Robert G. Dudley, Secretary
FIRST UNITED BANCSHARES, INC.
By:
------------------------
James V. Kelley
Chairman, President
and Chief Executive
Officer
ATTEST:
- ------------------------------
Robert G. Dudley, Secretary
FREDONIA BANCSHARES, INC.
By:
------------------------
Gordon Lewis
Chairman and President
ATTEST:
- ------------------------------
6
<PAGE> 47
EXHIBIT 7.02(h)
First United Bancshares, Inc.
Main and Washington Streets
El Dorado, Arkansas 71730
Gentlemen:
I may presently be considered to be an "affiliate", as defined in
paragraph (a) of Rule 144 of the Rules and Regulations of the Securities
and Exchange Commission ("SEC") under the Securities Act of 1933, as
amended (the "Act"), of Fredonia Bancshares, Inc. a Texas Corporation
("Fredonia"). Pursuant to the merger (the "Merger") of Fredonia with and
into a subsidiary of First United Bancshares, Inc. ("First United"), I will
acquire __________ shares of the common stock, par value $1 per share
("Common Stock"), of First United . I represent and warrant that I (i) am
acquiring said shares (as the same may be increased, decreased or are
changed in accordance with the Agreement and Plan of Merger dated
____________, 1997, relating to the Merger, the ("Shares")) for my own
account (or in the capacity indicated hereon) and with no present intention
of dividing my participation with others or otherwise making a distribution
of the Shares and (ii) shall not make any sale, transfer or other
disposition of the Shares in violation of the Act or the General Rules and
Regulations promulgated thereunder by the SEC.
I have been advised that the Shares issued to me pursuant to the
Merger have been registered under the Act in the Registration Statement on
SEC Form S-4, as amended, Registration No. __________ ("Registration
Statement") as filed with the SEC, receipt of a copy of which Registration
Statement is hereby acknowledged. However, I have also been advised that
any public offering or sale by me of any of the Shares will, under current
law, require either (i) the further registration (by amendment of such Form
S-4 or otherwise) under the Act of the Shares to be sold or (ii) compliance
with Rule 145 promulgated under the Act or (iii) the availability of
another exemption from such registration.
I agree not to sell, transfer or dispose of the Shares unless (i)
there is in effect a registration statement under the Act covering such
sale, transfer, or other disposition, or (ii), such sale, transfer or
disposition complies with Rule 145 or is otherwise exempt from
registration. Further, I will furnish to First United such documentation
incident to such sale, transfer or other disposition as First United shall
reasonably request evidencing compliance with Rule 145 or the availability
of any exemption from registration being claimed. Such documentation shall
be provided to First United prior to any such sale, transfer or other
disposition in order that First United, and its counsel may have a
reasonable opportunity to review the documentation and form an opinion as
to the validity of any such exemption.
I agree that notwithstanding any provision herein or contained in
the Agreement and Plan of Reorganization that I will not sell, transfer, or
otherwise dispose of any of the Shares unless First United has made public
disclosure of financial results reflecting 30 days' of post-Merger combined
operations of Fredonia and First United within the meaning of Section
201.01 of the SEC's Codification of Financial Reporting Policies. First
United has agreed to make the required public disclosure of financial
results as set out above as soon as feasible after the Merger is
consummated. In addition, I hereby represent and warrant to First United
that I have not made any sales of Fredonia or First United common stock
during the 30-day period immediately preceding the date hereof and I
further agree not to engage in any such sales prior to the Merger, nor have
I pledged or will I pledge any First United or Fredonia common stock to
secure any obligation during such period.
I represent and warrant to First United that:
1. I have carefully read this letter and discussed its
requirements and other applicable limitations upon the sale, transfer or
other disposition of the Shares, to the extent I felt necessary, with my
counsel or counsel for Fredonia.
2. I have been informed by First United that any distribution
by me of the Shares has not been registered under the Act and that the
Shares must be held by me indefinitely until (i) such distribution of the
Shares has been registered under the Act, (ii) a sale of the Shares is made
in conformity with the volume and other limitations of Rule 145 promulgated
by the SEC under the Act, or (iii) some other exemption from registration
is available with respect to any such proposed sale, transfer or other
disposition of the Shares.
3. I have been informed by First United that it is required
to file periodic reports with the SEC and the NASDAQ and that certain sales
of the Shares by me may not be required to be registered under the Act by
virtue of Rule
<PAGE> 48
145 promulgated by the SEC under the Act, provided that such sales are made
in accordance with all of the terms and conditions of such Rule, including
among other things the following:
(a) The amount of First United Common Stock sold by me
pursuant to Rule 145 during any period of three months cannot exceed the
quantity limit of (i) one percent of the total outstanding First United
Common Stock or (ii) the average reported weekly trading volume on NASDAQ
during the four week period immediately preceding receipt of the order by
the broker to execute the transaction, whichever of (i) or (ii) is greater.
In computing the quantity limit it is necessary to count sales not only by
me but also by certain immediate family members and other related persons
and others with whom I may act in concert.
(b) Sales must be made in brokers' transactions as
defined by the SEC Rule 144 (certain provisions of which are incorporated
by reference into Rule 145).
(c) No sales may be made under the Rule unless First
United has filed all SEC reports required to be filed by First United.
(d) The broker must be given information showing
compliance with Rule 145.
4. I understand that First United is under no obligation to
register the sale, transfer or other disposition of the Shares by me or on
my behalf or to take any other action necessary in order to make compliance
with an exemption from registration available.
5. I understand and agree that stop transfer instructions
will be issued with respect to the Shares and there will be placed on the
certificates representing such Shares, or any certificate delivered in
substitution therefor, a legend stating in substance:
"The shares represented by this Certificate were issued in
a transaction to which Rule 145 under the Securities Act
of 1933, as amended, applied. The shares represented by
this certificate may be transferred only in accordance
with the terms of a letter agreement dated
_______________, 1997, by the registered holder in favor
of First United Bancshares, Inc., a copy of which
agreement is on file at the principal offices of First
United Bancshares, Inc."
I have been informed by First United that after the
restrictions imposed by Rule 145 have expired First United will, upon my
request, reissue share certificates for the shares which do not contain a
restrictive legend.
6. I understand and agree that unless the transfer by me of
Shares is a sale made in compliance with the provisions of this letter,
First United reserves the right to place the following legend on any
certificates issued to my transferee:
"The shares represented by this Certificate have not been
registered under the Securities Act of 1933, as amended,
and were acquired from a person who received such shares
in a transaction to which Rule 145 under the Securities
Act of 1933, as amended, applied. The shares have not
been acquired by the holder with a view to, or for resale
in connection with, any distribution thereof within the
meaning of the Securities Act of 1933, as amended, and may
not be sold, pledged otherwise transferred unless the
shares have been registered under the Securities Act of
1933, as amended, or an exemption from registration is
available."
7. I understand and agree that the legends set forth in
paragraphs 5 and 6 above shall be removed by delivery of substitute
Certificates without any legend if I deliver to First United a copy of a
letter from the staff of the Commission, or an opinion of counsel in form
and substance reasonably satisfactory to First United, to the effect that
no such legend is required for the purpose of the Securities Act.
8. I have been informed by First United that if I propose to
sell any of these Shares pursuant to Rule 145, and if such sale would be
permitted under the terms of this letter, First United will, upon my
written request, supply me with the following:
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<PAGE> 49
(a) A statement as to whether First United has
complied with the provisions of Rule 145 regarding filing of SEC reports as
a condition to sales made pursuant to that Rule;
(b) A confirmation as to the number of shares of First
United Common Stock outstanding as shown by the most recent report or
statement published by it; and
(c) First United's taxpayer identification number and
SEC file number.
I have carefully read this letter and have had an adequate
opportunity to review the Merger Agreement and understand the requirements
and the limitations imposed upon the distribution, sale, transfer or other
disposition of Fredonia common stock or Shares of First United.
Very truly yours,
3
<PAGE> 1
EXHIBIT 3(i)
Articles of Incorporation of First United Bancshares, Inc.
<PAGE> 2
EXHIBIT 3(i)
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
FIRST UNITED BANCSHARES, INC.
FIRST. The name of the corporation is FIRST UNITED BANCSHARES, INC.
SECOND. The period of its duration is perpetual.
THIRD. The purposes for which the corporation is organized are:
(a) To engage in all business activities allowable for a bank
holding company and to own and manage banks and other
businesses in the area of financial services.
(b) To acquire and own property, both real and personal, including
common stock or other beneficial interest incorporations,
associations, trusts and other forms of business whether
incorporated or unincorporated, and to provide services to and
for such businesses, and to engage in businesses related to
any such businesses, and to do any and all lawful acts
necessary, convenient, advisable or desirable which may be
incidental or pertinent to such businesses.
(c) To engage in any business not prohibited by law.
FOURTH. The total number of shares of authorized capital stock which
the corporation shall have the authority to issue shall be as follows:
<TABLE>
<CAPTION>
SHARES CLASS PAR VALUE PER SHARE
----------- ------- -------------------
<S> <C> <C>
24,000,000 Common $1.00
500,000 Preferred $1.00
</TABLE>
The board of directors may determine, in whole or in part, the preferences,
limitations, and relative rights of any class of stock, or one (1) or more
series within a class, before the issuance of such class or series,
respectively, and may amend The Articles of Incorporation to set forth such
preferences, limitations, and relative rights without shareholders approval
or action.
FIFTH. Shareholders shall have no pre-emptive right to acquire
additional or treasury shares of the corporation.
SIXTH. All shareholders are entitled to cumulate their votes for the
election of directors.
SEVENTH. Except upon the approval of two-thirds ( 2/3) of all shares
issued and outstanding that are entitled to vote at a duly called
shareholders meeting, the corporation shall not:
(i) effect any transaction pursuant to which a purchaser would
acquire control of the corporation, whether by merger,
consolidation, purchase of stock or otherwise,
<PAGE> 3
(ii) effect a merger or share exchange with another entity pursuant
to which the corporation would issue shares of common stock in
an amount greater than twenty percent (20%) of the number of
shares of common stock issued and outstanding immediately
prior to consummation of the transaction,
(iii) effect a merger or share exchange with another entity pursuant
to which the corporation would issue shares of common stock in
an amount that would cause the total number of shares issued
during any consecutive twelve month period in connection with
such transactions to exceed twenty percent (20%) of the number
of shares of common stock issued and outstanding immediately
prior to consummation of the transaction,
(iv) sell, exchange, lease or otherwise dispose of all or
substantially all of the corporation's assets and property
other than in the usual and regular course of business of the
corporation,
(v) effect a dissolution or liquidation of the corporation, or
(vi) amend these Articles of Incorporation.
EIGHTH. The internal affairs of the corporation shall be regulated in
accordance with the By-Laws duly adopted in accordance with the laws of the
State of Arkansas.
NINTH. The address of the registered office of the corporation is
First National Bank Building, Main at Washington, El Dorado, Arkansas
71730. The name of its registered agent at such address is Robert G.
Dudley.
TENTH. The number of directors that constitutes the Board of
Directors of the corporation shall not exceed twenty-five (25). The number
of directors shall be determined by the stockholders at each annual meeting
or may be determined at any special meeting. The Board of Directors may
increase or decrease by thirty percent (30%) or less the number of
directors last fixed by the stockholders, provided that the number of
directors shall not be less than three (3) nor more than twenty-five (25).
The Board of Directors may fill a vacancy created by the Board of Directors
under this Article Tenth.
ELEVENTH. To the fullest extent permitted by the Arkansas Business
Corporation Act, as is now exists or may hereafter be amended, a director
of this corporation shall not be liable to the corporation or its
shareholders for monetary damages for breach of fiduciary duty as a
director.
TWELFTH. The corporation may indemnify any person who was, or is, a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding to the fullest extent permitted by the
Arkansas Business Corporation Act as it now exists or may hereafter be
amended.
THIRTEENTH. The corporation elects to be governed by the provisions
of the Arkansas Business Corporation Act of 1987 as it now exists or may
hereafter be amended from time to time.
FOURTEENTH. The name and address of the incorporator is:
Robert G. Dudley
Main at Washington Streets
El Dorado, Arkansas 71730
2
<PAGE> 1
EXHIBIT 3(ii)
Bylaws of First United Bancshares, Inc.
<PAGE> 2
EXHIBIT 3(ii)
FIRST UNITED BANCSHARES, INC.
RESTATED BYLAWS
ARTICLE I
STOCKHOLDERS
Section 1. PLACE OF HOLDING MEETINGS. All meetings of the
Stockholders shall be held at the office of the Corporation at Main and
Washington Streets, El Dorado, Arkansas 71730, unless, written notice of
another place, either within or without the state, for the meeting is given
in the meeting notice.
Section 2. ANNUAL ELECTION OF DIRECTORS. The annual meeting of
Stockholders for the election of Directors and the transaction of other
business shall be held on the fourth Tuesday in May of each year. If this
date shall fall upon a legal holiday, the meeting shall be held on the next
succeeding business day. At each annual meeting, the Stockholders entitled
to vote shall by plurality vote, by ballot, elect a Board of Directors, and
they may transact such other corporate business as shall be stated in the
notice of the meeting.
No change of time or place of a meeting for the election of Directors,
as fixed by the By-Laws, shall be made within thirty (30) days next before
the day on which such election is to be held. In case of any change in
such time or place for election of Directors, notice thereof shall be given
to each Stockholder entitled to vote, in person or by letter mailed to his
last known post office address, twenty (20) days before the election is
held.
Section 3. VOTING. Each stockholder entitled to vote in accordance
with the terms of the Articles of Incorporation and in accordance with the
provisions of these By-Laws shall be entitled to one vote, in person or by
proxy, for each share of stock entitled to vote held by such stockholder,
but no proxy shall be voted after eleven (11) months from its date unless
such proxy provides for a longer period. After the first election of
Directors, except where the transfer books of the Corporation shall have
been closed or a date shall have been fixed as the record date for the
determination of stockholders entitled to vote, as hereinafter provided in
Section 4 of Article IV, no share of stock shall be voted on at any
election for Directors which shall have been transferred on the books of
the Corporation within twenty (20) days next preceding such election. The
vote for Directors, and, upon the demand of any stockholder the vote upon
any question before the meeting, shall be by ballot. All elections shall
be had and all questions decided by plurality vote except as otherwise
provided by the Articles of Incorporation and/or the laws of the State of
Arkansas.
A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the residence of each, and
the number of voting shares held by each, shall be prepared by the
Secretary and filed in the office where the election is to be held, and
shall at all times during the usual hours for business, beginning two (2)
business days after notice of the meeting is given, and during the whole
time of said election, be open to examination of any stockholder.
<PAGE> 3
Section 4. QUORUM. Except as provided in the next section hereof,
any number of stockholders together holding a majority of the stock issued
and outstanding entitled to vote thereat, who shall be present in person or
represented by proxy at any meeting duly called, shall constitute a quorum
for the transaction of business.
Section 5. ADJOURNMENT OF MEETINGS. If less than a quorum shall be
in attendance at any time for which this meeting shall have been called,
the meeting may, after the lapse of at least half an hour, be adjourned
from time to time by a majority of the stockholders present or represented
and entitled to vote there at, and no further notice thereof need be given
other than by announcement at said meeting which shall be adjourned.
Section 6. SPECIAL MEETINGS. HOW CALLED. Special meetings of the
stockholders for any purpose or purposes may be called by the Chairman,
President or Secretary. The Board of Directors of this Corporation, or any
three or more stockholders owning, in the aggregate, not less than 25
percent of the stock of this Corporation, or any three or more
stockholders owning, in the aggregate, not less than 25 percent of the
stock of this Corporation may call a special meeting of stockholders at any
time.
Section 7. NOTICE OF STOCKHOLDERS MEETING. Written or printed
notice, stating the place and time of any annual or special stockholders
meeting, and the general nature of the business to be considered, shall be
given by first class mail, postage prepaid, by the President or Secretary
to each stockholder entitled to vote thereat at his last known post office
address, mailed at least ten (10) days before the meeting unless a greater
time is prescribed by statute.
ARTICLE II
DIRECTORS
Section 1. NUMBER. TERM. QUORUM. The number of Directors shall not
be less than three nor more than twenty- five. The number of Directors
shall be fixed at the number elected to serve at the annual meeting of
stockholders. The Directors shall be elected at the annual meeting of the
stockholders and each Director shall be elected to serve until his
successor shall be elected and shall qualify; provided that in the event of
failure to hold such meeting or to hold such election at such meeting, it
may be held at any special meeting of the stockholders called for that
purpose. (Directors need not be stockholders.)
A majority of the Directors shall constitute a quorum for the
transaction of business. If at any meeting of the Board there shall be
less than a quorum present, a majority of those present may adjourn the
meeting from time to time until a quorum is obtained, and no further notice
need be given other than by announcement at said meeting which shall be so
adjourned.
2
<PAGE> 4
Section 2. ELECTION OF OFFICERS. At the first meeting, or at any
subsequent meeting called for the purpose, the Directors shall elect a
President, and a Secretary. Such officers shall hold office until the next
election of officers and until their successors are elected and shall
qualify. A person may be elected to hold one or more of the above
mentioned offices simultaneously.
Section 3. REGULAR MEETINGS. Regular meetings of the Directors may
be held with or without notice at such places and times as shall be
determined from time to time by resolution of the Directors.
Section 4. SPECIAL MEETING. HOW CALLED. NOTICE. Special meeting of
the Board may be called by the President or by the Secretary or upon call
of any two Directors on at least two (2) business days' notice to each
Director.
Section 5. PLACE OF MEETINGS. The Directors may hold their meetings
and have one or more offices and keep the books of the Corporation inside
or outside the State of Arkansas, at any office or offices of the
Corporation, or at any other place as they may from time to time by
resolution determine, provided, however, that a duplicate stock ledger and
originals or copies of all other records required by law shall always be
kept at the principal office in Arkansas.
Section 6. GENERAL POWERS OF DIRECTORS. The Board of Directors shall
have the direction of the business of the Corporation, and subject to the
restrictions imposed by law, by the Articles of Incorporation, or by these
By- Laws may exercise all powers of the Corporation.
Section 7. SPECIFIC POWERS OF DIRECTORS. Without prejudice to such
general powers, it is hereby expressly declared that the Directors shall
have the following powers:
(1) To adopt and alter a common seal of the Corporation.
(2) To make and change regulations, not inconsistent with these
By-Laws; for the management of the Corporation's business and
affairs.
(3) To authorize the purchase or other acquisition for the
Corporation any property, rights or privileges which the
Corporation is authorized to acquire.
(4) To pay for any property purchased for the Corporation wither
wholly or partly in money, stocks, bonds, debentures or other
securities of the Corporation.
(5) To borrow money and to make and issue notes, bonds, and other
negotiable and transferrable instruments, mortgages, deeds of
trust and trust agreements, and to do every act and thing
necessary to effectuate the same.
3
<PAGE> 5
(6) To remove any officer or any employee for cause, or any
officer and any employee other than the president summarily
with or without cause, and in their discretion, from tine to
time, to devolve the powers and duties of any officers upon
any other person for the time being.
(7) To appoint and remove or suspend such subordinate officers,
agents or employees as they may deem necessary and to
determine their duties and fix, and from time to time change
their salaries or remuneration, and to acquire security as
when they think fit.
(8) To confer upon the Chief Executive Officer of the Corporation
the power to appoint, remove and suspend subordinate officers,
agents and employees.
(9) To determine who shall be authorized on the Corporation's
behalf to make and sign bills, notes, acceptances,
endorsements, checks, releases, receipts, contracts and other
instruments.
(10) To determine who shall be entitled to vote in the name and
behalf of the Corporation upon, or to assign and transfer, any
shares of stock, bonds, or other securities of other
corporations held by this Corporation.
(11) To delegate any of the powers of the Board to any standing or
special committee, or to any officer or agent (with power to
sub-delegate), upon such terms as they think fit other than
election of officers and declaration of dividends.
(12) To call special meetings of the stockholders for any purpose or
purposes.
Section 8. COMPENSATION OF DIRECTORS. Directors shall not receive
any stated salary for their services as Directors, but by resolution of the
Board a fixed fee and expenses of attendance may be allowed for attendance
at each meeting. Nothing herein contained shall be construed to preclude
any Director from serving the Corporation in any other capacity as an
officer, agent or otherwise, and receiving compensation therefor.
Section 9. BOARD ACTION WITHOUT A MEETING. Action taken by all of
the Directors without a meeting in respect to any corporate matter is
nevertheless valid Board action if either before or after such action is
taken all members of the Board sign, and file with the Secretary of the
Corporation, for inclusion in the corporate minute book, a memorandum
showing (a) the nature of the action taken, and (b) that each member of the
Board consented to the Board acting informally and to the action taken in
respect to such matter.
4
<PAGE> 6
ARTICLES III
COMMITTEES
Section 1. CREATION OF EXECUTIVE AND OTHER COMMITTEES - There shall
be an Executive Committee created from the membership of the Board of
Directors, and it shall consist of not less than three (3) Directors which
shall be authorized to exercise all authority of the Board of Directors in
the intervals between the meetings of the Board of Directors with respect
to the business affairs of the Corporation. Such Executive Committee shall
be subject to the control and direction of the Board of Directors and shall
serve at the pleasure of the Board of Directors.
Section 2. LIMITATIONS ON ACTIONS AND EFFECT THEREOF - The Executive
Committee shall not be authorized to take any action other than ordinary
business affairs of the Corporation and may not be authorized to conduct
any action specifically prohibited by applicable laws of the United States
of America or State of Arkansas. Otherwise, an act or authorization by the
Executive Committee within the authority lawfully delegated to it shall be
the act or authorization of the Board of Directors for all legal purposes,
provided, however, that such action shall not operate to relieve the Board
of Directors of any responsibility imposed upon it by law.
Section 3. ACTION BY EXECUTIVE COMMITTEE - The Executive Committee
may act by a majority of its members at a meeting or informally without a
meeting provided all members consent to such informal action.
Section 4. In addition to the Executive Committee, the Board of
Directors may, by resolution or resolutions, passed by a majority of the
Board, designate one or more committees, each committee to consist of three
or more of the Directors of the Corporation, which, to the extent provided
in said resolution of resolutions or in these By- Laws shall have an may
exercise the powers of the Board of Directors in the management of the
business and affairs of the Corporation and may have the power to authorize
the seal of the Corporation to be affixed to all papers which may require
it. Such committee or committees shall have such name or names as may be
stated in these By-Laws or as may be determined from time to time by
resolution adopted by the Board of Directors.
Section 5. All committees shall keep regular minutes of their
proceedings and report the same to the Board when required.
ARTICLE IV
OFFICERS
Section 1. The officers of the Corporation shall be a Chairman of the
Board, a President, and a Secretary, and such other officers, including a
Treasurer, as may from time to time be elected or appointed by the Board of
Directors. One person may hold one or more of the officer positions in the
Corporation.
5
<PAGE> 7
Section 2. CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the stockholders and Directors at which he may
be present. He may enter into any contract or execute any deeds,
mortgages, bonds, contracts or other instruments in the name and on behalf
of the Corporation except in cases in which the authority to enter into
such contract or execute and deliver such instrument, as the case may be,
shall be otherwise expressly delegated. In general he shall perform all
duties incident to the office of Chairman of the Board as herein defined
and all such other duties as from time to time may be assigned to him by
the Board of Directors.
Section 3. PRESIDENT. The President shall be the chief executive
officer of the Corporation and shall, subject to the control of the Board
of Directors, supervise and manage the affairs of the Corporation. He
shall in the absence or disability of the Chairman of the Board perform the
duties and exercise the powers of such office. In the absence or
disability of the Chairman of the Board he shall preside at meetings of the
stockholders and Directors. In general he shall perform all duties
incident to the office of President as herein defined and all such other
duties as from time to time may be assigned to him by the Board of
Directors.
Section 4. SECRETARY. The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and Directors, and other
notices required by Law or by these By-Laws, and in such case of his
absence or refusal or neglect to do so, any such notice may be given by any
person designated by the President, or by the Directors, or stockholders,
upon whose requisition the meeting is called as provided in these By-Laws.
He shall record all the proceedings of the meeting of the Corporation and
of the Directors in a book to be kept for that purpose, and shall perform
such other duties as may be assigned to him by the Directors or by the
President. He shall have the custody of the seal of the Corporation and
shall affix the same to all instruments requiring it, when authorized by
the Directors or the President, and attest the same.
Section 5. TREASURER. The Treasurer shall have the custody of all
funds, securities, evidences of indebtedness and other valuable documents
of the Corporation; he shall receive and give or cause to be given receipts
and acquittances for moneys paid in on account of the Corporation and shall
pay out of the funds on hand all just debts of the Corporation of whatever
nature upon maturity of the same; he shall enter or cause to be entered in
books of the Corporation to be kept for that purpose full and accurate
accounts of all moneys received and paid out on account of the Corporation,
and whenever required by the Directors, he shall render a statement of his
cash accounts; he shall keep or cause to be kept such other books as will
show true record of the expenses, losses, gains, assets, and liabilities of
the Corporation; he shall, unless otherwise determined by the Directors,
have charge of the original stock books, transfer books and stock ledgers
and act as transfer agent in respect to the stock and securities of the
Corporation; and shall perform all of the other duties incident to the
office of the Treasurer. He shall, if required by the Board, give the
Corporation a bond for the faithful discharge of his duties in
6
<PAGE> 8
such amount and with such surety as the Board may prescribe. If the office
of Treasurer is not filled it shall be the duty of the President to see
that the duties of the Treasurer are performed.
ARTICLE V
RESIGNATIONS. FILLING OF VACANCIES.
Section 1. RESIGNATIONS. Any Director, member of committee or other
officer may resign at any time. Such resignation shall be made in writing,
and shall take effect at the time specified therein, and if no time be
specified, at the time of its receipt by the President or Secretary. The
acceptance of a resignation shall not be necessary to make it effective.
Section 2. FILLING OF VACANCIES. If the office of any Director,
member of a committee or other officer becomes vacant the remaining
Directors in office, though less than a quorum, by a majority vote, may
appoint any qualified person to fill such vacancy, who shall hold office of
the unexpired term and until his successors shall be duly chose.
Section 3. INCREASE OF NUMBER OF DIRECTORS. The number of Directors
may be increased or decreased at any time by the affirmative vote of a
majority of the Directors (or, by the affirmative vote of a majority in
interest of the stockholder), at a regular meeting or at a special meeting
called for that purpose, and, by like vote, the additional Directors may be
chosen at such meeting to hold office until the next election and until
their successors are elected and qualify.
ARTICLE VI
CAPITAL STOCK
Section 1. CERTIFICATES OF STOCK. Certificates of stock, numbered
and with the seal of the Corporation affixed, signed by the President, and
the Secretary or Assistant Secretary, shall be issued to each stockholder
certifying the number of shares owned by him in the Corporation. When such
certificates are signed by a transfer agent or an assistant transfer agent
or by a transfer clerk acting on behalf of the Corporation and a registrar,
the signature of such officers may be facsimile.
Section 2. LOST CERTIFICATES. A new certificate of stock may be
issued in the place of any certificate theretofore issued by the
Corporation, alleged to have been lost or destroyed, and the Directors may,
in their discretion, require the owner of the lost or destroyed
certificates, or his legal representative, to give the Corporation a bond,
in such sum as they may direct, not exceeding double the value of the
stock, to indemnify the Corporation against any claim that may be made
against it on account of the alleged loss of any such certificates.
Section 3. TRANSFER OF SHARES. The shares of stock of the
Corporation shall be transferable only upon its books by the holders
thereof in person or by their duly authorized attorneys or legal
representatives, and upon such transfer, the old certificates shall be
surrendered to the Corporation by the delivery thereof to the person in
charge of the stock and
7
<PAGE> 9
transfer books and ledgers, or to such person as the Directors may
designate, by whom they shall be cancelled, and new certificates shall
thereupon be issued. A record shall be made of each transfer, and a
duplicate thereof mailed to the Arkansas office, and whenever a transfer
shall be made for collateral security, and not absolutely, it shall be
expressed in the entry of the transfer.
Section 4. CLOSING OF THE TRANSFER BOOKS. The Board of Directors
shall have the power to close the stock transfer books of the Corporation
for a period not exceeding seventy (70) days preceding the date of any
meeting of stockholders or the date for payment of any dividend or the date
for the allotment of rights or the date when any change or conversion or
exchange of capital stock shall go into effect; provided, however, that
in lieu of the closing of the stock transfer books as aforesaid, the Board
of Directors may fix in advance a date, not exceeding seventy (70) days
preceding the date of any meeting of stockholders or the date for the
payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital stock shall go
into effect, as a record date for the determination of the stockholders
entitled to notice of, and to vote at, any such meeting, or entitled to
receive payment of any such dividends, or to any allotment of rights, or to
exercise the rights in respect of any such change, conversion or exchange of
capital stock, and in such case such stockholders only as shall be
stockholders of record on the date so fixed and shall be entitled to such
notice of, and to vote at, such meeting, or to receive payment of such
dividend, or to receive such allotment of rights, or to exercise such
rights, as the case may be, notwithstanding any transfer of any stock on the
books of the Corporation after any such record dated fixed as aforesaid.
Section 5. DIVIDENDS. Subject to the provisions of the Articles of
Incorporation, if any, the Directors may declare dividends upon the capital
stock of the Corporation as and when they deem expedient. Before declaring
any dividend there may be set apart out of any funds of the Corporation
available for dividends, such sum or sums as the Directors from time to
time in their discretion think proper for working capital or as reserve
funds to meet contingencies or for equalizing dividends, or for other such
purposes as the Directors shall think conducive to the interests of the
Corporation.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 1. CORPORATE SEAL. The corporate seal shall be circular form
and shall contain the mane of the Corporation, the year of its creation and
the words "CORPORATE SEAL ARKANSAS". Said seal may be used by causing it
or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
8
<PAGE> 10
Section 2. PRINCIPAL OFFICE. The principal office of the Corporation
shall be at Main and Washington Streets, El Dorado, Arkansas 71730, with
offices at such other places as the Board of Directors may, from time to
time, designate or the business of the Corporation may require.
Section 3. FISCAL YEAR. The fiscal year of the Corporation shall
begin on January 1 and end on December 31 following.
Section 4. CHECKS. DRAFTS. NOTES. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness
issued in the name of the Corporation shall be signed by such officers,
agent or agents of the Corporation, and in such manner as shall from time
to time be determined by resolution of the Board of Directors.
Section 5. NOTICE AND WAIVER OF NOTICE. Whenever any notice is
required by these By-Laws to be given, personal notice is not meant unless
expressly so stated; and any notice so required shall be deemed to be
sufficient if given by depositing the same in a post office box in a sealed
wrapper bearing adequate postage, addressed to the person entitled thereto
at his last known post office address, and such notice shall be deemed to
have been given three (3) days after such mailing. Any notice required to
be given under these By-Laws may be waived by the person entitled thereto.
Stockholders not entitled to vote shall not be entitled to receive notice
of any meeting except as otherwise provided by the statute.
Section 6. INDEMNIFICATION. Every person who was or is a party or is
threatened to be made a party to or is involved in any action, suit,
proceeding, whether civil, criminal, administrative, or investigative, by
reason of the fact that he is or was a Director or officer of the
Corporation or is or was serving at the request of the Corporation as a
director or officer of another corporation, or as its representative in a
partnership, joint venture, trust, or other enterprise, shall be
indemnified and held harmless to the fullest extent legally permissible
under and pursuant to any procedure specified in the Arkansas Business
Corporation Act of the State of Arkansas, as amended and as the same may be
amended hereafter, against all expenses, liabilities, and losses (including
attorney's fees, judgements, fines and amounts paid or to be paid in
settlement) reasonably incurred or suffered by him in connection therewith.
Such right of indemnification shall be a contract right that may be
enforced in any lawful manner by such person. Such right of
indemnification shall not be exclusive of any other right which such
director or officer may have or hereafter acquire and, without limiting the
generality of such statement, he shall be entitled to his rights of
indemnification under any agreement, vote of stockholders, provisions of
law, or otherwise, as well as his rights under this paragraph.
The Board of Directors may cause the Corporation to purchase and
maintain insurance on behalf of any person who is or was a Director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise
against any
9
<PAGE> 11
liability asserted against such person and incurred in any such capacity or
arising out of such status, whether or not the Corporation would have power
to indemnify such person.
Section 7. ADVANCEMENT OF EXPENSES. Expenses incurred by a Director
or officer of the Corporation in defending a civil or criminal action, suit
or proceeding by reason of the fact that he is, or was a Director or
officer of the Corporation (or was serving at the Corporation's request as
a director or officer of another corporation, or as its representative in a
partnership, joint venture, trust or other enterprise) shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by, or on behalf of, such person
to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized by relevant
provision of the Arkansas Business Corporation Act as the same now exists
or as it may hereafter be amended.
ARTICLE VIII
AMENDMENTS
Section 1. AMENDMENTS OF BY-LAWS. The stockholders, by the
affirmative vote of the holders of a majority of the common stock issued
and outstanding may, at any meeting, amend or alter any of these By-Laws,
as may a majority of the members of the Board of Directors, subject and
pursuant to the Articles of Incorporation and By-Laws.
10
<PAGE> 1
EXHIBIT 5
Opinion of Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C.
<PAGE> 2
Exhibit 5
June 25, 1997
First United Bancshares, Inc.
Main and Washington Streets
El Dorado, Arkansas 71730
Gentlemen:
In our opinion, the shares of First United Bancshares, Inc. common
stock $1.00 par value per share, being registered under this Registration
Statement, when issued in exchange for the outstanding common stock of
Fredonia Bancshares, Inc., will constitute legally issued, fully paid,
nonassessable shares of First United Bancshares, Inc.
We consent to the inclusion of this opinion in the Registration
Statement and reference to us under the caption "Legal Opinions" in the
Proxy Statement included in the Registration Statement.
MITCHELL, WILLIAMS, SELIG, GATES & WOODYARD, P.L.L.C.
/s/ Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C.
<PAGE> 1
EXHIBIT 8
Tax Opinion of Bracewell & Patterson, L.L.P.
Regarding Fredonia Bancshares, Inc. Acquisition
<PAGE> 2
EXHIBIT 8
June 20, 1997
Board of Directors
Fredonia Bancshares, Inc.
2400 North Street
Nacogdoches,Texas 75961
Dear Sirs:
We are special tax counsel to Fredonia Bancshares, Inc.
("Fredonia") in connection with certain transactions contemplated by the
Agreement and Plan of Reorganization, dated as of April 25, 1997 among
First United Bancshares, Inc. ("First United"), First United of Texas, Inc.
and Fredonia, pursuant to which First United would issue to the
shareholders of Fredonia shares of First United Stock in exchange for all
the issued and outstanding stock of Fredonia through a merger transaction
(the "Merger") in which Fredonia would be merged with and into First
United. In that connection, our opinion is as set forth in the section
entitled, "THE MERGER - Federal Income Tax Consequences" in this
Registration Statement.
We hereby consent to the filing of this letter as Exhibit 8 to the
Registration Statement on Form S-4 which the Proxy Statement is a part and
to the reference to us in the section entitled "THE MERGER - Federal
Income Tax Consequences" in the Proxy Statement.
Very truly yours,
/s/ Bracewell & Patterson, L.L.P.
---------------------------------
Bracewell & Patterson, L.L.P.
<PAGE> 1
EXHIBIT 21
Subsidiaries of First United Bancshares, Inc.
<PAGE> 2
EXHIBIT 21
FIRST UNITED BANCSHARES, INC.
Subsidiaries
Name Jurisdiction of Incorporation
- ---- -----------------------------
The First National Bank United States
of El dorado, El Dorado
Arkansas
First United Trust Company, N.A. United States
El Dorado, Arkansas
City National Bank United States
or Fort Smith, Fort Smith
Arkansas
First National Bank United States
of Magnolia, Magnolia
Arkansas
Merchants and Planters Bank United States
N.A., Camden, Arkansas
Commercial Bank at Alma Arkansas
Alma, Arkansas
The Bank of North Arkansas Arkansas
Melbourne, Arkansas
First United Bank Arkansas
Stuttgart, Arkansas
FirstBank Texas
Texarkana, Texas
<PAGE> 1
EXHIBIT 23(a)
Consent of Arthur Andersen LLP
<PAGE> 2
EXHIBIT 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this Registration Statement on Form S-4 of
our report dated January 22, 1997 included in First United Bancshares,
Inc.'s Form 10-K for the year ended December 31, 1996 and to all references
to our Firm included in this Registration Statement.
ARTHUR ANDERSEN LLP
Jackson, Mississippi
June 20, 1997
<PAGE> 1
EXHIBIT 23(b)
Consent of Axley & Rode LLP
<PAGE> 2
AXLEY & RODE LLP
CERTIFIED PUBLIC ACCOUNTANTS
LUFKIN o NACOGDOCHES o CROCKETT o LIVINGSTON
TEXAS
EXHIBIT 23(b)
CONSENT OF INDEPENDENT AUDITORS
As independent auditors, we hereby consent to the use of our report dated
February 20, 1997 on the consolidated financial statements of Fredonia
Bancshares, Inc. as of December 31, 1996 and for the year then ended and to
all references to our firm included in this Registration Statement on Form
S-4 and related Prospectus of First United Bancshares, Inc. for the
registration of up to 1,610,000 shares of its common stock.
/s/ Axley & Rode LLP
-------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
June 24, 1997
Lufkin, Texas
<PAGE> 1
EXHIBIT 23(c)
Consent of Hoefer & Arnett
<PAGE> 2
EXHIBIT 23(c)
CONSENT OF INDEPENDENT FINANCIAL ADVISOR
June 23, 1997
Board of Directors
Fredonia Bancshares, Inc.
2400 North Street
Nacogdoches, Texas 75963
Gentlemen:
We have been retained by the Board of Directors of Fredonia Bancshares, Inc.,
Nacogdoches, Texas ("Fredonia") to render our opinion with respect to the
fairness, from a financial point of view, of the consideration to be received
by shareholders of Fredonia in connection with certain transactions
contemplated by the Agreement and Plan of Reorganization dated as of April 25,
1997 pursuant to which First United Bancshares, Inc., El Dorado, Arkansas
("First United") would issue to the shareholders of Fredonia shares of First
United stock in exchange for all the issued and outstanding stock of Fredonia
through a merger transaction (the "Merger") in which Fredonia would be merged
with and into First United. In that connection, our fairness opinion is as set
forth in the section entitled "The Merger - Opinion of Fredonia's Financial
Advisor" in this Registration Statement.
We hereby consent to the filing of this letter as an Exhibit to the
Registration Statement on Form S-4 which the Proxy Statement is a part and to
the reference to us in the section entitled "The Merger - Opinion of Fredonia's
Financial Advisor" in the Proxy Statement.
Very Truly Yours,
/s/ Hoefer & Arnett Incorporated
- ------------------------------------------
Hoefer & Arnett, Incorporated
<PAGE> 1
EXHIBIT 99
Fredonia Bancshares, Inc. Form of Proxy
<PAGE> 2
Exhibit 99
PROXY
FREDONIA BANCSHARES, INC.
NACOGDOCHES, TEXAS
Special Meeting of Shareholders
__________, 1997
The undersigned Shareholders of Fredonia Bancshares, Inc. ("Fredonia")
hereby appoints and constitutes Gordon Lewis and J. R. Honea or either of
them, each with full power of substitution, as attorneys and proxies of the
undersigned, to represent the undersigned at the Special Meeting of
Shareholders of Fredonia to be held on __________, 1997 at 3:00 p.m. local
time at 2400 North Street, Nacogdoches, Texas and at any adjournment or
adjournments thereof and to vote all shares of stock of Fredonia held of
record by the undersigned and which the undersigned would be entitled to
vote if personally present at the Special Meeting on the following matters:
1. Approval of the Agreement and Plan of Reorganization dated April
25, 1997 which provides for the merger of Fredonia with and into
First United of Texas, Inc.
FOR AGAINST ABSTAIN
----- ----- -----
In their sole discretion on such other matters as may properly come before
the meeting or any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FREDONIA
(Continued and to be signed on other side)
THIS PROXY WILL BE VOTED AS DIRECTED BUT, WHERE NO DIRECTION IS GIVEN, IT
WILL BE VOTED "FOR" APPROVAL OF THE AGREEMENT. A COPY OF THE PROXY
STATEMENT HAS BEEN RECEIVED BY THE UNDERSIGNED.
DATED:
--------------------------- ---------------------------------------
Signature
----------------------------------------
Signature
Please date the Proxy and sign it exactly as name(s) appear(s) hereon and
return promptly in the enclosed envelope. When signing as attorney,
executor, administrator, trustee, guardian or corporate official, please
give your title as such.
PLEASE CHECK IF YOU PLAN TO ATTEND THIS MEETING.
----
