<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1997
REGISTRATION NO. 333-_____________
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-----------------------
FIRST FINANCIAL BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
-----------------------
TEXAS 75-0944023
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
6712
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
400 PINE STREET
ABILENE, TEXAS 79601
(915) 627-7155
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CURTIS R. HARVEY
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
400 PINE STREET
ABILENE, TEXAS 79601
(915) 627-7155
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE OF AGENT FOR SERVICE)
-----------------------
Copies to:
N. KATHLEEN FRIDAY, P.C. RICHARD G. WILLIAMS
AKIN, GUMP, STRAUSS, SHANNON, GRACEY, RATLIFF
HAUER & FELD, L.L.P. P.C. & MILLER, L.L.P.
1700 PACIFIC AVENUE, SUITE 4100 1600 BANK ONE TOWER
DALLAS, TEXAS 75201-4675 500 THROCKMORTON
FORT WORTH, TEXAS 76102
PAUL L. CANNON
MCMAHON, SUROVIK, SUTTLE,
BUHRMANN, COBB, HICKS & GILL,
400 PINE STREET, SUITE 800
ABILENE, TEXAS 79601
Approximate date of commencement of proposed sale to public: As soon as
practicable after the registration statement becomes effective.
-----------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box:
-----------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED(1) REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock...................... 216,454 $19.93 $4,313,928 $1,307.12
============================================================================================================================
</TABLE>
(1) The registration fee has been computed pursuant to Rule 457(f)(2) under the
Securities Act of 1933, as amended (the "Securities Act"), based on the book
value of the shares of Common Stock of Southlake Bancshares, Inc. at June 30,
1997 that may be exchanged for the securities being registered.
-----------------------
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, or until the registration statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
===============================================================================
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLE OR NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 1, 1997
OFFERING CIRCULAR/
- ------------------
PROSPECTUS
- ----------
OFFER TO EXCHANGE
ALL OUTSTANDING
SHARES OF COMMON STOCK OF
SOUTHLAKE BANCSHARES, INC.
FOR
SHARES OF COMMON STOCK OF
FIRST FINANCIAL
BANKSHARES, INC.
----------------
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., ABILENE, TEXAS TIME,
ON __________, 1997
First Financial Bankshares, Inc., a Texas corporation ("First Financial" or
the "Company"), hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying letter of transmittal (the "Letter
of Transmittal," and together with this Prospectus, the "Exchange Offer"), to
exchange shares of its voting common stock, par value $10.00 per share ("First
Financial Common Stock"), which have been registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a Registration Statement
(as defined herein) of which this Prospectus is a part, for all of the issued
and outstanding shares of common stock of Southlake Bancshares, Inc., a Texas
corporation ("Southlake"), par value $1.00 per share ("Southlake Common Stock").
Upon consummation of the Exchange Offer, each outstanding share of Southlake
Common Stock tendered in the Exchange Offer will, subject to certain provisions
with respect to fractional shares, be exchanged (the "Exchange") for .894 shares
of First Financial Common Stock, subject to adjustment described herein. As a
result, up to 242,119 shares of Southlake Common Stock will be exchanged for a
maximum of 216,454 shares of First Financial Common Stock.
Subject to the terms and conditions of the Exchange Offer, First Financial
will accept for exchange all shares of Southlake Common Stock that are validly
tendered on or prior to 5:00 p.m., Abilene, Texas time, on the date the Exchange
Offer expires, which will be __________, 1997 (the "Expiration Date"), unless
the Exchange Offer is extended. Once shares of Southlake Common Stock are
tendered in the Exchange Offer, they may not be withdrawn. The Exchange Offer is
subject to certain conditions, including a condition that at least 90%, or such
higher amount as shall be necessary in order for the acquisition to be accounted
for as a pooling of interests (the "Required Amount"), of the outstanding
Southlake Common Stock be tendered in the Exchange Offer. See "The Exchange
Offer--Conditions to Consummation of the Exchange Offer; Termination."
Upon consummation of the Exchange Offer, it is anticipated that Southlake
will be merged (the "Merger") with and into First Financial and that any
remaining Southlake shareholders will receive in the Merger the same
consideration they would have received had they participated in the Exchange
Offer, subject to their rights to dissent from the Merger. This Prospectus also
relates to the shares of First Financial Common Stock that may be issued in the
Merger.
Prior to the Exchange Offer, there has been no public market for the
Southlake Common Stock. The First Financial Common Stock is traded on the NASDAQ
National Market under the trading symbol "FFIN." On ____________, 1997, the
closing sales price of the First Financial Common Stock, as reported by NASDAQ,
was $__________.
----------------
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 THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is ____________, 1997
<PAGE>
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL FIRST FINANCIAL ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF SOUTHLAKE COMMON STOCK IN ANY
JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE
IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
AVAILABLE INFORMATION
First Financial is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities and
Exchange Commission (the "SEC"). Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549; and at
its regional offices located at 7 World Trade Center, New York, New York 10048
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such materials may also be obtained from the Public Reference Section of the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of certain fees
prescribed by the SEC. The SEC also maintains a site on the World Wide Web, the
address of which is http://www.sec.gov., that contains reports, proxy and
information statements and other information regarding reporting companies that
file electronically with the SEC.
This Prospectus constitutes a part of a registration statement (the
"Registration Statement") filed by First Financial with the SEC under the
Securities Act of 1933, as amended (the "Securities Act"). As permitted by the
rules and regulations of the SEC, this Prospectus does not contain all of the
information contained in the Registration Statement and the exhibits and
schedules thereto, and reference is hereby made to the Registration Statement
and the exhibits and schedules thereto for further information with respect to
First Financial and the securities offered hereby. Statements contained herein
concerning the provisions of any documents filed as an exhibit to the
Registration Statement or otherwise filed with the SEC are not necessarily
complete, and in each instance reference is made to the copy of such document so
filed. Each such statement is qualified in its entirety by such reference.
INCORPORATION BY REFERENCE
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS, OTHER THAN EXHIBITS
TO SUCH DOCUMENTS THAT ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE THEREIN,
ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY SHAREHOLDER OF
SOUTHLAKE TO WHOM THIS PROSPECTUS IS DELIVERED, UPON ORAL OR WRITTEN REQUEST TO
CURTIS R. HARVEY, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, FIRST
FINANCIAL BANKSHARES, INC., 400 PINE STREET, ABILENE, TEXAS 79601, TELEPHONE
NUMBER (915) 627-7155. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE BY ______________, 1997.
First Financial's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, First Financial's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1997 and June 30, 1997, and First Financial's Current
Reports on Form 8-K dated May 27, 1997 and August 27, 1997, in each case filed
with the SEC pursuant to Section 13 of the Exchange Act, and the description of
First Financial Common Stock which is contained in First Financial's
Registration Statement on Form 8-A dated March 29, 1974, filed under Section 12
of the Exchange Act, as amended by Amendment No. 1 to Form 8-A on Form 8-A/A No.
1 dated January 7, 1994 and Amendment No. 2 to Form 8-A on Form 8-A/A No. 2
dated November 20, 1995, are incorporated into this Prospectus by reference.
All documents filed by First Financial pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the respective dates of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of
2
<PAGE>
this Prospectus to the extent that such statement is modified or superseded by a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
No person is authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given or
made, such information or representation must not be relied upon as having been
authorized by First Financial or Southlake. This Prospectus does not constitute
an offering within any jurisdiction to any person to whom it is unlawful to make
such offer within such jurisdiction.
The information herein concerning First Financial has been obtained from
various filings by First Financial under the Exchange Act and from management.
The information herein concerning Southlake has been obtained from the
management of Southlake.
TABLE OF CONTENTS
PROSPECTUS SUMMARY........................................................... 5
The Parties.......................................................... 5
Summary of the Transaction........................................... 6
SUMMARY FINANCIAL DATA.......................................................10
FIRST FINANCIAL AND SUBSIDIARIES SELECTED FINANCIAL DATA.....................11
SOUTHLAKE AND SUBSIDIARY SELECTED FINANCIAL DATA.............................12
FIRST FINANCIAL AND SUBSIDIARIES AND SOUTHLAKE AND SUBSIDIARY PRO
FORMA COMBINED SELECTED FINANCIAL DATA....................................13
FIRST FINANCIAL AND SUBSIDIARIES, SOUTHLAKE AND SUBSIDIARY, AND
TCB-SAN ANGELO PURCHASE PRO FORMA COMBINED SELECTED FINANCIAL DATA.......14
COMPARATIVE PER SHARE DATA...................................................15
THE EXCHANGE OFFER...........................................................16
General..............................................................16
Background of the Exchange Offer.....................................16
First Financial's Reasons for the Exchange Offer.....................17
Southlake's Reasons for the Exchange Offer...........................17
Operation After the Exchange Offer and Merger........................18
The Exchange Rate....................................................19
The Expiration Date..................................................19
Conditions to Consummation of the Exchange Offer; Termination........19
Exchange of Shares and Certificates..................................21
Guaranteed Delivery Procedures.......................................22
Fractional Shares....................................................22
No Withdrawal Rights.................................................23
Regulatory Approvals Required........................................23
Federal Income Tax Consequences......................................23
Exchange Agent.......................................................24
Resale by Southlake Affiliates.......................................24
Anticipated Merger and Dissenting Shareholders' Rights...............25
Accounting Treatment.................................................26
CERTAIN REGULATORY CONSIDERATIONS............................................26
General..............................................................26
Payment of Dividends.................................................28
Certain Transactions by First Financial with its Affiliates..........28
Capital..............................................................29
First Financial Support of the First Financial Banks.................31
Interstate Banking and Branching Act.................................31
Pending and Proposed Legislation.....................................32
3
<PAGE>
DESCRIPTION OF FIRST FINANCIAL CAPITAL STOCK.................................32
COMPARISON OF SHAREHOLDER RIGHTS.............................................32
Board of Directors...................................................33
Indemnification of Directors and Officers............................33
Special Meetings of Shareholders.....................................33
INFORMATION ABOUT FIRST FINANCIAL............................................33
General..............................................................33
Recent Developments..................................................34
Market Prices of and Dividends Paid on First Financial Common Stock..35
INFORMATION ABOUT SOUTHLAKE..................................................36
General..............................................................36
Market Area..........................................................36
Services.............................................................37
Competition..........................................................37
Employees............................................................37
Properties...........................................................37
Market for and Dividends Paid on Southlake Common Stock..............37
Security Ownership of Certain Beneficial Owners......................37
Security Ownership of Management.....................................38
SELECTED CONSOLIDATED FINANCIAL DATA OF SOUTHLAKE............................39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF SOUTHLAKE................................................40
LEGAL MATTERS................................................................56
EXPERTS......................................................................56
4
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus. As this summary is necessarily incomplete, reference is made
to, and this summary is qualified in its entirety by, the more detailed
information contained or incorporated by reference in this Prospectus and the
Annexes hereto. Shareholders of Southlake are urged to read the Prospectus and
the Annexes hereto in their entirety.
THE PARTIES
First Financial is a Texas corporation and a multi-bank holding company
registered under the Bank Holding Company Act of 1956, as amended (the "BHCA").
First Financial owns, through its wholly-owned Delaware subsidiary, all of the
capital stock of eight banks organized and located in Texas: First National Bank
of Abilene, Abilene, Texas; Hereford State Bank, Hereford, Texas; First National
Bank, Sweetwater, Texas; Eastland National Bank, Eastland, Texas; The First
National Bank in Cleburne, Cleburne, Texas; Stephenville Bank and Trust Co.,
Stephenville, Texas; San Angelo National Bank, San Angelo, Texas and Weatherford
National Bank, Weatherford, Texas (collectively, the "First Financial Banks").
First Financial operates principally in order to give the First Financial Banks
access to additional management and technical resources, which help them to
improve or expand their banking services while continuing their local activity
and identity. The First Financial Banks are engaged in the general commercial
banking business consisting of the acceptance of checking, savings and time
deposits, the making of loans, including bank credit card services, transmitting
funds and performing such other banking services as are usual and customary for
commercial banks. First National Bank of Abilene, First National Bank,
Sweetwater, and Stephenville Bank and Trust Co. have active trust departments.
The trust departments offer a complete range of services to individuals,
associations and corporations. The First Financial Banks also administer
pension, profit sharing and other employee benefit plans, act as stock transfer
agents or stock registrars for corporations and provide paying agent services.
In addition, First National Bank of Abilene, The First National Bank in
Cleburne, San Angelo National Bank and Weatherford National Bank provide
securities brokerage services through arrangements with various third parties.
As of June 30, 1997, First Financial and its consolidated subsidiaries had total
assets of approximately $1.3 billion, total deposits of approximately $1.1
billion, total loans (net of allowance for loan losses) of approximately $572.5
million and total shareholders' equity of approximately $137.2 million. First
Financial's principal executive offices are located at 400 Pine Street, Abilene,
Texas 79601, and its telephone number is (915) 627-7155. See "Information About
First Financial."
On September 26, 1997, San Angelo National Bank, a subsidiary bank of First
Financial, acquired certain assets and assumed certain liabilities of Texas
Commerce Bank-San Angelo, National Association ("TCB-San Angelo") in a
transaction that will be accounted for as a purchase transaction (the "TCB-San
Angelo Purchase"). See "Information about First Financial--Recent
Developments."
Southlake is a one bank holding company formed in 1987 and incorporated in
the State of Texas. Southlake owns 100% of Texas National Bank ("Texas
National"), a national bank having its principal office in the City of
Southlake, Tarrant County, Texas. Texas National, which began operations in
1985, is federally chartered and insured by the Federal Deposit Insurance
Corporation (the "FDIC"). Southlake and Texas National are located approximately
20 miles northeast of downtown Fort Worth, Texas, and within the Fort Worth-
Dallas metropolitan area. In addition, Texas National maintains a branch
location in Trophy Club, Denton County, Texas. Texas National provides a full
range of both commercial and consumer banking services, including loans,
checking accounts, savings programs, safe deposit facilities, access to
automated teller machines, and credit card programs. The bank does not offer
trust services. As of June 30, 1997, Southlake and its consolidated subsidiary
had total assets of approximately $53.6 million, total deposits of approximately
$49.1 million, total loans (net of allowance for loan losses) of approximately
$25.4 million and total shareholders' equity of approximately $4.2 million.
Southlake's principal executive offices are located at 3205 E. Highway 114,
Southlake, Texas 76092 and its telephone number is (817) 488-5544. See
"Information about Southlake."
5
<PAGE>
SUMMARY OF THE TRANSACTION
THE EXCHANGE OFFER
Pursuant to a Stock Exchange Agreement and Plan of Reorganization dated as
of August 18, 1997, between First Financial and Southlake and Texas National
(the "Exchange Agreement"), First Financial is offering to acquire from the
shareholders of Southlake (the "Southlake Shareholders") all outstanding shares
of Southlake Common Stock in exchange for shares of First Financial Common Stock
at the exchange rate specified below. THE SOUTHLAKE BOARD OF DIRECTORS HAS
UNANIMOUSLY DETERMINED THAT THE EXCHANGE OFFER IS FAIR TO THE SOUTHLAKE
SHAREHOLDERS. See "The Exchange Offer."
THE EXCHANGE RATE
First Financial will issue and exchange .894 shares of First Financial
Common Stock for each share of Southlake Common Stock tendered by the Southlake
Shareholders who accept the Exchange Offer during the time period the Exchange
Offer is in effect; provided, however, that if First Financial, prior to
consummation of the Exchange Offer, shall issue any additional shares of First
Financial Common Stock pursuant to any stock dividend or stock split, the rate
of exchange (the "Exchange Rate") shall be adjusted so as to prevent dilution of
the exchanging Southlake Shareholders. First Financial will not issue any
fractional shares of First Financial Common Stock. Southlake Shareholders who
would otherwise be entitled to receive fractional shares of First Financial
Common Stock will be paid in cash for such fractional shares based upon a value
of $39.75 per share of First Financial Common Stock. See "The Exchange Offer-The
Exchange Rate."
THE EXPIRATION DATE
Unless otherwise extended by First Financial, the offer by First Financial
to exchange First Financial Common Stock for Southlake Common Stock shall
terminate at 5:00 p.m., Abilene, Texas time on ______________, 1997 (the
"Expiration Date").
CONDITIONS TO CONSUMMATION OF THE EXCHANGE OFFER; TERMINATION
Consummation of the Exchange Offer is subject to certain conditions,
including without limitation, the valid tender by Southlake Shareholders of the
Required Amount of Southlake Common Stock; the receipt of all required
regulatory approvals and the lapse of certain waiting periods with respect to
such approvals; the receipt by First Financial of an opinion from its
independent accountants that the transaction will be accounted for as a "pooling
of interests"; the receipt by Southlake of an opinion from its independent
public accountants and/or tax counsel that the Exchange will not be considered a
taxable event for federal income tax purposes; the receipt by First Financial of
an opinion of counsel for Southlake as to certain corporate matters regarding
Southlake and Texas National; the receipt by Southlake of an opinion of counsel
for First Financial as to certain corporate matters regarding First Financial;
the absence of any material adverse change in the financial condition of First
Financial, Southlake or Texas National; the absence of legal or governmental
action with respect to the Exchange Offer; the receipt by First Financial of a
satisfactory Phase I Environmental Assessment Report covering all properties
owned by Southlake and Texas National; appropriate action shall have been taken
to freeze the Southlake Bancshares Employee Stock Ownership Plan (the "KSOP")
and First Financial shall be satisfied with respect to certain other matters
concerning the KSOP; Southlake and Texas National shall have terminated certain
other employee benefit plans; Southlake shall have redeemed and canceled all
outstanding shares of Southlake Preferred Stock; and no outstanding options
requiring the issuance or sale of, or otherwise relating to, any capital stock
of Southlake or Texas National shall exist as of the consummation of the
Exchange Offer.
The Exchange Offer may be terminated at any time (a) by mutual consent of
First Financial and Southlake, (b) by First Financial if any of the other
parties shall have breached a representation or warranty or covenant which
constitutes a material adverse change from that represented in the Exchange
Agreement or if
6
<PAGE>
any of the conditions to consummating the Exchange Offer are not satisfied or
waived, (c) by Southlake if First Financial shall have breached a representation
or warranty or covenant which constitutes a material adverse change from that
represented in the Exchange Agreement or if any of the conditions to
consummating the Exchange Offer are not satisfied or waived, (d) by First
Financial or Southlake if the Exchange Offer is not consummated by January 31,
1998, or (e) by First Financial or Southlake if a court or governmental body
shall have taken any action restraining, enjoining or otherwise prohibiting the
Exchange or the Merger and such action shall be final and nonappealable. If the
Exchange Offer is terminated without the acceptance by First Financial of any
shares of Southlake Common Stock tendered, all shares so tendered will be
promptly returned to the tendering Southlake Shareholders. See "The Exchange
Offer - Conditions to Consummation of the Exchange; Termination."
EXCHANGE OF SHARES AND CERTIFICATES
The Southlake Shareholders are receiving with this Prospectus a letter of
transmittal for acceptance of the Exchange Offer (the "Letter of Transmittal").
Each Southlake Shareholder wishing to accept the Exchange Offer must complete,
sign and date the Letter of Transmittal, or a facsimile thereof, in accordance
with the instructions contained herein and therein, and mail or otherwise
deliver the Letter of Transmittal, or such facsimile, together with the
certificates reflecting ownership of Southlake Common Stock (the "Southlake
Common Stock Certificates") to be exchanged and any other required documentation
to the Trust Department of First National Bank of Abilene (the "Exchange Agent")
at the address set forth herein and therein. The delivery of the Letter of
Transmittal with the Southlake Common Stock Certificates shall be deemed to
constitute an acceptance of the Exchange Offer to the extent of the number of
shares of Southlake Common Stock reflected on the Southlake Common Stock
Certificates accompanying the Letter of Transmittal.
Upon expiration of the Exchange Offer and satisfaction of certain
conditions to the consummation of the Exchange Offer, if First Financial
receives written notice from the Exchange Agent that the Required Amount of the
outstanding shares of Southlake Common Stock have been validly tendered to First
Financial, then First Financial will promptly cause to be issued and mailed to
Southlake Shareholders who have tendered shares of Southlake Common Stock, by
registered mail, certificates of First Financial Common Stock ("First Financial
Common Stock Certificates") representing .894 shares (subject to adjustment as
herein described) of First Financial Common Stock for each share of Southlake
Common Stock received by the Exchange Agent. Any cash payment to which a
Southlake Shareholder may be entitled in place of fractional shares of First
Financial Common Stock will be included with the First Financial Common Stock
Certificates mailed to the Southlake Shareholders.
Any beneficial holder whose shares of Southlake Common Stock are registered
in the name of such holder's broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender in the Exchange Offer should contact the
registered holder promptly and instruct such registered holder to tender on his
or her behalf. If such beneficial holder wishes to tender on his or her own
behalf, such beneficial holder must, prior to completing and executing the
Letter of Transmittal and delivering the Southlake Common Stock Certificates,
either make appropriate arrangements to register ownership of the shares of
Southlake Common Stock in such holder's name or obtain a properly completed
stock power from the registered holder. The transfer of record ownership may
take considerable time. See "The Exchange Offer - Exchange of Shares and
Certificates."
GUARANTEED DELIVERY PROCEDURES
Southlake Shareholders who wish to tender their shares of Southlake Common
Stock and whose Southlake Common Stock Certificates are not immediately
available or who cannot deliver their Southlake Common Stock Certificates and a
properly completed Letter of Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent prior to the Expiration Date may
tender their shares of Southlake Common Stock according to the guaranteed
delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery
Procedures."
7
<PAGE>
NO WITHDRAWAL RIGHTS
Shares tendered pursuant to the Exchange Offer may not be withdrawn.
THE EXCHANGE AGENT
The Exchange Agent for purposes of the Exchange Offer discussed herein
shall be the Trust Department of First National Bank of Abilene, Third Floor,
400 Pine Street, Abilene, Texas 79601.
FEDERAL INCOME TAX CONSEQUENCES
Consummation of the Exchange Offer is conditioned on receipt by Southlake
of a written opinion from its independent accountants and/or tax counsel that
the exchange of shares of Southlake Common Stock will not be considered a
taxable event for federal income tax purposes. Southlake has received an opinion
to such effect from its independent accountants, Judd, Thomas, Smith & Company,
P.C. A copy of their opinion, which is subject to certain qualifications and
assumptions, is attached hereto as Annex A. See "The Exchange Offer--Federal
Income Tax Consequences."
ANTICIPATED MERGER AND DISSENTING SHAREHOLDERS' RIGHTS
First Financial anticipates that, upon consummation of the Exchange Offer,
Southlake will be merged (the "Merger") with and into First Financial with any
remaining Southlake Shareholders receiving in the Merger the same consideration
they would have received had they participated in the Exchange Offer, subject to
their rights to dissent from the Merger. See "The Exchange Offer--Anticipated
Merger and Dissenting Shareholders' Rights."
REGULATORY APPROVALS
The Exchange Offer and Merger are subject to prior approval by the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board").
Regulatory approval has been obtained. See "The Exchange Offer--Regulatory
Approvals Required."
INTERESTS OF CERTAIN PERSONS IN THE EXCHANGE
As of September 30, 1997, the directors and executive officers of Southlake
beneficially owned 136,958 shares of Southlake Common Stock, representing
approximately 56.6% of Southlake Common Stock outstanding. See "Information
about Southlake--Security Ownership of Management."
FORWARD - LOOKING STATEMENTS
This Prospectus contains or incorporates by reference forward-looking
statements within the meaning of Section 27A of the Securities Act, including
statements of goals, intentions and expectations as to future trends, plans,
events or results of operations of First Financial or Southlake. These
statements are based upon current and anticipated economic conditions,
nationally and in First Financial's markets, governmental monetary and fiscal
policies, interest rates, competitive factors and other conditions, which, by
their nature, are subject to risks and uncertainties that may cause actual
results to differ materially from those expressed or implied by such forward-
looking statements. Readers are cautioned against placing undue reliance on any
such forward-looking statement.
8
<PAGE>
SUMMARY FINANCIAL DATA
The following tables present selected historical consolidated financial
data for each of First Financial and Southlake, combined pro forma financial
data for First Financial and Southlake and combined pro forma financial data for
First Financial, Southlake and the TCB-San Angelo Purchase. The historical
financial data for First Financial for each year in the five-year period ended
December 31, 1996 are derived from the audited consolidated financial statements
of First Financial incorporated herein by reference. The historical financial
data for Southlake as of December 31, 1995 and 1996 and for the years ended
December 31, 1994, 1995 and 1996 are derived from the audited consolidated
financial statements of Southlake contained elsewhere in this Prospectus. The
historical financial data for First Financial and Southlake as of June 30, 1996
and 1997 and for the six months ended June 30, 1996 and 1997 are derived from
the unaudited financial statements of First Financial and Southlake,
respectively, and in the respective opinions of First Financial and Southlake,
include all normal recurring adjustments necessary for a fair presentation of
such information. Operating results for the six months ended June 30, 1997 are
not necessarily indicative of the results that may be achieved for the year
ending December 31, 1997. The financial data should be read in conjunction with
the applicable consolidated financial statements of First Financial and
Southlake incorporated herein by reference or included elsewhere in this
document.
The pro forma data give effect to the Exchange and the Merger, in each case
accounted for as a pooling of interests and based upon a conversion of each
share of Southlake Common Stock into .894 shares of First Financial Common
Stock. The pro forma data are prepared on the assumption that First Financial
acquired Southlake and consummated the TCB-San Angelo Purchase as of the date of
the balance sheet and as of the beginning of the period presented for the year
ended December 31, 1996 and for the six months ended June 30, 1997. The pro
forma balance sheet and income statement data for earlier periods also assume
that First Financial acquired Southlake as of the beginning of each such period.
Years prior to 1996 exclude the TCB-San Angelo Purchase. All per share data of
First Financial have been adjusted to reflect stock splits and stock dividends.
The unaudited pro forma financial information presented is for
informational purposes only and is not necessarily indicative of results of
operations or financial position that would have been reported had the Exchange
or the Merger, as the case may be, or the TCB-San Angelo Purchase been completed
at the beginning of the period or as of the date for which such unaudited pro
forma information is presented, nor is such information indicative of future
results of operations or financial position.
9
<PAGE>
FIRST FINANCIAL AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
-------- ---------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF
INCOME STATEMENT DATA:
Interest income..................... $ 64,718 $ 62,995 $ 64,621 $ 74,657 $ 84,176 $ 41,667 $ 43,888
Interest expense.................... 25,692 21,513 22,416 29,448 33,731 16,701 17,800
-------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income................. 39,026 41,482 42,205 45,209 50,445 24,966 26,088
Provision (credit) for loan losses.. 1,216 511 (882) 168 1,200 883 397
Noninterest income.................. 10,312 12,940 12,313 15,030 15,842 7,744 8,701
Noninterest expense................. 30,239 33,428 34,635 34,400 37,570 18,314 19,773
-------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes.......... 17,883 20,483 20,765 25,671 27,517 13,513 14,619
Provision for income taxes.......... 5,478 6,615 6,805 8,656 9,395 4,621 4,947
-------- ---------- ---------- ---------- ---------- ---------- ----------
Net income before cumulative
effect of accounting change........ 12,405 13,868 13,960 17,015 18,122 8,892 9,672
Cumulative effect of
accounting change(1)............... -- 1,005 -- -- -- -- --
-------- ---------- ---------- ---------- ---------- ---------- ----------
Net income.......................... $ 12,405 $ 14,873 $ 13,960 $ 17,015 $ 18,122 $ 8,892 $ 9,672
======== ========== ========== ========== ========== ========== ==========
Net income per First Financial
Common Share before cumulative
effect of accounting change(2)...... $ 1.50 $ 1.67 $ 1.68 $ 2.04 $ 2.16 $ 1.06 $ 1.15
======== ========== ========== ========== ========== ========== ==========
Net income per First
Financial Common Share(2).......... $ 1.50 $ 1.79 $ 1.68 $ 2.04 $ 2.16 $ 1.06 $ 1.15
======== ========== ========== ========== ========== ========== ==========
CONSOLIDATED PER SHARE DATA
APPLICABLE TO FIRST FINANCIAL
COMMON STOCK:
Net income(2)....................... $ 1.50 $ 1.79 $ 1.68 $ 2.04 $ 2.16 $ 1.06 $ 1.15
Cash dividends declared............. 0.49 0.62 0.70 0.78 0.87 0.42 0.47
Book value at period end............ 10.93 12.17 13.05 14.38 15.62 14.96 16.30
CONSOLIDATED BALANCE SHEET
DATA AT PERIOD END:
Investment securities............... $430,227 $ 482,885 $ 490,950 $ 481,117 $ 511,789 $ 509,679 $ 529,439
Loans, net of allowance
for loan losses.................... 380,009 427,627 437,686 497,735 563,459 531,327 572,463
Total assets........................ 976,146 1,069,389 1,066,982 1,125,887 1,262,041 1,185,974 1,269,020
Deposits............................ 875,398 960,389 950,251 997,578 1,121,881 1,051,312 1,122,041
Total liabilities................... 886,072 968,660 958,465 1,005,859 1,130,880 1,060,832 1,131,853
Total shareholders' equity.......... 90,074 100,729 108,517 120,028 131,161 125,142 137,167
</TABLE>
- -----------------------
(1) As of January 1, 1993, First Financial recorded the cumulative effect of the
change in accounting for income taxes to comply with Statement of Financial
Accounting Standards No. 109.
(2) In March 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128") was issued and will require restatement of
the earnings per share ("EPS") reported above effective December 31, 1997.
Under SFAS 128, First Financial will report basic EPS and EPS assuming
dilution. The basic EPS would have been $1.15 and $1.07 for the six months
ended June 30, 1997 and 1996, respectively, and $2.16, $2.04 and $1.68 for
the years ended December 31, 1996, 1995 and 1994, respectively. The EPS
assuming dilution would have been $1.14 and $1.07 for the six months ended
June 30, 1997 and 1996, respectively, and $2.15, $2.04 and $1.67 for the
years ended December 31, 1996, 1995 and 1994, respectively.
10
<PAGE>
SOUTHLAKE AND SUBSIDIARY
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- -------- ----------- ---------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF
INCOME STATEMENT DATA:
Interest income................ $ 2,270 $ 2,338 $ 2,494 $ 2,989 $ 3,261 $ 1,593 $ 1,752
Interest expense............... 998 816 885 1,060 1,086 543 579
------- ------- ------- ------- ------- ------- -------
Net interest income............ 1,272 1,522 1,609 1,929 2,175 1,050 1,173
Provision for loan losses...... -- 18 35 68 72 36 36
Noninterest income............. 482 560 560 632 899 609 302
Noninterest expense............ 1,408 1,575 1,681 1,781 2,146 1,044 1,121
------- ------- ------- ------- ------- ------- -------
Income before income taxes..... 346 489 453 712 856 579 318
Provision for income taxes..... 96 102 111 172 167 143 54
------- ------- ------- ------- ------- ------- -------
Net income before cumulative
effect of accounting change... 250 387 342 540 689 436 264
Cumulative effect of
accounting change(1).......... -- (34) -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income..................... $ 250 $ 353 $ 342 $ 540 $ 689 $ 436 $ 264
======= ======= ======= ======= ======= ======= =======
Net income per Southlake
Common Share before
cumulative effect
of accounting change(2)....... $ 1.32 $ 1.98 $ 1.71 $ 2.56 $ 3.14 $ 2.00 $ 1.16
======= ======= ======= ======= ======= ======= =======
Net income per Southlake
Common Share(2)............... $ 1.32 $ 1.80 $ 1.71 $ 2.56 $ 3.14 $ 2.00 $ 1.16
======= ======= ======= ======= ======= ======= =======
CONSOLIDATED PER SHARE DATA
APPLICABLE TO SOUTHLAKE
COMMON STOCK:
Net income(2).................. $ 1.32 $ 1.80 $ 1.71 $ 2.56 $ 3.14 $ 2.00 $ 1.16
Cash dividends declared........ -- -- -- -- -- -- --
Book value at period end....... 9.33 11.19 11.98 15.62 18.78 17.23 19.93
CONSOLIDATED BALANCE SHEET
DATA AT PERIOD END:
Investment securities.......... $10,024 $10,957 $13,531 $10,156 $10,241 $15,088 $14,398
Loans, net of allowance
for loan losses............... 12,854 17,006 18,770 21,971 25,975 23,272 25,427
Total assets................... 34,459 36,507 38,653 46,725 50,944 47,632 53,654
Deposits....................... 31,824 33,641 35,101 42,891 46,741 43,475 49,056
Total liabilities(3)........... 32,693 34,315 36,249 43,590 47,021 44,032 49,433
Total shareholders' equity(4).. 1,766 2,192 2,404 3,135 3,923 3,600 4,221
</TABLE>
- -----------------
(1) As of January 1, 1993, Southlake recorded the cumulative effect of the
change in accounting for income taxes to comply with Statement of Financial
Accounting Standards No. 109.
(2) In March 1997, SFAS 128 was issued and will require restatement of the EPS
reported above effective December 31, 1997. Under SFAS 128, Southlake would
report basic EPS and EPS assuming dilution. The basic EPS would have been
$1.25 and $2.12 for the six months ended June 30, 1997 and 1996,
respectively, and $3.32, $2.69 and $1.75 for the years ended December 31,
1996, 1995 and 1994, respectively. The EPS assuming dilution would have been
$1.16 and $2.00 for the six months ended June 30, 1997 and 1996,
respectively, and $3.14, $2.56 and $1.71 for the years ended December 31,
1996, 1995 and 1994, respectively.
(3) Includes minority interest.
(4) After June 30, 1997 and prior to the date of this Prospectus, Southlake
redeemed all of its issued and outstanding shares of preferred stock for an
aggregate redemption price of $7,200.00, and 30,299 shares of Southlake
Common Stock were acquired by officers and directors of Texas National
pursuant to the exercise of outstanding stock options.
11
<PAGE>
FIRST FINANCIAL AND SUBSIDIARIES AND
SOUTHLAKE AND SUBSIDIARY
PRO FORMA COMBINED SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ ----------------------
1994 1995 1996 1996 1997
----------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF
INCOME STATEMENT DATA:
Interest income..................... $ 67,115 $ 77,646 $ 87,437 $ 43,260 $ 45,640
Interest expense.................... 23,301 30,508 34,817 17,244 18,379
---------- ---------- ---------- ---------- ----------
Net interest income................. 43,814 47,138 52,620 26,016 27,261
Provision (credit) for loan losses.. (847) 236 1,272 919 433
Noninterest income.................. 12,873 15,662 16,741 8,353 9,003
Noninterest expense................. 36,316 36,181 39,716 19,358 20,894
---------- ---------- ---------- ---------- ----------
Income before income taxes.......... 21,218 26,383 28,373 14,092 14,937
Provision for income taxes.......... 6,916 8,828 9,562 4,764 5,001
---------- ---------- ---------- ---------- ----------
Net income.......................... $ 14,302 $ 17,555 $ 18,811 $ 9,328 $ 9,936
========== ========== ========== ========== ==========
Net income per First
Financial Common Share............. $ 1.68 $ 2.06 $ 2.19 $ 1.09 $ 1.15
========== ========== ========== ========== ==========
CONSOLIDATED PER SHARE DATA
APPLICABLE TO FIRST FINANCIAL
COMMON STOCK:
Net income.......................... $ 1.68 $ 2.06 $ 2.19 $ 1.09 $ 1.15
Cash dividends declared............. 0.70 0.78 0.87 0.42 0.47
Book value at period end............ 13.06 14.45 15.73 14.28 16.42
CONSOLIDATED BALANCE SHEET
DATA AT PERIOD END:
Investment securities............... $ 504,481 $ 491,273 $ 522,030 $ 524,767 $ 543,837
Loans, net of allowance for
loan losses........................ 456,456 519,706 589,434 554,599 597,890
Total assets........................ 1,105,635 1,172,612 1,312,985 1,233,606 1,322,674
Deposits............................ 985,352 1,040,469 1,168,622 1,094,787 1,171,097
Short-term borrowings............... 90 85 110 90 115
Long-term debt...................... 1,642 550 37 75 37
Total shareholders' equity.......... 110,921 123,163 135,084 128,742 141,388
</TABLE>
12
<PAGE>
FIRST FINANCIAL AND SUBSIDIARIES,
SOUTHLAKE AND SUBSIDIARY, AND
TCB-SAN ANGELO PURCHASE
PRO FORMA COMBINED SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED JUNE 30,
DECEMBER 31, ------------------------
1996 (1) 1996 (1) 1997 (1)
---------- ---------- ----------
<S> <C> <C> <C>
CONSOLIDATED SUMMARY OF INCOME
STATEMENT DATA:
Interest income................................. $ 98,057 $ 48,877 $ 50,689
Interest expense................................ 40,394 20,021 21,057
---------- ---------- ----------
Net interest income............................. 57,663 28,856 29,632
Provision for loan losses....................... 1,272 919 433
Noninterest income.............................. 18,111 9,072 9,743
Noninterest expense............................. 45,215 22,250 23,721
---------- ---------- ----------
Income before income taxes...................... 29,287 14,759 15,221
Provision for income taxes...................... 9,939 5,111 5,019
---------- ---------- ----------
Net income......................................... $ 19,348 $ 9,648 $ 10,202
========== ========== ==========
Net income per First Financial Common Share........ $ 2.25 $ 1.13 $ 1.18
========== ========== ==========
CONSOLIDATED PER SHARE DATA APPLICABLE
TO FIRST FINANCIAL COMMON STOCK:
Net Income...................................... $ 2.25 $ 1.13 $ 1.18
Cash dividends declared......................... 0.87 0.42 0.47
Book value at period end........................ 15.80 14.38 16.55
CONSOLIDATED BALANCE SHEET DATA AT
PERIOD END:
Investment securities......................... $ 601,704 $ 616,779 $ 621,084
Loans, net of allowance for loan losses....... 589,434 603,411 663,361
Total assets.................................. 1,477,325 1,399,982 1,470,139
Deposits...................................... 1,328,786 1,253,476 1,319,692
Short-term borrowings......................... 110 90 115
Long-term debt................................ 6,037 6,075 6,037
Total shareholders' equity.................... 135,621 129,599 142,510
</TABLE>
- -----------------
(1) The accompanying pro forma combined data include adjustments for (i)
reductions to interest income for securities sold and increases to interest
expense for funds borrowed to facilitate the consummation of the TCB-San
Angelo Purchase, (ii) goodwill amortization and (iii) the related income tax
effects.
13
<PAGE>
COMPARATIVE PER SHARE DATA
(UNAUDITED)
The following table sets forth for the First Financial Common Stock and the
Southlake Common Stock certain historical, pro forma and pro forma equivalent
per share financial information. The pro forma data give effect to the Exchange
and the Merger, in each case accounted for as a pooling of interests and based
upon a conversion of each share of Southlake Common Stock into .894 shares of
First Financial Common Stock. The pro forma financial data have been included as
required by the rules of the SEC and are provided for comparative purposes only.
The information presented below should be read in conjunction with the separate
financial statements of First Financial and Southlake, including the applicable
notes, included or incorporated by reference elsewhere herein. All per share
data of First Financial have been adjusted to reflect stock splits and stock
dividends.
The unaudited pro forma financial information presented is for
informational purposes only and is not necessarily indicative of results of
operations or financial position that would have been reported had the Exchange
or the Merger, as the case may be, been completed at the beginning of the period
or as of the date for which such unaudited pro forma information is presented,
nor is such information indicative of future results of operations or financial
position.
<TABLE>
<CAPTION>
FIRST FINANCIAL SOUTHLAKE
---------------------------------------- -------------------------------------------
PRO FORMA PRO FORMA EQUIVALENT PRO FORMA
HISTORICAL COMBINED TOTAL(2) HISTORICAL PRO FORMA(3) TOTAL(4)
---------- --------------- ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON SHAREHOLDERS' EQUITY:
December 31, 1996.............. $15.62 $15.73 $15.80 $18.78 $14.07 $14.13
June 30, 1997.................. 16.30 16.42 16.55 19.93 14.68 14.79
CASH DIVIDENDS DECLARED:(1)
Year ended December 31:
1994........................... $ 0.70 $ 0.70 $ 0.70 $ - $ 0.63 $ 0.63
1995........................... 0.78 0.78 0.78 - 0.69 0.69
1996........................... 0.87 0.87 0.87 - 0.78 0.78
Six Months ended June 30, 1997. 0.47 0.47 0.47 - 0.42 0.42
NET INCOME:
Year ended December 31, 1994:
Primary...................... $ 1.68 $ 1.68 $ 1.68 $ 1.71 $ 1.51 $ 1.51
Fully diluted................ 1.68 1.68 1.68 1.71 1.51 1.51
Year ended December 31, 1995:
Primary...................... 2.04 2.06 2.06 2.56 1.84 1.84
Fully diluted................ 2.04 2.06 2.06 2.56 1.84 1.84
Year ended December 31, 1996:
Primary...................... 2.16 2.19 2.25 3.14 1.96 2.02
Fully diluted................ 2.16 2.19 2.25 3.14 1.96 2.02
Six Months ended June 30, 1997:
Primary...................... 1.15 1.15 1.18 1.16 1.03 1.06
Fully diluted................ 1.15 1.15 1.18 1.16 1.03 1.06
</TABLE>
- ------------------
(1) The First Financial pro forma combined dividends per share amounts represent
historical dividends declared per share only on First Financial Common
Stock.
(2) The First Financial pro forma total per share amounts include First
Financial, Southlake, and assets and liabilities acquired in the TCB-San
Angelo Purchase for the year ended December 31, 1996 and for the six months
ended June 30, 1997 and 1996. Years prior to 1996 include First Financial
and Southlake only.
(3) The Southlake pro forma equivalent per share amounts are calculated by
multiplying the First Financial pro forma combined per share amounts by the
Exchange Rate of .894. See "The Exchange Offer."
(4) The Southlake pro forma total per share amounts include First Financial,
Southlake, and assets and liabilities acquired in the TCB-San Angelo
Purchase for the year ended December 31, 1996 and for the six months ended
June 30, 1997 and 1996. Years prior to 1996 include First Financial and
Southlake only. Such amounts are calculated by multiplying the First
Financial pro forma total per share amounts by the Exchange Rate of .894.
14
<PAGE>
THE EXCHANGE OFFER
The information in this Prospectus concerning the terms of the Exchange
Offer is a summary only and is qualified in its entirety by reference to the
Exchange Agreement which is incorporated herein by reference.
GENERAL
Pursuant to the Exchange Agreement, First Financial is offering to acquire
from the Southlake Shareholders all of the issued and outstanding Southlake
Common Stock. In exchange for each share of Southlake Common Stock, the
Southlake Shareholders shall receive .894 shares of First Financial Common
Stock, subject to adjustment to the Exchange Rate described herein. See "--The
Exchange Rate."
The Required Amount of the Southlake Common Stock must be tendered by the
Southlake Shareholders in order for the Exchange to occur. The Exchange Offer is
also subject to certain other conditions. See "--Conditions to Consummation of
the Exchange Offer."
BACKGROUND OF THE EXCHANGE OFFER
From time to time, Southlake received unsolicited inquiries from various
bank holding companies regarding the possible acquisition of Southlake. In June
1994, Mr. Kenneth Murphy, the Chairman, President and Chief Executive Officer of
First Financial, and Mr. Barry K. Emerson, Chairman, President and Chief
Executive Officer of Southlake, informally discussed a possible acquisition of
Southlake by First Financial. In the fall of 1994, First Financial conducted a
due diligence review of Southlake and representatives of First Financial and
Southlake held several meetings to negotiate a possible acquisition. In December
1994, First Financial and Southlake, however, mutually agreed to terminate
negotiations as each party determined that the timing was not appropriate.
During the ensuing years, Messrs. Emerson and Murphy periodically discussed
on an informal basis a possible acquisition of Southlake by First Financial.
In February 1997, Mr. Murphy telephoned Mr. Emerson and reiterated First
Financial's interest in exploring a possible acquisition of Southlake. Mr.
Emerson responded that Southlake would be interested in a possible transaction
but that discussions should be deferred until later in the year when results of
operations would be available from Southlake's new service branch in Trophy Club
which opened in November 1996.
In May 1997, Mr. Emerson telephoned Mr. Murphy and indicated that Southlake
would be interested in entering into further discussions.
On June 4, 1997, Mr. Murphy met with Mr. Emerson and they discussed a
possible acquisition. Mr. Emerson informed Mr. Murphy that Southlake would
prefer a stock-for-stock exchange or merger. On June 25, 1997, Mr. Murphy and
Mr. Curtis Harvey, Executive Vice President and Chief Financial Officer of First
Financial, met with Mr. Emerson to discuss further the possible terms of an
acquisition and a preliminary range of pricing.
On July 1, 1997, Mr. Emerson met with the Merger and Acquisitions Committee
of the Board of Directors of Southlake, which consists of Mr. Emerson, Wade
Donnell, Derrell Johnson, James Ridenour and John Thompson, to inform them of
the status of the discussions with First Financial.
On July 8, 1997, the members of the Merger and Acquisitions Committee
(other than Mr. Johnson, who was unable to attend) met with Messrs. Murphy and
Harvey at First Financial's offices in Abilene. Thereafter, First Financial
performed an initial due diligence review of Southlake.
15
<PAGE>
On July 15, 1997, Messrs. Murphy and Harvey attended a meeting of the
Southlake Board of Directors to discuss the possible acquisition. The Southlake
Board authorized Mr. Emerson to commence negotiating a definitive agreement with
First Financial.
Following the meeting of Southlake's Board of Directors on July 15, 1997,
Messrs. Emerson, Murphy and Harvey held further discussions regarding price. It
was agreed that price per share should equal two times the book value per share
of Southlake Common Stock, or $35.52. It was further agreed that the exchange
rate would be based on the per share market value of First Financial Common
Stock at a mutually agreed future date.
On July 22, 1997, the Board of Directors of First Financial met and
authorized Messrs. Murphy and Harvey to negotiate a definitive agreement with
Southlake.
During the ensuing weeks, representatives of First Financial and Southlake
and their respective counsel negotiated the terms of the Exchange Agreement and
the Merger and Acquisitions Committee met to review the exchange rate and other
terms of the transaction. During the course of negotiations, the parties agreed
that the date to be used to determine the market value of First Financial Common
Stock for purposes of calculating the Exchange Rate would be the last business
day of the calendar month preceding the date First Financial received written
notice of approval by the Federal Reserve Board to acquire Southlake.
On August 18, 1997, the Southlake Board of Directors met and approved the
Exchange Agreement, and later that day, Southlake and First Financial executed
the Exchange Agreement.
FIRST FINANCIAL'S REASONS FOR THE EXCHANGE OFFER
It is part of First Financial's current business strategy to expand its
activities to areas in Texas where management believes there are long-term
opportunities that will benefit First Financial and its shareholders. The
acquisition of Southlake will allow First Financial to continue its expansion
and enter the Southlake market, which, management believes, has substantial
growth potential, thereby providing even greater asset and earnings growth
opportunities.
First Financial also views favorably the perceived compatibility of the
Southlake management team with management of First Financial and its perceived
success in providing quality banking services.
In addition, First Financial believes that in light of the acceleration in
the number and size of combinations currently occurring within the financial and
banking industries and the likelihood that future changes in banking laws will
provide further impetus to consolidation of banking entities, it is desirable
for First Financial to continue to grow through acquisition of quality community
banks in favorable markets.
SOUTHLAKE'S REASONS FOR THE EXCHANGE OFFER
The terms of the Exchange Offer, including the Exchange Rate, were the
result of arms' length negotiations between First Financial and Southlake and
their respective representatives. Southlake consulted with its own legal counsel
during the course of negotiations. The Southlake Board of Directors believes
that the Exchange Offer is fair to the Southlake Shareholders. In reaching a
conclusion to approve the Exchange Offer, Southlake's Board of Directors
considered a number of factors. Southlake's Board of Directors did not assign
any relative or specific weights to the factors considered. Among other things,
the Southlake Board of Directors considered:
1. The financial terms of the Exchange Offer. In this regard, Southlake's Board
-----------------------------------------
of Directors took into account the premium represented by the consideration
offered to Southlake Shareholders in relation to the book value per share of
Southlake Common Stock. Southlake's Board of Directors was of the view that
the Exchange Rate represented a fair multiple of Southlake's per share book
value and historical and projected earnings. Southlake's Board of Directors
also considered the financial terms of other recent business combinations in
the banking industry and determined that the financial terms of the Exchange
Offer compared favorably to such other transactions.
16
<PAGE>
2. Certain financial and other information concerning First Financial. Such
------------------------------------------------------------------
information included, but was not limited to, the financial condition, asset
quality, historical earnings and historical operations of First Financial and
the dividend yield of First Financial Common Stock.
3. The terms, other than the financial terms, and structure of the Exchange
------------------------------------------------------------------------
Offer. In particular, the Southlake Board of Directors considered the
-----
anticipated tax-free nature of the Exchange Offer to Southlake Shareholders
receiving First Financial Common Stock in exchange for the shares of
Southlake Common Stock.
In addition to the above factors, the proposed Exchange Offer and Merger
reflect the judgment of the Board of Directors of Southlake that Southlake's
business can be benefited by the resources and experience of First Financial,
that the Exchange Offer and Merger may produce an entity better able to meet
competitive challenges inherent in the banking industry, and that the
affiliation of First Financial and Southlake could provide operational benefits
and efficiencies. The Southlake Board of Directors believes that the Exchange
Offer would allow Southlake Shareholders to exchange their shares for a security
in a company which has a broader market appeal and thus a more liquid
investment. First Financial Common Stock is traded on the NASDAQ National
Market; thus Southlake Shareholders would have greater liquidity by holding
First Financial stock rather than shares of Southlake, for which there is no
established public trading market. In addition, while Southlake historically has
not paid dividends, First Financial has declared cash dividends per share of
$.87, $.78 and $.70 during the years ended December 31, 1996, 1995 and 1994,
respectively.
Furthermore, if the Exchange and Merger are consummated, Southlake
Shareholders would hold shares in a larger banking organization which would tend
to lessen the risk that local market factors in Southlake would affect the value
of their investment. The resources of a larger banking organization would tend
to benefit Southlake Shareholders as a result of its ability to compete in the
larger marketplace. The Southlake Board of Directors also believes that, if the
Exchange and Merger are consummated, its subsidiary, Texas National, will
continue to retain its community bank character even though it will be a
subsidiary of a substantially larger bank holding company.
OPERATION AFTER THE EXCHANGE OFFER AND MERGER
If the Exchange Offer is consummated, First Financial will own at least 90%
of the outstanding Southlake Common Stock. If the Merger is consummated as
presently anticipated, Southlake will be merged with and into First Financial.
See "The Exchange Offer--Anticipated Merger and Dissenting Shareholders'
Rights."
First Financial operates principally in order to give its affiliated banks
access to additional management and technical resources which help them to
improve or expand their banking services while continuing their local activity
and identity. Each of the affiliated banks operates under the day-to-day
management of its board of directors and officers, with substantial authority in
making decisions concerning their own investments, loan policies, interest rates
and service charges. First Financial provides assistance to the affiliated
banks, especially with respect to decisions concerning major capital
expenditures, employee fringe benefits, including pension plans, group
insurance, dividend policies, appointment of officers and directors of
affiliated banks and their compensation. The internal audit and loan review
functions are centralized at First Financial. Each of these corporate staff
groups performs on-site operational audits and loan reviews of the subsidiary
banks. First Financial, through First National Bank of Abilene, provides advice
to and specialized services for the affiliated banks in such areas as lending,
investments, purchasing, advertising, public relations, and computer services.
17
<PAGE>
THE EXCHANGE RATE
First Financial will issue and exchange .894 shares of First Financial
Common Stock for each share of Southlake Common Stock tendered by the Southlake
Shareholders who accept the Exchange Offer during the time period the Exchange
Offer is in effect; provided, however, that if First Financial, prior to the
consummation of the Exchange Offer, shall issue any additional shares of First
Financial Common Stock pursuant to any stock dividend or stock split, the
Exchange Rate shall be appropriately adjusted to reflect such stock dividend or
stock split.
First Financial will not issue any fractional shares of First Financial
Common Stock pursuant to the Exchange Offer or the Merger. Southlake
Shareholders who would otherwise be entitled to receive fractional shares of
First Financial Common Stock will be paid in cash for such fractional shares
based upon a value of $39.75 per share of First Financial Common Stock.
THE EXPIRATION DATE
Unless otherwise extended by First Financial, the Exchange Offer shall
terminate at 5:00 p.m., Abilene, Texas time on ______________, 1997.
CONDITIONS TO CONSUMMATION OF THE EXCHANGE OFFER; TERMINATION
Consummation of the Exchange Offer is subject to the satisfaction of a
number of conditions, including the following:
(1) the expiration of all mandatory waiting periods and the existence in
full force and effect of all regulatory approvals, filings, registrations and
notifications, including the approval by the Federal Reserve Board of the
acquisition by First Financial of all of the issued and outstanding capital
stock of Southlake;
(2) the receipt by First Financial of an opinion from its independent
accountants that the transaction contemplated by the Exchange Agreement may be
properly accounted for as a pooling-of-interests, and the receipt by Southlake
from its independent accountants and/or tax counsel that the Exchange by the
Southlake Shareholders will not be considered a taxable event for federal income
tax purposes;
(3) the accuracy of all the respective representations and warranties of
Southlake, Texas National and First Financial in the Exchange Agreement as of
the date of this Prospectus and as of the date of consummation of the Exchange
Offer (the "Closing Date");
(4) the performance of all of the respective obligations and agreements and
compliance with all covenants and conditions by Southlake, Texas National and
First Financial contemplated by the Exchange Agreement prior to or on the
Closing Date;
(5) no outstanding options requiring the issuance or sale of, or otherwise
relating to, any capital stock of Southlake or Texas National shall exist as of
the Closing Date;
(6) the absence of any order, judgment or decree or proceeding or
litigation by any court, governmental body or regulatory authority pertaining to
the Exchange Offer;
(7) the declaration by the SEC that the Registration Statement filed by
First Financial pursuant to the Securities Act covering the shares of First
Financial Common Stock to be issued in the Exchange is effective and that no
stop orders have been issued or threatened and that First Financial, Southlake
and Texas National shall have complied with all applicable state and federal
securities laws relating to the Exchange Offer;
(8) the absence of any material adverse change in the financial conditions
of First Financial, Southlake or Texas National between June 30, 1997 and the
Closing Date;
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(9) receipt by First Financial and Southlake of certain legal opinions in
form and substance satisfactory to the respective parties;
(10) the valid tender of the Required Amount of the issued and outstanding
shares of Southlake Common Stock to First Financial;
(11) the receipt by First Financial of a satisfactory Phase I Environmental
Assessment report covering all real property owned or held by Southlake or Texas
National;
(12) Southlake and Texas National shall have taken such action as is
necessary to freeze the KSOP and First Financial shall be satisfied that the
KSOP is a qualified plan under, and in full compliance with, the Employee
Retirement Income Security Act of 1974, the Internal Revenue Code of 1986, and
all other applicable laws, rules and regulations and that no facts or
circumstances exist which, in the opinion of First Financial and its counsel,
may result in liability to First Financial, Southlake or Texas National or any
of their directors, officers or employees arising out of, or in connection with,
administration of the KSOP or the freeze of the KSOP if the Exchange and Merger
are consummated; and
(13) Southlake and Texas National shall have taken such action as is
necessary to (i) terminate the Texas National Executives' Supplemental Income
Plan, the Texas National Directors' Deferred Income Plan and the Texas National
Officers' Bonus Plan (collectively, the "Plans") and (ii) eliminate all
liability of Southlake and Texas National under the Plans.
The Exchange Agreement and the Exchange Offer may be terminated at any time
prior to the Closing Date:
(a) by mutual written consent of First Financial and Southlake;
(b) by First Financial if there is a breach of a representation or warranty
made by Southlake or Texas National which constitutes a material adverse
change from that represented in the Exchange Agreement or if any of the
conditions to closing are not satisfied for reasons other than lack of
diligence by First Financial or waived by First Financial;
(c) by Southlake if there is a breach of a representation or warranty made
by First Financial which constitutes a material adverse change from that
represented in the Exchange Agreement or if any of the conditions to
closing are not satisfied for reasons other than lack of diligence by
Southlake or waived by Southlake;
(d) by First Financial or Southlake, if the Closing Date shall not have
occurred by January 31, 1998 or such later date agreed to in writing by
First Financial, Southlake and Texas National; or
(e) by First Financial or Southlake if any court of competent jurisdiction
or other governmental body shall have issued an order, decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
Exchange or the Merger, and such order, decree, ruling or other action
shall have been final and nonappealable.
Whether or not the transactions contemplated by the Exchange Agreement are
consummated, each of the parties to the Exchange Agreement shall be responsible
for their respective fees and expenses incident to the negotiation, preparation,
execution and consummation of the transactions contemplated by the Exchange
Agreement, including attorneys' and accountants' fees and expenses.
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EXCHANGE OF SHARES AND CERTIFICATES
A Southlake Shareholder's delivery of a properly completed and executed
Letter of Transmittal and Southlake Common Stock Certificates, prior to the
Expiration Date, to the Exchange Agent at the address provided herein shall be
deemed to constitute an acceptance of the Exchange Offer described in the
Prospectus as to the number of shares reflected on the Southlake Common Stock
Certificates surrendered.
Except as otherwise provided below, all signatures on a Letter of
Transmittal must be guaranteed by a firm that is a bank, broker, dealer, credit
union, savings association or other entity which is a member in good standing of
the Security Transfer Agent's Medallion Program, the Stock Exchange Medallion
Program or the New York Stock Exchange, Inc. Medallion Signature Program (each,
an "Eligible Institution"). Signatures on a Letter of Transmittal need not be
guaranteed (a) if the Letter of Transmittal is signed by the registered holder
of the shares of Southlake Common Stock tendered therewith and such holder has
not completed the box entitled "Special Exchange Instructions" on the Letter of
Transmittal or (b) if such shares of Southlake Common Stock are tendered for the
account of an Eligible Institution. See Instructions 1 and 3 of the Letter of
Transmittal.
THE METHOD OF DELIVERY OF SOUTHLAKE COMMON STOCK CERTIFICATES AND THE
LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS
AT THE ELECTION AND RISK OF THE SOUTHLAKE SHAREHOLDERS. INSTEAD OF DELIVERY BY
MAIL, IT IS RECOMMENDED THAT SOUTHLAKE SHAREHOLDERS USE AN OVERNIGHT OR HAND
DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. SOUTHLAKE COMMON STOCK CERTIFICATES AND LETTERS OF TRANSMITTAL
SHOULD BE SENT TO THE EXCHANGE AGENT, WHICH IS THE TRUST DEPARTMENT OF FIRST
NATIONAL BANK OF ABILENE.
If any First Financial Common Stock Certificate is to be issued in a name
other than that in which the Southlake Common Stock Certificate surrendered for
exchange is registered, the certificate so surrendered must be properly endorsed
or otherwise be in proper form for transfer, and the person requesting such
exchange must pay to First Financial or the Exchange Agent any applicable
transfer or other taxes required by reason of the issuance of the certificate.
Any beneficial holder whose shares of Southlake Common Stock are registered in
the name of his or her broker, dealer, commercial bank, trust company or other
nominee and who wishes to tender should contact such registered holder promptly
and instruct such registered holder to tender on his or her own behalf. If such
beneficial holder wishes to tender on his or her own behalf, such beneficial
holder must, prior to completing and executing the Letter of Transmittal and
delivering the Southlake Common Stock Certificates, either make appropriate
arrangements to register ownership of the Southlake Common Stock to be tendered
in such holder's name or obtain a properly completed stock power from the
registered holder.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Southlake Common Stock listed therein, the Southlake
Common Stock Certificates reflecting ownership of Southlake Common Stock must be
endorsed or accompanied by appropriate stock powers which authorize such person
to tender the Southlake Common Stock on behalf of the registered holder, in
either case signed as the name of the registered holder or holders appears on
the Southlake Common Stock Certificates.
If the Letter of Transmittal or any Southlake Common Stock Certificates or
stock powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of a corporation or others acting in a fiduciary or
representative capacity, such persons should indicate when signing and, unless
waived by First Financial, evidence satisfactory to First Financial of their
authority to so act must be submitted with the Letter of Transmittal.
Upon expiration of the Exchange Offer and satisfaction of certain
conditions set forth in the Exchange Agreement, promptly after First Financial
receives written notice from the Exchange Agent indicating that the Required
Amount of the outstanding shares of Southlake Common Stock have been validly
tendered, each outstanding share of Southlake Common Stock tendered to First
Financial will be exchanged for shares of First Financial Common Stock at the
Exchange Rate calculated as described under the caption "--The Exchange Rate,"
and First Financial Common Stock Certificates reflecting the Exchange shall be
delivered to the Southlake Shareholders by registered mail.
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All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered shares of Southlake Common
Stock will be determined by First Financial in its sole discretion, which
determination will be final and binding. First Financial reserves the absolute
right to reject any and all shares of Southlake Common Stock not properly
tendered or any shares of Southlake Common Stock First Financial's acceptance of
which would, in the opinion of counsel for First Financial, be unlawful. First
Financial reserves the absolute right to waive any irregularities or conditions
of tenders as to particular shares of Southlake Common Stock. Unless waived, any
defects or irregularities in connection with tenders of shares of Southlake
Common Stock must be cured within such time as First Financial shall determine.
Neither First Financial nor the Exchange Agent nor any other person shall be
under any duty to give notification of defects or irregularities with respect to
tenders of shares of Southlake Common Stock nor shall any of them incur any
liability for failure to give such notification. Tenders of shares of Southlake
Common Stock will not be deemed to have been made until such irregularities have
been cured or waived. Any Southlake Common Stock Certificates received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost by
the Exchange Agent to the tendering holder of such Southlake Common Stock
Certificates unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Southlake Shareholders who wish to tender their shares of Southlake Common
Stock and (i) whose Southlake Common Stock Certificates are not immediately
available, or (ii) who cannot deliver their Southlake Common Stock Certificates,
the Letter of Transmittal or any other required documents to the Exchange Agent
prior to the Expiration Date, may effect a tender if:
(1) the tender is made through an Eligible Institution;
(2) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by facsimile transmission, mail or hand delivery) setting forth the
name and address of the holder of Southlake Common Stock, the certificate number
or numbers of such Southlake Common Stock and the amount of Southlake Common
Stock tendered, stating that the tender is being made thereby, and guaranteeing
that, within five (5) business days after the Expiration Date, the Letter of
Transmittal, together with the Southlake Common Stock Certificates representing
the Southlake Common Stock to be tendered in proper form for transfer and any
other documents required by the Letter of Transmittal, will be deposited by the
Eligible Institution with the Exchange Agent; and
(3) such properly completed and executed Letter of Transmittal, together
with the certificates representing all tendered Southlake Common Stock in proper
form for transfer and all other documents required by the Letter of Transmittal
are received by the Exchange Agent within five (5) business days after the
Expiration Date.
FRACTIONAL SHARES
No fractional shares of First Financial Common Stock will be exchanged for
shares of Southlake Common Stock. In lieu thereof, each Southlake Shareholder
having a fractional interest resulting from the exchange of Southlake Common
Stock for First Financial Common Stock will be paid by First Financial an amount
in cash for such fractional share based upon a value of $39.75 per share of
First Financial Common Stock.
NO WITHDRAWAL RIGHTS
Tenders of shares of Southlake Common Stock pursuant to the Exchange Offer
are irrevocable, and once such shares are tendered, they may not be withdrawn.
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REGULATORY APPROVALS REQUIRED
The Federal Reserve Board must approve First Financial's acquisition of
Southlake and Texas National under Section 3 of the BHCA. Regulatory approval
has been obtained.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain material United States Federal income
tax consequences of the Exchange and Merger, including certain consequences to
holders of Southlake Common Stock who are citizens or residents of the United
States and who hold their shares as capital assets. This summary does not
discuss all tax consequences that may be relevant to Southlake Shareholders
subject to special Federal income tax treatment (such as insurance companies,
dealers in securities, certain retirement plans, financial institutions, tax
exempt organizations or foreign persons), or to Southlake Shareholders who
acquired their shares of Southlake Common Stock pursuant to the exercise of
employee stock options or otherwise as compensation. The summary does not
address the state, local or foreign tax consequences of the Exchange Offer, if
any.
Southlake has received an opinion from Judd, Thomas, Smith & Company, P.C.
with respect to certain Federal income tax consequences of the Exchange Offer. A
copy of their opinion, which is subject to certain qualifications and
assumptions, is attached hereto as Annex A, and the following summary of their
opinion is qualified in its entirety by reference thereto. Subject to the
qualifications and assumptions set forth in their opinion, Judd, Thomas, Smith &
Company, P.C. is of the opinion that, for Federal income tax purposes:
1. The Exchange and Merger will be treated as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code (the "Code"), and
First Financial and Southlake each will be a party to the reorganization
within the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized by the Southlake Shareholders on the
exchange of their shares of Southlake Common Stock solely for shares of
First Financial Common Stock pursuant to the terms of the Exchange
Agreement to the extent of such exchange (except as provided below with
respect to fractional shares).
3. The Federal income tax basis of the shares of First Financial Common
Stock for which shares of Southlake Common Stock are exchanged pursuant to
the Exchange and Merger will be the same as the basis of such shares of
Southlake Common Stock exchanged therefor, less any proportionate part of
such basis allocable to any fractional interest in any share of First
Financial Common Stock.
4. The holding period for the shares of First Financial Common Stock for
which the shares of Southlake Common Stock are exchanged will include the
holding period of the Southlake Common Stock they are exchanged therefor,
provided that such shares of Southlake Common Stock were held as a capital
asset on the date of the Exchange.
5. Southlake Shareholders who receive cash in lieu of a fractional share
interest in First Financial Common Stock will be treated as having received
the cash in redemption of the fractional share interest and gain or loss
will be recognized in an amount equal to the difference between the cash
received and the proportionate part of basis allocable to the fractional
interest, which gain or loss will be a capital gain or loss if the
Southlake Common Stock was a capital asset in the hands of the shareholder.
Such capital gain or loss will be long-term capital gain or loss if the
holder's holding period for the First Financial Common Stock received,
determined as set forth above, is longer than one year. The effective tax
rate on any resulting net long-term capital gain for Southlake Shareholders
who are individuals will generally depend on the shareholder's holding
period for the shares of First Financial Common Stock received, determined
as set forth above, and the income tax brackets under which the shareholder
is taxed. For individual shareholders, the maximum capital gains tax rate
on property held more than eighteen months is 20 percent and the maximum
capital gains tax rate on property held more than one year, but not more
than eighteen months, is 28 percent.
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A Southlake Shareholder who dissents from the Exchange and Merger and
receives cash in exchange for shares of Southlake Common Stock will recognize
capital gain or loss equal to the difference between the amount of cash received
and the holder's Federal income tax basis in the shares, provided that the
Southlake Common Stock was a capital asset in the hands of the shareholder at
the time of the exchange. Such capital gain or loss will be long-term capital
gain or loss if the dissenting Southlake Shareholder's holding period for the
Southlake Common Stock exchanged is longer than one year as of the date of the
Exchange. The effective tax rate on any resulting net long-term capital gain
for a dissenting Southlake Shareholder who is an individual will generally
depend on the dissenting shareholder's holding period for shares of Southlake
Common Stock and the income tax brackets under which the dissenting shareholder
is taxed.
THE INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED ON THE CODE (AND AUTHORITIES THEREUNDER) AS IN
EFFECT ON THE DATE OF THIS PROSPECTUS, WITHOUT CONSIDERATION OF THE PARTICULAR
FACTS OR CIRCUMSTANCES OF ANY SHAREHOLDER. SOUTHLAKE SHAREHOLDERS ARE URGED TO
CONSULT WITH THEIR OWN TAX ADVISORS WITH RESPECT TO THE FEDERAL INCOME TAX
CONSEQUENCES OF THE EXCHANGE IN THEIR PARTICULAR SITUATIONS, AS WELL AS THE TAX
CONSEQUENCES UNDER ANY APPLICABLE STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE AGENT
The Trust Department of First National Bank of Abilene has been appointed
as the Exchange Agent for the Exchange. Questions and requests for additional
copies of this Prospectus should be directed to the Exchange Agent addressed as
follows:
By mail, overnight, courier or hand delivery: Trust Department
First National Bank of Abilene
Third Floor
400 Pine Street
Abilene, Texas 79601
By facsimile transmission: (915) 627-7342
For confirmation by telephone: (915) 627-7003
RESALE BY SOUTHLAKE AFFILIATES
The shares of First Financial Common Stock issuable to Southlake
Shareholders upon consummation of the Exchange Offer have been registered under
the Securities Act, but such registration does not cover the resales by
affiliates of Southlake ("Southlake Affiliates"). First Financial Common Stock
received and beneficially owned by those Southlake Shareholders who are deemed
to be Southlake Affiliates may be resold without registration as provided for by
Rule 145 under the Securities Act, or as otherwise permitted. The term Southlake
Affiliate is defined to include any person who, directly or indirectly,
controls, or is controlled by, or is under common control with Southlake at or
during the time period covered by the Exchange Agreement. Each Southlake
Affiliate who desires to resell the First Financial Common Stock must sell such
First Financial Common Stock either (i) pursuant to an effective registration
statement under the Securities Act; (ii) in accordance with the applicable
provisions of Rule 145 under the Securities Act; or (iii) in a transaction
which, in the opinion of counsel for the Southlake Affiliate or as described in
a "no-action" or interpretive letter from the SEC, in each case reasonably
satisfactory in form and substance to First Financial, is exempt from the
registration requirements of the Securities Act. Rule 145(d) requires that
persons deemed to be Southlake Affiliates resell their First Financial Common
Stock pursuant to certain of the requirements of Rule 144 under the Securities
Act if such First Financial Common Stock is sold within the first year after the
receipt thereof. After one year if such person is not an affiliate of First
Financial and First Financial is current in the filing of its
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periodic securities law reports, a former Southlake Affiliate may freely resell
the First Financial Common Stock received in the Exchange Offer without
limitation. After two years from the issuance of the First Financial Common
Stock, if such person is not an affiliate of First Financial at the time of sale
and has not been so for at least three months prior to such sale, such person
may freely resell such First Financial Common Stock, without limitation,
regardless of the status of First Financial's periodic securities law reports.
Each Southlake Affiliate will deliver to First Financial a written
agreement to the effect that no sale will be made of any shares of First
Financial Common Stock received in the Exchange Offer by a Southlake Affiliate
except (i) in accordance with the Securities Act; and (ii) if, as it expects to
do, First Financial utilizes pooling-of-interests accounting in accounting for
the Exchange Offer, until such time as First Financial shall publish the
financial results of at least thirty (30) days of post-Exchange operations of
First Financial. The First Financial Common Stock Certificates issued to
Southlake Affiliates in the Exchange Offer may contain an appropriate
restrictive legend, and appropriate stop transfer orders may be given to the
Exchange Agent for such certificates.
ANTICIPATED MERGER AND DISSENTING SHAREHOLDERS' RIGHTS
First Financial anticipates that upon consummation of the Exchange Offer,
Southlake will be merged with and into First Financial pursuant to Article 5.16
of the Texas Business Corporation Act (the "TBCA"). In the event that not all of
the outstanding Southlake Common Stock is tendered for exchange in the Exchange
Offer, within ten (10) days after the effective date of the Merger, First
Financial shall provide notice of the Merger to the Southlake Shareholders who
did not elect to participate in the Exchange Offer. The consideration to be
issued in the Merger shall be the same as that in the Exchange Offer. A
Southlake Shareholder who elects to dissent from the Merger (a "Dissenting
Shareholder") must follow specific procedures in order to perfect its
dissenter's rights.
Within twenty (20) days of mailing of the notice of the Merger, the
Dissenting Shareholders must make a written demand on First Financial for the
fair value of their shares of Southlake Common Stock. The fair value of such
shares shall be the value thereof as of the day before the effective date of the
Merger, excluding any appreciation or depreciation in anticipation of the
Merger. The Dissenting Shareholders must include in their demands information as
to the number and estimated fair value of shares owned by such shareholders. Any
Dissenting Shareholder who fails to make a demand within the twenty (20) day
period shall be bound by the terms and the consideration provided in the Merger.
Within ten (10) days of receipt of a Dissenting Shareholder's written
demand, First Financial shall either accept such demand or reject it and make a
counter-offer as to the fair value of the Southlake Common Stock. Upon agreement
between First Financial and the Dissenting Shareholder as to the fair value of
the Southlake Common Stock, First Financial shall pay the agreed fair value of
the shares of Southlake Common Stock owned by such Dissenting Shareholder in
exchange for endorsed Southlake Common Stock Certificates representing such
shares. The Dissenting Shareholder shall, at that time, cease to have any
interest in such shares. If a Dissenting Shareholder is unable to reach an
agreement with First Financial as to the fair value of the Southlake Common
Stock, the specific remedies provided in Articles 5.12, 5.13 and 5.16 of the
TBCA for determination of fair value by a court of law shall be available to
such shareholder. Articles 5.12, 5.13 and 5.16 of the TBCA are attached to this
Prospectus as Annex B.
ACCOUNTING TREATMENT
First Financial expects to account for the Exchange as a pooling-of-
interests and expects to receive the written opinion of Arthur Andersen LLP that
it is appropriate to do so.
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CERTAIN REGULATORY CONSIDERATIONS
GENERAL
Bank holding companies and banks are extensively regulated under both
federal and state law. To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by
reference to the particular statutory and regulatory provisions. A change in
applicable law or regulation may have a material effect on the business of First
Financial.
As a bank holding company, First Financial is subject to regulation under
the BHCA and its examination and reporting requirements. Under the BHCA, bank
holding companies may not (subject to certain limited exceptions) directly or
indirectly acquire the ownership or control of more than five percent (5%) of
any class of voting shares or substantially all of the assets of any company,
including a bank, without the prior written approval of the Federal Reserve
Board. In addition, bank holding companies are generally prohibited under the
BHCA from engaging in nonbanking activities, except certain activities which the
Federal Reserve Board, by regulation, determines to be closely related to
banking, or to managing or controlling banks. Examples of activities which the
Federal Reserve Board has determined to be closely related to banking, or to
managing or controlling banks, include (1) the making or acquiring of loans or
other extensions of credit; (2) servicing of loans; (3) performing certain trust
functions; (4) providing bookkeeping and data processing services for a bank
holding company and its subsidiaries; (5) providing certain securities brokerage
services; and (6) acting or serving as an investment or financial advisor.
The BHCA provides that the Federal Reserve Board shall not approve any
acquisition, merger or consolidation the effect of which may be to substantially
lessen competition in the banking industry, which would tend to create a
monopoly in any section of the country, or which in any other manner would be a
restraint of trade, unless the anti-competitive effects of the proposed
combination are clearly outweighed by the convenience and needs of the community
to be served. In approving acquisitions by bank holding companies of banks and
companies engaged in banking-related activities, the Federal Reserve Board
considers, among other factors, the expected benefits to the public (greater
convenience, increased competition, greater efficiency, etc.) against the risks
of possible adverse effects (undue concentration of resources, decreased or
unfair competition, conflicts of interest, unsound banking practices, etc.).
First National Bank of Abilene, First National Bank, Sweetwater, The First
National Bank in Cleburne, Eastland National Bank, San Angelo National Bank and
Weatherford National Bank are all chartered under the National Bank Act and are
subject to supervision and regulation, as well as regular examination, by the
Office of the Comptroller of the Currency (the "OCC"). Hereford State Bank and
Stephenville Bank and Trust Co. were chartered under the Texas Banking Code
(which, effective September 1, 1995, was replaced by the newly-adopted Texas
Banking Act) and are similarly supervised, regulated and examined by the Banking
Commissioner of the State of Texas. Supervision and regulation of banks by
federal and state banking authorities is primarily intended to protect the
interests of depositors, although shareholders are likewise benefited. Various
requirements and restrictions under the laws of the United States and the State
of Texas affect the operations of each subsidiary bank, including the
requirement to maintain reserves against deposits, restrictions on the nature
and amount of loans which may be made and the interest that may be charged
thereon, and restrictions relating to investments and other activities.
Each First Financial Bank is a member of the FDIC. The Federal Deposit
Insurance Act requires that the FDIC approve any merger or consolidation by or
with an insured bank, or any establishment of branches by an insured bank, and
it is also empowered to regulate interest rates paid by insured banks. Approval
of the FDIC is also required before an insured bank retires any part of its
common or preferred stock, or any capital notes or debentures. Insured banks
which are also members of the Federal Reserve System, however, are regulated
with respect to the foregoing matters by the Federal Reserve System.
All of First Financial's subsidiary banks must pay assessments to the FDIC
for federal deposit insurance protection under a risk-based assessment system.
FDIC-insured depository institutions that are
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members of the Bank Insurance Fund pay insurance premiums at rates based on
their risk classification. Institutions assigned to higher risk classifications
(i.e., institutions that pose a greater risk of loss to their respective deposit
insurance funds) pay assessments at higher rates than institutions that pose a
lower risk. An institution's risk classification is assigned based on its
capital levels and the level of supervisory concern the institution poses to
bank regulators. In addition, the FDIC can impose special assessments to cover
the costs of borrowings from the U.S. Treasury, the Federal Financing Bank and
the Bank Insurance Fund member banks. As of December 31, 1996, the assessment
rate for each of First Financial's subsidiary banks is at the lowest level risk-
based premium available.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires federal banking agencies to take "prompt corrective action"
in respect to depository institutions that do not meet minimum capital
requirements. FDICIA establishes five capital tiers: "well-capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized,"
and "critically undercapitalized." A depository institution's capital tier will
depend upon where its capital levels are in relation to various relevant capital
measures, which will include a risk-based capital measure, a leverage ratio
capital measure and certain other factors. Regulations establishing the specific
capital tiers provide that a well-capitalized institution must have a total
risk-based capital ratio of at least ten percent (10%), a Tier 1 risk-based
capital ratio of at least six percent (6%), and a Tier 1 leverage ratio of at
least five percent (5%), and not be subject to any specific capital order or
directive. For an institution to be adequately capitalized, it must have a total
risk-based capital ratio of at least eight percent (8%), a Tier 1 risk-based
capital ratio of at least four percent (4%), and a leverage ratio of at least
four percent (4%) [in some cases three percent (3%)]. Under current regulations,
First Financial's subsidiary banks would be considered to be well capitalized as
of December 31, 1996.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. An "undercapitalized institution" must develop a capital
restoration plan and its parent holding company must guarantee that bank's
compliance with the plan. The liability of the parent holding company under any
such guarantee is limited to the lesser of five percent (5%) of the bank's
assets at the time it became "undercapitalized" or the amount needed to comply
with the plan. Furthermore, in the event of the bankruptcy of the parent holding
company, such guarantee would take priority over the parent's general unsecured
creditors. In addition, FDICIA requires the various regulatory agencies to
prescribe certain non-capital standards for safety and soundness relating
generally to operations and management, asset quality and executive
compensation, and permits regulatory action against a financial institution that
does not meet such standards.
Banking agencies have recently adopted final regulations which mandate that
regulators take into consideration concentrations of credit risk and risks from
non-traditional activities, as well as an institution's ability to manage those
risks, when determining the adequacy of an institution's capital. This
evaluation will be made as a part of the institution's regular safety and
soundness examination. Banking agencies also have recently adopted final
regulations requiring regulators to consider interest rate risk (when the
interest rate sensitivity of an institution's assets does not match the
sensitivity of its liabilities or its off-balance-sheet position) in the
evaluation of a bank's capital adequacy. Concurrently, banking agencies have
proposed a methodology for evaluating interest rate risk. After gaining
experience with the proposed measurement process, these banking agencies intend
to propose further regulations to establish an explicit risk-based capital
charge for interest rate risk.
PAYMENT OF DIVIDENDS
First Financial is a legal entity separate and distinct from its banking
and other subsidiaries. Most of First Financial's revenues result from dividends
paid to it by its Delaware holding company subsidiary, which receives dividends
from its bank subsidiaries. There are statutory and regulatory requirements
applicable to the payment of dividends by subsidiary banks as well as by First
Financial to its shareholders.
26
<PAGE>
Each state bank subsidiary that is a member of the Federal Reserve System
and each national banking association is required by federal law to obtain the
prior approval of the Federal Reserve Board or the OCC, as the case may be, for
the declaration and payment of dividends if the total of all dividends declared
by the board of directors of such bank in any year will exceed the total of (i)
such bank's net profits (as defined and interpreted by regulation) for that year
plus (ii) the retained net profits (as defined and interpreted by regulation)
for the preceding two (2) years, less any required transfers to surplus. In
addition, these banks may only pay dividends to the extent that retained net
profits (including the portion transferred to surplus) exceed bad debts (as
defined by regulation). Effective September 1, 1995, the newly adopted Texas
Banking Act eliminated the requirement under the predecessor code that, prior to
paying a dividend, a state bank must transfer to "certified surplus" an amount
which is not less than ten percent (10%) of the net profits of such bank earned
since the last dividend was declared; provided, however, that a transfer was not
required to certified surplus of a sum which would increase the certified
surplus to more than the capital of the bank.
During 1996, the First Financial Banks paid an aggregate of $19.0 million
in dividends. Under the foregoing dividend restrictions, at December 31, 1996
the First Financial Banks, without obtaining governmental approvals, could have
declared additional aggregate dividends of approximately $8.6 million from
retained net profits.
The payment of dividends by First Financial and its subsidiaries is also
affected by various regulatory requirements and policies, such as the
requirement to maintain adequate capital above regulatory guidelines. In
addition, if, in the opinion of the applicable regulatory authority, a bank
under its jurisdiction is engaged in or is about to engage in an unsafe or
unsound practice (which, depending on the financial condition of the bank, could
include the payment of dividends), such authority may require, after notice and
hearing, that such bank cease and desist from such practice. The Federal Reserve
Board and the OCC have each indicated that paying dividends that deplete a
bank's capital base to an inadequate level would be an unsafe and unsound
banking practice. The Federal Reserve Board, the OCC and the FDIC have issued
policy statements which provide that bank holding companies and insured banks
should generally only pay dividends out of current operating earnings.
CERTAIN TRANSACTIONS BY FIRST FINANCIAL WITH ITS AFFILIATES
There are also various legal restrictions on the extent to which First
Financial can borrow or otherwise obtain credit from, or engage in certain other
transactions with, its depository subsidiaries. The "covered transactions" that
an insured depository institution and its subsidiaries are permitted to engage
in with their nondepository affiliates are limited to the following amounts: (i)
in the case of any one such affiliate, the aggregate amount of "covered
transactions" of the insured depository institution and its subsidiaries cannot
exceed ten percent (10%) of the capital stock and the surplus of the insured
depository institution; and (ii) in the case of all affiliates, the aggregate
amount of "covered transactions" of the insured depository institution and its
subsidiaries cannot exceed twenty percent (20%) of the capital stock and surplus
of the insured depository institution. In addition, extensions of credit that
constitute "covered transactions" must be collateralized in prescribed amounts.
"Covered transactions" are defined by statute to include a loan or extension of
credit to the affiliate, a purchase of securities issued by an affiliate, a
purchase of assets from the affiliate (unless otherwise exempted by the Federal
Reserve Board), the acceptance of securities issued by the affiliate as
collateral for a loan and the issuance of a guarantee, acceptance, or letter of
credit for the benefit of an affiliate. Further, a bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property or furnishing
of services.
27
<PAGE>
CAPITAL
The Federal Reserve Board has adopted risk based capital guidelines for
bank holding companies. The minimum guidelines for the ratio of total capital
("Total Capital") to risk weighted assets (including certain off-balance-sheet
activities, such as standby letters of credit) is eight percent (8%). At least
half of the Total Capital is to be composed of common shareholders' equity,
minority interests in the equity accounts of consolidated subsidiaries and a
limited amount of perpetual preferred stock, less goodwill ("Tier 1 Capital").
The remainder may consist of subordinated debt, other preferred stock and a
limited amount of loan loss reserves.
In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies. These guidelines provide for a
minimum Tier 1 Capital leverage ratio (Tier 1 Capital to average assets for
current quarter, less goodwill) of three percent (3%) for bank holding companies
that meet certain specified criteria, including having the highest regulatory
rating. All other bank holding companies will generally be required to maintain
a minimum Tier 1 Capital leverage ratio of three percent (3%) plus an additional
cushion of 100 to 200 basis points. The Federal Reserve Board has not advised
First Financial of any specific minimum Tier 1 Capital leverage ratio applicable
to it. The guidelines also provide that bank holding companies experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels without
significant reliance on intangible assets (e.g., goodwill, core deposit
intangibles and purchased mortgage servicing rights).
The following tables set forth the Tier 1 Capital to risk-weighted assets
ratios, the total capital to risk-weighted assets ratios and the Tier 1 leverage
ratios for First Financial and Southlake individually and on a pro forma
combined basis as of certain dates and periods. Such pro forma combined data is
derived from the financial information of First Financial and Southlake at June
30 or December 31 for each of the periods presented below and gives effect to
the Exchange and the Merger.
28
<PAGE>
Tier 1 Capital to Risk-Weighted Assets Ratio
<TABLE>
<CAPTION>
Pro Forma Pro Forma
As of: First Financial First Financial(1) Southlake Combined
- ------ ---------------- ------------------ ---------- ---------
<S> <C> <C> <C> <C>
June 30, 1997...... 19.51% 17.61% 12.31% 17.39%
December 31, 1996.. 18.90% 11.78% 18.57%
December 31, 1995.. 19.33% 10.75% 18.95%
December 31, 1994.. 20.03% 9.43% 19.68%
</TABLE>
Total Capital To Risk-Weighted Assets Ratio
<TABLE>
<CAPTION>
Pro Forma Pro Forma
As of: First Financial First Financial(1) Southlake Combined
- ------ ---------------- ------------------ ---------- ---------
<S> <C> <C> <C> <C>
June 30, 1997...... 20.76% 18.74% 13.18% 18.51%
December 31, 1996.. 20.15% 12.56% 19.80%
December 31, 1995.. 20.57% 11.51% 20.18%
December 31, 1994.. 21.27% 10.10% 21.30%
</TABLE>
Tier 1 Leverage Ratio
<TABLE>
<CAPTION>
Pro Forma Pro Forma
As of: First Financial First Financial(1) Southlake Combined
- ------ ---------------- ------------------ ---------- ----------
<S> <C> <C> <C> <C>
June 30, 1997...... 10.57% 9.40% 7.94% 9.35%
December 31, 1996.. 10.40% 7.95% 10.31%
December 31, 1995.. 10.91% 7.04% 10.67%
December 31, 1994.. 10.19% 5.95% 10.14%
</TABLE>
- -----------------
(1) The ratios as of June 30, 1997 include the TCB-San Angelo Purchase. See
"Information about First Financial--Recent Developments."
In addition to the Federal Reserve Board capital standards, Texas-chartered
banks must also comply with the capital requirements imposed by the Texas
Banking Department. Although neither the Texas Banking Act nor the regulations
promulgated thereunder specify any minimum capital-to-assets ratio that must be
maintained by a Texas-chartered bank, the Texas Banking Department has a policy
that generally requires Texas-chartered banks to maintain a minimum 6% ratio of
stockholders equity (stated capital, surplus capital, surplus and undivided
profits or retained earnings) to total assets. As of December 31, 1996, all
Texas-chartered banks owned by First Financial exceeded the minimum ratio.
Failure to meet capital guidelines could subject an insured bank to a
variety of enforcement remedies, including the termination of deposit insurance
by the FDIC and a prohibition on the taking of brokered deposits, and bank
regulators continue to indicate their desire to raise capital requirements
applicable to banking organizations beyond their current levels.
29
<PAGE>
FIRST FINANCIAL SUPPORT OF THE FIRST FINANCIAL BANKS
Under Federal Reserve Board policy, First Financial is expected to act as a
source of financial strength to each of its subsidiary banks and to commit
resources to support each of such subsidiaries. This support may be required at
times when, absent such Federal Reserve Board policy, First Financial would not
otherwise be required to provide it.
Under the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 ("FIRREA"), a depository institution insured by the FDIC can be held liable
for any loss incurred by, or reasonably expected to be incurred by, the FDIC
after August 9, 1989 in connection with (i) the default of a commonly controlled
FDIC-insured depository institution, or (ii) any assistance provided by the FDIC
to any commonly controlled FDIC-insured depository institution "in danger of
default." "Default" is defined generally as the appointment of a conservator or
receiver and "in danger of default" is defined generally as the existence of
certain conditions indicating that a default is likely to occur in the absence
of regulatory assistance.
Under the National Bank Act, if the capital stock of a national bank is
impaired by losses or otherwise, the OCC is authorized to require payment of the
deficiency by assessment upon the bank's shareholders, pro rata, and to the
extent necessary, if any such assessment is not paid by any shareholder after
three (3) months' notice, to sell the stock of such shareholder to make good the
deficiency.
INTERSTATE BANKING AND BRANCHING ACT
Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Interstate Banking and Branching Act"), a bank holding company is
able to acquire banks in states other than its home state. Prior to September
29, 1995, interstate acquisitions by bank holding companies were subject to
Federal law, which provided that no application to acquire shares of a bank
located outside of the state in which the operations of the acquiring bank
holding company were principally conducted would be approved by the Federal
Reserve Board unless such acquisition was specifically authorized by the laws of
the state in which the bank whose shares are to be acquired was located.
The Interstate Banking and Branching Act also authorizes banks to merge
across state lines, therefore creating interstate branches, beginning June 1,
1997. Under such legislation, each state has the opportunity to "opt out" of
this provision, thereby prohibiting interstate branching in such states, or to
"opt in" at an earlier time, thereby allowing interstate branching within that
state prior to June 1, 1997. Furthermore, pursuant to such act, a bank is now
able to open new branches in a state in which it does not already have banking
operations, if the laws of such state permit such de novo branching. Texas has
-- ----
adopted legislation to "opt out" of the interstate branching provisions (which
Texas law currently expires on September 2, 1999).
PENDING AND PROPOSED LEGISLATION
Proposals to change the laws and regulations governing the banking industry
are frequently introduced in Congress, in the state legislatures and before the
various bank regulatory agencies. The likelihood and timing of any such
proposals or bills being enacted and the impact they might have on First
Financial and its subsidiaries cannot be determined at this time.
DESCRIPTION OF FIRST FINANCIAL CAPITAL STOCK
The following description contains a summary of all of the material
features of the capital stock of First Financial but does not purport to be
complete and is subject to and qualified in its entirety by reference to the
First Financial Articles of Incorporation, which are filed as exhibits to
documents incorporated by reference herein and by reference to the applicable
provisions of the TBCA. See also "COMPARISON OF SHAREHOLDER RIGHTS" below. The
following description should be read carefully by the Southlake Shareholders.
30
<PAGE>
First Financial's total authorized capital stock consists of 10,000,000
shares of First Financial Common Stock with a par value of $10.00 per share.
There is no authorized preferred stock. As of June 30, 1997, there were issued
and outstanding 8,415,136 shares of First Financial Common Stock.
The holders of First Financial Common Stock ("First Financial
Shareholders") are entitled to receive such dividends as may from time to time
be declared by the First Financial Board of Directors. First Financial
Shareholders are entitled to one vote per share of First Financial Common Stock
on every issue submitted to them as First Financial Shareholders at a meeting of
shareholders or otherwise. In the event of liquidation, First Financial
Shareholders are entitled to share ratably, after satisfaction in full of the
prior rights of creditors, in all assets of First Financial available for
distribution to First Financial Shareholders. First Financial Shareholders do
not have preemptive or cumulative voting rights. All shares of First Financial
Common Stock now issued and outstanding are fully paid and nonassessable.
COMPARISON OF SHAREHOLDER RIGHTS
In the event that the Exchange is consummated, Southlake Shareholders whose
shares of Southlake Common Stock are tendered in the Exchange Offer will become
First Financial Shareholders. Their rights will be governed by Texas law, the
First Financial Articles of Incorporation (the "First Financial Charter") and
the Bylaws of First Financial (the "First Financial Bylaws").
Certain differences between the rights of Southlake Shareholders and First
Financial Shareholders are set forth below. As both Southlake and First
Financial are organized under the laws of Texas, these differences primarily
arise from various provisions of the First Financial Charter, the First
Financial Bylaws, the Southlake Articles of Incorporation (the "Southlake
Charter") and the Bylaws of Southlake (the "Southlake Bylaws"). This summary
contains a description of the material differences in shareholder rights, but is
not meant to be relied upon as an exhaustive list or detailed description of the
provisions discussed herein and is qualified in its entirety by reference to the
TBCA, the First Financial Charter, the First Financial Bylaws, the Southlake
Charter and the Southlake Bylaws.
BOARD OF DIRECTORS
The First Financial Bylaws provide that the number of directors
constituting the First Financial Board of Directors shall be not less than three
and not more than thirty. Persons eligible for election to the First Financial
Board of Directors are First Financial Shareholders who, at the date of the
annual meeting of shareholders at which the Board is elected, (i) have not
attained the age of 72 years, or (ii) have not attained the age of 75 years and
own one percent (1%) or more of the outstanding shares of First Financial Common
Stock. Any director of First Financial may be removed, with or without cause, by
the holders of a majority of the shares outstanding.
The Southlake Bylaws provide that the number of directors constituting the
Southlake Board of Directors shall be determined by resolution of the Southlake
Board of Directors or by the shareholders at any meeting thereof, but shall
never be less than three. At any meeting of Southlake Shareholders called
expressly for the purpose of removing a director, any director or the entire
Southlake Board of Directors may be removed, with or without cause, by a vote of
the holders of a majority of the shares then entitled to vote at any election of
directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The First Financial Charter provides that each director, officer, employee
and agent of First Financial shall be indemnified for all expenses incurred in
connection with any action, suit, proceeding or claim to which he or she is
named a party or otherwise by virtue of holding such position; provided,
however, that no indemnification of employees or agents (other than directors or
officers) will be made without express
31
<PAGE>
authorization of the Board of Directors. The First Financial Charter provides
that such indemnification shall be provided to the fullest extent permitted by
applicable law.
The Southlake Charter and Bylaws do not provide for the indemnification of
officers or directors of Southlake.
SPECIAL MEETINGS OF SHAREHOLDERS
The First Financial Bylaws provide that a special meeting of shareholders
may be called by (i) a majority of the Board of Directors, or (ii) by the Chief
Executive Officer joined by at least three members of the Board of Directors, or
(iii) by shareholders holding voting rights of not less than 20% of the stock of
the corporation.
The Southlake Bylaws provide that a special meeting of the shareholders may
be called by the Board of Directors or by any five or more shareholders owning
not less than 30% of the stock of Southlake.
INFORMATION ABOUT FIRST FINANCIAL
GENERAL
First Financial is a Texas corporation and a multi-bank holding company
registered under the BHCA. First Financial owns, through its wholly-owned
Delaware subsidiary, First Financial Bankshares of Delaware, Inc., all of the
capital stock of eight banks located in Texas: First National Bank of Abilene,
Abilene, Texas; Hereford State Bank, Hereford, Texas; First National Bank,
Sweetwater, Texas; Eastland National Bank, Eastland, Texas; The First National
Bank in Cleburne, Cleburne, Texas; Stephenville Bank and Trust Co.,
Stephenville, Texas; San Angelo National Bank, San Angelo, Texas; and
Weatherford National Bank, Weatherford, Texas (collectively, the "First
Financial Banks"). As of June 30, 1997, First Financial and its consolidated
subsidiaries had total assets of approximately $1.3 billion, total deposits of
approximately $1.1 billion, total loans (net of allowance for loan losses) of
approximately $572.5 million and total shareholders' equity of approximately
$137.2 million.
First Financial operates principally in order to give the First Financial
Banks access to additional management and technical resources which help them to
improve or expand their banking and other services while continuing their local
activity and identity. Each of the First Financial Banks operates under the day-
to-day management of its board of directors and officers, with substantial
authority in making decisions concerning its own investments, loan policies,
interest rates and service charges. First Financial provides assistance to the
First Financial Banks, especially with respect to decisions concerning major
capital expenditures, employee fringe benefits, including pension plans and
group insurance, dividend policies, appointment of officers and directors of
First Financial Banks and their compensation. The internal audit and loan review
functions are centralized at First Financial. Each of these corporate staff
groups performs on-site operational audits and loan reviews of the subsidiary
banks. First Financial, through First National Bank of Abilene, provides advice
to and specialized services for the affiliated banks in such areas as lending,
investments, purchasing, advertising, public relations and computer services.
Each First Financial Bank is engaged in the general commercial banking
business consisting of the acceptance of checking, savings and time deposits,
the making of loans, transmitting funds and performing such other banking
services as are usual and customary for commercial banks.
First National Bank of Abilene, First National Bank, Sweetwater, and
Stephenville Bank and Trust Co. have active trust departments. The trust
departments offer a complete range of services to individuals, associations and
corporations, including the administration of estates, testamentary trusts and
various types of living trusts and agency accounts. Other sources of revenue are
services for businesses, including administering pension, profit sharing, and
other employee benefit plans, acting as stock transfer agent or stock registrar,
and providing paying agent services. First National Bank of Abilene, The First
National Bank in Cleburne, San Angelo National Bank and Weatherford National
Bank provide brokerage services through arrangements with various third parties.
32
<PAGE>
Commercial banking in Texas is very competitive and First Financial,
holding less than 1% of deposits, represents only a minor segment of the
industry. Success is dependent upon being able to compete in the areas of
interest rates paid or charged and scope of services offered and prices charged
therefor. Subsidiary banks of First Financial compete in their respective
service areas with highly competitive banks, savings and loan associations,
small loan companies, credit unions and brokerage firms, all of which are
engaged in providing financial products and services.
First Financial's principal executive offices are located at 400 Pine
Street, Abilene, Texas 79601, and its telephone number is (915) 627-7155. For
further information concerning First Financial which is incorporated herein by
reference from certain publicly-filed documents, see "Incorporation by
Reference."
RECENT DEVELOPMENTS
On May 27, 1997, San Angelo National Bank (f/k/a Southwest Bank of San
Angelo) ("Southwest Bank"), a subsidiary bank of First Financial, entered into a
Purchase and Assumption Agreement (the "Agreement") with TCB-San Angelo,
pursuant to which Southwest Bank agreed to purchase certain assets and assume
certain liabilities (including deposit liabilities) of the banking business of
TCB-San Angelo in the City of San Angelo, Texas. The transaction (other than the
acquisition of TCB-San Angelo's trust business) was consummated on September 26,
1997. Closing of the acquisition of the trust business is expected to occur
during the first quarter of 1998.
The assets to be acquired (the "Acquired Assets") by Southwest Bank
pursuant to the Agreement include (1) three banking facilities (land and
buildings) located in the City of San Angelo, Texas, together with all their
furniture, furnishings, equipment and fixtures, (2) all loans of TCB-San Angelo,
other than certain loans which were specifically excluded, and (3) the stock of
all subsidiaries of TCB-San Angelo. Pursuant to the terms of the Agreement,
Southwest Bank will acquire and assume the trust business of TCB-San Angelo by
acquiring all of the issued and outstanding capital stock of San Angelo Trust
Company, National Association, a subsidiary trust company to be formed by TCB-
San Angelo to which all of the trust business and assets of TCB-San Angelo shall
be transferred in accordance with applicable federal and Texas banking laws. In
addition to deposit liabilities, Southwest Bank assumed certain other
liabilities, including safekeeping and safe deposit liabilities, and certain
other contracts, leases and other agreements (collectively, with the deposit
liabilities, the "Assumed Liabilities").
TCB-San Angelo is a national banking association which is indirectly
wholly-owned by Chase Manhattan Corporation. The principal banking office of
TCB-San Angelo is located at 301 West Beauregard in the City of San Angelo,
Texas, and TCB-San Angelo has a drive-in facility at 222 South Koenighein and a
branch facility at 3399 Knickerbocker Road in the City of San Angelo. As of
August 31, 1997, TCB-San Angelo had deposit liabilities of $148.3 million, total
liabilities of $148.7 million, loans in the amount of $67.6 million and total
assets held for sale of $74.4 million. The purchase price for the banking and
trust business of TCB-San Angelo was equal to the sum of (1) an amount equal to
the aggregate book value of the Acquired Assets minus the aggregate book value
-----
of the Assumed Liabilities, both determined as of the closing date, plus (2) a
----
premium of $16,800,000. Although Southwest Bank did not receive any cash, cash
equivalents or investment assets of TCB-San Angelo, TCB-San Angelo was required
to pay to Southwest Bank, in cash, at closing, the amount by which the book
value of the Assumed Liabilities exceeded the sum of the book value of the
Acquired Assets and the premium to be paid by Southwest Bank. Pursuant to the
foregoing, TCB-San Angelo transferred to Southwest Bank funds totaling
approximately $57.5 million, in addition to the loans, banking premises and
facilities and other Acquired Assets.
Contemporaneously with entering into the Agreement with TCB-San Angelo,
Southwest Bank made application to the OCC to convert Southwest Bank from a
Texas state banking association to a national banking association under the
charter of San Angelo National Bank. Conversion of Southwest Bank to San Angelo
National Bank occurred on September 26, 1997.
33
<PAGE>
MARKET PRICES OF AND DIVIDENDS PAID ON FIRST FINANCIAL COMMON STOCK
Since November 1, 1993, the First Financial Common Stock has been traded on
the NASDAQ National Market under the trading symbol "FFIN." The following table
sets forth, for the periods indicated, the high and low bid prices and cash
dividends declared per share of First Financial Common Stock. The information
with respect to price quotations was obtained from The Principal/Financial
Securities, Inc. of Abilene, Texas, a securities brokerage firm, and have been
adjusted to reflect stock splits and stock dividends.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
------ ----- ---------
1995:
<S> <C> <C> <C>
First Quarter......................... $16.50 $15.75 $0.18
Second Quarter........................ 19.50 16.50 0.20
Third Quarter......................... 20.50 18.75 0.20
Fourth Quarter........................ 20.75 19.25 0.20
1996:
First Quarter......................... $22.75 $20.75 $0.20
Second Quarter........................ 29.25 22.75 0.22
Third Quarter......................... 29.25 24.75 0.22
Fourth Quarter........................ 30.50 27.50 0.22
1997:
First Quarter......................... $31.25 $22.50 $0.22
Second Quarter........................ 37.00 29.25 0.25
Third Quarter (through September 29,
1997)................................. 45.00 36.00 0.25
</TABLE>
On August 15, 1997 (the last trading day preceding the execution of the
Exchange Agreement), the last sales price of First Financial Common Stock, as
reported by NASDAQ, was $39.50 per share. On __________, 1997 (the last
practicable date prior to the mailing of this Prospectus), the last sales price
of First Financial Common Stock, as reported by NASDAQ, was $____________ per
share.
SOUTHLAKE SHAREHOLDERS ARE ADVISED TO OBTAIN CURRENT MARKET QUOTATIONS FOR
FIRST FINANCIAL COMMON STOCK. NO ASSURANCE CAN BE GIVEN CONCERNING THE MARKET
PRICE OF FIRST FINANCIAL COMMON STOCK BEFORE OR AFTER THE DATE ON WHICH THE
EXCHANGE IS CONSUMMATED. THE MARKET PRICE OF FIRST FINANCIAL COMMON STOCK WILL
FLUCTUATE BETWEEN THE DATE OF THIS PROSPECTUS AND THE DATE ON WHICH THE EXCHANGE
IS CONSUMMATED AND THEREAFTER.
The timing and amount of future dividends on First Financial Common Stock
will depend upon earnings, cash requirements, the financial condition of First
Financial and its subsidiaries, applicable government regulations and other
factors deemed relevant by the Board of Directors of First Financial. As
described under "Certain Regulatory Considerations," various state and federal
laws limit the ability of the First Financial Banks to pay dividends to First
Financial.
On September 12, 1997, there were 1,559 holders of record of First
Financial Common Stock.
34
<PAGE>
INFORMATION ABOUT SOUTHLAKE
GENERAL
Southlake is a one bank holding company formed in 1987 and incorporated in
the State of Texas. Southlake owns 100% of the capital stock of Texas National
Bank ("Texas National"), a national bank having its principal office in the City
of Southlake, Tarrant County, Texas. Texas National, which began operations in
1985, is federally chartered and is insured by the FDIC.
MARKET AREA
Southlake and Texas National are located approximately 20 miles northeast
of downtown Fort Worth, Texas and within the Fort Worth-Dallas metropolitan
area. In addition, Texas National maintains a branch location in Trophy Club,
Denton County, Texas. Through its two locations, Southlake conducts business
principally in Tarrant and Denton Counties and surrounding areas.
SERVICES
Texas National provides a full range of both commercial and consumer
banking services including loans, checking accounts, savings programs, safe
deposit facilities, access to automated teller machines, and credit card
programs. The bank does not offer trust services.
COMPETITION
The business of banking in Texas National's market area is highly
competitive. In Southlake, eight other banks operate with eight locations. Texas
National also competes with credit unions, saving and loan associations,
investment brokers, insurance companies, and mortgage companies.
EMPLOYEES
As of August 31, 1997, Southlake and its subsidiaries employed 21 full time
and 3 part time employees.
PROPERTIES
Texas National has two locations. Its principal office is located at 3205
E. Highway 114, Southlake, Texas, 76092 and a full service branch office is
located at Trophy Club, Texas.
MARKET FOR AND DIVIDENDS PAID ON SOUTHLAKE COMMON STOCK
There is no established public trading market for Southlake Common Stock.
Southlake Common Stock is not listed on a national securities exchange and is
not authorized for quotation on an interdealer quotation system. As of September
30, 1997, there were 36 holders of record of Southlake Common Stock. Southlake
has not paid dividends on Southlake Common Stock since inception.
35
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of September 30, 1997, the management of Southlake knew of no person,
other than those listed below (the "5% Southlake Shareholders"), owning
beneficially more than 5% of the Southlake Common Stock.
<TABLE>
<CAPTION>
Shares of Southlake Percentage of
Common Stock Outstanding
Name and Address of Beneficial Owner Beneficially Owned(1) Southlake Common Stock
- ------------------------------------ --------------------- ----------------------
<S> <C> <C>
Carmen Blankenship 12,800 5.29%
1311 W. Irving Blvd.
Irving, Texas 75061
James E. Burger 14,840 6.13%
334 Pebblebrook Drive
Grapevine, Texas 76051
Barry K. Emerson 24,829 10.25%
4356 Homestead Drive
Roanoke, Texas 76262
Derrell E. Johnson 18,840 7.78%
2503 Hillside Court
Southlake, Texas 76092
Wayne Lee 23,190 9.58%
3220 W. Southlake Blvd., Suite C
Southlake, Texas 76092
James R. Ridenour 14,840 6.13%
1030 Diamond Blvd.
Southlake, Texas 76092
ESOP 13,533 5.59%
3205 E. Highway 114
Southlake, Texas 76092
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as to the shares of Southlake
Common Stock beneficially owned by each director and executive officer and for
all directors and executive officers as a group as of September 30, 1997.
<TABLE>
<CAPTION>
Shares of Southlake
Common Stock Percentage of Southlake
Name Beneficially Owned(1) Common Stock Outstanding
- ---- --------------------- ------------------------
<S> <C> <C>
James E. Burger 14,840 6.13%
Wade Donnell 8,047 3.32%
Jack Dortch 8,840 3.65%
Barry K. Emerson 24,829 10.25%
Grover G. Fickes 10,692 4.42%
Derrell E. Johnson 18,840 7.78%
Wayne Lee 23,190 9.58%
Robert S. Mundlin 3,000 1.24%
James R. Ridenour 14,840 6.13%
John E. Thompson 9,840 4.06%
------- -----
All directors and executive
officers as a group 136,958 56.57%
======= =====
</TABLE>
36
<PAGE>
After giving effect to the First Financial Common Stock to be issued in the
Exchange and the Merger, and based on the number of shares of First Financial
Common Stock outstanding as of September 30, 1997, no director or executive
officer of Southlake or 5% Southlake Shareholder will beneficially own more than
one percent (1%) of the outstanding First Financial Common Stock immediately
after the Exchange and the Merger. Also, after the Exchange, no director or
executive officer of Southlake or 5% Southlake Shareholder will beneficially own
any outstanding shares of Southlake Common Stock.
37
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF SOUTHLAKE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
The following tables present selected historical consolidated financial
data of Southlake as of the dates and for the periods indicated. Results of
operations for the six months ended June 30, 1997 are not necessarily indicative
of results for a full fiscal year. The financial data should be read in
conjunction with the historical consolidated financial statements of Southlake
and related notes included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- ------------ ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net interest income......... $ 1,272 $ 1,522 $ 1,609 $ 1,929 $ 2,175 $ 1,050 $ 1,173
Provision for loan losses... -- 18 35 68 72 36 36
Noninterest income.......... 482 560 560 632 899 609 302
Noninterest expense......... 1,408 1,575 1,681 1,781 2,146 1,044 1,121
------- ------- ------- ------- ------- ------- -------
Income before income taxes.. 346 489 453 712 856 579 318
Provision for income taxes.. 96 102 111 172 167 143 54
------- ------- ------- ------- ------- ------- -------
Net income before
cumulative effect of
accounting change.......... 250 387 342 540 689 436 264
Cumulative effect of
accounting change(1)....... -- (34) -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income.................. $ 250 $ 353 $ 342 $ 540 $ 689 $ 436 $ 264
======= ======= ======= ======= ======= ======= =======
Net income per Southlake
Common Share before
cumulative effect
of accounting change....... $ 1.32 $ 1.98 $ 1.71 $ 2.56 $ 3.14 $ 2.00 $ 1.16
======= ======= ======= ======= ======= ======= =======
Net income per Southlake
Common Share............... $ 1.32 $ 1.80 $ 1.71 $ 2.56 $ 3.14 $ 2.00 $ 1.16
======= ======= ======= ======= ======= ======= =======
FINANCIAL POSITION:
Total assets................ $34,459 $36,507 $38,653 $46,725 $50,944 $47,632 $53,654
Loans, net of allowance
for loan losses............ 12,854 17,006 18,770 21,971 25,975 23,272 25,427
Investment securities....... 10,024 10,957 13,531 10,156 10,241 15,088 14,398
Deposits.................... 31,824 33,641 35,101 42,891 46,741 43,475 49,056
Total shareholders' equity.. 1,766 2,192 2,404 3,135 3,923 3,600 4,221
SIGNIFICANT RATIOS:
Return on assets............ 0.80% 1.00% 0.90% 1.28% 1.46% 1.87% 1.05%
Return on equity............ 11.43% 14.38% 14.53% 19.64% 19.39% 25.83% 13.12%
Net interest margin......... 5.08% 5.28% 5.19% 5.70% 5.78% 5.63% 5.81%
Earning assets to assets.... 85.28% 84.27% 85.90% 85.40% 85.22% 85.31% 85.72%
Book value per share(2)..... $ 9.33 $ 11.19 $ 11.98 $ 15.62 $ 18.78 $ 17.23 $ 19.93
</TABLE>
- -------------------------
(1) As of January 1, 1993, Southlake recorded the cumulative effect of the
change in accounting for income taxes to comply with Statement of Financial
Accounting Standards No. 109.
(2) At period end.
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF SOUTHLAKE
INTRODUCTION
Included in this review are the following sections:
I. Overview of Operations
II. Net Interest Income
III. Asset Quality
IV. Deposits
V. Return on Equity and Assets
VI. Noninterest Income and Expense and Income Taxes
VII. Liquidity and Interest Rate Sensitivity
VIII. Capital
IX. Discussion of Six Months ended June 30, 1997 versus Six Months ended
June 30, 1996
This discussion should be read in conjunction with the financial
statements, notes and tables included elsewhere in this Prospectus. Definitions
of terms used in this discussion include:
Average Balances
All average balances are calculated on the basis of daily averages. Interim
period annualizations are based on actual days in the relevant period.
Fully Taxable Equivalent Basis (FTE):
Income on earning assets which is subject to either a reduced rate or zero
rate of income tax has been adjusted to give effect to the statutory federal
income tax rate of 34%. Where appropriate, yield calculations include these
adjustments.
Net Interest Income:
Interest and related fee income on earning assets (FTE basis where
appropriate) reduced by total interest expense on interest bearing liabilities.
Net Interest Margin:
Net interest income on an FTE basis expressed as a percent of average
earning assets.
39
<PAGE>
I. OVERVIEW OF OPERATIONS
General
Net income for 1996 was $689 thousand as compared to $540 thousand for 1995
and $342 thousand for 1994. The 1996 increase was primarily attributable to
higher net interest income and increased noninterest income. Increased net
interest income was the primary factor in the 1995 increase over 1994.
On a per share basis, 1996 net income amounted to $3.14 as compared to
$2.56 for 1995. In 1994 Southlake earned $1.71 per share. Return on average
assets for 1996 was 1.46 percent as compared to 1.28 percent for 1995 and .90
percent for 1994. Return on average equity for 1996 was 19.39 percent as
compared to 19.64 percent for 1995 and 14.53 percent for 1994.
Net Interest Income
-------------------
On a taxable equivalent basis, net interest income in 1996 totaled $2.3
million, an increase of $281 thousand over the 1995 amount, which was $350
thousand higher than 1994. These yearly increases have resulted primarily from a
higher volume of average earning assets and deposits. Table 1 provides the
income and average yield earned on earning assets and the interest expense and
average rate paid on interest-bearing liabilities for the years 1994 through
1996. Table 2 presents year-to-year changes in net interest income and allocates
the changes attributable to variances in volumes and rates. The net interest
margin which measures net interest income as a percentage of average earning
assets amounted to 5.78 percent in 1996 as compared to 5.70 percent in 1995 and
5.19 percent in 1994. The improvement in 1996 is attributed to an increase in
the level of noninterest liabilities to fund earning assets. Growth in average
loans was the primary factor contributing to the 1995 increase over 1994.
Provision for Loan Losses
-------------------------
In 1996 the provision for loan losses charged against earnings amounted to
$72 thousand as compared to $68 thousand in 1995 and $35 thousand in 1994. Net
charge offs in 1996 amounted to $31 thousand, up from $21 thousand in 1995 but
below the 1994 total of $37 thousand. Nonperforming assets at December 31, 1996,
totaled $599 thousand compared to $592 thousand at the end of 1995 and $325
thousand at the end of 1994. During 1996 nonaccrual loans increased $178
thousand, while foreclosed assets decreased $170 thousand. The 1995 increase
resulted from an increase in foreclosed assets. Table 7 provides the components
of nonperforming assets and Table 8 provides an analysis of the Allowance for
Loan Losses. Management is not aware of any classified loan not properly
classified as nonperforming and considers the Allowance for Loan Losses to be
adequate.
Noninterest Income
------------------
Table 12 presents the detail of noninterest income which amounted to $899
thousand in 1996 as compared to $632 thousand in 1995. Gain on sale of
foreclosed assets in 1996 was the primary factor contributing to the increase
over the prior year total. In 1995, the gain on sale of foreclosed assets and
higher real estate mortgage fees accounted for the increase over the 1994 total.
Noninterest Expense
-------------------
Noninterest expense for 1996 amounted to $2.1 million, which was $365
thousand above the prior year total. In 1995, noninterest expense amounted to
$1.8 million compared to $1.7 million in 1994. Table 12 provides detail of
noninterest expense and the changes from the prior year. An important measure in
determining effectiveness in managing noninterest expenses is efficiency ratio,
which is calculated by dividing the noninterest expense by the sum of net
interest income on a tax-equivalent basis and noninterest
40
<PAGE>
income. Southlake's efficiency ratios were 66.56 percent, 66.55 percent and
74.53 percent in 1996, 1995 and 1994, respectively.
Income tax expense for 1996 totaled $167 thousand as compared to $172
thousand for 1995 and $111 thousand for 1994. Southlake's effective tax rates on
pretax income were 19.5 percent, 24.2 percent and 24.5 percent, respectively,
for the years 1996, 1995 and 1994. The lower effective tax rate for 1996
resulted from an increase in tax-exempt investment securities.
Balance Sheet Review
Total assets at the end of 1996 were $50.9 million, up $4.2 million, or 9
percent, from the December 31, 1995, total. During 1996, total assets averaged
$47.2 million as compared to $42.0 million during 1995.
Investment Securities
---------------------
At December 31, 1996, the investment securities portfolio totaled $10.2
million, virtually unchanged from the prior year end. At December 31, 1996,
securities with an amortized cost of $7.3 million were classified as securities
held-to-maturity and securities with a market value of $2.9 million were
classified as securities available-for-sale. Total investment securities at
year-end 1996 included structured notes with an amortized cost of $200 thousand
and an approximate market value of $199 thousand. Tables 3 and 4 provide detail
relating to the maturities and fair values of the investment portfolio at
December 31, 1996 and 1995.
Loans
-----
Total loans at December 31, 1996, amounted to $26.2 million, an increase of
$4.0 million, or 18.0 percent, from year-end 1995. As shown in Table 5,
commercial loans accounted for approximately half of the 1996 increase. The loan
totals reflect loans made to businesses and individuals located in the primary
market served by Texas National. Loans in the real estate mortgage
classification generally provide for repricing intervals that protect Texas
National from the rate risk inherent in long term fixed rate mortgages.
Deposits
--------
Deposits, which represent the primary source of funding, totaled $46.7
million at the end of 1996. When compared to the previous year-end total,
deposits increased $3.9 million, or 9.0 percent. Table 9 provides a breakdown of
average deposits and rates paid over the past three years and the remaining
maturity of time deposits of $100 thousand or more
Asset and Liability Management
Interest Rate Risk
------------------
Southlake manages its assets and liabilities to control the exposure of its
net interest income and capital to risks associated with interest rate changes
to achieve growth in net interest income. Texas National has an asset liability
committee which monitors interest rate risk and compliance with investment
policies. Interest-sensitivity gap and simulation analysis are among the ways
that Texas National tracks interest rate risk. From time to time it may be
necessary for Texas National to reallocate investable funds or make pricing
adjustments to better position itself for interest rate movements. As presented
in Table 13, the interest-sensitivity gap analysis as of December 31, 1996,
reflects a slight positive repricing gap in the one-year horizon which protects
Texas National from significant interest rate risk. Southlake uses no off-
balance-sheet financial instruments to manage interest rate risk.
41
<PAGE>
Liquidity
---------
Liquidity is the ability of Southlake to meet cash demands as they arise.
Such needs can develop from loan demand or deposit withdrawals. Asset liquidity
is provided by cash and assets which are readily marketable or which will mature
in the near future. Liquid assets include cash, Federal funds sold, and short-
term investments in time deposits in banks. Liquidity is also provided by access
to funding sources which include core depositors and Federal funds credit lines
with correspondent banks. Given the strong core deposit base and relatively low
loan deposit ratio maintained at Texas National, Southlake management considers
the current liquidity position to be adequate.
Parent Company Funding Sources and Dividends
Southlake's ability to service debt has been dependent on funds derived
from Texas National. These funds historically have been produced by intercompany
dividends. At December 31, 1996, approximately $1.3 million was available for
the payment of intercompany dividends by Texas National without the prior
approval of regulatory agencies. Due to previous debt service requirements,
Southlake has not paid dividends to shareholders.
42
<PAGE>
II. NET INTEREST INCOME
TABLE 1 - AVERAGE BALANCES AND AVERAGE YIELDS AND RATES (000'S OMITTED)--
SOUTHLAKE
The following table shows Southlake consolidated balances of assets,
liabilities and capital computed principally on an average daily basis and the
interest income and average yield on interest-earning assets and interest
expense and average rate on interest-bearing liabilities for the three years
ended December 31, 1996, (000's omitted). The calculations of average yields and
rates are based upon the average daily balances. Non-accrual loans are included
in the average daily balance of loans and any interest income recognized on a
cash basis is included in interest income on loans:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------- --------------------------- --------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- ------- -------- -------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Short-term investments..... $ 3,854 $ 215 5.58% $ 3,268 $ 193 5.91% $ 3,975 $ 168 4.23%
Taxable investment
securities................ 5,944 329 5.53 6,552 365 5.57 7,377 399 5.41
Tax-exempt investment
securities(1)............. 6,909 441 6.38 5,242 338 6.45 4,046 250 6.18
Loans (2).................. 23,499 2,426 10.32 20,831 2,208 10.60 17,186 1,762 10.25
------- ------- ------- ------ ------- ------
Total earning assets.. 40,206 3,411 8.48 35,893 3,104 8.65 32,584 2,579 7.91
Cash and due from banks.... 3,373 3,000 2,579
Bank premises and equipment 1,929 1,729 1,541
Other assets............... 1,898 1,587 1,388
Allowance for loan losses.. (229) (180) (160)
------- ------- -------
Total assets.......... $47,177 $42,029 $37,932
======= ======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest bearing deposits.. $28,276 $ 1,060 3.75% $26,414 $1,001 3.79% $23,913 $ 831 3.48%
Short-term borrowings...... 115 7 6.09 28 2 7.14
Long-term debt............. 277 26 9.70 536 52 9.70 536 52 9.70
------- ------- ------- ------ ------- ------
Total interest bearing
liabilities.......... 28,553 1,086 3.80 27,065 1,060 3.92 24,477 885 3.62
Noninterest-bearing
deposits.................. 14,748 11,963 10,946
Other liabilities.......... 323 252 156
------- ------- -------
Total liabilities..... 43,624 39,280 35,579
Shareholders' equity....... 3,553 2,749 2,353
------- ------- -------
Total liabilities and
shareholders' equity.. $47,177 $42,029 $37,932
======= ======= =======
------- ------ ------
Net interest income........ $ 2,325 $2,044 $1,694
======= ====== ======
Rate Analysis
Interest income/earning
assets.................. 8.48% 8.65% 7.91%
Interest expense/earning
assets.................. 2.70 2.95 2.72
---- ---- ----
Net yield on
earning assets..... 5.78% 5.70% 5.19%
==== ==== ====
</TABLE>
(1) Computed on a tax-equivalent basis assuming a marginal tax rate of 34%.
(2) Nonaccrual loans are included in loans.
43
<PAGE>
TABLE 2 - CHANGES IN INTEREST INCOME AND INTEREST EXPENSE (000'S OMITTED)--
SOUTHLAKE
<TABLE>
<CAPTION>
1996 COMPARED TO 1995 1995 COMPARED TO 1994
--------------------------------- ---------------------------------
CHANGE ATTRIBUTABLE TO TOTAL CHANGE ATTRIBUTABLE TO TOTAL
VOLUME RATE CHANGE VOLUME RATE CHANGE
------------- --------- ------- ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Short-term investments..... $ 35 $(13) $ 22 $(30) $ 55 $ 25
Taxable investment
securities................. (34) (2) (36) (45) 11 (34)
Tax-exempt investment
securities (1)............. 107 (4) 103 74 14 88
Loans...................... 283 (65) 218 374 72 446
---- ---- ---- ---- ---- ----
Interest income............ 391 (84) 307 373 152 525
---- ---- ---- ---- ---- ----
Interest bearing deposits.. 71 (12) 59 87 83 170
Short-term borrowings...... (7) - (7) 6 (1) 5
Long-term debt............. (25) (1) (26) - - -
Interest expense........... 38 (12) 26 93 82 175
---- ---- ---- ---- ---- ----
Net interest income........ $353 $(72) $281 $280 $ 70 $350
==== ==== ==== ==== ==== ====
</TABLE>
(1) Computed on a tax-equivalent basis assuming a marginal tax rate of 34%.
TABLE 3 - COMPOSITION OF INVESTMENT SECURITIES (000'S OMITTED)--SOUTHLAKE
The table below sets forth the composition of investment securities at the dates
indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Held-to-Maturity at Amortized Cost
- ----------------------------------
U.S. Treasury obligations and obligations of
U.S. Government corporations and agencies........ $ 308 $ -- $ 250
Obligations of states and political subdivisions.. 7,047 6,358 4,535
Mortgage-backed securities........................ -- -- --
------ ------ ------
Total debt securities............................ 7,355 6,358 4,785
Other securities.................................. -- -- --
------ ------ ------
$7,355 $6,358 $4,785
====== ====== ======
<CAPTION>
AT DECEMBER 31,
----------------------
1996 1995 1994
------ ------ ------
Available-for-Sale at Fair Value
- --------------------------------
U.S. Treasury obligations and obligations of
U.S. Government corporations and agencies........ $2,775 $3,688 $8,636
Obligations of states and political subdivisions.. -- -- --
Mortgage-backed securities........................ -- -- --
------ ------ ------
Total debt securities............................ 2,775 3,688 8,636
Other securities.................................. 111 111 111
------ ------ ------
$2,886 $3,799 $8,747
====== ====== ======
</TABLE>
44
<PAGE>
TABLE 4 - MATURITY AND YIELDS OF DEBT SECURITIES HELD AT DECEMBER 31, 1996--
SOUTHLAKE
The following table shows the maturities of investment securities at December
31, 1996 and the weighted average yields (for tax exempt obligations on a fully
taxable basis assuming a 34% tax rate adjusted for disallowed interest
deductions in accordance with Federal income tax regulation) of such securities
(000's omitted):
<TABLE>
<CAPTION>
MATURING
---------------------------------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS TOTAL
--------------- ----------------- ---------------- --------------- ----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held-to-Maturity - at
- ---------------------
Amortized Cost
--------------
U.S. Treasury obligations and
obligations of U.S. Government
corporations and agencies $ 308 5.50% $ -- --% $ -- --% $ -- --% $ 308 5.50%
Obligations of states and
political subdivisions 1,816 6.42 4,521 6.31 710 7.37 -- -- 7,047 6.45%
Mortgage-backed securities -- -- -- -- -- -- -- -- -- --
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Total $2,124 6.29% $4,521 6.31% $ 710 7.37% $ -- --% $7,355 6.41%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
<CAPTION>
MATURING
---------------------------------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS TOTAL
--------------- ----------------- ---------------- --------------- ----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Available-for-Sale
- ------------------
at Fair Value
-------------
U.S. Treasury obligations and
obligations of U.S. Government
corporations and agencies $ 750 6.05% $2,025 6.39% $ -- --% $ -- --% $2,775 6.30%
Obligations of states and
political subdivisions -- -- -- -- -- -- -- -- -- --
Mortgage-backed securities -- -- -- -- -- -- -- -- -- --
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Total $ 750 6.05% $2,025 6.39% $ -- --% $ -- --% $2,775 6.30%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
</TABLE>
45
<PAGE>
TABLE 5 - COMPOSITION OF LOANS--SOUTHLAKE
The table below sets forth the amount of loans outstanding at the end of the
years indicated, according to type of loan (000's omitted):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Commercial, financial, and agricultural.. $ 7,773 $ 5,430 $ 5,285 $ 4,499 $ 2,248
Real estate--construction................ 5,981 5,170 3,778 4,581 2,513
Real estate--mortgage.................... 8,034 7,440 6,651 5,149 4,717
Consumer................................. 4,431 4,135 3,212 2,936 3,532
------- ------- ------- ------- -------
$26,219 $22,175 $18,926 $17,165 $13,010
======= ======= ======= ======= =======
</TABLE>
TABLE 6 - LOAN MATURITIES AND INTEREST SENSITIVITY AT DECEMBER 31, 1996--
SOUTHLAKE
The amounts of total loans (excluding real estate mortgages and installment
consumer loans) outstanding as of December 31, 1996, which, based on remaining
scheduled repayments of principal, are due in (i) one year or less, (ii) more
than one year but less than five years, and (iii) more than five years, are
shown in the following table. The amounts due after one year are classified
according to the sensitivity to changes in interest rates. Aggregate maturities
of loan balances which are due:
<TABLE>
<CAPTION>
OVER ONE YEAR
ONE YEAR THROUGH OVER
OR LESS FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural............ $2,425 $5,348 $-- $ 7,773
Real estate - construction........................ 5,650 331 -- 5,981
------ ------ --- -------
$8,075 $5,679 $-- $13,754
====== ====== === =======
</TABLE>
<TABLE>
<CAPTION>
MATURITIES
AFTER
ONE YEAR
----------
<S> <C>
Loans with fixed interest rates................... $5,054
Loans with floating or adjustable interest rates.. 625
------
$5,679
======
</TABLE>
46
<PAGE>
III. ASSET QUALITY
TABLE 7 - NONPERFORMING ASSETS (000'S OMITTED)--SOUTHLAKE
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------
PAST DUE AND NON-ACCRUAL LOANS: 1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans........................... $ 178 $ -- $ -- $ -- $ 115
Loans past due 90 days or more............. -- 1 6 2 --
Restructured loans......................... -- -- -- -- --
----- ----- ----- ----- -----
Nonperforming loans...................... 178 1 6 2 115
Foreclosed assets.......................... 421 591 319 415 352
----- ----- ----- ----- -----
Total nonperforming assets............... $ 599 $ 592 $ 325 $ 417 $ 467
===== ===== ===== ===== =====
As a % of loans and foreclosed properties.. 2.25% 2.60% 1.69% 2.37% 3.49%
</TABLE>
LOAN CONCENTRATIONS
As of December 31, 1996, there were no concentrations of loans exceeding 10%
to any industry segment except as disclosed in Table 5 herein.
<TABLE>
<CAPTION>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
ALLOCATION ALLOCATION ALLOCATION ALLOCATION ALLOCATION
AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Real estate - construction.............. $ 56 $ 47 $ 31 $ 42 $ 30
Real estate - mortgage.................. 75 68 55 47 57
Commercial, financial and agricultural.. 72 50 44 41 27
Consumer................................ 41 38 26 27 43
---------- ---------- ---------- ---------- ----------
$ 244 $ 203 $ 156 $ 158 $ 157
========== ========== ========== ========== ==========
<CAPTION>
ALLOCATION AS PERCENT OF TOTAL LOANS
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
Real estate - construction.............. 22.8% 23.3% 20.0% 26.7% 19.3%
Real estate - mortgage.................. 30.6 33.6 35.1 30.0 36.3
Commercial, financial and agricultural.. 29.6 24.5 27.9 26.2 17.3
Consumer................................ 16.9 18.6 17.0 17.1 27.1
---------- ---------- ---------- ---------- ----------
100.0% 100.0% 100.0% 100.0% 100.0%
========== ========== ========== ========== ==========
</TABLE>
47
<PAGE>
TABLE 8 - ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES (000'S OMITTED)--SOUTHLAKE
The following table summarizes the daily average amount of net loans
outstanding; changes in the allowance for loan losses arising from loans charged
off, and recoveries on loans previously charged off, by loan category; additions
to the allowance which have been charged to operating expense; and the ratio of
net loans charged off to average loans outstanding:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1,...... $ 203 $ 156 $ 158 $ 157 $ 207
Charge-offs:
Commercial, financial and
agriculture.............. 15 15 22 34 43
Consumer.................. 25 15 19 8 18
All other................. -- -- -- -- --
-------- -------- -------- -------- --------
Total loans charged off.... 40 30 41 42 61
Recoveries:
Commercial, financial and
agriculture.............. 4 8 3 11 8
Consumer.................. 5 1 1 14 3
All other................. -- -- -- -- --
-------- -------- -------- -------- --------
Total recoveries........... 9 9 4 25 11
-------- -------- -------- -------- --------
Net charge-offs............ 31 21 37 17 50
Provision for loan losses.. 72 68 35 18 --
-------- -------- -------- -------- --------
Balance at December 31,.... $ 244 $ 203 $ 156 $ 158 $ 157
======== ======== ======== ======== ========
Loans at year-end.......... $ 26,219 $ 22,175 $ 18,926 $ 17,165 $ 13,010
Average loans.............. 23,499 20,831 17,186 15,146 13,882
Net charge-offs/average
loans..................... 0.13% 0.10% 0.22% 0.11% 0.36%
Allowance for loan
losses/year-end loans..... 0.93 0.92 0.82 0.92 1.21
Allowance for loan
losses/nonperforming
assets.................... 40.73 34.29 48.00 37.89 33.62
</TABLE>
IV. DEPOSITS
TABLE 9 - COMPOSITION OF DEPOSITS--SOUTHLAKE
The following table presents the average daily amount and the average rate
paid on deposits (000's omitted):
<TABLE>
<CAPTION>
1996 1995 1994
------------------ ------------------ ------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand
deposits $14,748 --% $11,963 --% $10,946 --%
Interest-bearing demand
deposits
Interest-bearing checking 4,572 1.57 4,237 1.86 3,882 1.91
Savings and money market
accounts 12,021 2.99 12,166 3.15 12,932 3.53
Time deposits under
$100,000 5,868 5.27 5,570 5.10 4,781 4.41
Time deposits of $100,000
or more 5,815 5.50 4,441 5.72 2,318 3.88
------- ------- -------
Total interest-bearing
deposits 28,276 3.75 26,414 3.79 23,913 3.48
------- ------- -------
Total deposits 43,024 $38,377 $34,859
======= ======= =======
</TABLE>
48
<PAGE>
TABLE 10 - REMAINING MATURITY OF TIME DEPOSITS OF $100,000 OR MORE TIME DEPOSITS
(000'S OMITTED)--SOUTHLAKE
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
(IN THOUSANDS)
<S> <C>
Under three months $3,724
Over three through
twelve months 1,395
Over twelve months 875
------
$5,994
======
</TABLE>
V. RETURN ON EQUITY AND ASSETS
TABLE 11 - RETURN ON EQUITY AND ASSETS--SOUTHLAKE
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Percentage of net earnings
to:
Average total assets 1.46% 1.28% 0.90%
Average shareholders'
equity 19.39 19.64 14.53
Percentage of dividends declared per common
share to earnings per common share -- -- --
Percentage of average shareholders' equity
to daily average total assets 7.53 6.54 6.20
</TABLE>
VI. NONINTEREST INCOME AND EXPENSE AND INCOME TAXES
TABLE 12 - NONINTEREST INCOME AND NONINTEREST EXPENSE--SOUTHLAKE
NONINTEREST INCOME (000'S OMITTED):
<TABLE>
<CAPTION>
INCREASE INCREASE
1996 (DECREASE) 1995 (DECREASE) 1994
---- ---------- ---- ---------- ----
<S> <C> <C> <C> <C> <C>
Service fees on deposit
accounts.................. $366 $ 9 $357 $ 4 $353
Gain on sale of assets..... 247 226 21 (12) 33
Other:
Miscellaneous income.... 115 63 52 26 26
Real estate mortgage
fees................... 100 17 83 58 25
Merchant credit card
fees................... 44 (54) 98 (4) 102
Other service fees...... 27 6 21 - 21
---- ---- ---- ---- ----
286 32 254 80 174
---- ---- ---- ---- ----
$899 267 $632 $ 72 $560
==== ==== ==== ==== ====
</TABLE>
49
<PAGE>
NONINTEREST EXPENSE (000'S OMITTED):
<TABLE>
<CAPTION>
INCREASE INCREASE
1996 (DECREASE) 1995 (DECREASE) 1994
------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C>
Salaries................... $ 814 $ 128 $ 686 $ 103 $ 583
Payroll taxes.............. 49 6 43 4 39
KSOP....................... 16 (40) 56 6 50
Medical and other benefits. 43 10 33 4 29
------ ------ ------ ------ ------
922 104 818 117 701
Net occupancy.............. 91 6 85 1 84
Equipment expense.......... 136 22 114 13 101
Other:
Advertising and business
development.............. 230 163 67 (13) 80
Other miscellaneous....... 145 51 94 (7) 101
Outside data processing... 114 24 90 10 80
Director fees............. 76 1 75 (5) 80
Credit card and ATM....... 73 (62) 135 (9) 144
Outside operations........ 69 15 54 7 47
Printing and supplies..... 61 29 32 (3) 35
Postage and courier....... 51 2 49 7 42
Legal and accounting fees. 49 19 30 6 24
Insurance................. 34 7 27 (5) 32
Other real estate expense. 33 9 24 9 15
Correspondent bank service
fees..................... 30 8 22 2 20
Communications............ 30 6 24 4 20
FDIC insurance expense.... 2 (39) 41 (33) 74
------ ------ ------- ------- -------
997 233 764 (30) 794
------ ------ ------- ------- -------
Total Noninterest Expense $2,146 $ 365 $ 1,781 $ 101 $ 1,680
====== ====== ======= ======= =======
As a % of Tax Equivalent
Net Revenue 66.56% 66.55% 74.53%
</TABLE>
VII. LIQUIDITY AND INTEREST RATE SENSITIVITY
TABLE 13 - INTEREST SENSITIVITY ANALYSIS--SOUTHLAKE (000'S OMITTED)
<TABLE>
<CAPTION>
WITHIN 3 4 - 6 7 - 12 1 - 5 OVER 5
MONTHS MONTHS MONTHS YEARS YEARS TOTAL
-------- ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Total loans............................ $13,143 $2,993 $2,606 $ 7,477 $ -- $26,219
Investment securities.................. 701 175 1,999 6,545 711 10,131
Short-term investments................. 7,000 -- -- -- -- 7,000
------- ------ ------ ------- ------- -------
Total interest-earning assets.......... 20,844 3,168 4,605 14,022 711 43,350
Interest-bearing liabilities:
Transaction deposit accounts.......... 17,121 -- -- -- -- 17,121
Time deposits......................... 5,639 1,258 1,849 4,437 -- 13,183
Borrowed funds........................ -- -- -- -- -- --
Mortgage notes payable................ -- -- -- -- -- --
------- ------ ------ ------- ------- -------
Total interest-bearing
liabilities........................ $22,760 $1,258 $1,849 $ 4,437 $ -- $30,304
------- ------ ------ ------- ------- -------
Interest sensitivity gap............... $(1,916) $1,910 $2,756 $ 9,585 711 13,046
Cumulative interest sensitivity gap.... (1,916) (6) 2,750 12,335 13,046 13,046
Ratio of interest sensitive
assets to interest sensitive
liabilities.......................... 0.92 2.52 2.49 3.16 --
Cumulative ratio of interest
sensitive assets to interest
sensitive liabilities................ 0.92 1.00 1.11 1.41 1.43
Cumulative interest sensitivity
gap as a percent of earning
assets............................... (4.42)% (0.01)% 6.34% 28.45% 30.09%
</TABLE>
50
<PAGE>
TABLE 14 - AVERAGE BALANCES AND AVERAGE YIELDS AND RATES - SOUTHLAKE (000'S
OMITTED):
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------------------------------
1997 1996
-------------------------- --------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Short-term investments................ $ 4,612 $ 118 5.12% $ 4,299 $ 116 5.40%
Taxable investment securities......... 4,241 128 6.04 6,449 175 5.43
Tax-exempt investment securities (1).. 7,244 235 6.49 6,679 211 6.31
Loans (2)............................. 27,029 1,350 9.99 22,367 1,162 10.39
------- ------ ------- -------
Total earning assets................ 43,126 1,831 8.49 39,794 1,664 8.36
Cash and due from banks............... 3,392 3,316
Bank premises and equipment........... 2,412 1,761
Other assets.......................... 1,645 1,987
Allowance for loan losses............. (263) (211)
------- -------
Total assets........................ $50,312 $46,647
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits............. $30,219 $ 578 3.83% $28,253 $ 528 3.74%
Long-term debt........................ 309 15 9.71
------- ------ ------- -------
Total interest bearing liabilities.. 30,219 578 3.83 28,562 543 3.80
Noninterest-bearing deposits.......... 15,709 14,427
Other liabilities..................... 360 282
------- -------
Total liabilities................... 46,288 43,271
Shareholders' equity.................. 4,024 3,376
------- -------
Total liabilities and shareholders'
equity.............................. $50,312 $46,647
======= =======
Net interest income................... $1,253 $ 1,121
====== =======
RATE ANALYSIS
Interest income/earning assets........ 8.49% 8.36%
Interest expense/earning assets....... 2.68 2.73
---- ------
Net yield on earning assets......... 5.81% 5.63%
==== ======
</TABLE>
(1) Computed on a tax-equivalent basis assuming a marginal tax rate of 34%.
(2) Nonaccrual loans are included in loans.
51
<PAGE>
TABLE 15 - CHANGES IN INTEREST INCOME AND INTEREST EXPENSE - SOUTHLAKE (000'S
OMITTED):
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 COMPARED TO 1996
--------------------------------
CHANGE ATTRIBUTABLE TO
---------------------- TOTAL
VOLUME RATE CHANGE
------ -------- ------
<S> <C> <C> <C>
Short-term investments................ $ 133 $ (131) $ 2
Taxable investment securities......... 55 (102) (47)
Tax-exempt investment securities (1).. 246 (222) 24
Loans................................. 1,646 (1,458) 188
------ ------- ----
Interest income...................... 2,080 (1,913) 167
------ ------- ----
Interest-bearing deposits............. 601 (551) 50
Short-term borrowings................. - - -
Long-term debt........................ (15) - (15)
------ ------- ----
Interest expense..................... 586 (551) 35
------ ------- ----
Net interest income.................. $1,494 $(1,362) $132
====== ======= ====
</TABLE>
(1) Computed on a tax-equivalent basis assuming a marginal tax rate of 34%.
52
<PAGE>
TABLE 16 - NONINTEREST INCOME AND EXPENSE - SOUTHLAKE (000'S OMITTED):
<TABLE>
<CAPTION>
NONINTEREST INCOME:
FOR THE SIX MONTHS
ENDED JUNE 30, CHANGE
--------------- ---------------
1996 1997 $ %
------ ------ ----- ------
<S> <C> <C> <C> <C>
Service fees on deposit accounts......... $ 178 $ 207 $ 29 16.29%
Net gain (loss) on sale of assets........ 272 (13) (285) --
Other:
Miscellaneous income.................... 65 45 (20) (30.77)
Real estate mortgage fees............... 59 22 (37) (62.71)
Merchant credit card fees............... 22 24 2 9.09
Other service fees...................... 13 17 4 30.77
------ ------ ----- -------
159 108 (51) (32.08)
------ ------ ----- -------
Total noninterest income.............. $ 609 $ 302 $(307) (50.41)%
====== ====== ===== =======
NONINTEREST EXPENSE:
Salaries $ 338 $ 402 $ 64 18.93%
Payroll taxes 24 32 8 33.33
KSOP 27 3 (24) (88.89)
Medical and other benefits 22 22 -- --
------ ------ ----- -------
411 459 48 11.68
Net occupancy............................ 38 65 27 71.05
Equipment expense........................ 64 101 37 57.81
Other:
Advertising and business development.... 179 60 (119) (66.48)
Other miscellaneous..................... 57 57 -- --
Outside data processing................. 53 71 18 33.96
Director fees........................... 31 37 6 19.35
Credit card and ATM..................... 39 37 (2) (5.13)
Outside operations...................... 31 49 18 58.06
Printing and supplies................... 23 43 20 86.96
Postage and courier..................... 25 31 6 24.00
Legal and accounting fees............... 34 37 3 8.82
Insurance............................... 16 19 3 18.75
Other real estate expense............... 15 14 (1) (6.67)
Correspondent bank service fees......... 15 15 -- --
Communications.......................... 13 26 13 100.00
------ ------ ----- -------
531 496 (35) (6.59)
------ ------ ----- -------
Total noninterest expense............. $1,044 $1,121 $ 77 7.38%
====== ====== ===== =======
As a % of tax-equivalent net revenue.. 60.36% 72.09%
====== ======
</TABLE>
53
<PAGE>
VIII. CAPITAL
At December 31, 1996, consolidated shareholders' equity was $3.9 million,
or 7.7 percent of total assets, compared to $3.1 million, or 6.7 percent of
total assets, at December 31, 1995. In accordance with Statement of Financial
Accounting Standards No. 115, Southlake's unrealized losses on securities
available-for-sale are reported as a reduction in shareholders' equity. At
December 31, 1996 and 1995, unrealized losses amounted to $4 thousand and $3
thousand respectively. During 1996, consolidated shareholders' equity averaged
$3.5 million, or 7.5 percent of average assets, compared to the 1995 average of
$2.7 million, or 6.5 percent of average assets.
Banking system regulators measure capital adequacy by means of the risk-
based capital ratio and leverage ratio. The risk-based capital rules provide for
the weighting of assets and off-balance-sheet commitments and contingencies
according to prescribed risk categories ranging from 0 percent to 100 percent.
Regulatory capital is then divided by risk-weighted assets to determine the
risk-adjusted capital ratios. The leverage ratio is computed by dividing
shareholders' equity less intangibles by quarter-to-date average assets less
intangibles. Regulatory minimums for the risk-based and leverage ratios are 8.00
percent and 4.00 percent, respectively. At December 31, 1996, Southlake's total
risk-based and leverage ratios were 12.56 percent and 7.95 percent,
respectively.
IX. DISCUSSION OF SIX MONTHS ENDED JUNE 30, 1997 VERSUS SIX MONTHS ENDED
JUNE 30, 1996
Overview of Operations
For the six months ended June 30, 1997, Southlake's net income amounted to
$264 thousand, or $1.16 per share, compared to $436 thousand, or $2.00 per
share, earned in the first half of 1996. Return on average assets and return on
average equity for the six months ended June 30, 1997, amounted to 1.05 percent
and 13.12 percent, respectively. Southlake's return on average assets and return
on average equity for the same period last year amounted to 1.87 percent and
25.83 percent.
Net interest income on a tax equivalent basis for the first six months of
1997 was $132 thousand above the 1996 amount and resulted primarily from loan
growth. The net interest margin for the six months ended June 30, 1997, was 5.81
percent, up from 5.63 percent for 1996. The provision for loan losses for the
first half of 1997 totaled $36 thousand, and was unchanged from the 1996 amount.
Total noninterest income for the six months ended June 30, 1997, amounted
to $302 thousand as compared to the prior year total of $609 thousand. The
decrease in total noninterest income is attributed to a $285 thousand decline in
gain on sale of foreclosed assets. For the first six months of 1997, service
fees on deposits increased $29 thousand compared to the 1996 amount. Other
noninterest income, which includes merchant credit card fees, real estate
mortgage fees, ATM transaction fees, and various other miscellaneous service-
related fees and income, totaled $108 thousand and was down $51 thousand from
the 1996 amount. The decrease resulted primarily from lower real estate mortgage
fees.
Noninterest expense for the six months ended June 30, 1997, totaled $1.12
million as compared to $1.04 million during the same period in 1996. The
increase is attributable primarily to higher employee, occupancy, and equipment
costs associated with a branch opening in January 1997.
Balance Sheet Review
Consolidated assets at June 30, 1997, totaled $53.6 million as compared to
$50.9 million at year-end 1996 and $47.6 million at June 30, 1996. Since year-
end 1996, investment securities have increased $4.1 million and loans have
decreased $491 thousand. The balance sheets presented reflect normal recurring
adjustments and accruals. The net unrealized loss in the investment portfolio at
June 30, 1997, totaled $34 thousand. At June 30, 1997, Southlake did not hold
any CMOs. Amortized cost of structured notes at June 30,
54
<PAGE>
1997, totaled $200 thousand as compared to an approximate market value of $199
thousand. Total deposits at June 30, 1997, amounted to $49.1 million, up $2.4
million from December 31, 1996, and up $5.7 million from the June 30, 1996,
amount.
Nonperforming assets at June 30, 1997, totaled $533 thousand, or 2.00
percent of loans and foreclosed assets, and were down $66 thousand from the
December 31, 1996, amount. Foreclosed asset expense remains immaterial. At June
30, 1997, the allowance for loan losses amounted to .54 percent of nonperforming
assets. Management is not aware of any material classified credits not properly
disclosed as nonperforming and considers the allowance for loan losses to be
adequate.
Liquidity and Capital
Southlake's consolidated statements of cash flows are presented elsewhere
in this document. At June 30, 1997, management believes that the balance sheet
reflects adequate liquidity and the parent company has no debt. Total equity
capital amounted to $4.2 million at June 30, 1997, which was up from $3.9
million at year-end 1996 and $3.6 million at June 30, 1996. Southlake's risk-
based capital and leverage ratios at June 30, 1997, were 13.10 percent and 7.89
percent, respectively.
LEGAL MATTERS
The legality of the First Financial Common Stock to be issued in connection
with the Exchange Offer and Merger will be passed upon by McMahon, Surovik,
Suttle, Buhrmann, Hicks & Gill, P.C.
EXPERTS
The consolidated financial statements of First Financial 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 prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report dated January 10, 1997, with
respect thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
The consolidated financial statements of Southlake as of December 31, 1996
and 1995 and for each of the years in the three-year period ended December 31,
1996, included in this prospectus and elsewhere in the registration statement
have been audited by Judd, Thomas, Smith & Company, P.C., independent public
accountants, as indicated in their report dated September 19, 1997, with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
55
<PAGE>
INDEX TO SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
FINANCIAL STATEMENTS
Page
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994
Independent Auditors' Report.................................. F-2
Consolidated Balance Sheets as of
December 31, 1996 and 1995.................................. F-3
Consolidated Statements of Income for the three years ended
December 31, 1996, 1995 and 1994............................ F-4
Consolidated Statements of Changes in Stockholders' Equity
for the three years ended December 31, 1996, 1995 and 1994.. F-5
Consolidated Statements of Cash Flows for the three years
ended December 31, 1996, 1995 and 1994........................ F-6
Notes to Consolidated Financial Statements.................... F-8
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND JUNE 30, 1996
Compilation Report............................................ F-22
Consolidated Balance Sheets as of June 30, 1997 and 1996...... F-23
Consolidated Statements of Income for the three months and
six months ended June 30, 1997 and 1996..................... F-24
Consolidated Statements of Changes in Stockholders' Equity
for the six months ended June 30, 1997 and 1996............... F-25
Consolidated Statements of Cash Flows for the six months
ended June 30, 1997 and 1996.................................. F-26
F-1
<PAGE>
[JUDD, THOMAS, SMITH & COMPANY, P.C. LETTERHEAD APPEARS HERE]
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Southlake Bancshares, Inc.
Southlake, Texas
We have audited the accompanying consolidated balance sheets of Southlake
Bancshares, Inc. and Subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the three years ended December 31, 1996, 1995 and 1994.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Southlake
Bancshares, Inc. and Subsidiary as of December 31, 1996 and 1995, and the
results of its operations and its cash flows for each of the three years ended
December 31, 1996, 1995 and 1994, in conformity with generally accepted
accounting principles.
/S/ JUDD, THOMAS, SMITH & COMPANY
September 19, 1997
F-2
<PAGE>
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995
------------ ------------
Assets
<S> <C> <C>
Cash and due from banks $ 3,436,740 $ 4,671,647
Interest earning deposits in banks 100,000 115,794
Federal funds sold 7,000,000 6,220,000
Investment securities
Available-for-sale 2,775,775 3,688,021
Held-to-maturity 7,355,124 6,357,722
Other investment securities 110,500 110,500
Loans, net 25,975,071 21,971,147
Premises and equipment, net 2,370,478 1,682,675
Accrued interest receivable 381,745 387,292
Other real estate 421,296 591,102
Prepaid expenses 116,735 111,371
Cash surrender value of life insurance 603,194 545,560
Goodwill, net of accumulated amortization of $51,344
and $45,842 for 1996 and 1995, respectively 168,702 174,204
Other assets 128,558 98,224
------------ ------------
Total assets $ 50,943,918 $ 46,725,259
============ ============
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Noninterest bearing demand $ 16,437,992 $ 14,114,516
Interest bearing 30,302,614 28,776,940
------------ ------------
46,740,606 42,891,456
Accrued interest payable 54,469 63,414
Other liabilities 220,641 156,242
Note payable - 475,000
------------ ------------
Total liabilities 47,015,716 43,586,112
Minority interest 5,244 4,593
Stockholders' equity
Preferred stock - 8% nonvoting, cumulative, $1.00 par value,
1,000,000 shares authorized: 7,200 issued and outstanding 7,200 7,200
Common stock - $1.00 par value, 1,000,000 shares authorized:
208,880 and 200,700 shares in 1996 and 1995 issued
and outstanding 208,880 200,700
Surplus 1,052,449 959,814
Retained earnings 2,658,712 1,970,198
Unrealized loss on available-for-sale securities (4,283) (3,358)
------------ ------------
Total stockholders' equity 3,922,958 3,134,554
------------ ------------
Total liabilities and stockholders' equity $ 50,943,918 $ 46,725,259
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Interest income
Loans (including fees) $ 2,426,114 $ 2,207,598 $ 1,761,565
Taxable securities 329,278 365,077 399,485
Tax-exempt securities 291,329 223,253 164,833
Deposits in banks 5,850 11,383 35,943
Federal funds sold 208,686 181,917 131,886
----------- ----------- -----------
Total interest income 3,261,257 2,989,228 2,493,712
----------- ----------- -----------
Interest expense
Interest bearing money-market
and savings deposits 358,588 383,140 455,618
N.O.W. and super N.O.W. deposits 71,793 78,976 74,031
Time deposits, $100,000 and over 319,759 254,434 90,746
Other time deposits 309,634 283,970 210,905
Interest on note payable 26,081 52,660 52,121
Federal funds purchased 15 7,285 1,728
----------- ----------- -----------
Total interest expense 1,085,870 1,060,465 885,149
----------- ----------- -----------
Net interest income 2,175,387 1,928,763 1,608,563
Provision for loan losses 72,000 68,000 35,000
----------- ----------- -----------
Net interest income after
provision for loan losses 2,103,387 1,860,763 1,573,563
----------- ----------- -----------
Other income
Service charges on deposit accounts 366,130 357,283 353,213
Other operating revenue 285,001 253,771 174,454
Net gain on sale of assets 247,463 20,734 32,682
----------- ----------- -----------
Total other income 898,594 631,788 560,349
----------- ----------- -----------
Other expense
Salaries 813,790 686,028 582,596
Other employee benefits 108,319 132,164 118,425
Net occupancy expense 91,373 84,612 83,538
Other operating expenses 1,131,116 877,554 895,128
Minority interest 955 678 621
----------- ----------- -----------
Total other expenses 2,145,553 1,781,036 1,680,308
----------- ----------- -----------
Income before income taxes 856,428 711,515 453,604
Income taxes (167,338) (171,756) (111,204)
----------- ----------- -----------
Net income $ 689,090 $ 539,759 $ 342,400
=========== =========== ===========
Primary earnings per common share $ 3.14 $ 2.56 $ 1.71
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Unrealized
Gain
Paid-In (Loss) on
Capital in Available-
Common Stock Preferred Stock Excess of Retained For-Sale
Shares Amount Shares Amount Par Earnings Securities Total
------- -------- ------ ------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 195,900 $195,900 7,200 $7,200 $ 899,814 $1,089,191 $ $2,192,105
Net income 342,400 342,400
Common stock issued 4,800 4,800 60,000 64,800
Dividends paid on preferred (576) (576)
stock
Current year unrealized loss
on available-for-sale securities,
net of applicable deferred taxes (195,140) (195,140)
------- -------- ----- ------ ---------- ---------- --------- ----------
Balance, December 31, 1994 200,700 200,700 7,200 7,200 959,814 1,431,015 (195,140) 2,403,589
Net income 539,759 539,759
Dividends paid on preferred
stock (576) (576)
Current year unrealized gain
on available-for-sale securities,
net of applicable deferred taxes 191,782 191,782
------- -------- ----- ------ ---------- ---------- --------- ----------
Balance, December 31, 1995 200,700 200,700 7,200 7,200 959,814 1,970,198 (3,358) 3,134,554
Net income 689,090 689,090
Common stock issued 8,180 8,180 92,635 100,815
Dividends paid on preferred (576) (576)
stock
Current year unrealized loss on
available-for-sale securities, net
of applicable deferred taxes (925) (925)
------- -------- ----- ------ ---------- ---------- --------- ----------
Balance, December 31, 1996 208,880 $208,880 7,200 $7,200 $1,052,449 $2,658,712 $ (4,283) $3,922,958
======= ======== ===== ====== ========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
Operating activities
<S> <C> <C> <C>
Net income $ 689,090 $ 539,759 $ 342,400
Adjustments to reconcile net income
to net cash provided by operating activities
Provision for loan losses 72,000 68,000 35,000
Depreciation and amortization 150,376 149,069 128,871
Loss (gain) on sale of investments 24,583 11,412 (32,682)
Other gains on sale of assets (272,046) (32,146) (750)
Donation of bank property 137,000 - -
Increase in cash surrender value of life insurance (57,634) (71,288) (164,554)
Change in prepaid expenses (5,364) (40,201) (2,642)
Change in interest receivable 5,547 (68,080) (27,373)
Change in interest payable (8,945) 18,319 2,497
Change in other liabilities 64,399 35,667 92,527
Minority interest 955 678 621
Change in other - net (30,133) (49,127) (3,182)
----------- ----------- -----------
Net cash provided by operating activities 769,828 562,062 370,733
----------- ----------- -----------
Investing activities
Net change in time deposits with banks 15,794 282,206 1,187,000
Maturities of held-to-maturity securities 762,315 545,000 130,000
Maturities and sales of available-for-sale securities 5,612,828 5,984,713 2,882,563
Purchases of held-to-maturity securities (1,803,552) (2,164,990) (1,056,548)
Purchases of available-for-sale securities (4,709,293) (745,687) (4,805,690)
Net change in funding and principal collections on loans (4,398,524) (3,351,008) (1,798,518)
Net change in federal funds sold (780,000) (6,220,000) 1,180,000
Expenditures for premises and equipment (1,116,259) (359,560) (33,810)
Proceeds from sale of premises and equipment 324,339 108,230 1,039
Proceeds from sale of foreclosed property 613,227 96,892 95,941
Purchase of other real estate - (297,040) -
----------- ----------- -----------
Net cash used in investing activities (5,479,125) (6,121,244) (2,218,023)
----------- ----------- -----------
Financing activities
Net increase in demand and savings deposits 2,746,993 2,326,754 2,422,552
Principal payment on debt (475,000) - (125,000)
Proceeds from the issuance of common stock 100,816 - 64,800
Net change in federal funds purchased - (505,000) 505,000
Net change in customer time deposits 1,102,157 5,464,676 (962,911)
Dividends paid (576) (576) (576)
----------- ----------- -----------
Net cash provided by financing activities 3,474,390 7,285,854 1,903,865
----------- ----------- -----------
Net (decrease) increase in cash and due from banks (1,234,907) 1,726,672 56,575
Cash and due from banks, beginning of year 4,671,647 2,944,975 2,888,400
----------- ----------- -----------
Cash and due from banks, end of year $ 3,436,740 $ 4,671,647 $ 2,944,975
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Supplemental schedule of noncash investing
and financing activities:
Other real estate acquired in
settlement of loans $ 322,600 $ 81,868 $ -
========== ========== ==========
Sale of foreclosed real estate
financed through loans $ - $ 31,500 $ -
========== ========== ==========
Supplemental cash flow information:
Income tax paid $ 238,472 $ 202,747 $ 113,417
========== ========== ==========
Interest paid $1,094,863 $1,041,126 $ 883,148
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Southlake
Bancshares, Inc. (the Company) and its 99.9% owned subsidiary, Texas National
Bank (the Bank). Both the Company and the Bank are incorporated in the State of
Texas. Southlake Bancshares, Inc. and Subsidiary provides a variety of banking
services to individuals and businesses through its two branches in Southlake and
Trophy Club. Its primary source of revenue is loans to customers who are
primarily middle-income individuals and small to mid-sized businesses. The
accounting and reporting policies of Southlake Bancshares, Inc. and Subsidiary
conform to generally accepted accounting principles and to general practices
within the banking industry. The following are descriptions of the more
significant of those policies. All material intercompany transactions and
accounts have been eliminated upon consolidation.
Investment Securities
- ---------------------
The Company uses Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities. Pursuant to
SFAS No. 115, investment securities that are held for short-term resale are
classified as trading securities and carried at fair value. Debt securities that
management has the ability and intent to hold to maturity are classified as
held-to-maturity and carried at cost, adjusted for amortization of premium and
accretion of discounts using methods approximating the interest method.
Securities which do not meet either of the previously mentioned categories are
classified as available-for-sale and are carried at fair value. Realized and
unrealized gains and losses on trading securities are included in net income.
Unreal ized gains and losses on securities available-for-sale are recognized as
direct increases or decreases in stockholders' equity net of deferred income
tax.
Costs of securities sold are recognized using the specific identification
method.
Company Premises and Equipment
- ------------------------------
The Company's premises and equipment are stated at cost less accumulated
depreciation, which is computed using the straight-line method over estimated
useful lives ranging from three to forty years.
Major expenditures for property and those which substantially increase useful
lives are capitalized. Maintenance, repairs and minor renewals are expensed as
incurred. When assets are retired or otherwise disposed of, their costs and
related accumulated depreciation amounts are removed from the accounts with the
resulting gains or losses included as income.
Goodwill
- --------
Goodwill is amortized on the straight-line basis over forty years.
Federal Income Taxes
- --------------------
The Company files a consolidated income tax return with its subsidiary. Income
taxes are allocated on a separate return basis pursuant to a tax-sharing
agreement.
The Company uses SFAS No. 109, Accounting for Income Taxes, which requires an
asset and liability approach to financial accounting and reporting for income
taxes. The difference between the financial statement and tax bases of assets
and liabilities is determined annually. Deferred income tax assets and
liabilities are computed for those differences that have future tax consequences
using the currently enacted tax laws and rates that apply to
F-8
<PAGE>
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
the periods in which they are expected to affect taxable income. Income tax
expense is the current tax payable for the period plus or minus the net change
in the deferred tax assets and liabilities.
Allowance for Loan Losses
- -------------------------
The allowance for loan losses is maintained at a level which, in management's
judgment, is adequate to absorb credit losses inherent in the loan portfolio.
The amount of 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, specific impaired
loans, economic conditions and other risks inherent in the portfolio. Allowances
for impaired loans are generally determined based on collateral values or the
present value of estimated cash flows. The allowance is increased by a provision
for loan losses, which is charged to expense, and reduced by charge-offs, net of
recoveries.
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. Loans on which the accrual of interest has been discontinued are
designated as nonaccrual loans. Accrual of interest on loans is discontinued
either when reasonable doubt exists as to the full, timely collection of
interest or principal or when a loan becomes contractually past due by ninety
days or more with respect to principal or interest. Generally when a loan is
placed on nonaccrual status, all interest previously accrued but not collected
is reversed against current period income. Income on such loans is then
recognized to the extent that cash is received and where the future collection
of principal is probable. Accruals are resumed on loans when they are brought
fully current with respect to interest and principal and when, in the judgment
of management, the loan is estimated to be fully collectible as to both
principal and interest.
Loan origination fees and certain direct loan origination costs are amortized
over the appropriate lending or commitment period.
Other Real Estate Owned
- -----------------------
Other real estate owned is stated at the lower of fair value or the recorded
investment at date of foreclosure. At foreclosure, if fair value is less than
the Company's recorded investment, a write-down is recognized through a charge
to the allowance for loan losses. Declines in fair value subsequent to
foreclosure are recognized by a charge to earnings with a corresponding write-
down of the asset.
Cash Flows
- ----------
For purposes of reporting cash flows, the Company has defined cash and cash
equivalents as those amounts included in the balance sheet caption "Cash and due
from banks."
Estimates
- ---------
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
F-9
<PAGE>
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. INVESTMENT SECURITIES
Securities held-to-maturity at December 31, 1996 consist of the following:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Tax-exempt securities $7,046,858 $19,100 $(24,420) $7,041,538
Federal agency securities 308,266 - (1,798) 306,468
---------- ------- -------- ----------
$7,355,124 $19,100 $(26,218) $7,348,006
========== ======= ======== ==========
</TABLE>
Securities available-for-sale at December 31, 1996 consist of the following:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury obligations $1,834,768 $10,396 $ - $1,845,164
Federal agency securities 947,495 - (16,884) 930,611
---------- ------- -------- ----------
$2,782,263 $10,396 $(16,884) $2,775,775
========== ======= ======== ==========
</TABLE>
Securities held-to-maturity at December 31, 1995 consist of the following:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Tax-exempt securities $6,357,722 $33,095 $(26,701) $6,364,116
========== ======= ======== ==========
</TABLE>
F-10
<PAGE>
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. INVESTMENT SECURITIES, CONTINUED
Securities available-for-sale at December 31, 1995 consist of the following:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury obligations $2,195,525 $8,833 $ (3,944) $2,200,414
Federal agency securities 1,499,960 812 (13,165) 1,487,607
---------- ------ -------- ----------
$3,695,485 $9,645 $(17,109) $3,688,021
========== ====== ======== ==========
</TABLE>
The following is a summary of maturities of securities as of December 31, 1996:
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Amounts maturing in:
One year or less $2,123,776 $2,122,061 $ 748,453 $ 749,687
After one to five years 4,520,806 4,512,817 2,033,810 2,026,088
After five to ten years 710,542 713,128 - -
After ten years - - - -
---------- ---------- ---------- ----------
$7,355,124 $7,348,006 $2,782,263 $2,775,775
========== ========== ========== ==========
</TABLE>
Securities with carrying v alues of $4,517,407 and $3,781,737 at December 31,
1996 and 1995, respectively, were pledged to secure U.S. government deposits and
other public funds as required or permitted by law.
During 1996, the Company sold available-for-sale securities for total proceeds
of $3,525,993, resulting in gross realized losses of $24,583. During 1995, the
Company sold available-for-sale securities for total proceeds of $4,084,704,
resulting in gross realized losses of $11,412. During 1994, the Company sold
available-for-sale securities for total proceeds of $2,382,563, resulting in
gross realized gains of $43,254 and gross realized losses of $10,572.
F-11
<PAGE>
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. LOANS
Loans outstanding at December 31 are detailed as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Commercial and single-pay consumer $ 6,412,944 $ 3,701,831
Real estate - construction 5,981,404 5,170,429
Real estate - mortgage 8,034,215 7,440,814
Installment 4,532,814 4,180,279
Credit card 349,251 398,690
Lease financing loans 1,349,315 1,723,505
Overdrafts 9,626 3,954
----------- -----------
Total Loans 26,669,569 22,619,502
Less: Unearned income (450,813) (445,072)
Less: Allowance for loan losses (243,685) (203,283)
----------- -----------
Loans, net $25,975,071 $21,971,147
=========== ===========
</TABLE>
At December 31, 1996, the Company had nonaccrual loans of approximately
$178,000. If interest on those loans had been accrued at their original rates,
such income would have approximated $12,000. There were no nonaccrual loans at
December 31, 1995 and 1994.
Loans, excluding credit card loans, non-accrual loans and overdrafts, at fixed
interest rates and variable interest rates at December 31, are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Fixed rates $20,689,408 $16,717,356
Variable rates 5,451,432 5,499,502
----------- -----------
$26,140,840 $22,216,858
=========== ===========
</TABLE>
The following table shows the maturity distribution of the fixed rate loans at
December 31:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Three months or less $ 2,751,691 $ 1,730,246
Three through twelve months 4,344,776 3,834,961
One year through five year 2,734,331 10,531,934
Over five years 858,610 620,215
----------- -----------
$20,689,408 $16,717,356
=========== ===========
</TABLE>
F-12
<PAGE>
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. ALLOWANCE FOR LOAN LOSSES
An analysis of transactions in the allowance is presented as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance - January 1 $203,283 $155,960 $158,201
Provision for loan losses 72,000 68,000 35,000
Recoveries 8,688 9,139 3,898
Loans charged-off (40,286) (29,816) (41,139)
-------- -------- --------
Balance - December 31 $243,685 $203,283 $155,960
======== ======== ========
</TABLE>
NOTE 5. PREMISES AND EQUIPMENT
An analysis of premises and equipment is as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Land $ 539,249 $ 578,272
Bank building and improvements 1,471,145 1,035,303
Furniture and equipment 887,753 497,681
---------- ----------
2,898,147 2,111,256
Less, accumulated depreciation (527,669) (428,581)
---------- ----------
Premises and equipment, net $2,370,478 $1,682,675
========== ==========
</TABLE>
Total depreciation expense for 1996, 1995 and 1994 amounted to $118,342,
$109,965 and $111,990, respectively.
F-13
<PAGE>
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. INTEREST BEARING DEPOSITS
Interest bearing deposits at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
N.O.W. and super N.O.W. accounts $ 5,449,121 $ 4,833,237
Money market accounts 10,185,380 10,294,249
Savings accounts 1,487,201 1,570,699
Individual retirement accounts 1,832,164 1,802,288
Certificates of deposit
Under $100,000 5,356,029 4,222,656
Over $100,000 2,992,719 3,053,811
State and political subdivisions (over $100,000) 3,000,000 3,000,000
----------- -----------
$30,302,614 $28,776,940
=========== ===========
</TABLE>
Related party deposits totaled $363,664 and $340,881 at December 31, 1996 and
1995, respectively.
Certificates of deposit and individual retirement accounts issued in amounts of
$100,000 or more and their remaining maturities at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Three months or less $3,723,863 $3,856,883
Three through twelve months 1,394,908 1,880,919
Over twelve months 874,948 316,009
---------- ----------
$5,993,719 $6,053,811
========== ==========
</TABLE>
F-14
<PAGE>
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. NOTE PAYABLE
The Company had a note payable to a bank bearing an interest rate of .5% above
the bank's prime lending rate. The note matures on July 31, 1998 with provisions
for interest payments to be made quarterly. Principal payments include $113,383
due on July 31, 1997 and the remaining principal is due at maturity. The
outstanding balance at December 31, 1995 was $475,000. The note was paid in full
on December 31, 1996. The note was collateralized by 191,700 shares of the
issued and outstanding common stock of the Southlake Bancshares, Inc.
NOTE 8. REGULATORY MATTERS
The Bank must obtain prior approval from the Office of the Comptroller of the
Currency if the total of cash dividends declared in any calendar year exceed the
total of net profits (as defined) of that year combined with the total of the
retained net profits (as defined) of the preceding two years. At December 31,
1996, the Bank could have declared dividends of $1,302,925 without prior
approval of the Office of the Comptroller of the Currency.
The Bank was required to maintain reserve balances with the Federal Reserve
Bank. During 1996 and 1995, such average balances totaled approximately $425,000
and $375,000, respectively.
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 judgements 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
following table) 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 and 1995, that
the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1996 and 1995, the most recent notification from the Office
of the Comptroller of the Currency categorized the Bank as adequately
capitalized under the regulatory framework for prompt corrective action. To be
categorized as adequately 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.
The Company's actual capital amounts and ratios are also presented in the table.
F-15
<PAGE>
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. 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
-------- ------- ---------- ---------- ----------- ----------
As of December 31, 1996
<S> <C> <C> <C> <C> <C> <C>
Total capital
(to risk weighted assets) $4,003,185 12.56% >/- $2,548,960 >/- 8.00% >/- $3,186,200 >/- 10.00%
Tier I Capital
(to risk weighted assets) $3,752,300 11.78% >/- $1,274,480 >/- 4.00% >/- $1,911,720 >/- 6.00%
Tier I Capital
(to average assets) $3,752,300 7.95% >/- $1,887,080 >/- 4.00% >/- $2,358,850 >/- 5.00%
As of December 31, 1995
Total capital
(to risk weighted assets) $3,168,226 11.51% >/- $2,201,840 >/- 8.00% >/- $2,752,300 >/- 10.00%
Tier I Capital
(to risk weighted assets) $2,957,743 10.75% >/- $1,100,920 >/- 4.00% >/- $1,651,380 >/- 6.00%
Tier I Capital
(to average assets) $2,957,743 7.04% >/- $1,681,160 >/- 4.00% >/- $2,101,450 >/- 5.00%
</TABLE>
NOTE 9. FEDERAL INCOME TAXES
Other assets in the accompanying balance sheet includes the following amounts
of deferred tax assets and liabilities:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax liability $ (4,644) $(3,431)
Deferred tax assets 153,590 83,146
-------- -------
Net deferred tax asset $148,946 $79,715
======== =======
</TABLE>
F-16
<PAGE>
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. FEDERAL INCOME TAXES, CONTINUED
The net deferred tax assets consists of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Employee benefits $ 62,427 $40,237
Contributions 28,730 -
Loan fees 19,503 17,116
Depreciation 5,568 2,168
Bad debts 37,362 23,625
Investment securities (1,456) (1,142)
Accretion (3,188) (2,289)
-------- -------
$148,946 $79,715
======== =======
</TABLE>
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current
Federal $238,472 $202,747 $113,417
State - - -
-------- -------- --------
238,472 202,747 113,417
Deferred federal (71,134) (30,991) (2,213)
-------- -------- --------
Income tax expense $167,338 $171,756 $111,204
======== ======== ========
</TABLE>
The Company's income tax expense differed from the statutory federal rate of 34%
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Statutory rate applied to earnings
before income taxes $ 291,186 $241,915 $154,225
Effect of tax exempt income (123,882) (80,936) (61,271)
Non-deductible expenses and
other items 34 10,777 18,250
--------- -------- --------
Income tax expense $ 167,338 $171,756 $111,204
========= ======== ========
</TABLE>
F-17
<PAGE>
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company has and expects to continue to
have transactions, including borrowings, with its employees, officers, directors
and their affiliates. In the opinion of management, such transactions are on the
same terms, including interest rates and collateral requirements, as those
prevailing at the time for comparable transactions with unaffiliated persons.
The following is a recap of the aggregate activity of such loans:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Balance - January 1 $ 475,429 $211,968
Borrowings 372,961 322,656
Repayments (344,103) (59,195)
--------- --------
Balance - December 31 $ 504,287 $475,429
========= ========
</TABLE>
NOTE 11. EMPLOYEE STOCK OWNERSHIP PLAN
The Company sponsors a qualified employee stock ownership plan with a 401(k)
provision. The plan covers all employees who have attained age 20 1/2 with at
least 1,000 hours of service in a plan year. Participants are allowed to make
salary reduction contributions up to 15% of compensation, not to exceed the
Internal Revenue Code tax deductible maximum. The Board of Directors may, at
their discretion, contribute to participant accounts by matching employee salary
deferrals, contributing basic contributions to all nonhighly compensated
participants in order to satisfy the nondiscrimination requirements of the
Internal Revenue Code, and/or make optional contributions to all participant
accounts allocated based upon total relative compensation.
Discretionary Company contributions of $16,000, $56,042 and $50,004 were made
during 1996, 1995 and 1994, respectively. At December 31, 1996, 15,900 shares of
Southlake Bancshares, Inc. had been purchased by the employee stock ownership
plan.
NOTE 12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, standby
letters of credit and financial guarantees. These financial instruments involve,
to varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the balance sheet. The contract amounts of those
instruments reflect the extent of involvement the Bank has in particular classes
of financial instruments.
F-18
<PAGE>
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK, CONTINUED
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit and financial guarantees written is represented by the
contractual amount of those instruments. The Company uses the same credit
policies and collateral requirements in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
Financial instruments whose contract amounts represent credit risk at December
31, 1996 are as follows:
<TABLE>
<CAPTION>
1996
----------
<S> <C>
Commitments to extend credit $8,063,598
==========
Standby letters of credit and financial guarantees written $ 126,225
==========
</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 Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of the collateral obtained,
if deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held varies but
may include customer deposits, accounts receivable, inventory, property, plant,
and equipment, and income-producing commercial properties.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Company to guarantee the performance of a customer to
a third party. Those guarantees are primarily issued to support public and
private borrowing arrangements, including commercial paper, bond financing, and
similar transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
NOTE 13. SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Most of the Company's business activity is with customers located within twenty
five miles of the Bank. As of December 31, 1996, the Company's loans to and
guarantees of obligations of borrowers in the construction and land development
industry were $5,981,404. The Company grants interim construction and land
development loans to customers throughout its lending area. Although the Company
has a diversified loan portfolio, a substantial portion of its debtors' ability
to honor their contracts is dependent upon the construction and land development
economic sector.
F-19
<PAGE>
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. DEFERRED COMPENSATION PLANS
The Company has established nonqualified deferred compensation plans covering
all executive officers and directors. The amount of liability attributable to
the plans for 1996 and 1995 were $165,085 and $121,219, respectively. The amount
of expense attributable to the plans for 1996, 1995 and 1994 were $30,812,
$46,311 and $68,464, respectively.
NOTE 15. STOCK OPTIONS
The Company has outstanding non-statutory stock option agreements and incentive
stock option agreements. Under the non-statutory stock option agreements, the
Company has granted stock options of 27,560 shares to certain officers and
directors. The options are fully exercisable from the grant date up to fifteen
years therefrom. Under the incentive stock option agreement, the Company has
granted stock options of 11,359 shares to Bank officers. The options are fully
exercisable one year from grant date up to ten years therefrom.
Following is a summary of the status of the stock options during December 31,
1996, 1995 and 1994:
<TABLE>
<CAPTION>
Non-statutory Incentive
Stock Options Stock Options
----------------- ------------------
Grant date 1992 1996 1992 1992
-------- ------- ------- ---------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1993 22,720 - 5,679 5,680
Granted - - - -
Exercised - - - -
------- ------ ------ --------
Outstanding at December 31, 1994 22,720 - 5,679 5,680
Granted - - - -
Exercised - - - -
------- ------ ------ --------
Outstanding at December 31, 1995 22,720 - 5,679 5,680
Granted - 4,840 - -
Exercised (2,840) - - (2,840)
------- ------ ------ --------
Outstanding at December 31, 1996 19,880 4,840 5,679 2,840
======= ====== ====== ========
Exercise price $ 10.50 $16.47 $11.55 $ 10.50
======= ====== ====== ========
</TABLE>
The exercise price per share closely approximates the fair market value on the
date each option was granted.
F-20
<PAGE>
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. EARNINGS PER SHARE
Primary earnings per share amounts are computed based on the weighted average
number of shares actually outstanding plus the shares that would be outstanding
assuming conversion and exercise of dilutive stock options, which are considered
to be common stock equivalents. The number of shares that would be issued from
the exercise of stock options has been reduced by the number of shares that
could have been purchased from the proceeds at the average market price of the
company's stock.
The following data show the amounts used in computing primary earnings per share
and the effect on the weighted average number of shares of dilutive potential
common stock:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net income available to common stockholders
used in primary EPS $688,514 $539,183 $341,824
======== ======== ========
Weighted average number of common
shares used in basic EPS 207,362 200,700 196,032
Effect of dilutive securities:
Stock options 12,286 9,802 4,765
-------- -------- --------
Weighted number of common shares
stock used in primary EPS 219,648 210,502 200,797
======== ======== ========
</TABLE>
Fully diluted earnings per share amounts are not presented for 1996, 1995 and
1994 because they are not materially dilutive.
NOTE 17. SUBSEQUENT EVENTS
On August 18, 1997, the Company entered into an Agreement and Plan of Merger
(the "Agreement") whereby First Financial Bankshares, Inc. (First Financial)
will acquire all of the issued and outstanding shares of the Company in exchange
for shares of the voting common stock of First Financial. Each outstanding share
of common stock of the Company will be converted into .894 shares of First
Financial common stock, valued at $39.75 on the market value date. The Company
will be merged with and into First Financial. The closing date is expected to
occur during the last forty-five days of 1997. Pursuant to the Agreement, the
Board of Directors of the Company shall adopt, prior to closing, resolutions to
terminate the Bank Executives' Supplemental Income Plan, the Bank Directors'
Deferred Income Plan, and the Bank Officers' Bonus Plan and eliminate all
liability under these plans. Additionally, a resolution to freeze and terminate
the employee stock ownership plan will be adopted prior to the closing date.
On August 29, 1997, the Company redeemed all of its outstanding preferred stock
from its shareholders for $7,200.
As of September 16, 1997, all of the stock options outstanding as of December
31, 1996, had been exercised. The Company received proceeds totaling $352,400
from the exercise of these options.
F-21
<PAGE>
[JUDD, THOMAS, SMITH & COMPANY, P.C. LETTERHEAD APPEARS HERE]
- --------------------------------------------------------------------------------
Board of Directors and Stockholders
Southlake Bancshares, Inc.
Southlake, Texas
We have compiled the accompanying consolidated balance sheets of Southlake
Bancshares, Inc. and Subsidiary as of June 30, 1997 and 1996, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the six months then ended and the consolidated statements of income
for the three months ended June 30, 1997 and 1996, in accordance with Statements
on Standards for Accounting and Review Services issued by the American Institute
of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying consolidated financial statements and, accordingly, do
not express an opinion or any other form of assurance on them.
Consolidated statements of cash flows for the three month periods ended June 30,
1997 and 1996 have not been presented. Generally accepted accounting principles
require a statement of cash flows to be presented for each period for which
results of operations are provided when financial statements report both
financial position and results of operations.
Management has elected to omit substantially all of the disclosures required by
generally accepted accounting principles. If the omitted disclosures were
included in the financial statements, they might influence the user's
conclusions about the Company's financial position, results of operations, and
cash flows. Accordingly, these financial statements are not designed for those
who are not informed about such matters.
The consolidated balance sheet as of December 31, 1996 was audited by us as part
of an audit of Southlake Bancshares, Inc. consolidated financial statements, and
we expressed an unqualified opinion on those financial statements in our report
dated September 19, 1997 but we have not performed any auditing procedures since
that date.
/s/ JUDD, THOMAS, SMITH & COMPANY
September 19, 1997
F-22
<PAGE>
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
-Unaudited- -Audited-
June 30, June 30, December 31,
1997 1996 1996
------------ ------------ ------------
Assets
<S> <C> <C> <C>
Cash and due from banks $ 3,774,328 $ 3,998,968 $ 3,436,740
Interest earning deposits in banks 100,000 100,000 100,000
Federal funds sold 5,680,000 1,540,000 7,000,000
Investment securities
Available-for-sale 4,130,311 7,657,302 2,775,775
Held-to-maturity 10,156,936 7,320,507 7,355,124
Other investment securities 110,500 110,500 110,500
Loans, net 25,427,341 23,272,453 25,975,071
Premises and equipment, net 2,417,808 1,745,500 2,370,478
Accrued interest receivable 403,276 405,554 381,745
Other real estate 362,571 421,296 421,296
Prepaid expenses 75,616 93,567 116,735
Cash surrender value of life insurance 617,378 552,776 603,194
Goodwill, net 165,951 171,453 168,702
Other assets 231,767 241,919 128,558
------------ ------------ ------------
Total assets $ 53,653,783 $ 47,631,795 $ 50,943,918
============ ============ ============
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Noninterest bearing demand $ 17,827,607 $ 15,581,160 16,436,992
Interest bearing 31,228,039 27,894,077 30,303,614
------------ ------------ ------------
49,055,646 43,475,237 46,740,606
Accrued interest payable 61,237 49,946 54,469
Other liabilities 310,840 227,151 220,641
Note payable - 275,000 -
------------ ------------ ------------
Total liabilities 49,427,723 44,027,334 47,015,716
Minority interest 5,367 4,928 5,244
Stockholders' equity
Preferred stock 7,200 7,200 7,200
Common stock 211,820 208,880 208,880
Surplus 1,080,976 1,052,449 1,052,449
Retained earnings 2,922,566 2,406,040 2,658,712
Unrealized loss on available-for-sale securities (1,869) (75,036) (4,283)
------------ ------------ ------------
Total stockholders' equity 4,220,693 3,599,533 3,922,958
------------ ------------ ------------
Total liabilities and stockholders' equity $ 53,653,783 $ 47,631,795 50,943,918
============ ============ ============
</TABLE>
Read accountants' compilation report
F-23
<PAGE>
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
Interest income
<S> <C> <C> <C> <C>
Loans (including fees) $ 685,750 $ 610,842 $ 1,350,449 $ 1,162,758
Taxable securities 74,933 105,917 127,645 174,564
Tax-exempt securities 84,216 73,227 155,412 139,617
Deposits in banks 1,443 1,442 2,885 2,884
Federal funds sold 60,556 32,071 115,434 112,588
----------- ----------- ----------- -----------
Total interest income 906,898 823,499 1,751,825 1,592,411
----------- ----------- ----------- -----------
Interest expense
Interest bearing money-market and
savings deposits 17,987 16,863 33,159 32,958
N.O.W. and super N.O.W. deposits 15,348 16,830 31,157 34,288
Time deposits, $100,000 and over 88,552 77,352 172,036 161,183
Other time deposits 171,670 147,459 342,106 299,422
Interest on note payable - 2,403 - 15,010
----------- ----------- ----------- -----------
Total interest expense 293,557 260,907 578,458 542,861
----------- ----------- ----------- -----------
Net interest income 613,341 562,592 1,173,367 1,049,550
Provision for loan losses 18,000 18,000 36,000 36,000
----------- ----------- ----------- -----------
Net interest income after provision
for loan losses 595,341 544,592 1,137,367 1,013,550
----------- ----------- ----------- -----------
Other income
Service charges on deposit accounts 110,054 90,811 207,435 178,365
Other operating revenue 60,723 73,008 107,529 158,787
Net gain (loss) on sale of assets - 272,046 (12,792) 272,046
----------- ----------- ----------- -----------
Total other income 170,777 435,865 302,172 609,198
----------- ----------- ----------- -----------
Other expense
Salaries 200,878 167,766 401,941 338,191
Other employee benefits 29,832 35,845 56,662 72,912
Net occupancy expense 32,243 23,201 64,771 38,040
Other operating expenses 301,920 387,229 597,650 594,204
Minority interest 228 379 360 600
----------- ----------- ----------- -----------
Total other expenses 565,101 614,420 1,121,384 1,043,947
----------- ----------- ----------- -----------
Income before income taxes 201,017 366,037 318,155 578,801
Income taxes (35,741) (83,029) (54,301) (142,959)
----------- ----------- ----------- -----------
Net income $ 165,276 $ 283,008 $ 263,854 $ 435,842
=========== =========== =========== ===========
</TABLE>
Read accountants' compilation report.
F-24
<PAGE>
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
On Investment
Securities
Common Stock Preferred Stock Pain-In Considered
------------------- ----------------- Capital in Retained Available-
Shares Amount Shares Amount Excess of Par Earnings for-Sale Total
------- -------- ------ -------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1995 200,700 $200,700 7,200 $ 7,200 $ 959,814 $1,970,198 $ (3,358) $3,134,554
Net income 435,842 435,842
Unrealized loss on investment
securities considered
available-for-sale (71,678) (71,678)
Common stock issued 8,180 8,180 92,635 100,815
------- -------- ------ -------- ---------- ---------- -------- ----------
Balance June 30, 1996 208,880 $208,880 7,200 $ 7,200 $1,052,449 $2,406,040 $(75,036) $3,599,533
======= ======== ====== ======== ========== ========== ======== ==========
Balance December 31, 1996 208,880 $208,880 7,200 $ 7,200 $1,052,449 $2,658,712 $ (4,283) $3,922,958
Net income 263,854 263,854
Unrealized gain on investment
securities considered
available-for-sale 2,414 2,414
Common stock issued 2,940 2,940 28,527 31,467
------- -------- ------ -------- ---------- ---------- -------- ----------
Balance June 30, 1997 211,820 $211,820 7,200 $ 7,200 $1,080,976 $2,922,566 $ (1,869) $4,220,693
======= ======== ====== ======== ========== ========== ======== ==========
</TABLE>
Read accountants' compilation report.
F-25
<PAGE>
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>
1997 1996
----------- -----------
Operating activities
<S> <C> <C>
Net income $ 263,854 $ 435,842
Adjustments to reconcile net income
to net cash provided by operating activities
Provision for loan losses 36,000 36,000
Depreciation and amortization 126,389 (5,574)
Other (gains) losses on sale of assets 12,792 (272,046)
Donation of bank property - 137,000
Increase in cash surrender value of life insurance (14,184) (7,216)
Change in prepaid expenses 41,119 17,804
Change in interest receivable (21,531) (18,262)
Change in interest payable 6,768 (13,468)
Change in other liabilities 90,198 70,909
Minority interest 360 600
Change in other - net (104,696) (106,889)
----------- -----------
Net cash provided by operating activities 437,069 274,700
----------- -----------
Investing activities
Net change in time deposits with banks - 15,794
Maturities of held-to-maturity securities 875,000 511,398
Maturities and sales of available-for-sale securities 250,000 950,000
Purchases of held-to-maturity securities (3,702,882) (1,409,211)
Purchases of available-for-sale securities (1,607,245) (5,028,948)
Net change in funding and principal collections on loans 511,730 (1,659,906)
Net change in federal funds sold 1,320,000 4,680,000
Expenditures for premises and equipment (138,524) (428,668)
Proceeds from sale of premises and equipment - 324,339
Proceeds from sale of foreclosed property 45,933 613,227
----------- -----------
Net cash used in investing activities (2,445,988) (1,431,975)
----------- -----------
Financing activities
Net increase in demand and savings deposits 1,297,893 1,633,033
Principal payment on debt - (200,000)
Proceeds from the issuance of common stock 31,467 100,815
Net change in customer time deposits 1,017,147 (1,049,252)
----------- -----------
Net cash provided by financing activities 2,346,507 484,596
----------- -----------
Net increase (decrease) in cash and due from banks 337,588 (672,679)
Cash and due from banks, beginning of year 3,436,740 4,671,647
----------- -----------
Cash and due from banks, end of year $ 3,774,328 $ 3,998,968
=========== ===========
</TABLE>
Read accountants' compilation report.
F-26
<PAGE>
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Supplemental schedule of noncash
investing and financing activities:
Other real estate acquired in
settlement of loans $ - $322,600
======== ========
Supplemental cash flow information:
Income tax paid $ 65,910 $207,956
======== ========
Interest paid $571,713 $540,204
======== ========
</TABLE>
Read accountants' compilation report.
F-27
<PAGE>
ANNEX A
[LETTERHEAD OF JUDD, THOMAS, SMITH & COMPANY, P.C. APPEARS HERE]
September 19, 1997
The Board of Directors
Southlake Bancshares, Inc.
3205 E. Highway 114
Southlake, Texas 76092
Gentlemen:
We have consulted with Southlake Bancshares, Inc. in connection with the
proposed merger (the "Merger") of Southlake Bancshares, Inc. ("Southlake"), a
Texas corporation, with and into First Financial Bankshares, Inc. ("First
Financial"), a Texas corporation, upon the terms and conditions set forth in the
Stock Exchange Agreement and Plan of Reorganization (the "Exchange Agreement")
dated August 18, 1997. At your request, in connection with the closing of the
Merger, we are rendering an opinion concerning certain federal income tax
consequences of the Merger.
In arriving at the opinions expressed below, we have relied upon the accuracy
and completeness of the following:
(i) the Exchange Agreement;
(ii) the Prospectus and Proxy Statement (together, the "Prospectus")
included in the Registration Statement on Form S-4 filed with the
Securities and Exchange Commission by First Financial in
connection with the Merger, as amended through the date hereof;
and
(iii) such corporate records of Southlake and First Financial as we
have deemed appropriate.
Defined terms used but not defined herein have the same meaning as in the
Prospectus.
We have assumed that the transactions contemplated by the Exchange Agreement
will be consummated in accordance therewith and as described in the Prospectus
and that the Merger will qualify as a statutory merger under applicable laws of
the State of Texas and the United States.
Based upon and subject to the foregoing, it is our opinion that, under currently
applicable law, the Exchange and Merger will constitute a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), and that, accordingly, the following will be the material federal
income tax consequences of the Exchange and Merger:
1. The Exchange and Merger will be treated as a corporate
reorganization within the meaning of Section 368(a) of the Code,
and First Financial and Southlake each will be a party to the
reorganization within the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized by the Southlake Shareholders
on the exchange of their shares of Southlake Common Stock solely
for shares of First Financial Common Stock pursuant to the terms
of the Exchange Agreement to the extent of such exchange (except
as provided below with respect to fractional shares).
A-1
<PAGE>
The Board of Directors - Southlake Bankshares, Inc.
September 19, 1997
- -------------------------------------------------------------------------------
3. The federal income tax basis of the shares of First Financial
Common Stock for which shares of Southlake Common Stock are
exchanged pursuant to the Exchange and Merger will be the same as
the basis of such shares of Southlake Common Stock exchanged
therefor, less any proportionate part of such basis allocable to
any fractional interest in any share of First Financial Common
Stock.
4. The holding period for the shares of First Financial Common Stock
for which the shares of Southlake Common Stock are exchanged will
include the holding period of the Southlake Common Stock they are
exchanged therefor, provided that such shares of Southlake Common
Stock were held as a capital asset on the date of the Exchange.
5. Southlake Shareholders who receive cash in lieu of a fractional
share interest in First Financial Common Stock will be treated as
having received the cash in redemption of the fractional share
interest, and gain or loss will be recognized in an amount equal
to the difference between the cash received and the proportionate
part of basis allocable to the fractional share interest, which
gain or loss will be a capital gain or loss if the Southlake
Common Stock was a capital asset in the hands of the shareholder.
Such capital gain or loss will be long-term capital gain or loss
if the holder's holding period for the First Financial Common
Stock received, determined as set forth above, is longer than one
year.
The effective tax rate on any resulting net long-term capital
gain for Southlake Shareholders who are individuals will
generally depend on the shareholder's holding period for the
shares of First Financial Common Stock received, determined as
set forth above, and the income tax brackets under which the
shareholder is taxed. For individual shareholders, the maximum
capital gains tax rate on property held more than eighteen months
is 20 percent and the maximum capital gains tax rate on property
held more than one year, but not more than eighteen months, is 28
percent.
This opinion may not be applicable to (1) Southlake shareholders who received
their Southlake Common Stock pursuant to the exercise of employee stock options
or otherwise as compensation, or (2) Southlake shareholders who are not citizens
or residents of the United States. We express no opinion as to the laws of any
jurisdiction other than the income tax laws of the United States.
We hereby consent to the filing of this opinion with the Securities and Exchange
Commission as an exhibit to the Registration Statement, and to the reference to
this opinion under the caption "Summary of the Transaction -- Federal Income Tax
Consequences," under the caption "The Exchange Offer -- Federal Income Tax
Consequences," and elsewhere in the Prospectus. In giving such consent, we do
not hereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/s/ JUDD, THOMAS, SMITH & COMPANY
Judd, Thomas, Smith & Company, P.C.
A-2
<PAGE>
ANNEX B
ART.5.12. PROCEDURE FOR DISSENT BY SHAREHOLDERS
AS TO SAID CORPORATE ACTIONS
A. Any shareholder of any domestic corporation who has the right to dissent
from any of the corporate actions referred to in Article 5.11 of this Act may
exercise that right to dissent only by complying with the following procedures:
(1) (a) With respect to proposed corporate action that is submitted to a
vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action, setting
out that the shareholder's right to dissent will be exercised if the action is
effective and giving the shareholder's address, to which notice thereof shall be
delivered or mailed in that event. If the action is effected and the shareholder
shall not have voted in favor of the action, the corporation, in the case of
action other than a merger, or the surviving or new corporation (foreign or
domestic) or other entity that is liable to discharge the shareholder's right of
dissent, in the case of a merger, shall, within ten (10) days after the action
is effected, deliver or mail to the shareholder written notice that the action
has been effected, and the shareholder may, within ten (10) days from the
delivery or mailing of the notice, make written demand on the existing,
surviving, or new corporation (foreign or domestic) or other entity, as the case
may be, for payment of the fair value of the shareholder's shares. The fair
value of the shares shall be the value thereof as of the day immediately
proceeding the meeting, excluding any appreciation or depreciation in
anticipation of the proposed action. The demand shall state the number and class
of the shares owned by the shareholder and the fair value of the shares as
estimated by the shareholder. Any shareholder failing to make demand within the
ten (10) day period shall be bound by the action.
(b) With respect to proposed corporate action that is approved
pursuant to Section A of Article 9.10 of this Act, the corporation, in the case
of action other than a merger, and the surviving or new corporation (foreign or
domestic) or other entity that is liable to discharge the shareholder's right of
dissent, in the case of a merger, shall, within ten (10) days after the date the
action is effected, mail to each shareholder of record as of the effective date
of the action notice of the fact and date of the action and that the shareholder
may exercise the shareholder's right to dissent from the action. The notice
shall be accompanied by a copy of this Article and any articles or documents
filed by the corporation with the Secretary of State to effect the action. If
the shareholder shall not have consented to the taking of the action, the
shareholder may, within twenty (20) days after the mailing of the notice, make
written demand on the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, for payment of the fair value of
the shareholder's shares. The fair value of the shares shall be the value
thereof as of the date the written consent authorizing the action was delivered
to the corporation pursuant to Section A of Article 9.10 of this Act, excluding
any appreciation or depreciation in anticipation of the action. The demand shall
state the number and class of shares owned by the dissenting shareholder and the
fair value of the shares as estimated by the shareholder. Any shareholder
failing to make demand within the twenty (20) day period shall be bound by the
action.
B-1
<PAGE>
(2) Within twenty (20) days after receipt by the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, of a
demand for payment made by a dissenting shareholder in accordance with
Subsection (1) of this Section, the corporation (foreign or domestic) or other
entity shall deliver or mail to the shareholder a written notice that shall
either set out that the corporation (foreign or domestic) or other entity
accepts the amount claimed in the demand and agrees to pay that amount within
ninety (90) days after the date on which the action was effected, and, in the
case of shares represented by certificates, upon the surrender of the
certificates duly endorsed, or shall contain an estimate by the corporation
(foreign or domestic) or other entity of the fair value of the shares, together
with an offer to pay the amount of that estimate within ninety (90) days after
the date on which the action was effected, upon receipt of notice within sixty
(60) days after that date from the shareholder that the shareholder agrees to
accept that amount and, in the case of shares represented by certificates, upon
the surrender of the certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate
action was effected, the value of the shares is agreed upon between the
shareholder and the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, payment for the shares shall be
made within ninety (90) days after the date on which the action was effected
and, in the case of shares represented by certificates, upon surrender of the
certificates duly endorsed. Upon payment of the agreed value, the shareholder
shall cease to have any interest in the shares or in the corporation.
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty (60)
day period, file a petition in any court of competent jurisdiction in the county
in which the principal office of the domestic corporation is located, asking for
a finding and determination of the fair value of the shareholder's shares. Upon
the filing of any such petition by the shareholder, service of a copy thereof
shall be made upon the corporation (foreign or domestic) or other entity, which
shall, within ten (10) days after service, file in the office of the clerk of
the court in which the petition was filed a list containing the names and
addresses of all shareholders of the domestic corporation who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the corporation (foreign or domestic) or other
entity. If the petition shall be filed by the corporation (foreign or domestic)
or other entity, the petition shall be accompanied by such a list. The clerk of
the court shall give notice of the time and place fixed for the hearing of the
petition by registered mail to the corporation (foreign or domestic) or other
entity and to the shareholders named on the list at the addresses therein
stated. The forms of the notices by mail shall be approved by the court. All
shareholders thus notified and the corporation (foreign or domestic) or other
entity shall thereafter be bound by the final judgment of the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The appraisers
shall have power to examine any of the books and records of the corporation the
B-2
<PAGE>
shares of which they are charged with the duty of valuing, and they shall make a
determination of the fair value of the shares upon such investigation as to them
may seem proper. The appraisers shall also afford a reasonable opportunity to
the parties interested to submit to them pertinent evidence as to the value of
the shares. The appraisers shall also have such power and authority as may be
conferred on Masters in Chancery by the Rules of Civil Procedure or by the order
of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled to
payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to dissent was
effected to the date of such judgment, to the shareholders entitled to payment.
The judgment shall be payable to the holders of uncertificated shares
immediately but to the holders of shares represented by certificates only upon,
and simultaneously with, the surrender to the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of duly
endorsed certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
the corporation. The court shall allow the appraisers a reasonable fee as court
costs, and all court costs shall be allotted between the parties in the manner
that the court determines to be fair and equitable.
E. Shares acquired by the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, pursuant to the payment of the
agreed value of the shares or pursuant to payment of the judgment entered for
the value of the shares, as in this Article provided, shall, in the case of a
merger, be treated as provided in the plan of merger and, in all other cases,
may be held and disposed of by the corporation as in the case of other treasury
shares.
F. The provisions of this Article shall not apply to a merger if, on the date
of the filing of the articles of merger, the surviving corporation is the owner
of all the outstanding shares of the other corporations, domestic or foreign,
that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by this
Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action.
If the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action.
B-3
<PAGE>
ART.5.13. PROVISIONS AFFECTING REMEDIES
OF DISSENTING SHAREHOLDERS
A. Any shareholder who has demanded payment for his shares in accordance with
either Article 5.12 or 5.16 of this Act shall not thereafter be entitled to vote
or exercise any other rights of a shareholder except the right to receive
payment for his shares pursuant to the provisions of those articles and the
right to maintain an appropriate action to obtain relief on the ground that the
corporate action would be or was fraudulent, and the respective shares for which
payment has been demanded shall not thereafter be considered outstanding for the
purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
therefor shall bear similar notation together with the name of the original
dissenting holder of such shares and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for payment of the fair
value thereof.
C. Any shareholder who has demanded payment for his shares in accordance with
either Article 5.12 or 5.16 of this Act may withdraw such demand at any time
before payment for his shares or before any petition has been filed pursuant to
Article 5.12 or 5.16 of this Act asking for a finding and determination of the
fair value of such shares, but no such demand may be withdrawn after such
payment has been made or, unless the corporation shall consent thereto, after
any such petition has been filed. If, however, such demand shall be withdrawn
as hereinbefore provided, or if pursuant to Section B of this Article the
corporation shall terminate the shareholder's rights under Article 5.12 or 5.16
of this Act, as the case may be, or if no petition asking for a finding and
determination of fair value of such shares by a court shall have been filed
within the time provided in Article 5.12 or 5.16 of this Act, as the case may
be, or if after the hearing of a petition filed pursuant to Article 5.12 or
5.16, the court shall determine that such shareholder is not entitled to the
relief provided by those articles, then, in any such case, such shareholder and
all persons claiming under him shall be conclusively presumed to have approved
and ratified the corporate action from which he dissented and shall be bound
thereby, the right of such shareholder to be paid the fair value of his shares
shall cease, and his status as a shareholder shall be restored without prejudice
to any corporate proceedings which may have been taken during the interim, and
such shareholder shall be entitled to receive any dividends or other
distributions made to shareholders in the interim.
B-4
<PAGE>
ART.5.16. MERGER OF SUBSIDIARY OR SUBSIDIARIES
INTO PARENT CORPORATION
QUALIFICATIONS
A. In any case in which at least ninety (90%) percent of the outstanding
shares of each class and series of a domestic or foreign corporation or
corporations is owned by another domestic or foreign corporation, and at least
one of such corporations is a domestic corporation and the other or others are
domestic corporations or foreign corporations organized under the laws of a
jurisdiction that permit such a merger, the corporation having such share
ownership may (1) merge such other domestic or foreign corporation or
corporations into itself, (2) merge itself into such other corporation, or (3)
merge itself and one or more of such corporations into another of such domestic
or foreign corporations:
(a) in the event that the corporation having such share ownership will be
a surviving corporation in the merger, by executing and filing articles of
merger in accordance with Section B of this Article; or
(b) in the event that the corporation having such share ownership will
not be a surviving corporation in the merger, by the corporation having such
share ownership adopting a plan of merger in the manner required by Article 5.03
of this Act, except that no action under Section 5.03 shall be required to be
taken by the corporation or corporations whose shares are so owned, and
executing and filing articles of merger in accordance with Section B of this
Article.
SIGNATURE OF ARTICLES; CONTENTS
B. The articles of merger shall be signed on behalf of the parent
corporation by an officer and shall set forth:
(1) The name of the parent corporation, and the name or names of the
subsidiary corporations and the respective jurisdiction under which each such
corporation is organized.
(2) The number of outstanding shares of each class of each subsidiary
corporation and the number of such shares of each class owned by the parent
corporation.
(3) A copy of the resolution adopted by the board of directors of the
parent corporation to so merge and the date of the adoption thereof. If the
parent corporation does not own all the outstanding shares of each class of each
subsidiary corporation that is a party to the merger, the resolution shall state
the terms and conditions of the merger, including the cash or other property,
including shares, obligations, evidences of ownership, rights to purchase
securities, or other securities of any person or entity or any combination of
the shares, obligations, evidences of ownership, rights, or other securities, to
be used, paid or delivered by the surviving corporation upon surrender of each
share of the subsidiary corporation or corporations not owned by the parent
corporation.
B-5
<PAGE>
(4) If the surviving corporation is a foreign corporation, the address,
including street number if any, of its registered or principal office in the
jurisdiction under whose laws it is governed. If the surviving corporation is a
foreign corporation, on the merger taking effect the surviving foreign
corporation is deemed to (a) appoint the Secretary of State of this state as its
agent for service of process to enforce an obligation or the rights of
dissenting shareholders of each domestic corporation that is a party to the
merger, and (b) agree that it will promptly pay to the dissenting shareholders
of each domestic corporation that is a party to the merger the amount, if any,
to which they are entitled under this Article.
(5) If a plan of merger is required by Section A of this Article to be
adopted in the manner required by Article 5.03 of this Act, the information
required by Section A of Article 5.04 of this Act.
C. DELIVERY TO SECRETARY OF STATE; DUTIES. The original and a copy of the
articles of merger shall be delivered to the Secretary of State. If the
Secretary of State finds that such articles conform to law, he shall, when all
fees and franchise taxes have been paid as required by law:
(1) Endorse on the original and the copy the word "Filed," and the month,
day and year of the filing thereof.
(2) File the original in his office.
(3) Issue a certificate of merger to which he shall affix the copy and
deliver them to the surviving corporation or its representative.
D. EFFECTIVE DATE AND EFFECT. The effective date and the effect of such
merger shall be the same as provided in Articles 5.05 and 5.06 of this Act if
the surviving corporation is a domestic corporation. If the surviving
corporation is a foreign corporation, the effective date and the effect of such
merger shall be the same as in the case of the merger of domestic corporations
except in so far as the laws of such other jurisdiction provide otherwise.
REMEDY OF MINORITY SHAREHOLDERS
E. In the event all of the shares of a subsidiary domestic corporation that
is a party to a merger effected under this Article are not owned by the parent
corporation immediately prior to the merger, the surviving corporation (foreign
or domestic) shall, within ten (10) days after the effective date of the merger,
mail to each shareholder of record of each subsidiary domestic corporation a
copy of the articles of merger and notify the shareholder that the merger has
become effective. Any such shareholder who holds shares of a class or series
that would have been entitled to vote on the merger if it had been effected
pursuant to Article 5.03 of this Act shall have the right to dissent from the
merger and demand payment of the fair value for his shares in lieu of the cash
or other property to be used, paid or delivered to such shareholder upon the
surrender of such shareholder's shares pursuant to the terms and conditions of
the merger, with the following procedure:
B-6
<PAGE>
(1) Such shareholder shall within twenty (20) days after the mailing
of the notice and copy of the articles of merger make written demand on the
surviving corporation, domestic or foreign, for payment of the fair value of his
shares. The fair value of the shares shall be the value thereof as of the day
before the effective date of the merger, excluding any appreciation or
depreciation in anticipation of such act. The demand shall state the number and
class of the shares owned by the dissenting shareholder and the fair value of
such shares as estimated by him. Any shareholder failing to make demand within
the twenty (20) day period shall be bound by the corporate action.
(2) Within ten (10) days after receipt by the surviving corporation
of a demand for payment by the dissenting shareholder of the fair value of his
shares in accordance with Subsection (1) of this section, the corporation
(foreign or domestic) shall deliver or mail to the dissenting shareholder a
written notice which shall either set out that the corporation (foreign or
domestic) accepts the amount claimed in the demand and agrees to pay such amount
within ninety (90) days after the date on which the corporate action was
effected and, in the case of shares represented by certificates, upon the
surrender of the shares certificates duly endorsed, or shall contain an estimate
by the corporation of the fair value of such shares, together with an offer to
pay the amount of that estimate within ninety (90) days after the date on which
such corporate action was effected, upon receipt of notice within sixty (60)
days after that date from the shareholder that the shareholder agrees to accept
that amount and, in the case of shares represented by certificates, upon the
surrender of the shares certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate
action was effected, the value of the shares is agreed upon between the
dissenting shareholder and the surviving corporation (foreign or domestic),
payment for the shares shall be made within ninety (90) days after the date on
which the corporate action was effected and, in the case of shares represented
by certificates, upon surrender of his certificate or certificates representing
such shares. Upon payment of the agreed value, the dissenting shareholder shall
cease to have any interest in such shares or in the corporation.
(4) If, within sixty (60) days after the date on which such corporate
action was effected, the shareholder and the surviving corporation (foreign or
domestic) do not so agree, then the dissenting shareholder or the corporation
(foreign or domestic) may, within sixty (60) days after the expiration of the
sixty (60) day period, file a petition in any court of competent jurisdiction in
the county in which the principal office of the corporation is located, asking
for a finding and determination of the fair value of the shareholder's shares as
provided in Section B of Article 5.12 of this Act and thereupon the parties
shall have the rights and duties and follow the procedure set forth in Sections
B to D inclusive of Article 5.12.
(5) In the absence of fraud in the transaction, the remedy provided by
this Article to a shareholder objecting to the corporate action is the exclusive
remedy for the recovery of the value of his shares or money damages to the
shareholder with respect to the corporate action. If the surviving corporation
(foreign or domestic) complies with the requirements of this Article, any such
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to such shareholder with respect to such corporate action.
B-7
<PAGE>
DISSENTING SHAREHOLDERS
F. If a plan of merger is required by Section A of this Article to be adopted
in the manner required by Article 5.03 of this Act, the provisions of Articles
5.11 and 5.12 of this Act shall apply to the rights of the shareholders of the
parent corporation to dissent from such merger. Except as otherwise provided in
this Article, the provisions of Articles 5.11 and 5.12 of this Act shall not be
applicable to a merger effected under the provisions of this Article. The
provisions of Article 5.13 of this Act shall be applicable to any merger
effected under the provisions of this Article to the extent provided in Article
5.13 of this Act.
B-8
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
--------------------------------------
Item 20. Indemnification of Officers and Directors.
------------------------------------------
Article 2.02-1 of the Texas Business Corporation Act (the "TBCA") provides
that a Texas corporation, such as First Financial Bankshares, Inc. ("First
Financial"), may indemnify a director or officer of the corporation against
judgments, penalties (including excise and similar taxes), fines, settlements
and reasonable expenses (including court costs and attorneys' fees) incurred in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, arbitrative or investigative, any
appeal in such an action, suit or proceeding, and any inquiry or investigation
that could lead to such an action, suit or proceeding, because the person is or
was a director or officer of the corporation. In order to be entitled to such
indemnification, the director or officer must have conducted himself in good
faith and reasonably believed (i) in the case of conduct in his official
capacity with the corporation, that his conduct was in the corporation's best
interests, (ii) in all other cases, that his conduct was at least not opposed to
the corporation's best interests, and (iii) in the case of any criminal
proceeding, he had no reasonable cause to believe his conduct was not unlawful.
Article 2.02-1 of the TBCA provides that a director or officer may not be
indemnified for proceedings in which the person is found liable on the basis
that a personal benefit was improperly received by him or in which the person is
found liable to the corporation. Article 2.02-1 of the TBCA provides that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under the corporation's
articles of incorporation or any bylaw, agreement, vote of shareholders or
disinterested directors, or otherwise.
The First Financial Articles of Incorporation provide that, to the fullest
extent permitted by applicable law, each director, officer, employee and agent
of First Financial shall be indemnified for all expenses incurred in connection
with any action, suit, proceeding or claim to which he or she is named a party
or otherwise by virtue of holding such position; provided, however, that no
indemnification of employees or agents (other than directors or officers) will
be made without express authorization of the Board of Directors.
The First Financial Articles of Incorporation also provide that, to the
fullest extent permitted by applicable law, no First Financial director shall be
liable to First Financial or the First Financial shareholders for monetary
damages for or with respect to any acts or omissions in his or her capacity as a
director, except in the case of liability for (i) a breach of a duty of loyalty
to First Financial or its shareholders, (ii) an act or omission not in good
faith or that involves intentional misconduct or a knowing violation of the law,
(iii) a transaction from which a director received an improper benefit, (iv) an
act or omission for which the liability of a director is expressly provided by
statute, or (v) an act related to an unlawful stock repurchase or payment of a
dividend.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules.
------------------------------------------
(a) Exhibits. The following exhibits are filed as part of this
Registration Statement.
Item 601
Regulation S-K
Exhibit Reference
Number Description
- ----------------- ------------------------------------------------------------
*2.1 Stock Exchange Agreement and Plan of Reorganization
dated as of August 18, 1997 between First Financial
Bankshares, Inc., Southlake Bancshares, Inc., and Texas
National Bank.
*2.2 Purchase and Assumption Agreement dated May 27, 1997 by
and between Southwest Bank of San Angelo and Texas
Commerce Bank - San Angelo, National Association.
**3.1 Articles of Incorporation, and all amendments thereto,
of the Registrant (incorporated by reference from
Exhibit 1 of the Registrant's Amendment No. 2 to Form
8-A filed on Form 8-A/A No. 2 on November 21, 1995).
**3.2 Amended and Restated Bylaws, and all amendments
thereto, of the Registrant (incorporated by reference
from Exhibit 2 of the Registrant's Amendment No. 1 to
Form 8-A filed on Form 8-A/A No. 1 on January 7, 1994).
**4 Specimen certificate for First Financial Common Stock
(incorporated by reference from Exhibit 3 of the
Registrant's Amendment No. 1 to Form 8-A filed on Form
8-A/A No. 1 on January 7, 1994).
***5.1 Opinion and Consent of McMahon, Surovik, Suttle,
Buhrmann, Hicks & Gill, P.C.
*8.1 Opinion and Consent of Judd, Thomas, Smith & Company,
P.C.
*15.1 Letter from Judd, Thomas, Smith & Company, P.C.
regarding unaudited interim financial information.
*21 Subsidiaries of the Registrant.
***23.1 Consent of McMahon, Surovik, Suttle, Buhrmann, Hicks &
Gill, P.C. (included in Exhibit 5.1).
*23.2 Consent of Judd, Thomas, Smith & Company, P.C.
(included in Exhibit 8.1).
*23.3 Consent of Arthur Andersen LLP, independent public
accountants (auditors for First Financial Bankshares,
Inc.).
II-2
<PAGE>
*23.4 Consent of Judd, Thomas, Smith & Company, P.C.,
independent public accountants (auditors for Southlake
Bancshares, Inc.).
*24 Powers of Attorney (see the signature pages to this
Form S-4 Registration Statement).
*99 Form of Letter of Transmittal.
- --------------
*Filed herewith
**Incorporated by reference
***To be filed by amendment
(b) Financial Statement Schedules. Financial Statement Schedules are not
applicable.
Item 22. Undertakings.
------------
(a) 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, as amended (the "Securities Act");
(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; and
(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.
(2) That, for the purpose of determining any liability under the
Securities Act, 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.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
Registration Statement shall be deemed to
II-3
<PAGE>
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.
(c) 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.
(d) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, 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.
(e) Insofar as indemnification for liabilities arising under the
Securities Act 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
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(f) 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.
(g) 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Abilene,
State of Texas, on the 30th day of September, 1997.
FIRST FINANCIAL BANKSHARES, INC.
By: /s/ KENNETH T. MURPHY
------------------------------------------
Kenneth T. Murphy, Chairman of the Board,
President and Chief Executive Officer
The undersigned directors and officers of First Financial Bankshares, Inc.
hereby constitute and appoint Curtis R. Harvey, with full power to act and with
full power of substitution and resubstitution, our true and lawful attorney-in-
fact with full power to execute in our name and behalf in the capacities
indicated below any and all amendments (including post-effective amendments and
amendments thereto) to this Registration Statement and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission and hereby ratify and confirm all that such
attorney-in-fact or his substitute shall lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on the 30th day of September, 1997, by
the following persons in the capacities indicated.
Signature Title
--------- -----
/s/ CURTIS R. HARVEY Executive Vice President, Chief Financial
- ------------------------------
Curtis R. Harvey Officer, Controller and Chief Accounting Officer
/s/ JOE CANON Director
- ------------------------------
Joe Canon
/s/ MAC A. COALSON Director
- ------------------------------
Mac A. Coalson
/s/ F. SCOTT DUESER Director
- ------------------------------
F. Scott Dueser
Director
- ------------------------------
Patrick N. Gerald
II-5
<PAGE>
/s/ ROBERT E. HITT Director
- ------------------------------
Robert E. Hitt
/s/ RAYMOND A. McDANIEL, JR. Director
- ------------------------------
Raymond A. McDaniel, Jr.
/s/ BYNUM MIERS Director
- ------------------------------
Bynum Miers
/s/ KENNETH T. MURPHY Chairman of the Board, President,
- ------------------------------
Kenneth T. Murphy Chief Executive Officer and Director
Director
- ------------------------------
Dian Graves Owen
/s/ JAMES M. PARKER Director
- ------------------------------
James M. Parker
/s/ JACK D. RAMSEY, M.D. Director
- ------------------------------
Jack D. Ramsey, M.D.
Director
- ------------------------------
Craig Smith
Director
- ------------------------------
H.T. Wilson
/s/ WALTER F. WORTHINGTON Director
- ------------------------------
Walter F. Worthington
II-6
<PAGE>
EXHIBIT INDEX
Item 601
Regulation S-K
Exhibit Reference
Number
- ------
*2.1 Stock Exchange Agreement and Plan of Reorganization
dated as of August 18, 1997 between First Financial
Bankshares, Inc., Southlake Bancshares, Inc., and Texas
National Bank.
*2.2 Purchase and Assumption Agreement dated May 27, 1997 by
and between Southwest Bank of San Angelo and Texas
Commerce Bank - San Angelo, National Association.
**3.1 Articles of Incorporation, and all amendments thereto,
of the Registrant (incorporated by reference from
Exhibit 1 of the Registrant's Amendment No. 2 to Form
8-A filed on Form 8-A/A No. 2 on November 21, 1995).
**3.2 Amended and Restated Bylaws, and all amendments
thereto, of the Registrant (incorporated by reference
from Exhibit 2 of the Registrant's Amendment No. 1 to
Form 8-A filed on Form 8-A/A No. 1 on January 7, 1994).
**4 Specimen certificate for First Financial Common Stock
(incorporated by reference from Exhibit 3 of the
Registrant's Amendment No. 1 to Form 8-A filed on Form
8-A/A No. 1 on January 7, 1994).
***5.1 Opinion and Consent of McMahon, Surovik, Suttle,
Buhrmann, Hicks & Gill, P.C.
*8.1 Opinion and Consent of Judd, Thomas, Smith & Company,
P.C.
*15.1 Letter from Judd, Thomas, Smith & Company, P.C.
regarding unaudited interim financial information.
*21 Subsidiaries of the Registrant.
***23.1 Consent of McMahon, Surovik, Suttle, Buhrmann, Hicks &
Gill, P.C. (included in Exhibit 5.1).
<PAGE>
*23.2 Consent of Judd, Thomas, Smith & Company, P.C.
(included in Exhibit 8.1).
*23.3 Consent of Arthur Andersen LLP, independent public
accountants (auditors for First Financial Bankshares,
Inc.).
*23.4 Consent of Judd, Thomas, Smith & Company, P.C.,
independent public accountants (auditors for Southlake
Bancshares, Inc.).
*24 Powers of Attorney (see the signature pages to this
Form S-4 Registration Statement).
*99 Form of Letter of Transmittal.
- --------------
*Filed herewith
**Incorporated by reference
***To be filed by amendment
<PAGE>
EXHIBIT 2.1
STOCK EXCHANGE AGREEMENT
AND PLAN OF REORGANIZATION
THIS AGREEMENT is made and effective as of this 18th day of August, 1997,
between (1) FIRST FINANCIAL BANKSHARES, INC. (hereinafter referred to as "FIRST
FINANCIAL"), a Texas corporation with its principal office in the City of
Abilene, Taylor County, Texas; (2) Southlake Bancshares, Inc. ("SOUTHLAKE
BANCSHARES"), a Texas corporation and bank holding company with its principal
office in the City of Southlake, Tarrant County, Texas; and (3) Texas National
Bank ("BANK"), a national bank having its principal office in the City of
Southlake, Tarrant County, Texas.
RECITALS:
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First Financial is a registered bank holding company. First Financial owns
all of the issued and outstanding capital stock of First Financial Bankshares of
Delaware, Inc. ("FFB DELAWARE") which, in turn, owns all of the issued and
outstanding capital stock of First National Bank of Abilene; First National
Bank, Sweetwater; Eastland National Bank; Hereford State Bank; First National
Bank in Cleburne; Stephenville Bank & Trust Co.; Southwest Bank of San Angelo;
and Weatherford National Bank.
As of the date of this Agreement, Southlake Bancshares has 1,000,000
authorized shares of Common Stock (the "SOUTHLAKE BANCSHARES STOCK") having a
par value of One Dollar ($1.00) each, with 211,820 shares being issued and
outstanding. According to the records of Southlake Bancshares, the Southlake
Bancshares Common Stock is presently held by those individuals, trusts, estates,
corporations and other entities (the "SHAREHOLDERS") identified in the List of
Shareholders attached hereto as EXHIBIT A.
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Southlake Bancshares owns 149,800 shares (99.87%) of the issued and
outstanding capital stock of Bank ("BANK STOCK"). It is contemplated by this
Agreement that prior to the Closing Date (as defined in Section 1.4), Southlake
Bancshares shall acquire, or have entered into a binding, enforceable and
assignable contract to acquire (which contract shall be acceptable to First
Financial as to price and terms), all of the Bank Stock not owned by Southlake
Bancshares as of the date of this Agreement.
Pursuant to, and subject to, the provisions hereinafter set forth, First
Financial desires to acquire from the Shareholders all of the issued and
outstanding shares of Southlake Bancshares (hereinafter referred to as the
"SHARES") in exchange for shares of the voting Common Stock of First Financial
("FIRST FINANCIAL STOCK") which shall be issued and registered by First
Financial under the Securities Act of 1933 (the "ACT").
NOW, THEREFORE, in consideration of the premises, and in further
consideration of the mutual covenants and on the basis of the representations
and warranties set forth herein, First Financial, Southlake Bancshares, and Bank
have agreed, and by these presents do hereby agree, as follows:
<PAGE>
ARTICLE 1
EXCHANGE OF STOCK
1.1. MEANS OF EXCHANGE. The offer (the "EXCHANGE OFFER") to acquire all of
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the shares of Southlake Bancshares in exchange for shares of First Financial
Stock shall be made by means of a Prospectus to be delivered by First Financial
to each of the Shareholders upon or following the effective date of a
Registration Statement to be filed by First Financial in accordance with the Act
(the "REGISTRATION STATEMENT").
1.2. RATIO OF EXCHANGE. Subject to all terms and conditions of this
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Agreement, First Financial shall be obligated to issue and exchange .888 shares
of First Financial Stock for each share of Southlake Bancshares Stock tendered
by the Shareholders who accept the exchange offer during the time period the
exchange offer is in effect; PROVIDED, HOWEVER, that if, prior to consummation
of the proposed exchange offer, a share of First Financial Stock shall be
changed into a different number of shares of First Financial Stock or a
different class of shares by reason of reclassification, recapitalization,
splitup, exchange of shares or adjustments, or if a stock dividend thereon shall
be declared with a record date within such period, then the number of shares of
First Financial Stock into which a share of Southlake Bancshares Stock shall be
exchanged will be appropriately and proportionately adjusted so that each
Shareholder of Southlake Bancshares Stock shall be entitled to receive such
number of shares of First Financial Stock as such Shareholder would have
received pursuant to such reclassification, recapitalization, splitup, exchange
of shares or adjustments, or as a result of such stock dividend, had the record
date thereof been immediately following consummation of the exchange; FURTHER
PROVIDED, the exchange ratio shall be adjusted if the Market Value (as herein
defined) of First Financial Stock is less than $40.00 per share, or, if the Book
Value of Southlake Bancshares Stock (as herein defined) is less than $17.75 per
share, as of the "MARKET VALUE DATE" which shall be the last business day of the
calendar month preceding the date First Financial has received written notice
that the Board of Governors of the Federal Reserve System has approved the
application filed by First Financial to acquire all of the Southlake Bancshares
Stock.
If, as of the Market Value Date, the Market Value of First Financial Stock
is less than $40.00 per share, the exchange ratio shall be adjusted by (i)
multiplying the exchange ratio by a fraction, the numerator of which is $40.00
and the denominator of which is the Market Value of First Financial Stock. If,
as of the Market Value Date, the Book Value of Southlake Bancshares Stock is
less than $17.75 per share, the exchange ratio shall be adjusted by (ii)
multiplying the exchange ratio by a fraction, the denominator of which is $17.75
and the numerator of which is the Book Value of Southlake Bancshares Stock. If,
as of the Market Value Date, the Market Value of First Financial Stock is less
than $40.00 per share, and if, as of the Market Value Date, the Book Value of
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Southlake Bancshares Stock is less than $17.75 per share, the exchange ratio
shall be determined by multiplying the exchange ratio derived in (i) by the
fraction derived in (ii). PROVIDED, HOWEVER, First Financial may terminate this
Agreement in the event any adjustments
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<PAGE>
to the exchange ratio contemplated herein would result in the required issuance
of more than 250,000 shares of First Financial Stock.
As used herein, the "MARKET VALUE" of First Financial Stock shall mean the
per share closing price of the First Financial Stock on the Nasdaq National
Market Exchange. As used herein, the "BOOK VALUE" of Southlake Bancshares Stock
shall mean the consolidated shareholders' equity of Southlake Bancshares
determined in accordance with generally-accepted accounting principles ("GAAP")
divided by the number of issued and outstanding shares of common stock of
Southlake Bancshares; provided, that for purposes of determining the Book Value
of Southlake Bancshares Stock as of the Market Value Date, as required above,
the number of issued and outstanding shares of common stock of Southlake
Bancshares shall include all shares of Southlake Bancshares Stock issued
subsequent to the date of this Agreement as a result of the contemplated
exercise of up to 30,299 outstanding stock options granted to certain officers
and directors of Bank prior to the date of this Agreement, and shall further be
deemed to include any such stock option which has not been exercised as of the
Market Value Date. The shareholders' equity of Southlake Bancshares shall
include the proceeds from the issuance of such new shares of stock and shall be
deemed to include proceeds projected from the exercise of the remaining such
stock options equal to the product of the number of outstanding stock options
multiplied by the per share option price.
1.3. MEANS OF ACCEPTANCE OF EXCHANGE OFFER. A form of certificate and
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acceptance of the Exchange Offer (the "EXCHANGE FORM") shall accompany the
Prospectus to be delivered to each Shareholder of Southlake Bancshares. The
Exchange Form shall certify that the subject Southlake Bancshares Stock held by
the Shareholder will be transferred to First Financial free and clear of all
liens, options and claims of any sort. Once the Exchange Form has been signed
by a Shareholder and delivered to the Transfer Agent (as defined in Section
1.5), the same shall be deemed to constitute an acceptance of the Exchange Offer
to the extent of the number of shares of Southlake Bancshares Stock accompanying
such Exchange Form. Shares of Southlake Bancshares Stock delivered by the
Shareholders to the Transfer Agent pursuant to the exchange offer may not be
withdrawn. If, for any reason, the Exchange Offer is terminated and the
exchange of Southlake Bancshares Stock for First Financial Stock is not
consummated, then all shares tendered by the Shareholders for exchange shall be
promptly returned by the Transfer Agent.
1.4. MEANS OF CONSUMMATING THE EXCHANGE. The Transfer Agent, during the
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pendency of the Exchange Offer, shall notify First Financial and Southlake
Bancshares daily of the number of shares of Southlake Bancshares Stock tendered
for exchange under properly executed Exchange Forms. If First Financial
receives written notice from the Transfer Agent that the Required Amount of
Southlake Bancshares Stock (as defined in Section 2.2) has been tendered and
assigned to First Financial, then, within ten (10) days after the Closing Date,
First Financial shall issue and mail to those Shareholders who have tendered
their shares of Southlake Bancshares Stock, by registered mail, certificates for
the First Financial Stock representing the number of shares of First Financial's
stock as required under Section 1.2 above for each share of Southlake Bancshares
Stock received by the
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<PAGE>
Transfer Agent. For purposes of this Agreement, the "CLOSING DATE" shall be the
later of (i) the date First Financial receives notice from the Transfer Agent
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that the Required Amount of Southlake Bancshares Stock has been tendered, (ii)
the expiration date of the Exchange Offer, or (iii) the date when all conditions
precedent to consummation of the exchange have been satisfied (or, if not
satisfied, have been waived in writing by First Financial or Southlake
Bancshares, as the case may be, in accordance with Section 1.9). Subject to the
terms and conditions of this Agreement, the exchanges called for by this
Agreement will be effective as of the Closing Date.
Notwithstanding the foregoing provisions of this Section and of
Section 1.3, First Financial shall not issue any fractional shares of its Common
Stock. Shareholders of Southlake Bancshares who would otherwise be entitled to
receive fractional shares of First Financial Stock shall be paid in cash for
such fractional shares based upon the Market Value per share of First Financial
Stock as of the Market Value Date. Any cash payment to which a Shareholder of
Southlake Bancshares may be entitled shall be included with such Shareholder's
certificate for First Financial Stock when such certificate is mailed to such
Shareholder.
1.5. TRANSFER AGENT. The Transfer Agent (herein so called) for purposes of
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this transaction shall be First National Bank of Abilene - Trust Department,
Third Floor, 400 Pine Street, Abilene, Texas 79601.
1.6. EFFECTIVE DATE OF EXCHANGE OFFER. The effective date for commencement
--------------------------------
of the Exchange Offer (the "EFFECTIVE DATE") contemplated by this Agreement
shall be the later of:
(a) The date upon which the Prospectus is mailed by First Financial to
the Shareholders of Southlake Bancshares pursuant to the Registration
Statement (not before but on or following the effective date thereof) filed
by First Financial with the Securities and Exchange Commission with respect
to the First Financial Stock to be issued hereunder; or
(b) Such other date as may be mutually agreed upon by First Financial
and Southlake Bancshares.
1.7. OFFER EXPIRATION DATE. Unless otherwise extended by First Financial,
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the Exchange Offer shall expire twenty-one (21) business days after the
Effective Date.
1.8. MERGER. If the Required Amount of Southlake Bancshares Stock (as
------
defined in Section 2.2) is tendered in exchange for First Financial Stock, and
if all other conditions precedent to consummation of the exchange are satisfied
(or, if not satisfied, are waived in writing by First Financial or Southlake
Bancshares, as the case may be, in accordance with Section 1.9) and First
Financial shall deliver to the tendering Shareholders the shares of First
Financial Stock (and, with regard to any fractional shares, the cash payments)
to which such Shareholders are entitled hereunder, it is the intent of First
Financial to immediately
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<PAGE>
thereafter merge Southlake Bancshares with and into FFB Delaware pursuant to
applicable law. If the Exchange Offer is consummated, but less than all of the
Southlake Bancshares Stock is tendered in exchange for First Financial Stock,
then as part of the proposed merger of Southlake Bancshares into FFB Delaware,
those Shareholders of Southlake Bancshares who did not tender their shares
pursuant to the Exchange Offer made under this Agreement will be required to
accept First Financial Stock (and cash for any fractional shares of First
Financial Stock) upon the same basis (exchange rate and cash) as the exchange of
Southlake Bancshares Stock for First Financial Stock (and cash for fractional
shares) will be made under this Agreement, subject only to the rights, if any,
afforded by Delaware or Texas law (whichever shall apply) to any Shareholders of
Southlake Bancshares who dissent from the merger and refuse to accept First
Financial Stock (and cash for fractional shares) in return for their Southlake
Bancshares Stock.
1.9. WAIVER OF CONDITIONS. If not satisfied, any condition for the benefit
--------------------
of First Financial may be waived by First Financial in writing and any condition
for the benefit of Southlake Bancshares or the Shareholders may be waived by
Southlake Bancshares in writing.
ARTICLE 2
CONDITIONS PRECEDENT TO EXCHANGE OFFER
AND CONSUMMATION OF TRANSACTION
Unless otherwise agreed in writing by First Financial and Southlake
Bancshares, the obligations of First Financial to offer First Financial Stock to
the Shareholders pursuant to this Agreement and, thereafter, the obligations of
First Financial and Southlake Bancshares and the tendering Shareholders to
consummate the exchange of stock contemplated by this Agreement shall be
expressly subject to the satisfaction of the following conditions:
2.1. REGULATORY APPROVALS. (1) The Board of Governors of the Federal
--------------------
Reserve System shall have approved, in writing, the acquisition by First
Financial of all of the issued and outstanding capital stock of Southlake
Bancshares; (2) all other approvals and authorizations of, filings and
registrations with, and notifications to, all federal, state and local
authorities required for the consummation of the transaction contemplated hereby
shall have been obtained or made and shall be in full force and effect; and (3)
all mandatory waiting periods shall have elapsed.
2.2. TAX RULINGS. (1) Southlake Bancshares shall have received a written
-----------
opinion from its independent accountants and/or tax counsel to the effect that,
for federal income tax purposes, the transaction called for by this Agreement
will constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code and that, accordingly, for federal tax purposes (i) no
gain or loss will be recognized by each Shareholder who receives First Financial
Stock in exchange for his or her Southlake Bancshares Stock, (ii) the aggregate
tax basis of First Financial Stock received by a Shareholder will be the same as
the aggregate basis of the Southlake Bancshares Stock surrendered in exchange
therefor,
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<PAGE>
and (iii) the holding period for the purpose of determining the recognition of
long-term capital gain or loss resulting from a subsequent sale of the First
Financial Stock to be received by each Shareholder will include, in each
instance, the period in which the Shareholder held the Southlake Bancshares
Stock surrendered and exchanged therefor ; and (2) First Financial shall have
received a written opinion from its independent accountants, Arthur Andersen
LLP, in form and substance satisfactory to First Financial, stating that the
acquisition by First Financial of the Required Amount of Southlake Bancshares
Stock will be treated for accounting purposes as a "pooling-of-interests." For
purposes of this Agreement, the term "REQUIRED AMOUNT OF SOUTHLAKE BANCSHARES
STOCK" shall mean that number of shares of Southlake Bancshares Stock (as
determined by First Financial's independent accountants) which must be tendered
by the Shareholders in exchange for First Financial Stock in order for the
acquisition by First Financial to be treated for accounting purposes as a
"pooling-of-interests," and which number of shares, for purposes of this
transaction, shall be at least 90% of the issued and outstanding shares of
Southlake Bancshares Stock.
2.3. ACCURACY OF REPRESENTATIONS AND WARRANTIES. Except as otherwise
------------------------------------------
expressly provided herein, all of the representations and warranties of First
Financial, Southlake Bancshares and Bank contained in this Agreement shall be
true and correct as of the Effective Date and as of the Closing Date, with the
same force and effect as though made on the Effective Date and Closing Date,
respectively, and there shall be delivered on the Effective Date and the Closing
Date appropriate certificates of authorized officers of First Financial,
Southlake Bancshares and Bank.
2.4. PERFORMANCE OF AGREEMENTS. First Financial, Southlake Bancshares and
-------------------------
Bank shall have performed all obligations and agreements, and shall have
complied with all covenants and conditions, contained in this Agreement to be
performed and complied with by it or them on or prior to the Closing Date.
2.5. NO GOVERNMENTAL PROCEEDING OR LITIGATION. No order, judgment or
----------------------------------------
decree of any competent court, governmental body or regulatory authority shall
be outstanding which declares or seeks a declaration that this Agreement is
invalid or which restrains, or seeks to restrain, the consummation of the
Exchange Offer; and no action or proceeding shall be pending which questions the
validity or legality of, or seeks to restrain the consummation of, the exchange
contemplated by this Agreement.
2.6. SECURITIES LAWS. (1) The declaration by the Securities and Exchange
---------------
Commission (the "SEC") that the Registration Statement filed by First Financial
pursuant to the Act covering the shares of First Financial Stock to be issued
pursuant to this Agreement is effective and the furnishing of a Prospectus to
the Shareholders of Southlake Bancshares; (2) all approvals and authorization
of, filings and registrations with, and notifications to, all regulatory
authorities under state securities or Blue Sky laws required for the offer,
sale, exchange or qualification of the First Financial Stock in connection with
the exchange offer shall have been obtained or made and shall be in full force
and effect; (3) First Financial, Southlake Bancshares and Bank shall have
complied with all federal and
6
<PAGE>
state securities laws, statutes, rules and regulations applicable to the
exchange offer contemplated by this Agreement; (4) no stop order has been issued
or threatened by any federal or state securities authority with respect to the
offer, sale, issuance or exchange of stock contemplated hereby; and (5) First
Financial shall have taken such action as may be necessary for the shares of
First Financial Stock to be issued pursuant to this Agreement to be qualified
for trading on the Nasdaq National Market Exchange.
2.7. TENDER OF SHARES. The delivery by Shareholders owning the Required
----------------
Amount of Southlake Bancshares Stock of duly and properly executed Exchange
Forms effectively transferring and assigning their shares of Southlake
Bancshares Stock to First Financial free and clear of all liens, options and
claims of any sort.
2.8. NO MATERIAL CHANGES. The absence of any material adverse change in
-------------------
the financial conditions of First Financial, Southlake Bancshares, or Bank
between June 30, 1997, and the Closing Date as determined in good faith by First
Financial and Southlake Bancshares.
2.9. OPINION OF SOUTHLAKE BANCSHARES'S COUNSEL. First Financial shall have
-----------------------------------------
received the written opinion of counsel for Southlake Bancshares and Bank dated
at or as of the Closing Date, and in form and substance satisfactory to First
Financial and its counsel, that (1) Southlake Bancshares is duly organized,
validly existing and in good standing under the laws of the State of Texas; (2)
Bank is duly organized, validly existing and in good standing under the laws of
the United States; (3) Southlake Bancshares and Bank have all requisite power
and have been duly authorized to execute and deliver this Agreement and to
consummate the transaction contemplated thereby; (4) the execution and delivery
of this Agreement by Southlake Bancshares and Bank does not, and the
consummation of the transaction contemplated thereby, will not, to the best of
counsel's knowledge, contravene or violate any provisions of or constitute a
default under (a) the Articles of Incorporation or Association or Bylaws of
Southlake Bancshares or Bank, (b) any agreement or instrument to which Southlake
Bancshares or Bank is a party or by which Southlake Bancshares or Bank is bound
or to which any property of Southlake Bancshares or Bank is subject, or (c) any
law, regulation, rule, decree, order or judgment of any court, governmental
agency or public body applicable to Southlake Bancshares or Bank or any of their
respective assets or property; (5) all consents, approvals, authorizations,
actions or filings with any court, governmental agency or public body required
in connection with the execution, delivery and performance by Southlake
Bancshares and Bank of this Agreement have been obtained and, to the best of
counsel's knowledge, have not been withdrawn or qualified; (6) all of the
outstanding shares of Southlake Bancshares Stock and Bank Stock have been
validly issued and are non-assessable and fully paid; (7) except as reflected in
an applicable Disclosure Schedule, to the best of counsel's knowledge, there are
no known liabilities, claims or lawsuits pending against Southlake Bancshares or
Bank or any of their respective properties or assets; (8) except as a result of
the contemplated exercise of up to 30,299 outstanding stock options referenced
in Section 3.4, between the date of this Agreement and the Closing Date, the
number of issued and outstanding shares of Southlake Bancshares Stock and Bank
Stock have not increased; and (9) except as disclosed in
7
<PAGE>
Disclosure Schedule 3.13, to the best of counsel's knowledge, all Bank Stock
owned by Southlake Bancshares is free and clear of liens, security interests,
transfer restrictions, other encumbrances, and claims of any sort.
2.10. ENVIRONMENTAL REPORT. First Financial shall have received, at
--------------------
First Financial's expense, a satisfactory Phase I Environmental Assessment
report covering all real property of Southlake Bancshares and Bank, whether such
real property is used by Southlake Bancshares or Bank in its corporate or
banking business, held for resale or otherwise owned or held by Southlake
Bancshares or Bank.
2.11. FREEZE OF EMPLOYEE STOCK OWNERSHIP PLAN. The Boards of Directors
---------------------------------------
of Southlake Bancshares and Bank shall, prior to the Closing Date, adopt such
resolutions, and take such other action, as may be reasonable and necessary (as
judged by First Financial and its counsel), to freeze the existing Southlake
Bancshares Employee Stock Ownership Plan (the "KSOP"). Such resolutions may
condition freeze of the KSOP and any transfer, exchange or disposition of the
assets of the KSOP upon consummation of the stock exchange transaction
contemplated by this Agreement.
In addition, First Financial and its counsel shall be satisfied, in
their opinion, that (1) the KSOP is a qualified plan under, and as of the
effective date of termination, in full compliance with the Employee Retirement
Income Security Act of 1974 ("ERISA"), as amended, the Internal Revenue Code of
1986, as amended, and all other applicable laws, rules and regulations; and (2)
no facts or circumstances exist which, in the opinion of First Financial and its
counsel, may result in liability to First Financial, Southlake Bancshares,
Bank or any of its or their directors, officers or employees arising out of,
or in connection with, administration of the KSOP or termination of the KSOP if
the transaction contemplated by this Agreement is consummated.
2.12. TERMINATION OF COMPENSATION PLANS. The Boards of Directors of
---------------------------------
Southlake Bancshares and Bank, as the case may be, shall, prior to the Closing
Date, adopt such resolutions and take such other action as may be necessary to
(i) terminate the Bank Executives' Supplemental Income Plan, the Bank Directors'
Deferred Income Plan, and the Bank Officers' Bonus Plan and (ii) eliminate all
liability of Southlake Bancshares and Bank under such Plans. Upon Plan
termination, and contemporaneous with payment of any benefit accrued thereunder,
Southlake Bancshares and Bank, as the case may be, shall receive a written
release of liability from each beneficiary of any such Plan.
2.13. REDEMPTION OF PREFERRED STOCK. Southlake Bancshares shall, prior
-----------------------------
to the Closing Date, adopt such resolutions and take such other action as may be
necessary or appropriate under the circumstances to redeem and cancel all of the
issued and outstanding shares of Southlake Bancshares Preferred Stock.
2.14. OPINION OF FIRST FINANCIAL'S COUNSEL. Southlake Bancshares shall
------------------------------------
have received the written opinion of counsel for First Financial, dated at or
as of the Closing Date and in form and substance satisfactory to Southlake
Bancshares and its counsel, that
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<PAGE>
(1) First Financial is duly organized, validly existing and in good standing
under the laws of the State of Texas; (2) First Financial has all requisite
power and has been duly authorized to execute and deliver the Agreement and to
consummate the transaction contemplated thereby; (3) the execution and delivery
by First Financial of the Agreement does not, and consummation of the
transaction contemplated thereby will not, contravene or violate any provision
of or constitute a default under the (a) Articles of Incorporation or Bylaws of
First Financial, or (b) any law, regulation, rule, decree, order or judgment of
any court, governmental agency or public body applicable to First Financial or
its assets or properties; (4) all consents, approvals, authorizations, actions
or filings with any court, governmental agency or public body required in
connection with the execution, delivery and performance by First Financial of
the Agreement have been obtained; and (5) when issued pursuant to this
Agreement, the shares of First Financial Stock issued in exchange for shares of
Southlake Bancshares Stock shall be duly authorized and issued and fully paid
and non-assessable.
ARTICLE 3
WARRANTIES AND REPRESENTATIONS OF
SOUTHLAKE BANCSHARES AND BANK
Southlake Bancshares and Bank hereby jointly and severally make the
following warranties and representations to First Financial:
3.1. ORGANIZATION AND STANDING OF SOUTHLAKE BANCSHARES. Southlake
-------------------------------------------------
Bancshares is a Texas corporation duly organized, validly existing and in good
standing under the laws of the State of Texas, with corporate power to own its
property and carry on its business as it is now being conducted. Southlake
Bancshares is a registered bank holding company under the Bank Holding Company
Act of 1956, as amended. True, correct and complete copies of the Articles of
Incorporation and Bylaws of Southlake Bancshares, including all amendments
thereto, have been delivered to First Financial, or are delivered herewith by
Southlake Bancshares to First Financial. The corporate minute book of Southlake
Bancshares contains true and complete records of all meetings and consents in
lieu of meeting of the Board of Directors and Shareholders since the
incorporation of Southlake Bancshares, which accurately reflect in all material
respects all transactions referred to in such minutes and consents in lieu of
meeting.
3.2. ORGANIZATION AND STANDING OF BANK. Bank is a national bank duly
---------------------------------
organized, validly existing and in good standing under national banking laws,
with corporate power to own property and carry on its business as it is now
being conducted. Bank is an insured bank under the Federal Deposit Insurance
Act. All of the banking business and all of the banking offices and facilities
of Bank are located within the State of Texas. True, correct and complete
copies of the Articles of Incorporation (or Association) and Bylaws of Bank,
including all amendments thereto, have been delivered to First Financial, or are
delivered herewith by Bank to First Financial. The corporate minutes of Bank
contain true and complete records of all meetings and consents in lieu of
meetings of the Board of Directors
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<PAGE>
and Shareholders since the incorporation of Bank, which accurately reflect in
all material respects all transactions referred to in such minutes and consents
in lieu of meeting.
3.3. SUBSIDIARIES AND AFFILIATES. Southlake Bancshares does not have any
---------------------------
subsidiaries other than Bank. Bank does not have any subsidiaries. Neither
Southlake Bancshares nor Bank holds any interest in any other corporation, firm,
joint venture or partnership, except (1) as security for repayment of loans to
customers of Bank, (2) as acquired by Bank through foreclosure or otherwise by
reason of debt previously contracted, or (3) for authorized investment
securities purchased by Southlake Bancshares or Bank for its own account (but,
as a result of which investments, neither Southlake Bancshares nor Bank is
considered to be an affiliate of the issuer of such securities or otherwise
controls, is controlled by or is under common control with, the issuer of any
such investment securities).
3.4. CAPITALIZATION. As of the date of this Agreement, the authorized
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capital stock of Southlake Bancshares consists of 1,000,000 shares of Common
Stock of a par value of $1.00 each, of which 211,820 are presently issued and
outstanding, and 1,000,000 shares of $1.00 par value, 8.0% nonvoting, cumulative
Preferred Stock, of which 7,200 are presently issued and outstanding. It is
contemplated by this Agreement that as many as 30,299 stock options granted to
certain officers and directors of Bank (identified in the Stock Optionee List
attached hereto as Exhibit B) will be exercised prior to the Closing Date and
---------
will result in as many as 242,119 shares being issued and outstanding at the
Closing Date. Southlake Bancshares holds no stock of any type or classification
as treasury stock. The authorized capital stock of Bank consists of 187,500
shares of Common Stock of a par value of $5.00, of which 150,000 are presently
issued and outstanding. Southlake Bancshares now owns all but 200 shares of the
issued and outstanding Common Stock of Bank, but prior to the Closing Date
Southlake Bancshares shall use its best efforts to acquire all of the issued and
outstanding Common Stock of Bank not owned as of the date of this Agreement at a
reasonable price as determined by the mutual agreement of Southlake Bancshares
and First Financial. Bank holds no stock as treasury stock. All rights,
privileges, restrictions (if any), terms and provisions governing any of the
shares of capital stock of Southlake Bancshares or Bank are described in
Disclosure Schedule 3.4. As of the Closing Date there shall not be any
Southlake Bancshares Stock held as treasury stock; additionally, there shall be
no outstanding or authorized subscriptions, options, warrants, calls, rights or
commitments or any kind restricting the transfer of, requiring the issuance or
sale of, or otherwise relating to, any of the capital stock of Southlake
Bancshares or Bank.
3.5. AUTHORITY OF SOUTHLAKE BANCSHARES AND BANK. This Agreement has been
------------------------------------------
duly authorized, executed and delivered by Southlake Bancshares and by Bank,
respectively, and, subject to the conditions precedent to the consummation of
the transactions set forth herein, is a valid, legally binding and enforceable
obligation of Southlake Bancshares and Bank. Neither the execution, delivery or
performance of this Agreement in its entirety, nor the consummation of all of
the transactions contemplated hereby, will violate (with or without the giving
of notice or the passage of time), be in conflict with, result in a breach of
any provision of, or constitute a default under, any provision in the Articles
of
10
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Incorporation, Articles of Association or Bylaws of, or any provision of law
applicable to, Southlake Bancshares or Bank or any agreement or understanding,
order, judgment, award, decree, statute, ordinance, regulation or other
restriction of any kind or character to which Southlake Bancshares or Bank is a
party or by which any of the respective assets or properties of Southlake
Bancshares or Bank are subject or bound.
3.6. LICENSES, PERMITS AND CONTRACTS. None of the licenses, permits,
-------------------------------
franchises, authorizations or contracts of Southlake Bancshares or Bank will be
violated, breached, terminated or otherwise impaired by reason of execution,
delivery or performance of this Agreement by Southlake Bancshares or Bank, or
consummation of the transactions contemplated hereby.
3.7. CLAIMS, SUITS AND PROCEEDINGS. Except as reflected in Disclosure
-----------------------------
Schedule 3.7, there are no legal, administrative, arbitration or other action,
suit, proceeding or claim pending, under investigation, or, to its knowledge,
threatened against Southlake Bancshares or Bank, at law or in equity, or before
any federal, state, municipal or other governmental court, department,
commission, board, bureau, agency, instrumentality or other person. In
particular, and without in any way limiting the foregoing, neither Southlake
Bancshares nor Bank is subject to, or a party to, any cease-and-desist,
supervisory or other agreement with any banking or other regulatory authority
which requires the consent or approval of such authority or which is otherwise
applicable to the transaction contemplated by this Agreement.
3.8. CONSENTS AND APPROVALS. No consent, approval or authorization of, or
----------------------
declaration, filing or registration with, any person or governmental authority
is required in connection with the execution and delivery of this Agreement by
Southlake Bancshares or Bank, and consummation of the transaction contemplated
hereby, except for such regulatory approvals as may be required for First
Financial to acquire the Southlake Bancshares Stock under Section 2.1 and for
such approvals by the Boards of Directors of Southlake Bancshares and of Bank as
have been given prior to execution of this Agreement.
3.9. REGULATORY REPORTS. Southlake Bancshares and Bank have filed all
------------------
reports, registrations and statements, together with any amendments required to
be made thereto, that are required to be filed with the Board of Governors of
the Federal Reserve System (the "FRB"), Comptroller of the Currency (the "OCC"),
the Federal Deposit Insurance Corporation (the "FDIC"), and any other applicable
authorities, and all of such reports, registrations and statements are true,
complete and correct in all material respects.
3.10. FINANCIAL STATEMENTS. Southlake Bancshares and Bank have provided, or
--------------------
caused to be provided, to First Financial the Financial Statements and Reports
described in Disclosure Schedule 3.10 attached hereto and the notes thereto
(collectively, the "FINANCIAL STATEMENTS"), all of which have been prepared in
accordance with GAAP or regulatory accounting principles ("RAP"); and the
Financial Statements, as of their respective dates, conformed in all material
respects with all applicable material rules and regulations promulgated by the
FRB, the OCC and the FDIC.
11
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3.11. UNDISCLOSED LIABILITIES. Except to the extent reflected in the
-----------------------
Financial Statements or as reflected in Disclosure Schedule 3.11, Southlake
Bancshares and Bank have no debt, liability or obligation of any nature (whether
liquidated, unliquidated, absolute, accrued, contingent or otherwise and whether
due or to become due) which may result in a material adverse effect upon its
financial condition or its ability to perform this Agreement.
3.12. ABSENCE OF CERTAIN CHANGES. Except as and to the extent reflected in
--------------------------
Disclosure Schedule 3.12, neither Southlake Bancshares nor Bank, from June 30,
1997, until the date of this Agreement, has:
(a) made any amendment to its Articles of Incorporation, Articles of
Association or Bylaws, or changed the character of its business in any
material manner;
(b) suffered any material adverse change in its financial condition,
assets, liabilities (absolute, accrued, contingent or otherwise) or
business;
(c) incurred, assumed or become subject to, whether directly or by way
of any guarantee or otherwise, any debt, obligation or liability (whether
liquidated, unliquidated, absolute, accrued, contingent or otherwise)
except in the ordinary course of business;
(d) permitted or allowed any of its property or assets to be subject
to any mortgage, pledge, lien, security interest, encumbrance, restriction
or change of any kind;
(e) canceled any debts in excess of $25,000, waived any claims or
rights of material value, or sold, transferred, or otherwise disposed of
any of its properties or assets, except in the ordinary course of business;
(f) disposed of or permitted to lapse any rights to the use of any
trademark, trade name, copyright or other intangible property right or
franchise, or disposed of or disclosed to any person other than its
employees any trade secret not theretofore a matter of public knowledge;
(g) granted any increase in compensation, or paid or agreed to pay or
accrue any bonus or like benefit, to or for the credit of any director,
officer or employee except in the ordinary course of business, or entered
into any employment or consulting contract or other agreement for personal
services with any director, officer or employee, or adopted, amended or
terminated any Employee Benefit Plan;
(h) declared, paid or set aside for payment any dividend or other
distribution or payment in respect of its capital stock (other than normal,
regular dividends or distributions of Bank to Southlake Bancshares);
12
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(i) organized or acquired, except through foreclosure, the exercise of
creditors remedies or in a fiduciary capacity, any capital stock or other
equity securities of any corporation or acquired any equity or ownership
interest in any partnership or business enterprise;
(j) issued, reserved for issuance, granted or authorized the issuance
of any shares of its capital stock or subscriptions, options, warrants,
calls, rights or commitments of any kind relating to the issuance of or
conversion into shares of its capital stock other than the 30,299
outstanding stock options referenced in Section 3.4;
(k) made any change in any method of accounting or accounting
practice, except as required by applicable law, regulation or GAAP;
(l) except for the transactions contemplated by this Agreement, or as
otherwise permitted hereunder, entered into any transaction, or entered
into, modified or amended any contract or commitment, other than in the
ordinary course of business; or
(m) agreed, whether in writing or otherwise, to take any action the
performance of which would be prohibited under the terms and provisions of
this Agreement.
Since June 30, 1997, Southlake Bancshares and Bank have conducted business
only in the ordinary course and in a manner consistent with past practices.
Neither Southlake Bancshares nor Bank has made any material change in the
conduct of its business or operations since June 30, 1997.
3.13. TITLE TO PROPERTIES; ENCUMBRANCES; ACCESS. Except for the liens
-----------------------------------------
and security interests disclosed in Disclosure Schedule 3.13, Southlake
Bancshares and Bank have, or will have upon the Closing Date, unencumbered, good
and indefeasible title to all their properties and assets, real and personal,
including, without limitation, all properties and assets reflected in the
Financial Statements, subject to (i) easements, reservations, restrictions,
rights-of-way, and other encumbrances of record, other than liens and
conveyances, and (ii) those properties and assets disposed of in the ordinary
course of business consistent with safe and sound banking practices; and, to
their knowledge, all uses made of, and activities conducted upon, any real
property owned, leased or used by Southlake Bancshares and Bank comply in all
respects with applicable state, local or municipal zoning laws and other laws,
rules, regulations and ordinances. In addition, all improvements situated upon
real property assets of Southlake Bancshares and Bank are within surveyed
boundaries and have unrestricted right of access to and from an adjacent public
thoroughfare.
3.14. MATERIAL PENDING OR THREATENED PROCEEDINGS. Except as reflected
------------------------------------------
in Disclosure Schedule 3.14, there is no legal, administrative, arbitration or
other action, suit,
13
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proceeding or claim pending, under investigation, or, to its knowledge,
threatened against Southlake Bancshares or Bank, or involving any of their
properties or assets, at law or in equity, or before or by any foreign, federal,
state, municipal or other governmental court, department, commission, board,
bureau, agency, instrumentality or other person, which may result in a material
adverse effect upon its financial condition or its ability to perform this
Agreement.
3.15. TAX MATTERS. Southlake Bancshares and Bank have each:
-----------
(a) timely filed all tax returns (the "FILED RETURNS") and timely paid
all tax liability reasonably determined thereunder;
(b) established reasonable accruals for the payment of, all federal
income taxes and all state and local income taxes and all franchise,
property, sales, employment or other taxes with respect to the periods
prior to the date of this Agreement and subsequent to the last Filed
Return; and
(c) properly and timely withheld, remitted and/or paid all withholding
taxes, social security taxes, unemployment taxes and other employment-
related taxes which Southlake Bancshares or Bank are, by law, required to
withhold, remit or pay.
In addition to the foregoing, neither Southlake Bancshares nor Bank (1) is
the subject of, nor is there pending or threatened, any audit with respect to or
arising out of any Filed Return; (2) has previously requested, or has filed a
request for, any extension of time to file any return or pay any tax; or (3) has
agreed or consented to the extension of any statute of limitations respecting
the assessment of taxes, additional taxes, penalty or interest in connection
with any tax liability or Filed Return. No tax liens have been filed or
threatened against Southlake Bancshares or Bank. All Filed Returns are true,
correct and complete in all material aspects.
For the purposes of this Agreement, the term "TAX" shall include all
federal, state and local taxes and related governmental charges and any
interest, penalties or assessments payable in connection with the payment of
taxes.
3.16. EMPLOYMENT BENEFIT PLANS. (1) Except as reflected in Disclosure
------------------------
Schedule 3.16, neither Southlake Bancshares nor Bank maintains or contributes
to, nor is Southlake Bancshares or Bank required to maintain or contribute to,
(i) any "employee welfare benefit plan" [as defined in Section 3(1) of the
Employee Retirement Income Security Act ("ERISA")] or (ii) any "employee pension
benefit plan" [as defined in Section 3(2) of ERISA]. Except as reflected in
Disclosure Schedule 3.16, neither Southlake Bancshares nor Bank maintains or
contributes to, nor has Southlake Bancshares or Bank adopted or entered into,
any deferred compensation plan, bonus plan, stock option plan, employee stock
option plan or any other employee benefit plan, agreement, arrangement or
commitment (other than normal policies concerning holidays, vacations,
accumulated sick leave, and annual budgeted incentive bonuses previously
disclosed to First Financial).
14
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Each Employee Benefit Plan that is required or intended to be qualified
under applicable law or registered or approved by a governmental agency or
authority, has been so qualified, registered or approved by the appropriate
governmental agency or authority and nothing has occurred since the date of the
last qualification, registration or approval to adversely affect, or cause, the
appropriate governmental agency or authority to revoke such qualification,
registration or approval. All contributions (including premiums) required by law
or contract to have been made or approved by Southlake Bancshares or Bank, as
the case may be, under or with respect to an Employee Benefit Plan have been
paid or accrued by Southlake Bancshares or Bank, as appropriate, without
limiting the foregoing, there are no unfunded liabilities under any Employee
Benefit Plan. Neither Southlake Bancshares nor Bank have received notice of any
investigations, litigation or other enforcement actions against it with respect
to any of the Employee Benefit Plans. There are no pending actions, suits or
claims by former or present employees of Southlake Bancshares or Bank (or their
beneficiaries) with respect to the Employee Benefit Plans or the assets or
fiduciaries thereof (other than routine claims for benefits).
3.17. LEASES, CONTRACTS AND AGREEMENTS. Disclosure Schedule 3.17
--------------------------------
reflects all leases, contracts and agreements to which Southlake Bancshares or
Bank is a party and which obligate or may obligate Southlake Bancshares or Bank
to pay any amount in excess of $25,000 over the entire term of any such lease,
contract or agreement (the "CONTRACTS"), true and correct copies of which have
been or shall be made available to First Financial. For the purposes of this
Agreement, the Contracts shall not be deemed to include loan commitments of,
loans made by, repurchase agreements made by, bankers acceptances of, or
deposits taken by Bank in the ordinary course of its banking business. Each and
all of the Contracts are legal, valid, binding and enforceable in accordance
with their terms and are in full force and effect. There are no existing
defaults by any party to the Contracts and no event has occurred which (whether
with or without notice, lapse of time or the happening or occurrence of any
other event) would constitute such default.
3.18. RELATED COMPANY TRANSACTIONS. Except for transactions described
----------------------------
in Disclosure Schedule 3.18, there are no agreements, instruments, commitments,
extensions of credit, tax sharing or allocation agreements or other contractual
agreements of any kind between Southlake Bancshares and Bank.
3.19. TRANSACTIONS WITH AFFILIATES. Except as reflected in Disclosure
----------------------------
Schedule 3.19, neither Southlake Bancshares nor Bank (1) has any loans
outstanding to any of its affiliates, executive officers, or directors, or to
any Shareholder owning ten percent (10%) or more of its outstanding shares or
(2) is a party to, or otherwise bound by, any contractual agreement with any of
its affiliates, executive officers, or directors, or with any Shareholder owning
ten percent (10%) or more of its outstanding shares.
3.20. COMPLIANCE WITH LAWS. Except as reflected in Disclosure Schedule
--------------------
3.20, neither Southlake Bancshares nor Bank are in violation of, or default
under, any laws, ordinances, regulations, judgements, injunctions, orders, or
decrees (including without
15
<PAGE>
limitation, any immigration laws or regulations) of any court, governmental
department, commission, agency, instrumentality or arbitrator applicable to its
business.
3.21. ACCURACY OF INFORMATION. The factual information relating to
-----------------------
Southlake Bancshares and Bank contained in this Agreement and the Disclosure
Statements hereto is true, correct and complete in all respects. The information
relating to Southlake Bancshares and Bank supplied for inclusion in the
application of First Financial to the FRB, the Registration Statement filed by
First Financial with the SEC and the Prospectus to be delivered by First
Financial to each of the Shareholders of Southlake Bancshares, as of the date
supplied by Southlake Bancshares and Bank, will be true, correct and complete in
all respects.
3.22. INSURANCE. Disclosure Schedule 3.22 sets forth a list and brief
---------
description of all existing insurance policies maintained by Southlake
Bancshares and by Bank pertaining to its business properties, personnel or
assets. Neither Southlake Bancshares nor Bank is in default with respect to any
provision contained in any insurance policy, and has not failed to give any
notice or present any claim under any insurance policy in a due and timely
fashion. All such policies shall have been delivered to First Financial, or are
delivered herewith, and at all times prior to the Closing Date shall be in full
force and effect. All payments with respect to such policies are current and no
notice threatening a suspension, revocation, modification or cancellation of any
such policy has been received.
3.23. LOANS. Each loan reflected as an asset in the Financial Statements, as
-----
well as all other extensions of credit, guarantees, security agreements, deeds
of trust and other documents and instruments executed in connection therewith
(whether intended as security or otherwise) is to the best of the knowledge of
Southlake Bancshares and Bank the legal, valid and binding obligation of the
obligor named therein and is enforceable in accordance with its terms. Southlake
Bancshares and Bank have made available to First Financial all information in
possession of Southlake Bancshares and Bank concerning all outstanding loans of
Southlake Bancshares and Bank.
3.24. REGULATORY ACTIONS. Except as disclosed in Disclosure Schedule 3.24,
------------------
there are no actions or proceedings pending or threatened against Southlake
Bancshares or Bank by or before the FRB, the OCC, the FDIC, the SEC or any other
governmental agency or authority.
3.25. BROKER'S FEES. No person or entity acting on behalf of Southlake
-------------
Bancshares or Bank is or shall be entitled, directly or indirectly, to any
brokerage fee, commission, finder's fee or financial advisory fee in connection
with the transaction contemplated by this Agreement.
3.26. ENVIRONMENTAL MATTERS. Except as disclosed in Disclosure Schedule
---------------------
3.26, there are no known environmental problems or known conditions affecting
any of the properties of Southlake Bancshares or Bank. In particular, and
without in any way limiting the foregoing, Southlake Bancshares and Bank warrant
and represent that to the best of
16
<PAGE>
their knowledge all hazardous and toxic chemicals, substances and materials
located or used upon any of their respective properties have been and are being
stored, used, transported and disposed of in compliance with applicable state
and federal environmental laws; that there are no prior waste disposal site(s)
or underground storage tanks located upon any of its properties; and that no
action or investigation is pending or threatened by any governmental or
regulatory authority, or by any person, firm or corporation, arising out of any
failure, or alleged failure, to comply with applicable environmental laws,
statutes, rules or regulations.
3.27. DEFERRED DIRECTORS COMPENSATION. Except as disclosed in Disclosure
-------------------------------
Schedule 3.27, neither Southlake Bancshares nor Bank maintains, contributes to
or is otherwise obligated under any Deferred Directors Compensation Plan.
ARTICLE 4
CONDUCT OF BUSINESS OF SOUTHLAKE BANCSHARES
AND BANK PENDING CLOSING DATE
4.1. AFFIRMATIVE COVENANTS. From and after the date of this Agreement and
---------------------
until the Closing Date, Southlake Bancshares and Bank shall each:
(a) operate and conduct its business in the ordinary course and
consistent with its prior practices;
(b) preserve intact its corporate existence, business organization,
assets, licenses, permits, franchises, authorizations, contracts and
business opportunities;
(c) maintain its books, accounts and records in accordance with GAAP
and/or banking practices, as applicable, and comply with all of its
contractual obligations;
(d) maintain all of its properties in good repair, order and
condition, reasonable wear and tear excepted, and maintain appropriate
insurance coverage upon all such properties;
(e) in good faith and in a timely manner (i) cooperate with First
Financial in satisfying the conditions in this Agreement; (ii) diligently
assist First Financial, to the extent it may reasonably require, in
obtaining as promptly as possible all consents, approvals, authorizations
and rulings, whether regulatory or corporate, as are necessary for First
Financial to carry out and consummate the transaction contemplated by this
Agreement; (iii) furnish, or cause to be furnished, to First Financial such
information as First Financial may reasonably require for inclusion in any
filings or applications that may be necessary in that regard; and (iv)
perform all acts and execute and deliver all documents reasonably necessary
to cause the
17
<PAGE>
transaction contemplated by this Agreement to be consummated at the
earliest possible date;
(f) timely file with the FRB, OCC, FDIC, SEC and other regulatory
authorities all financial statements and other reports to be filed by it
and promptly thereafter deliver to First Financial copies of all financial
statements and other reports required to be so filed;
(g) comply with all applicable laws and regulations, noncompliance
with which would have a material adverse effect upon its financial
condition, assets, liabilities (absolute, accrued, contingent or otherwise)
or business;
(h) promptly give written notice to First Financial upon obtaining
knowledge of any event or fact that would cause any of the representations
or warranties of Southlake Bancshares or Bank contained in or referred to
in this Agreement to be untrue in any material respect, and use its best
efforts to prevent or promptly remedy the same; and
(i) provide to First Financial, or provide First Financial access to,
all books, records, reports, financial statements and other documents and
information as First Financial may from time to time request.
(j) immediately or prior to the date of closing of this contemplated
transaction, establish such additional accruals and reserves as may be
necessary to conform Southlake Bancshares' and Bank's accounting and credit
loss reserve practices and methods to those of First Financial; provided,
however, no action taken pursuant to this subsection shall have any affect
on calculation of the Book Value of Southlake Bancshares Stock for the
purposes of Section 1.2 and no accrual or other adjustment made pursuant to
this subsection shall constitute an acknowledgment by Southlake Bancshares
or Bank or create any implication, for any purpose, that such accrual or
adjustment was necessary for any purpose other than to comply with the
provisions of this subsection.
4.2. NEGATIVE COVENANTS. Except with the prior written consent of First
------------------
Financial, neither Southlake Bancshares nor Bank shall, from the date of this
Agreement and until the Closing Date:
(a) make or permit any amendment to its Articles of Incorporation,
Articles of Association or Bylaws;
(b) make or permit any changes in allocating or charging costs which
in the aggregate would cause a material detriment, except as may be
required by applicable regulation or GAAP, and after written notice to
First Financial;
18
<PAGE>
(c) except for negotiations and discussions between the parties hereto
relating to the transactions contemplated by this Agreement, (i) directly
or indirectly initiate contact with any person or entity in an effort to
solicit an acquisition, merger or consolidation proposal relating to
Southlake Bancshares or Bank, (ii) enter into negotiation of the terms of
an agreement relating to the acquisition, merger or consolidation of
Southlake Bancshares or Bank, (iii) permit access to the premises or
records of Southlake Bancshares or Bank for the review of its business or
operations (except as required by law), (iv) except in the ordinary course
of business, enter into any oral or written agreement to sell the assets of
Southlake Bancshares or Bank or to merge, consolidate, liquidate or
dissolve Southlake Bancshares or Bank, or (v) authorize or engage any
officer, employee, agent or representative of Southlake Bancshares or Bank
(including but not limited to investment bankers and financial advisers) to
enter into any such solicitation, negotiation or any such oral or written
agreement;
(d) make any change in the number of shares of its capital stock
issued and outstanding, or issue (except for the 30,299 outstanding stock
options referenced in Section 3.4), reserve for issuance, grant, or
authorize the issuance of any shares of their capital stock or
subscriptions, options, warrants, calls, rights or commitments of any kind
relating to the issuance or conversion into shares of their capital stock;
(e) incur, assume or become subject to, whether directly or by way of
any guarantee or otherwise, any debt obligation or liability (whether
liquidated, unliquidated, absolute, accrued, contingent or otherwise),
except in the ordinary course of business;
(f) permit or allow any of its property or assets to become subject to
any pledge, lien, security interest or encumbrance, restrictions or change
of any kind except for liens for taxes, non-delinquent or which are being
contested in good faith or other liens arising by operation of law to
secure obligations which are not delinquent or which are being contested in
good faith;
(g) cancel any debts in excess of $25,000, waive any claims or rights
of material value or sell, transfer, or otherwise dispose of any of its
properties or assets, except in the ordinary course of business;
(h) dispose of or permit to lapse any of its rights to the use of any
trademark, trade name, copyright or other intangible property right or
franchise, or dispose of or disclose to any person any trade secret not
theretofore a matter of public knowledge;
(i) grant or permit any increase in compensation, or pay or agree to
pay or accrue any bonus or like benefit, to or for the credit of any of its
directors, officers or employees, or enter into, or permit, any employment
or consulting agreement or other agreement for personal services with any
of its directors, officers or employees,
19
<PAGE>
or adopt, amend or terminate (except for termination of: the Southlake
Bancshares KSOP required by Section 2.11; the Bank Executives' Supplemental
Income Plan required by Section 2.12; the Bank Directors' Deferred Income
Plan required by Section 2.12; and the Bank Officers' Bonus Plan required
by Section 2.12) any Employee Benefit Plan or change or modify the period
of vesting or retirement age for any participant of any such plan (except
as required by or to comply with any applicable law or regulation);
(j) declare, pay or set aside for payment any dividend or other
distribution or payment in respect of shares of its capital stock, except
for normal, regular dividends or other distributions of Bank to Southlake
Bancshares;
(k) acquire the capital stock or other equity securities of any
corporation or any equity or ownership interest in any partnership or other
business enterprise, except through foreclosure, the exercise of creditors'
remedies or in a fiduciary capacity;
(l) make aggregate capital expenditures and commitments in excess of
$25,000 for additions to its premises or equipment; or
(m) modify any outstanding loans, make any new loans or acquire
any loan participations, unless such modifications, new loans, or
participations are made in the ordinary course of business.
4.3. CERTAIN ACTIVITIES IN ORDINARY COURSE. For the purposes of Section
-------------------------------------
4.2(i), it shall be considered to be in the ordinary course of business for
Southlake Bancshares and Bank to grant reasonable salary increases to officers
and employees, but First Financial shall be notified in writing of any such
increases after the date of this Agreement.
4.4. COVENANTS. From and after the date of this Agreement and until
---------
consummation or termination of the transaction contemplated by this Agreement,
neither Southlake Bancshares nor Bank shall take any action which would cause
Southlake Bancshares or Bank to be in breach of any of the covenants contained
in this Article 4; and Southlake Bancshares and Bank shall, within their ability
to do so, cause Southlake Bancshares and Bank to keep and perform all of the
covenants contained in this Article 4.
ARTICLE 5
WARRANTIES, REPRESENTATIONS
AND COVENANTS OF FIRST FINANCIAL
First Financial warrants and represents to, and covenants and agrees with,
Southlake Bancshares and Bank as follows:
20
<PAGE>
5.1. ORGANIZATION AND STANDING OF FIRST FINANCIAL. First Financial is a
--------------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the State of Texas, with corporate power to own property and carry on
its business as it is now being conducted.
5.2. CAPITALIZATION. First Financial has an authorized capitalization of
--------------
10,000,000 shares of Common Stock of the par value of $10.00 per share, of which
8,415,136 shares are issued, outstanding, and fully paid as of the date of this
Agreement. First Financial has available for issuance, from treasury or
otherwise, a sufficient number of authorized shares of First Financial Stock to
make exchange as contemplated by this Agreement for all of the issued and
outstanding shares of Southlake Bancshares Stock, including all shares of
Southlake Bancshares Stock issued or to be issued as a result of the exercise or
contemplated exercise of the stock options referred to in Section 1.2.
5.3. AUTHORITY OF FIRST FINANCIAL. This Agreement has been duly
----------------------------
authorized, executed and delivered by First Financial and, subject to the
conditions precedent to consummation of the transaction set forth herein, is a
valid, legally binding and enforceable obligation of First Financial. Neither
the execution, delivery or performance of this Agreement in its entirety, nor
the consummation of all of the transactions contemplated hereby, will violate
(with or without the giving of notice or the passage of time), be in conflict
with, result in a breach of any provision of, or constitute a default under, any
provision of law applicable to First Financial, or any agreement or
understanding, order, judgment, award, decree, statute, ordinance, regulation or
other restriction of any kind or character to which First Financial is a party
or by which any of its or their assets or properties is subject or bound. There
are no actions, suits, proceedings or claims pending or, to its knowledge,
threatened against First Financial, at law or in equity, or before or by any
foreign, federal, state, municipal or other government court, department,
commission, board, bureau, agency, instrumentality or other person which may
result in liability to or of First Financial upon the consummation of the
transactions contemplated hereby or which would prevent or delay such
consummation.
5.4. NO ADVERSE CHANGE. From the date of this Agreement until the Closing
-----------------
Date, First Financial shall not have suffered any material adverse change in its
financial condition, assets, liabilities (absolute, accrued, contingent or
otherwise) or business.
5.5. COVENANTS. First Financial covenants and agrees that it shall:
---------
(a) use its best efforts in good faith and in a timely manner to (i)
cooperate with Southlake Bancshares and Bank in satisfying the conditions
in this Agreement, (ii) obtain as promptly as possible all consents,
approvals, authorizations and rulings, whether regulatory or corporate, as
are necessary for First Financial to carry out and consummate the
transactions contemplated by this Agreement, including specifically (but
without limitation) the approval called for by Section 5.6, and (iii)
furnish information concerning First Financial and its subsidiaries not
previously provided to Southlake Bancshares and Bank required for inclusion
in any filing or applications that may be necessary in that regard;
21
<PAGE>
(b) perform all acts and execute and deliver all documents necessary
to cause the transactions contemplated by this Agreement to be consummated
at the earliest possible date;
(c) promptly give written notice to Southlake Bancshares and Bank upon
obtaining knowledge of any event or fact that would cause any of the
representations or warranties of First Financial contained in or referred
to in this Agreement to be untrue in any material respect, and use its best
efforts to prevent or promptly remedy the same;
(d) cause its officers, directors and representatives to treat as
confidential any and all information concerning Southlake Bancshares and
Bank which is furnished to First Financial, its directors, officers,
employees, shareholders, agents, representatives or advisors, in connection
with this Agreement, or which was furnished prior to the execution of this
Agreement for the purpose of First Financial reviewing and evaluating the
transaction contemplated by this Agreement, except insofar as disclosure to
certain parties is necessary to meet the conditions of this Agreement;
(e) extend to all officers and employees of Southlake Bancshares and
Bank, who continue as officers or employees after closing, the same
benefits as accorded other employees of First Financial or its subsidiaries
and on the same basis as those other employees, with employees and officers
of Southlake Bancshares or Bank who continue as employees or officers after
closing to be eligible to participate immediately in group health insurance
without the application of any waiting period or pre-existing condition
exclusion or limitation which might otherwise apply.
5.6. FEDERAL RESERVE APPROVAL. Specifically, but without limiting the
------------------------
effect of Section 5.5, promptly upon execution of this Agreement, First
Financial shall make application to the FRB for prior approval to acquire the
Southlake Bancshares Stock in accordance with this Agreement as required by the
Bank Holding Company Act of 1956, as amended, and applicable regulations.
Promptly upon receipt, First Financial shall furnish Southlake Bancshares and
Bank with a copy of the notice of approval or disapproval of the application
made by it to the FRB.
5.7. SEC REGISTRATION. Without limiting the effect of Section 5.5, upon
----------------
execution of this Agreement, First Financial shall proceed to file a
Registration Statement with the SEC pursuant to the Act covering the shares of
First Financial Stock to be issued pursuant to this Agreement. Promptly upon
receipt of such declaration of the effectiveness of such Registration
Statement from the SEC, First Financial shall furnish Southlake Bancshares and
Bank with a copy of the approval or disapproval of the effectiveness of such
Registration Statement. Upon the approval of the effectiveness of such
Registration Statement from the SEC, First Financial shall cause the shares of
First Financial Stock to be issued pursuant to this Agreement to be qualified
for trading on the Nasdaq National Market Exchange.
22
<PAGE>
5.8. LIABILITY INSURANCE COVERAGE. On and after the Closing Date, First
----------------------------
Financial shall provide those former directors and officers of Southlake
Bancshares and Bank who continue their respective service or employment with
First Financial or Bank, the same directors' and officers' liability insurance
coverage that First Financial provides to its directors and officers and the
directors and officers of its subsidiaries generally.
ARTICLE 6
SURVIVAL OF WARRANTIES, INDEMNIFICATION AND LIABILITY
6.1. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The covenants,
-----------------------------------------------------
representations and warranties of the parties hereto shall survive the Closing
Date, and all inspections, examinations, or audits on behalf of the parties, for
a period of two (2) years after the Closing Date.
ARTICLE 7
TERMINATION
7.1. CIRCUMSTANCES AUTHORIZING TERMINATION. Notwithstanding anything
-------------------------------------
herein to the contrary, this Agreement may be terminated and the Exchange Offer
contemplated hereby may be abandoned at any time, but prior to the Closing Date:
(a) by mutual written consent duly authorized by the Boards of
Directors of First Financial and Southlake Bancshares;
(b) by First Financial if the exchange ratio following adjustments
provided for in Section 1.2 would require First Financial to issue more
than 250,000 shares of First Financial Stock;
(c) by First Financial (i) if First Financial learns or becomes aware
of a state of facts or breach or inaccuracy of any representation or
warranty or covenant of Southlake Bancshares or Bank contained in this
Agreement which in the reasonable judgement of First Financial constitutes
a material adverse change from that represented in this Agreement, or (ii)
if any of the conditions to Closing contained in Article 2 are not
satisfied for reasons other than lack of diligence by First Financial, or,
if not satisfied, waived in writing by First Financial;
(d) by Southlake Bancshares (i) if Southlake Bancshares learns or
becomes aware of a state of facts or breach of inaccuracy of any
representation or warranty or covenant of First Financial contained in this
Agreement which in the reasonable judgement of Southlake Bancshares
constitutes a material adverse change from that represented in this
Agreement, or (ii) if any of the conditions to Closing contained in Article
2 are not satisfied for reasons other than lack of diligence by Southlake
Bancshares or Bank, or, if not satisfied, waived in writing by Southlake
Bancshares;
23
<PAGE>
(e) by First Financial or Southlake Bancshares if the Closing Date
shall not have occurred on or before January 31, 1998, or such later date
agreed to in writing by First Financial and Southlake Bancshares and Bank;
or
(f) by First Financial or Southlake Bancshares if any court of
competent jurisdiction in the United States (federal or state) or other
governmental body shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the exchange
of shares or the merger, and such order, decree, ruling or other action
shall have been final and nonappealable.
ARTICLE 8
MISCELLANEOUS PROVISIONS
8.1. PUBLIC ANNOUNCEMENTS. Prior to the Closing Date, neither Southlake
--------------------
Bancshares Bank, nor First Financial, nor any person affiliated with any of
them, shall, without the prior approval of the other parties, make any written
public announcement, or make any written statement or release to the press with
respect to this Agreement or the transactions contemplated hereby.
8.2. APPLICABLE LAW. This Agreement and the legal relations between the
--------------
parties hereto shall be governed by and construed in accordance with the laws of
the State of Texas and of the United States of America.
8.3. PARAGRAPH AND OTHER HEADINGS. Article and Section headings contained
----------------------------
in this Agreement are for reference purposes only and shall not affect the
meaning or interpretation of this Agreement.
8.4. WAIVERS AND AMENDMENTS. This Agreement may be amended, modified or
----------------------
supplemented only by a written instrument executed by the parties hereto. The
waiver by any party hereto of a breach of this Agreement shall not operate or be
construed as a waiver of any subsequent breach.
8.5. EXPENSES. Whether or not the transactions contemplated by this
--------
Agreement are consummated, and except as otherwise expressly provided in this
Agreement, each of the parties shall be responsible for their respective
attorneys' fees and expenses incident to the negotiation, preparation, execution
and consummation of the transaction contemplated by this Agreement including
attorneys' and accountants' fees and expenses.
8.6. ENTIRE AGREEMENT. This Agreement, including the Exhibits and
----------------
Disclosure Schedules, embodies the entire agreement and understanding of the
parties with respect to the subject matter contained herein. There are no
restrictions, conditions, promises, representations, warranties, covenants or
undertaking other than those expressly set forth or referred to herein.
24
<PAGE>
8.7. NOTICES. All notices, requests, demands or other communications which
-------
are required or may be given under this Agreement shall be in writing and shall
be deemed to have been duly given if delivered personally or sent by registered
or certified mail, return receipt requested, postage prepaid:
(a) In the case of First Financial, to:
Mr. Kenneth T. Murphy
Chairman of the Board, President and Chief Executive Officer
First Financial Bankshares, Inc.
Post Office Box 701
Abilene, Texas 79604
(b) In the case of Southlake Bancshares, and/or Bank, to:
Mr. Barry K. Emerson
Chairman of the Board, President and Chief Executive Officer
Southlake Bancshares, Inc.
Post Office Box 92840
Southlake, Texas 76092
or to such other addresses as any party shall specify by notice to the
others.
8.8. COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same.
8.9. ATTACHMENT OF DISCLOSURE SCHEDULES. Southlake Bancshares, Bank and
----------------------------------
First Financial acknowledge that the Disclosure Schedules referenced herein may
not be attached hereto at the time of execution of this Agreement. It is the
intent of all parties hereto that the form and content of all such Disclosure
Schedules will be prepared in form acceptable to First Financial and that such
Disclosure Schedules shall then be attached to this Agreement and that such
Disclosure Schedules shall then become a part of this Agreement for all
purposes. In the event that the contents in the Disclosure Schedules are not
acceptable to First Financial, this Agreement may be terminated by First
Financial by written notice and be of no further force and effect.
Notwithstanding the fact that any such Disclosure Schedules may not be attached
hereto at the time of execution, the date of this Agreement or date of execution
of this Agreement shall for all purposes be the date first written above.
8.10. BINDING EFFECT - ASSIGNMENT. This Agreement is binding upon the
---------------------------
undersigned parties, their heirs, personal representatives, successors and
assigns. The rights of First Financial under this Agreement may not be assigned
without the prior written consent of Southlake Bancshares and Bank, except that,
at Closing, FFB Delaware or another subsidiary of First Financial may acquire
the Shares so long as First Financial remains liable for its obligations under
this Agreement.
25
<PAGE>
8.11. DEFINITIONS. In addition to other definitions contained elsewhere
-----------
in this Agreement, as used in this Agreement:
(a) an "AFFILIATE" means any bank, corporation, partnership or other
entity which, directly or indirectly, controls, is controlled by, or is
under common control with, Southlake Bancshares and Bank;
(b) references to a particular "ARTICLE" or "SECTION" are to the
given article or section of this Agreement; and
(c) unless context otherwise requires, words of the singular number
include the plural and of the plural include the singular and words of the
masculine gender include the feminine and neuter.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, in
multiple originals, as of the day and year first above written.
FIRST FINANCIAL BANKSHARES, INC.
ATTEST:
By: /s/ CURTIS R. HARVEY By: /s/ KENNETH T. MURPHY
---------------------------- ----------------------------
Curtis R. Harvey Kenneth T. Murphy,
Executive Vice President Chairman of the Board, President
and Chief Financial Officer and Chief Executive Officer
SOUTHLAKE BANCSHARES, INC.
ATTEST:
By: /s/ WADE C. DONNELL By: /s/ BARRY K. EMERSON
---------------------------- ----------------------------
Wade C. Donnell Barry K. Emerson,
President and COO Chairman of the Board, President
and Chief Executive Officer
TEXAS NATIONAL BANK
ATTEST:
By: /s/ WADE C. DONNELL By: /s/ BARRY K. EMERSON
---------------------------- ----------------------------
Wade C. Donnell Barry K. Emerson,
President and COO Chairman of the Board, President
and Chief Executive Officer
26
<PAGE>
Exhibit 2.2
ATTACHMENT I.
PURCHASE AND ASSUMPTION AGREEMENT
BETWEEN
TEXAS COMMERCE BANK-SAN ANGELO, NATIONAL ASSOCIATION
AND
SOUTHWEST BANK OF SAN ANGELO
DATED AS OF
MAY 27, 1997
<PAGE>
Exhibit 2.2
TABLE OF CONTENTS
PAGE
----
ARTICLE I DEFINITIONS.................................................. 1
ARTICLE II ASSUMPTION OF LIABILITIES AND OBLIGATIONS................... 6
2.1 LIABILITIES ASSUMED BY THE ASSUMING BANK.......................... 6
2.2 INTEREST ON DEPOSITS.............................................. 6
2.3 ASSUMPTION OF CONTRACTS........................................... 6
2.4 INFORMATIONAL TAX REPORTING....................................... 7
ARTICLE III PURCHASE OF ASSETS......................................... 7
3.1 ASSETS PURCHASED BY THE ASSUMING BANK............................. 7
3.2 MANNER OF CONVEYANCE; LIMITED WARRANTY; NONRECOURSE: ETC.......... 7
3.3 ASSETS NOT PURCHASED BY THE ASSUMING BANK......................... 7
3.4 EXCLUSION OF CERTAIN SPECIFIC LOANS............................... 9
ARTICLE IV BANK PREMISES; SAFE DEPOSIT BOXES; SAFEKEEPING
BUSINESS; TRUST...................................................... 9
BUSINESS............................................................... 9
4.1 BANK PREMISES..................................................... 9
4.2 AGREEMENT WITH RESPECT TO SAFE DEPOSIT BUSINESS................... 9
4.3 AGREEMENT WITH RESPECT TO SAFEKEEPING BUSINESS.................... 9
4.4 CONTINUATION OF TRUST BUSINESS.................................... 10
4.5 TENANT LEASES..................................................... 10
ARTICLE V DUTIES WITH RESPECT TO DEPOSITORS OF THE PURCHASED BRANCHES.. 10
5.1 PAYMENT OF CHECKS, DRAFTS AND ORDERS.............................. 11
5.2 CERTAIN AGREEMENTS RELATED TO DEPOSITS............................ 11
5.3 CORRESPONDENT BANKING RELATIONSHIP................................ 11
ARTICLE VI RECORDS..................................................... 11
6.1 TRANSFER OF RECORDS............................................... 11
6.2 DELIVERY OF ASSIGNED RECORDS...................................... 12
6.3 PRESERVATION OF RECORDS........................................... 12
6.4 ACCESS TO RECORDS; COPIES......................................... 12
ARTICLE VII PURCHASE PRICE; CLOSING.................................... 13
7.1 PURCHASE PRICE FOR BANKING BUSINESS............................... 13
7.2 FORM OF PAYMENT................................................... 13
7.3 CLOSING........................................................... 13
7.4 TRUST COMPANY CLOSING; PAYMENT.................................... 13
ARTICLE VIII CONTINUING COOPERATION.................................... 14
8.1 GENERAL MATTERS................................................... 14
8.2 ADDITIONAL TITLE DOCUMENTS........................................ 14
8.3 PAYMENT OF DEPOSITS............................................... 14
ARTICLE IX CONDITIONS PRECEDENT........................................ 14
9.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY........................... 14
9.2 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF THE ASSUMING BANK..... 15
i
<PAGE>
Exhibit 2.2
9.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF SELLER................ 16
9.4 CONDITIONS TO TRANSFER OF SUBSIDIARY TRUST COMPANY................ 16
ARTICLE X REPRESENTATIONS AND WARRANTIES............................... 17
10.1 REPRESENTATIONS AND WARRANTIES OF SELLER......................... 17
10.2 REPRESENTATIONS AND WARRANTIES OF THE ASSUMING BANK.............. 19
ARTICLE XI CERTAIN COVENANTS OF SELLER AND THE ASSUMING BANK........... 21
11.1 COVENANTS OF SELLER.............................................. 21
11.2 COVENANTS OF THE ASSUMING BANK................................... 24
11.3 BEST EFFORTS; TAKING OF NECESSARY ACTION......................... 24
11.4 USE OF NAMES, TRADEMARKS AND SERVICE MARKS....................... 25
11.5 ALLOCATION OF PURCHASE PRICE..................................... 25
11.6 FACILITIES LEASE................................................. 26
11.7 COVENANT NOT TO COMPETE.......................................... 26
11.8 NONSOLICITATION OF EMPLOYEES..................................... 26
11.9 BRANCH RENOVATIONS............................................... 26
11.10 DEALER CONTRACTS................................................ 26
11.11 LIQUIDATED DAMAGES.............................................. 27
ARTICLE XII EMPLOYEE PLANS............................................. 27
12.1 PARTICIPATION IN COMPANY PLANS................................... 27
12.2 CLAIMS INCURRED PRIOR TO AND AFTER CLOSING....................... 27
12.3 WAITING PERIODS, PRE-EXISTING CONDITIONS AND DEDUCTIBLES......... 28
12.4 SEVERANCE PAY.................................................... 28
12.5 VACATION PAY..................................................... 28
12.6 INACTIVE EMPLOYEES............................................... 29
12.7 INDEMNIFICATION AGAINST CLAIMS FOR SEVERANCE PAY................. 29
ARTICLE XIII INDEMNIFICATION........................................... 29
13.1 INDEMNIFICATION.................................................. 29
13.2 EXCLUSIVITY OF REMEDIES.......................................... 31
ARTICLE XIV MISCELLANEOUS.............................................. 32
14.1 ENTIRE AGREEMENT................................................. 32
14.2 HEADINGS......................................................... 32
14.3 GOVERNING LAW.................................................... 32
14.4 SUCCESSORS....................................................... 32
14.5 MODIFICATION; ASSIGNMENT......................................... 32
14.6 NOTICE........................................................... 32
14.7 MANNER OF PAYMENT................................................ 34
14.8 COSTS, FEES AND EXPENSES......................................... 34
14.9 WAIVER........................................................... 34
14.10 SEVERABILITY.................................................... 34
14.11 TERMINATION OF AGREEMENT........................................ 34
14.12 SURVIVAL OF REPRESENTATIONS AND WARRANTIES...................... 35
14.13 COUNTERPARTS.................................................... 35
ii
<PAGE>
Exhibit 2.2
Exhibits:
Exhibit A - Form of Special Warranty Deed
Exhibit B - Form of General Assignment and Bill of Sale
Exhibit C - Form of Instrument of Assumption
Schedules:
Schedule 2.3 Contracts
Schedule 3.1 Furniture and Equipment
Schedule 10.1(b) Seller Consents
Schedule 10.1(h) Environmental Compliance
Schedule 11.8 Key Employees
Schedule 12.1 Severance Plan Summary
Schedule 12.6 Inactive Employees
Schedule 13.2 Environmental Laws
iii
<PAGE>
PURCHASE AND ASSUMPTION AGREEMENT
THIS AGREEMENT, made and entered into as of the 27th day of May, 1997 is by
and between TEXAS COMMERCE BANK - SAN ANGELO, NATIONAL ASSOCIATION, organized
under the laws of the United States of America and having its principal place of
business in San Angelo, Texas ("Seller"), and SOUTHWEST BANK OF SAN ANGELO,
organized under the laws of the State of Texas and having its principal place of
business in San Angelo, Texas ("Assuming Bank").
WITNESSETH:
WHEREAS, Seller desires to sell certain of the assets and liabilities of
its branches located at 301 W. Beauregard, San Angelo, Texas, 222 South
Koenighein Street, San Angelo, Texas, and 3399 Knickerbocker, San Angelo, Texas
(collectively, the "Purchased Branches"); and
WHEREAS, Seller and a to-be-formed wholly-owned direct subsidiary trust
company of Seller (the "Subsidiary Trust Company") intend to enter into an
agreement (the "Trust Business Transfer Agreement") pursuant to which Seller
would, following the expiration of certain waiting periods, transfer the
safekeeping operations and trust business of Seller to the Subsidiary Trust
Company; and
WHEREAS, Seller desires to sell and the Assuming Bank, desires to purchase
(i) the banking business of Seller, other than Seller's controlled disbursement
business, and (ii) the trust business of Seller by acquiring the stock of the
Subsidiary Trust Company, on the terms and conditions set forth in this
Agreement;
WHEREAS, the Assuming Bank intends to convert into a national bank to be
known as "San Angelo National Bank" and will be subject to the same rights and
obligations as it had prior to such conversion;
NOW THEREFORE, in consideration of the mutual promises herein set forth and
other valuable consideration, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used herein, words imparting the singular include the plural and vice
versa.
"ACH" means automated clearing house.
---
"ACQUIRED ASSETS" means, without duplication, the operating assets of the
---------------
Purchased Branches as of the date immediately preceding the Closing Date other
than the Trust Business and the Excluded Assets including (i) all Loans of the
Purchased Branches other than Loans which are
<PAGE>
Exhibit 2.2
Excluded Assets, (ii) Bank Premises, Furniture (including works of art,
paintings, etc.) and Equipment, and Fixtures including, but not limited to, all
Furniture and Equipment and Fixtures identified on Schedule 3.1 hereto, (iii)
------------
the stock of all Subsidiaries, (iv) petty cash tickets and cash float related to
the Purchased Branches on the Closing Date, and (v) all rights of Seller to the
use of the name "San Angelo National Bank.
"AFFILIATES" of a person means any director, officer or employee of such
----------
Person and any other Person (i) who is directly or indirectly controlling, or
controlled by, or under common control with, such Person, or (ii) who is an
affiliate of such Person as the term "affiliate" is defined in Section 2 of the
Bank Holding Company Act of 1956, as amended.
"AGREEMENT" means this Purchase and Assumption Agreement by and between
---------
Seller and the Assuming Bank, as amended or otherwise modified from time to
time.
"ASSUMED COMMITMENTS" means all commitments and all amendments,
-------------------
modifications, renewals, and extensions thereof, as reflected on the books and
records of the Purchased Branches, that were legally binding on the Seller as of
the Closing Date.
"ASSUMED CONTRACTS" shall have the meaning provided in Section 2.3 of this
-----------------
Agreement.
"ASSUMING BANK" shall have the meaning provided in the recitals on page one
-------------
of this Agreement.
"BANK PREMISES" means the banking and teller facilities (staffed or
-------------
automated) together with appurtenant storage and service facilities, that are
owned or leased by Seller which relate to the Purchased Branches.
"BOOK VALUE" means, with respect to any Acquired Asset and any Liability
----------
Assumed, the dollar amount thereof stated on the accounting records of Seller.
The Book Value of any item shall be determined as of the Closing Date after
adjustments made by Seller for differences in accounts, suspense items, unposted
debits and credits, and other similar adjustments or corrections. Without
limiting the generality of the foregoing, the Book Value of (i) a Liability
Assumed shall include all accrued and unpaid interest thereon as of the Closing
Date, (ii) a Loan shall reflect adjustments for earned or unearned interest (as
it relates to the "rule of 78s" or add-on interest loans, as applicable), if
any, as of the Closing Date, and adjustments for the portion of earned or
unearned loan-related credit life and/or disability insurance premiums, if any,
attributable to Seller as of the Closing Date, in each case as determined for
financial reporting purposes, and (iii) an Assumed Commitment shall be deemed to
be zero. Subject to the following sentence, the Book Value of an Acquired Asset
shall not include any adjustment for loan premiums, discounts, or any related
deferred income or fees, or other general or specific reserves on the Accounting
Records of Seller. The Book Value of an indirect automobile loan shall be the
loan amount, plus the premium, less the credit attributable to such loan.
2
<PAGE>
Exhibit 2.2
"BUSINESS DAY" means a day other than (i) a Saturday, Sunday, Federal legal
------------
holiday, or legal holiday under the laws of the State of Texas, or (ii) a day on
which the principal office of Seller is closed.
"CLOSING" shall have the meaning provided in Section 7.3 of this Agreement.
-------
"CLOSING DATE" shall have the meaning provided in Section 7.3 of this
------------
Agreement.
"CLOSING BALANCE SHEET" shall have the meaning provided in Section 7.1 of
---------------------
this Agreement.
"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of
-----
1985, as amended.
"COMMITMENT" shall have the meaning provided in Section 4.1 of this
----------
Agreement.
"CONFIDENTIALITY AGREEMENT" shall have the meaning provided in Section 11.
-------------------------
l(f).
"CONTROLLED DISBURSEMENT DEPOSITS" means all Deposit accounts used for the
--------------------------------
express purpose of providing account holders with same day notification of
checks being presented for payment, including any balances in the accounts and
any overdrafts associated with the accounts. Without limiting the foregoing,
Controlled Disbursement Deposits include account numbered as follows, where "X"
is any digit, including "0":
"DEPOSIT" means a deposit, other than the Controlled Disbursement Deposits,
-------
as defined in 12 U.S.C. Section 1813(1), including, without limitation, all
uncollected items included in the depositors' balances and credited on the books
of the Purchased Branches.
"EXCLUDED ASSETS" shall have the meaning provided in Section 3.3 of this
---------------
Agreement.
"FIXTURES" means those leasehold improvements, additions, alterations and
--------
installations constituting all or a part of Bank Premises and which were
acquired, added, built, installed, or purchased at the expense of Seller,
regardless of the holder of legal title thereto as of the Closing Date.
"FURNITURE AND EQUIPMENT" means the furniture and equipment, leased or
-----------------------
owned by Seller and used by the Purchased Branches and reflected on the
accounting records of Seller as of
3
<PAGE>
Exhibit 2.2
the Closing Date, including, without limitation, the furniture and equipment
listed on Schedule 3.1 and all other carpeting, furniture, office machinery
------------
(including personal computers), shelving, office supplies, telephone,
surveillance, and security systems, and artwork.
"GOVERNMENTAL AUTHORITY" means any foreign governmental authority, the
----------------------
United States of America, any State of the United States, any local authority
and any political subdivision of any of the foregoing, any multi-national
organization or body, any agency, department, commission, board, bureau, court
or other authority thereof, or any quasi-governmental or private body
exercising, or purporting to exercise, any executive, legislative, judicial,
administrative, police, regulatory or taxing authority or power of any nature.
"INQUIRIES" shall have the meaning provided in Section 6.3 of this
---------
Agreement.
"INTERIM BALANCE SHEET" shall have the meaning provided in Section 7.1 of
---------------------
this Agreement.
"KNOWLEDGE" or "KNOWN" means an individual shall be deemed to have
--------- -----
"knowledge" of or to have "known" a particular fact or other matter if such
individual is actually aware of such fact or other matter. Seller shall be
deemed to have "knowledge" of or to have "known" a particular fact or other
matter if any individual who is serving as an executive vice president or more
senior officer of Seller has, or at any time had, actual awareness of such fact
or other matter.
"LIABILITIES ASSUMED" shall have the meaning provided in Section 2.1 of
-------------------
this Agreement.
"LIENS" means any mortgage, lien, pledge, charge, assignment for security
-----
purposes, security interest, or encumbrance of any kind with respect to an
Acquired Asset, including any conditional sale agreement or capital lease or
other title retention agreement relating to such Acquired Asset.
"LOANS" means all of the following owed to or held by the Purchased
-----
Branches as of the Closing Date and reflected on the Closing Balance Sheet:
(i) loans, interests in loan participations, funded portions of
lines of credit or credit plans (whether revolving or not, and whether
commercial or consumer), consumer loans, residential mortgage loans,
overdrafts (except those related to Controlled Disbursement Deposits) of
customers (including but not limited to overdrafts made pursuant to an
overdraft protection plan, cash reserve accounts, or similar extensions of
credit in connection with a demand deposit account), and United States
and/or state-guaranteed student loans;
(ii) all Liens, rights (including rights of set-off), remedies,
powers, privileges, demands, claims, priorities, equities and benefits
owned or held by, or accruing or to accrue to or for the benefit of, the
holder of the obligations or instruments referred to in clause (i) above,
including, but not limited to, those arising under or based upon the credit
documents, casualty insurance policies and binders, standby letters of
credit, mortgagee
4
<PAGE>
Exhibit 2.2
title insurance policies and binders, payment bonds and performance bonds
at any time and from time to time existing with respect to any of the
obligations or instruments referred to in clause (i) above; and
(iii) all written amendments, modifications, renewals, extensions,
refinancings, and refundings of or for any of the foregoing.
"MATERIAL ADVERSE EFFECT" shall mean any material adverse change in the
-----------------------
financial condition, assets, liabilities (absolute, accrued, contingent or
otherwise), reserves, business or results of operations.
"PERMITTED ENCUMBRANCES" shall mean with respect to any Acquired Assets,
----------------------
(i) statutory liens for taxes and special assessments not yet delinquent, (ii)
covenants and restrictions, right-of-way, easements and other matters of public
record (other than liens created by Seller), (iii) any and all provisions of any
ordinance, municipal regulation or public law, and (iv) other matters to which
like properties commonly are subject which does not, individually or in the
aggregate, materially interfere with the current use of such Acquired Asset.
"PERSON" means any individual, corporation, partnership, joint venture,
------
association, joint-stock company, trust, unincorporated organization or other
entity, or government or any agency or political subdivision thereof.
"PURCHASE PRICE" shall have the meaning provided in Section 7.1 of this
--------------
Agreement.
"QUALIFIED BENEFICIARIES" shall have the meaning provided in COBRA.
-----------------------
"RECORD" means any document, microfiche, microfilm and computer record
------
(including but not limited to magnetic tape, disc storage, card forms and
printed copy) of the Purchased Branches relating to any of the Acquired Assets
or Liabilities Assumed.
"SAFE DEPOSIT BOXES" shall mean the safe deposit boxes of the Purchased
------------------
Branches, if any, including the removable safe deposit boxes and safe deposit
stacks in the Purchased Branches vault(s), all rights and benefits under rental
agreements with respect to such safe deposit boxes, and all keys and
combinations thereto.
"SELLER'S RELATED PARTIES" shall have the meaning provided in Section 13.2
------------------------
of this Agreement.
"SHARED PREMISES AGREEMENT" shall have the meaning provided in Section 4.4
-------------------------
of this Agreement.
"SUBSIDIARY" shall have the meaning provided in 12 U.S.C. Section
----------
1813(w)(4).
"SUBSIDIARY TRUST COMPANY" shall have the meaning provided in the recitals
------------------------
on page one of this Agreement.
5
<PAGE>
Exhibit 2.2
"SUBSIDIARY TRUST COMPANY STOCK " shall mean all the issued and outstanding
-------------------------------
capital stock of the Subsidiary Trust Company.
"TRUST BUSINESS" shall mean such of Seller's assets as are to be acquired
--------------
by the Subsidiary Trust Company from Seller pursuant to the Trust Business
Transfer Agreement.
"TRUST BUSINESS TRANSFER AGREEMENT" shall have the meaning provided in the
---------------------------------
recitals on page one of this Agreement.
"TRUST BUSINESS TRANSFER DATE" shall mean the date of consummation of the
----------------------------
Trust Business Transfer Agreement.
"WELFARE BENEFIT PLANS" shall have the meaning provided in Section 3(1) of
---------------------
the Employee Retirement Income Security Act of 1974, as amended.
ARTICLE II
ASSUMPTION OF LIABILITIES AND OBLIGATIONS
2.1 LIABILITIES ASSUMED BY THE ASSUMING BANK. Effective as of the
-----------------------------------------
Closing Date, except as otherwise provided in this Agreement, the Assuming Bank
hereby expressly assumes at Book Value and agrees to pay, perform, and discharge
(i) all liabilities of Seller in respect of Deposits of the Purchased Branches
as of the Closing Date, (ii) ad valorem taxes applicable to any Acquired Asset,
if any, and pro-rated as of the Closing Date (iii) liabilities with respect to
Assumed Commitments, (iv) liabilities with respect to the Assumed Contracts, and
(v) other liabilities, if any, with respect to the Purchased Branches, the
Deposits, the safekeeping and safe deposit businesses, and the Acquired Assets
which are directly attributable to and used in the business of the Purchased
Branches as reflected on the accounting records of Seller as of the Closing Date
(collectively, the "Liabilities Assumed"). Expenses related to Federal Deposit
Insurance Corporation premiums of the Purchased Branches shall be prorated as of
the Closing Date.
2.2 INTEREST ON DEPOSITS. The Assuming Bank agrees that, from and
---------------------
after the Closing Date, it will accrue and pay interest on Deposits assumed
under this Agreement at the rate(s) at which Seller was legally obligated to
accrue and pay interest on such Deposits as of the Closing Date.
2.3 ASSUMPTION OF CONTRACTS. Attached hereto as Schedule 2.3 is a list
------------------------ ------------
of all contracts, agreements, and other obligations (the "Assumed Contracts") to
which Seller is a signatory that relate specifically to the operation of the
Purchased Branches, other than those relating to the Deposits or the safe
deposit box contracts with customers, including without limitation, service
contracts, maintenance contracts, consulting contracts, agency agreements and
licensing agreements (but excluding contracts that relate to Seller's bank
operations generally and that are not being assumed by the Assuming Bank);
provided, however, that if Seller notifies the
6
<PAGE>
Exhibit 2.2
Assuming Bank not later than thirty (30) days prior to the Closing Date that one
or more of such contracts or agreements may not be legally assigned, Seller
shall not be required to assign such contracts or agreements at Closing and
shall have no liability to the Assuming Bank as a result of its inability to
accomplish such assignments.
2.4 INFORMATIONAL TAX REPORTING. Effective as of the Closing Date, the
----------------------------
Assuming Bank agrees to perform all obligations of Seller with respect to
federal and state income tax informational reporting with respect to the
Purchased Branches including, but not limited to filing obligations with respect
to Forms 940, 941, 1099, 1098, W-2 and back up withholding related to (i) the
Acquired Assets and the Liabilities Assumed; (ii) Deposit accounts and Loans
that were closed and Loans that were paid off or collateral obtained with
respect thereto prior to the Closing Date; and (iii) for periods after the
Closing Date, compensation paid to employees and contractors of the Purchased
Branches. Seller and the Assuming Bank agree to cooperate with each other in
order to fulfill the reporting obligations set forth herein and Seller agrees to
provide to the Assuming Bank information that it has in its possession to permit
the Assuming Bank to perform such reporting obligations.
ARTICLE III
PURCHASE OF ASSETS
3.1 ASSETS PURCHASED BY THE ASSUMING BANK. Effective as of the Closing Date
-------------------------------------
and subject to Section 3.3, the Assuming Bank shall purchase from Seller, and
Seller shall sell, assign, transfer, convey, and deliver to the Assuming Bank,
all right, title, and interest of Seller in and to (i) the Acquired Assets and
(ii) on the Trust Business Transfer Date, Seller will grant, bargain, sell,
convey, transfer, assign and deliver to the Assuming Bank and the Assuming Bank
will purchase and acquire, effective as of such date, certificates representing
the Subsidiary Trust Company Stock duly endorsed or accompanied by appropriate
stock transfer powers duly executed.
3.2 MANNER OF CONVEYANCE; LIMITED WARRANTY; NONRECOURSE: ETC. THE
---------------------------------------------------------
CONVEYANCE OF ALL ACQUIRED ASSETS, INCLUDING REAL AND PERSONAL PROPERTY
INTERESTS, PURCHASED BY THE ASSUMING BANK UNDER THIS AGREEMENT SHALL BE MADE, AS
NECESSARY, BY DEED OR BILL OF SALE, "AS IS", "WHERE IS", WITHOUT RECOURSE AND,
EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN THIS AGREEMENT, WITHOUT ANY
WARRANTIES WHATSOEVER WITH RESPECT TO SUCH ACQUIRED ASSETS, EXPRESS OR IMPLIED,
WITH RESPECT TO TITLE, ENFORCEABILITY, COLLECTIBILITY, DOCUMENTATION, CONDITION,
QUALITY, PERFORMANCE, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR
FREEDOM FROM LIENS OR ENCUMBRANCES (IN WHOLE OR IN PART), OR ANY OTHER MATTERS.
3.3 ASSETS NOT PURCHASED BY THE ASSUMING BANK. The Assuming Bank does
------------------------------------------
not purchase, or obtain an option to purchase under this Agreement, any of the
following (the "Excluded Assets"):
7
<PAGE>
Exhibit 2.2
(a) any financial institution bonds, banker's blanket bonds, or any
other similar insurance policy of Seller, or any proceeds payable with
respect to any of the foregoing;
(b) any interest, right, action, claim, or judgment of Seller against
(i) any officer, director, employee, accountant, attorney, or any other
Person employed or retained by Seller or any Subsidiary of Seller on or
prior to the Closing Date arising out of any act or omission of such Person
in such capacity, (ii) any underwriter of financial institution bonds,
banker's blanket bonds or any other insurance policy of Seller, (iii) any
shareholder or holding company of Seller, or (iv) any other Person whose
action or inaction may be related to any loss (exclusive of any loss
resulting from such Person's failure to pay on a Loan on the books of the
Purchased Branches) incurred by Seller; provided, that for the purposes
--------
hereof, the acts, omissions, or other events giving rise to any such claim
shall have occurred on or before the Closing Date, regardless of when any
such claim is discovered and regardless of whether any such claim is made
with respect to a financial institution bond, banker's blanket bond, or any
other insurance policy of Seller in force as of the Closing Date;
(c) legal or equitable interests in tax receivables of Seller
(deferred tax asset as reflected on the books of Seller), if any, including
any claims arising as a result of Seller, as the case may be, having
entered into any agreement or otherwise being joined with another Person
with respect to the filing of tax returns or the payment of taxes;
(d) insurance policies and agreements and the rights and benefits
thereunder (including any prepaid assessments or prepaid insurance
premiums, premium refunds derived from cancellation, proceeds payable with
respect to any of the foregoing, and collateral pledged under such
agreements and any rights to such collateral) of Seller with respect to
insurance coverage for public liability, casualty, fire, extended coverage,
and similar coverage provided with respect to assets of Seller;
(e) any rights in or to any trademarks, service marks, copyrights, and
trade, corporate, or fictitious names registered in the name of or owned by
Seller or any of its Affiliates;
(f) any overdrafts resulting from Controlled Disbursement Deposits;
(g) recoveries from legal actions or claims filed in any legal
proceedings, including without limitation, bankruptcy and administrative
proceedings, before the Closing Date;
(h) any cash, cash float or investments relating to the Controlled
Disbursement Deposits;
8
<PAGE>
Exhibit 2.2
(i) any Loans, or portions thereof, charged-off or designated for
charge-off prior to the Closing Date, and any recoveries on Loans charged-
off or designated for charge-off prior to the Closing Date; and
(j) any investment securities owned by Seller.
3.4 EXCLUSION OF CERTAIN SPECIFIC LOANS. Prior to the Closing Date,
------------------------------------
the Assuming Bank may exclude from the Loans to be purchased (i) Loan Number
6350680-9001 (New York Plaza, Ltd.); and (ii) any indirect consumer loans with a
score below 630 under Seller's current loan classification system.
ARTICLE IV
BANK PREMISES; SAFE DEPOSIT BOXES;
SAFEKEEPING BUSINESS; TRUST BUSINESS
4.1 BANK PREMISES. At Closing, Seller agrees to execute and deliver to
--------------
the Assuming Bank special warranty deeds for Bank Premises in substantially the
form of Exhibit A attached hereto. The Assuming Bank may receive, at its
---------
expense, a Commitment for Title Insurance (the "Commitment") and copies of all
recorded instruments affecting title to the Bank Premises and recited as
exceptions in the Commitment for the issuance of a Owner Policy of Title
Insurance, insuring good and indefeasible title in the Bank Premises as of the
date of Closing, subject to: (i) the standard printed exceptions contained in
the usual form of title policy; (ii) rights of parties in possession; (iii)
standby fees, taxes and assessments for the current year and subsequent years,
and subsequent assessments for prior years due to a change in land usage or
ownership; (iv) any discrepancies, conflicts or shortages in area or boundary
lines, or any encroachments or protrusions, or any overlapping of improvements;
(v) covenants, restrictions, conditions, reservations, exceptions and easements
shown of record; (vi) oil, gas, mineral and royalty conveyances, and leases of
record, if any, in effect and shown of record; (vii) other conditions and
encumbrances validly subsisting and affecting title to the Bank Premises as of
the date of Closing; and (viii) all other matters to which like properties
similarly situated are commonly subject, which do not, individually or in the
aggregate. materially interfere with the current use of the Bank Premises.
4.2 AGREEMENT WITH RESPECT TO SAFE DEPOSIT BUSINESS. The Assuming Bank
------------------------------------------------
hereby assumes and agrees to discharge, from and after the Closing Date, in the
usual course of conducting a banking business, the duties and obligations of
Seller with respect to all Safe Deposit Boxes, if any, of the Purchased Branches
and to maintain all of the necessary facilities for the use of such boxes by the
renters thereof during the period for which such boxes have been rented and the
rent therefor paid to Seller, subject to the provisions of the rental agreements
between Seller, as the case may be, and the respective renters of such boxes.
4.3 AGREEMENT WITH RESPECT TO SAFEKEEPING BUSINESS. Effective as of
-----------------------------------------------
the Closing Date, Seller hereby transfers, conveys and delivers to the Assuming
Bank and the Assuming Bank accepts all securities and other items, if any, held
by the Purchased Branches in safekeeping for its
9
<PAGE>
Exhibit 2.2
customers as of the Closing Date. The Assuming Bank assumes and agrees to honor
and discharge, from and after the Closing Date, the duties and obligations of
Seller with respect to such securities and items held in safekeeping by the
Purchased Branches. The Assuming Bank shall be entitled to all rights and
benefits heretofore accrued or hereafter accruing with respect thereto.
4.4 CONTINUATION OF TRUST BUSINESS.
-------------------------------
(a) During the period following the Closing Date and prior to the
consummation of the Trust Business Transfer Agreement, Seller shall
continue to operate in the ordinary course Seller's Trust Business,
including administration and servicing of all trusts, executorships,
administrations, guardianships, agency and other fiduciary and
representative capacities. Administrative activities shall be conducted on
the premises of the Purchased Branches in conformance with the agreement
set forth in an agreement mutually agreeable to Seller and the Assuming
Bank (the "Shared Premises Agreement"). Pending the Trust Business Transfer
Date, Seller shall continue to provide services in support of the Trust
Business, as currently provided. From the Closing Date to the Trust
Business Transfer Date, Seller shall pay to Assuming Bank rent in respect
of the premises of the Purchaser or the Transferred Branches occupied by
Seller for the purposes described in this Section 4.4 on the terms
described in the Shared Premises Agreement.
(b) During the period referred to in Subsection (a) above, Seller
shall maintain separate records with respect to the trust operations which
are the subject of the Trust Business Transfer Agreement.
4.5 TENANT LEASES. Seller shall have the authority to negotiate for
--------------
renewal the tenant leases associated with the Bank Premises at current
market rates provided that any renewal for a term in excess of one year, or
providing for renewal solely at Tenant's option, shall be agreed to by the
Assuming Bank.
ARTICLE V
DUTIES WITH RESPECT TO DEPOSITORS OF THE PURCHASED BRANCHES
5.1 PAYMENT OF CHECKS, DRAFTS AND ORDERS. Effective as of the Closing
-------------------------------------
Date and subject to Section 8.3, the Assuming Bank agrees to pay all properly
drawn checks, drafts and withdrawal orders presented for payment by depositors
of the Purchased Branches, whether drawn on the check or draft forms provided by
Seller or the Assuming Bank, to the extent that the Deposit balances to the
credit of the respective makers or drawers assumed by the Assuming Bank under
this Agreement are sufficient to permit the payment thereof, and in all other
respects to discharge, in the usual course of conducting a banking business, the
duties and obligations of Seller with respect to the Deposit balances due and
owing to the depositors of the Purchased Branches assumed by the Assuming Bank
under this Agreement.
10
<PAGE>
Exhibit 2.2
5.2 CERTAIN AGREEMENTS RELATED TO DEPOSITS. Effective as of the Closing
---------------------------------------
Date and subject to Section 2.2, the Assuming Bank agrees to honor the terms and
conditions of any written escrow or mortgage servicing agreement or other
similar agreement relating to a Deposit assumed by the Assuming Bank pursuant to
this Agreement.
5.3 CORRESPONDENT BANKING RELATIONSHIP. For a period not to exceed
-----------------------------------
ninety (90) days after Closing Date, Seller agrees to receive all items
(including, but not limited to ACH items) which contain Seller's transit routing
number that are drawn on and presented for payment against a Deposit account of
the Purchased Branches. Such items which Seller receives with respect to the
Purchased Branches Deposit accounts shall be promptly transmitted on their
respective settlement dates to the Assuming Bank. The Assuming Bank agrees to
promptly send to the appropriate Federal Reserve Bank any return items. The
Assuming Bank further agrees to issue and furnish to Seller notifications of
change with respect to each ACH item received containing Seller's transit
routing number drawn against a Deposit account of the Purchased Branches and
Seller agrees to submit a notification of change to the appropriate Federal
Reserve Bank. Seller and the Assuming Bank both agree to comply with applicable
clearinghouse association rules, Regulation CC of the Board of Governors of the
Federal Reserve System and any other applicable law.
ARTICLE VI
RECORDS
6.1 TRANSFER OF RECORDS.
--------------------
(a) Effective as of the Closing Date, Seller shall assign, transfer,
convey and deliver to the Assuming Bank the following Records pertaining to
the Deposits of the Purchased Branches assumed by the Assuming Bank under
this Agreement, except as provided in Section 6.4:
(i) signature cards, orders, contracts between the Seller and
the depositors of the Purchased Branches, and Records of similar
character pertaining to the Deposit account relationships of the
Purchased Branches;
(ii) passbooks of depositors of the Purchased Branches, deposit
slips, canceled checks and withdrawal orders representing charges to
accounts of depositors;
and the following Records pertaining to the Acquired Assets:
(iii) Loan and collateral records and credit documents and other
documents;
(iv) deeds, mortgages, abstracts, surveys, and other instruments
or records of title pertaining to real estate or real estate
mortgages, if any;
11
<PAGE>
Exhibit 2.2
(v) safe deposit box agreements and safekeeping agreements, if
any;
and all other Records (i) pertaining to the Acquired Assets or Liabilities
Assumed and (ii) which are required for the Assuming Bank to perform its
obligations under Section 2.4 hereof.
(b) Seller, at Assuming Bank's request, shall provide Assuming Bank,
or provide Assuming Bank access to, any other Records relating to the
Purchased Branches not assigned and transferred to the Assuming Bank as
provided in this Agreement including but not limited to loan disbursement
checks and paid out loan files, to the extent not transferred under Section
6.1 (a).
6.2 DELIVERY OF ASSIGNED RECORDS. Seller shall deliver to the Assuming
-----------------------------
Bank all Records described in (i) Section 6.1 (a) as soon as practicable on or
after the Closing Date, and (ii) Section 6.1(b) as soon as practicable after
making any assignment described therein.
6.3 PRESERVATION OF RECORDS. The Assuming Bank agrees that it will
------------------------
preserve and maintain for the joint benefit of, Seller and the Assuming Bank,
all Records of which it has custody for such period as may be required by law or
regulation. The Assuming Bank shall have the primary responsibility to respond
to subpoenas, discovery requests, and other similar official inquiries
("Inquiries") with respect to the Records of which it has custody. Seller shall
have primary responsibility to respond to Inquiries with respect to the Records
of which it has custody. Seller and Assuming Bank agree to provide to each other
copies of all Inquiries delivered to Seller or the Assuming Bank promptly upon
determination that such Inquiry relates to the Purchased Branches.
6.4 ACCESS TO RECORDS; COPIES. Subject to applicable law, the Assuming
--------------------------
Bank agrees to permit Seller access to all Records of which the Assuming Bank
has custody, and to use, inspect, make extracts from or request copies of any
such Records in the manner and to the extent requested, and to duplicate, any
Record in the form of microfilm or microfiche pertaining to Deposit account
relationships of the Purchased Branches. The party requesting a copy of any
Record shall bear the cost (based on standard accepted industry charges to the
extent applicable) for providing such duplicate Records. A copy of each Record
requested shall be provided as soon as practicable by the party having custody
thereof.
12
<PAGE>
Exhibit 2.2
ARTICLE VII
PURCHASE PRICE; CLOSING
7.1 PURCHASE PRICE FOR BANKING BUSINESS.
------------------------------------
(a) The purchase price ("Purchase Price") of the Acquired Assets shall
equal the sum of (a) an amount (which may be negative) determined by Seller
and the Assuming Bank pursuant to Articles II and III equal to the
aggregate Book Value of the Acquired Assets, minus the aggregate Book Value
-----
of the Liabilities Assumed which shall be reflected on a balance sheet
dated as of the Closing Date ("Closing Balance Sheet"), plus (b) a premium
----
of $ 16,800,000.
(b) For the purpose of the Closing, the amount due Seller or the
Assuming Bank, respectively, pursuant to subsection (a) hereof shall be
estimated ("Interim Balance Sheet") and a settlement payment ("Settlement
Payment") shall be made at Closing based upon the Interim Balance Sheet.
Within 10 business days after the Closing Date, or at such time as the
parties may mutually agree, Seller and the Assuming Bank shall jointly
determine the actual settlement payment required by subsection (a) above,
as applicable, based upon Seller's accounting records as of the close of
business on the Closing Date ("Closing Balance Sheet"), and make
appropriate adjustments.
7.2 FORM OF PAYMENT. The Settlement Payment shall be made in immediately
----------------
available funds on the Closing Date by the Assuming Bank if the Settlement
Payment is a positive number and by Seller if the Settlement Payment is a
negative number.
7.3 CLOSING. Unless this Agreement shall have been terminated and the
--------
transactions herein contemplated shall have been abandoned pursuant to the
provisions of Section 14.11, and subject to the conditions of Article IX hereof,
the closing (the "Closing") of the purchase and assumption of the Acquired
Assets and Liabilities Assumed as provided by Sections 2.1 and 3.1 (i) shall
take place at 10:00 a.m., Houston, Texas time, at the offices of Liddell, Sapp,
Zivley, Hill & LaBoon, L.L.P., on a mutually agreeable date within thirty (30)
days after receipt of all regulatory approvals, the expiration of all waiting
periods and the satisfaction of all conditions to Closing under this Agreement,
or at such other place, time and date as the parties may agree, but in no event
prior to September 25, 1997. The date and time of the Closing are herein
referred to as the "Closing Date." For purposes of this Agreement, the Closing
shall be deemed to be effective immediately following the close of business on
the date on which the Closing shall occur.
7.4 TRUST COMPANY CLOSING; PAYMENT. The closing of the transactions
-------------------------------
contemplated by Section 3.1(ii) shall take place at 10:00 am., Houston, Texas
time, at the offices of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., on the
Trust Business Transfer Date. On the terms and subject to the conditions of this
Agreement, on the Trust Business Transfer Date the Assuming Bank shall, against
delivery of certificates representing the Subsidiary Trust Company Stock as
provided in Section 3.1 (ii), pay to Seller to such account as Seller shall have
designated in writing to the Assuming Bank prior to the Trust Business Transfer
Date funds immediately available in
13
<PAGE>
Exhibit 2.2
Houston, Texas in an amount equal to the Book Value of the Subsidiary Trust
Company Stock as of the Trust Business Transfer Date.
ARTICLE VIII
CONTINUING COOPERATION
8.1 GENERAL MATTERS. The parties hereto agree that they will, in good
----------------
faith and with their best efforts, cooperate with each other to carry out the
transactions contemplated by this Agreement and to effect the purposes hereof.
8.2 ADDITIONAL TITLE DOCUMENTS. Seller and the Assuming Bank each
---------------------------
agree, at any time, and from time to time, upon the request of any party hereto,
to execute and deliver such additional instruments and documents of conveyance
as shall be reasonably necessary to vest in the appropriate party its full legal
or equitable title in and to the property transferred pursuant to this Agreement
or to be transferred in accordance herewith. The Assuming Bank shall prepare
such instruments and documents of conveyance (in form and substance satisfactory
to Seller) as shall be necessary to vest title in the Assuming Bank to the
Acquired Assets. The Assuming Bank shall be responsible for recording such
instruments and documents of conveyance at its own expense.
8.3 PAYMENT OF DEPOSITS. In the event any depositor does not accept the
--------------------
obligation of the Assuming Bank to pay any Deposit of the Purchased Branches
assumed by the Assuming Bank pursuant to this Agreement and asserts a claim
against Seller for all or any portion of any such Deposit, the Assuming Bank
agrees on demand to provide to Seller, as the case may be, funds sufficient to
pay such claim in an amount not in excess of the Deposit reflected on the books
of the Assuming Bank at the time such claim is made. Upon payment of such amount
by the Assuming Bank to Seller, as the case may be, the Assuming Bank shall be
discharged from any further obligation under this Agreement to pay to any such
depositor the amount of such Deposit paid to Seller. Notwithstanding the
foregoing, the Assuming Bank shall not be required to refund any amount in
excess of collected funds, provided that any provisional or conditional deposits
received by the Assuming Bank that become collected funds subsequent to the date
of the original refund shall also be refunded to Seller.
ARTICLE IX
CONDITIONS PRECEDENT
9.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective obligations
----------------------------------------
of each party under this Agreement are subject to the fulfillment at or prior to
the Closing Date of the condition precedent that no preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a Governmental Authority nor any statute, rule, regulation or
executive order promulgated or enacted by any Governmental Authority shall be in
effect enjoining or otherwise materially impairing the consummation of the
transactions contemplated by this Agreement.
14
<PAGE>
Exhibit 2.2
9.2 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF THE ASSUMING BANK. The
--------------------------------------------------------------
obligations of the Assuming Bank are also subject to fulfillment (or waiver by
the Assuming Bank) at or prior to the Closing Date of each of the following
conditions precedent:
(a) Representations and Warranties True. The representations and
-----------------------------------
warranties of Seller contained in Section 10.1 of this Agreement shall be
true and correct as of the date hereof and as of the Closing Date (other
than any inaccuracies which individually or in the aggregate would not
materially and adversely affect the ability of Seller to perform, satisfy
or observe any obligation or condition under this Agreement) as though made
at and as of the Closing Date, except to the extent that they expressly
refer to an earlier time.
(b) Performance of Covenants. Seller shall have duly performed and
------------------------
complied in all material respects with each covenant, agreement and
condition required by this Agreement to be performed or complied with by it
prior to or on the Closing Date.
(c) Regulatory Approvals. All regulatory approvals necessary for the
--------------------
consummation by the Assuming Bank of the sale and assumption contemplated
by this Agreement shall have been obtained and be in full force and effect,
and all required waiting periods shall have expired or been terminated.
(d) Officer's Certificate. The Assuming Bank shall have received from
---------------------
a duly authorized senior officer of Seller a certificate as to the matters
described in Sections 9.3(a) and 9.3(b).
(e) Bill of Sale and Assignment. The Assuming Bank shall have received
---------------------------
from Seller a bill of sale and assignment in substantially the form of
Exhibit B attached hereto.
(f) Closing Schedule. The Assuming Bank shall have received Schedule
----------------
3. 1.
(g) No Material Adverse Effect. Nothing shall have occurred which has
--------------------------
a Material Adverse Effect with respect to the Purchased Branches since the
date hereof.
(h) Environmental. The Assuming Bank shall have received a Phase I
-------------
Environmental Site Assessment, obtained at its expense ("Phase I
Investigation") from an environmental consultant acceptable to Seller,
which Phase I Investigation does not identify the presence of a hazardous
substance at the Purchased Branches (i) which was not previously disclosed
to the Assuming Bank by Seller, and (ii) which will have a Material Adverse
Effect on the Purchased Branches.
(i) Opinion. The Assuming Bank shall have received an opinion of
-------
counsel to Seller as to the due issuance of stock in the Subsidiary Trust
Company to Seller.
15
<PAGE>
Exhibit 2.2
9.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF SELLER. The obligations
---------------------------------------------------
of Seller are also subject to fulfillment (or waiver by Seller) at or prior to
the Closing Date of each of the following conditions precedent:
(a) Representations and Warranties True. The representations and
-----------------------------------
warranties of the Assuming Bank contained in Section 10.2 of this Agreement
shall be true and correct as of the date hereof and as of the Closing Date
(other than any inaccuracies which would not materially and adversely
affect the ability of the Assuming Bank to perform, satisfy or observe any
obligation or condition under this Agreement) as though made at and as of
the Closing Date, except to the extent they expressly refer to an earlier
time.
(b) Performance of Covenants. The Assuming Bank shall have duly
------------------------
performed and complied in all material respects with each covenant,
agreement and condition required by this Agreement to be performed or
complied with by it prior to or on the Closing Date.
(c) Regulatory Approvals. All regulatory approvals necessary for the
--------------------
consummation by the Assuming Bank of the sale and assumption contemplated
by this Agreement shall have been obtained and be in full force and effect,
and all required waiting periods shall have expired or been terminated. All
regulatory approvals necessary for Seller to become a national bank limited
to controlled disbursement and fiduciary activities shall have been
obtained and be in full force and effect.
(d) Officer's Certificate. Seller shall have received from a duly
---------------------
authorized senior officer of the Assuming Bank a certificate as to the
matters described in Sections 9.3(a), 9.3(b) and 9.3(c).
(e) Instrument of Assumption. Seller shall have received from the
------------------------
Assuming Bank an instrument of assumption in substantially the form of
Exhibit C attached hereto.
9.4 CONDITIONS TO TRANSFER OF SUBSIDIARY TRUST COMPANY.
---------------------------------------------------
(a) Compliance. Seller shall have complied in all material respects
----------
with its covenants and agreements contained in this Agreement and the
Subsidiary Trust Company Agreement, if any, which are required to be
performed or complied with by it on or prior to the Trust Business Transfer
Date.
(b) Accuracy of Representations and Warranties. The representations
------------------------------------------
and warranties of Seller contained in Section 10. 1(i) shall be true and
correct in all material respects at and as of the Trust Business Transfer
Date as if made at and as of the Trust Business Transfer Date.
(c) Satisfaction of Conditions; Consummation. The conditions precedent
----------------------------------------
to the consummation of the Trust Business Transfer Agreement shall have
been satisfied without
16
<PAGE>
Exhibit 2.2
waiver, amendment or other modification, and such consummation shall have
occurred immediately prior to the purchase of the Subsidiary Trust Company
Stock.
(d) Legal or Governmental Proceedings. No suit, action, investigation,
---------------------------------
inquiry or other proceeding by any governmental body or other Person or
legal or administrative proceeding shall have been instituted or threatened
which questions the validity or legality of the Assuming Bank's purchase of
the Subsidiary Trust Company Stock and which could reasonably be expected
to materially adversely affect the Assuming Bank if such purchase is
consummated.
(e) Regulatory Approvals. All regulatory approvals necessary for the
--------------------
consummation of the Trust Business Transfer Agreement shall have been
obtained and be in full force and effect;
(f) Officer's Certificate. The Assuming Bank shall have received a
---------------------
certificate from a senior officer of Seller dated the date of the Trust
Business Transfer Date, and certifying as to the matters specified in
Sections 9.4(a), 9.4(b), 9.4(c) and 9.4(e), which shall constitute a
representation of Seller with respect thereto.
ARTICLE X
REPRESENTATIONS AND WARRANTIES
10.1 REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and
-----------------------------------------
warrants to the Assuming Bank as follows:
(a) Corporate Existence and Authority. Seller (i) is duly organized,
---------------------------------
validly existing and in good standing under the laws of the United States
of America and has full power and authority to own and operate its
properties and to conduct its business as now conducted by it, and (ii)
subject to regulatory approval, has full power and authority to execute and
deliver this Agreement and to perform its obligations under this Agreement
in accordance with its terms. Seller has taken all necessary corporate
action to authorize the execution, delivery and performance of this
Agreement and the performance of the transactions contemplated hereby.
(b) Third Party Consents. Except as set forth on Schedule 10.1(b), no
--------------------
Governmental Authority or other third party consents (including but not
limited to approvals, licenses, registrations, or declarations) are
required in connection with execution, delivery, or performance by Seller
of this Agreement.
(c) Execution and Enforceability. This Agreement has been duly
----------------------------
executed and delivered by Seller. Upon the due authorization, execution and
delivery of this Agreement by the Assuming Bank, this Agreement will
constitute the legal, valid and binding obligation of Seller, enforceable
(subject to regulatory approval) in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency,
17
<PAGE>
Exhibit 2.2
reorganization, moratorium or other similar laws relating to or affecting
creditors rights generally and by general equity principles.
(d) Title and Right to Convey. Seller has good title to, and is the
-------------------------
sole owner of, all of the Acquired Assets, free and clear of any lien,
pledge, claim, security interest, encumbrance, charge or restriction of any
kind; except for the Permitted Encumbrances.
(e) Compliance with Law.
-------------------
(i) Seller is not in violation of any statute, regulation, order,
decision, judgment, or decree of, or any restriction imposed by, the
United States of America, any state, municipality, or other political
subdivision or any agency of any of the foregoing, or any court or
other tribunal having jurisdiction over Seller or any of its assets,
or any foreign government or agency thereof having such jurisdiction,
with respect to the conduct of the business of Seller, or the
ownership of the properties of Seller, which, either individually or
in the aggregate with all other such violations, would materially and
adversely affect the ability of Seller to perform, satisfy, or observe
any obligation or condition under this Agreement.
(ii) Neither the execution and delivery nor the performance by
Seller of this Agreement will result in any violation by Seller of, or
be in conflict with, any provision of any applicable law or
regulation, or any order, writ, or decree of any court or governmental
authority.
(f) Compliance with Law and Other Obligations.
-----------------------------------------
(i) Seller is not in violation or breach of or in default under
(A) any obligation, agreement, covenant, or condition contained in its
charter or organizational documents, articles of incorporation, or by-
laws or (B) any contract, lease, or other instrument to which Seller
is a party (or which is binding on Seller or any of its assets, which
violation, breach, or default, either individually or in the aggregate
with all such other violations, breaches and defaults, would
materially and adversely affect the Seller's ability to perform,
satisfy, or observe any obligation or condition under this Agreement.
(ii) Neither the execution and delivery nor the performance by
Seller of this Agreement will result in a violation, breach of, or
default under or be in conflict with: (A) its organizational
documents or charter, articles of incorporation or association, or by-
laws, or (B) any other agreement or instrument to which Seller is a
party, or which is binding on Seller or any of its assets, or (C) any
order, decree, award, or judgment issued by any court or other
tribunal which is binding on Seller or any of its assets, and will not
result in the creation of any Lien on the assets of Seller.
18
<PAGE>
Exhibit 2.2
(g) Litigation. There is no legal action, suit, investigation or
----------
proceeding (whether or not Seller is a party thereto) pending or threatened
against Seller or any of its assets which questions the validity of this
Agreement or any of the transactions contemplated hereby or which would, if
adversely determined, either individually or in the aggregate with all such
other actions, suits, investigations or proceedings if adversely
determined, materially and adversely affect the use of the Acquired Assets
or Seller's ability to perform, satisfy, or observe any obligation or
condition under this Agreement.
(h) Environmental Compliance. To Seller's knowledge and except as set
------------------------
forth on Schedule 10.1(h), the Seller is in compliance in all material
----------------
respects with all material federal, state, and local laws, regulations, and
ordinances relating to the environment and to the discharge of hazardous
substances into the air, ground, or water applicable to the Bank Premises.
There are no actions, suits, or proceedings pending or, to Seller's
knowledge, threatened against Seller by or before any Governmental
Authority or agency, concerning any noncompliance or alleged noncompliance
with any such laws, regulations, and ordinances.
(i) Subsidiary Trust Company Stock. Seller will be the direct owner of
------------------------------
the Subsidiary Trust Company Stock, and the Assuming Bank will, on the
Trust Business Transfer Date, acquire title to all of such stock free and
clear of any Liens. The entire authorized capital stock of the Subsidiary
Trust Company will consist of 20,000 shares of common stock, par value
$10.00 per share, of which 20,000 shares will be issued and outstanding as
of Closing Date; and all such issued and outstanding shares will on the
Closing Date be validly issued, fully paid and nonassessable. There will be
no outstanding obligations, warrants, options or other rights to subscribe
for or purchase from the Subsidiary Trust Company, or other plans,
contracts or commitments providing for the issuance of, or the granting of
rights to acquire, shares of stock of any class of the Subsidiary Trust
Company or any securities or other instruments convertible into or
exchangeable for shares of stock of the Subsidiary Trust Company.
(j) Employee Contracts. Seller is not a party to any contracts of
------------------
employment with its employees.
(k) There are no loan commitments or other agreements between Seller
and any borrower or customer which are not contained or reflected in the
Records.
10.2 REPRESENTATIONS AND WARRANTIES OF THE ASSUMING BANK. The Assuming
----------------------------------------------------
Bank represents and warrants to Seller as follows:
(a) Corporate Existence and Authority. The Assuming Bank (i) is duly
---------------------------------
organized, validly existing and in good standing under the laws of the
State of Texas and has full power and authority to own and operate its
properties and to conduct its business as now conducted by it, and (ii)
subject to regulatory approval, has full power and authority to execute and
deliver this Agreement and to perform its obligations under this Agreement
in accordance with its terms. The Assuming Bank has taken all necessary
19
<PAGE>
Exhibit 2.2
corporate action to authorize the execution, delivery and performance of
this Agreement and the performance of the transactions contemplated hereby.
(b) Third Party Consents. Except for the consent of bank regulatory
--------------------
authorities, no Governmental Authority or other third party consents
(including but not limited to approvals, licenses, registrations, or
declarations) are required in connection with execution, delivery, or
performance by the Assuming Bank of this Agreement.
(c) Execution and Enforceability. This Agreement has been duly
----------------------------
executed and delivered by the Assuming Bank. Upon the due authorization,
execution and delivery of this Agreement by Seller, this Agreement will
constitute the legal, valid and binding obligation of the Assuming Bank,
enforceable (subject to regulatory approval) in accordance with its terms
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors rights generally and by general equity principles.
(d) Compliance with Law.
-------------------
(i) The Assuming Bank is not in violation of any statute,
regulation, order, decision, judgment, or decree of, or any
restriction imposed by, the United States of America, any State,
municipality, or other political subdivision or any agency of any of
the foregoing, or any court or other tribunal having jurisdiction over
the Assuming Bank or its assets or any foreign government or agency
thereof having such jurisdiction, with respect to the conduct of the
business of the Assuming Bank or the ownership of the properties of
the Assuming Bank which, either individually or in the aggregate with
all other such violations, would materially and adversely affect the
ability of the Assuming Bank to perform, satisfy, or observe any
obligation or condition under this Agreement.
(ii) Neither the execution and delivery nor the performance by
the Assuming Bank of this Agreement will result in any violation by
the Assuming Bank of, or be in conflict with, any provision of any
applicable law or regulation, or any order, writ, or decree of any
court or governmental authority.
(e) Compliance with Obligations.
---------------------------
(i) The Assuming Bank is not in violation or breach of or in
default under (A) any obligation, agreement, covenant, or condition
contained in its charter or organizational documents, articles of
incorporation, or by-laws or (B) any contract, lease, or other
instrument to which the Assuming Bank is a party (or which is binding
on the Assuming Bank or any of its assets), which violation, breach,
or default, either individually or in the aggregate with all such
other violations, breaches and defaults, would materially and
adversely affect the Assuming Bank's ability to perform, satisfy, or
observe any obligation or condition under this Agreement.
20
<PAGE>
Exhibit 2.2
(ii) Neither the execution and delivery nor the performance by
the Assuming Bank of this Agreement will result in a violation, breach
of, or default under or be in conflict with: (A) its organizational
documents or charter, articles of incorporation or association, or by-
laws, or (B) any other agreement or instrument to which the Assuming
Bank is a party, or which is binding on the Assuming Bank or any of
its assets, or (C) any order, decree, award, or judgment issued by any
court or other tribunal which is binding on the Assuming Bank or any
of its assets, and will not result in the creation of any Lien on the
assets of the Assuming Bank.
(f) Litigation. There is no legal action, suit, investigation or
----------
proceeding (whether or not the Assuming Bank is a party thereto) pending or
threatened against the Assuming Bank or any of its assets which questions
the validity of this Agreement or any of the transactions contemplated
hereby or which would, if adversely determined, either individually or in
the aggregate with all such other actions, suits, investigations or
proceedings if adversely determined, materially and adversely affect the
Assuming Bank's ability to perform, satisfy, or observe any obligation or
condition under this Agreement.
ARTICLE XI
CERTAIN COVENANTS OF SELLER AND THE ASSUMING BANK
11.1 COVENANTS OF SELLER.
--------------------
(a) General Covenants. Except as otherwise provided herein, Seller
-----------------
hereby covenants and agrees that it shall do or cause to be done at all
times all things necessary to maintain and preserve and keep in full force
and effect its corporate existence, and all rights and franchises material
to the business of Seller.
(b) Operation of the Purchased Branches. During the period commencing
-----------------------------------
on the date of this Agreement through the Closing, Seller shall use its
best efforts, except as specifically otherwise contemplated by this
Agreement:
(i) to operate and to conduct the business of Seller in the
ordinary course of business consistent with prudent banking practices;
(ii) to preserve intact Seller's management, assets (including,
but not limited to, Furniture and Equipment and Fixtures) licenses,
permits, authorizations, and relationships;
(iii) to comply with all material contractual obligations
applicable to the Purchased Branches's operations, except those as to
which Seller may in good faith reasonably contest; and
21
<PAGE>
Exhibit 2.2
(iv) to maintain all Seller's properties in the repair, order and
condition, of such properties, reasonable wear and tear excepted, and
maintain the insurance coverages from reputable insurers which, in
respect to amounts, types and risks insured, are adequate for the
Purchased Branches.
(c) Untrue Representations. Seller shall promptly notify the Assuming
----------------------
Bank in writing if Seller has knowledge of any fact or condition that makes
untrue, or shows to have been untrue, in any material respect, any schedule
or any other information furnished by Seller to the Assuming Bank or any
representation or warranty made in or pursuant to this Agreement or that
results in Seller's failure to comply with any covenant, condition or
agreement contained in this Agreement.
(d) Litigation and Claims. Seller shall promptly notify the Assuming
---------------------
Bank in writing if Seller has knowledge of any litigation, or of any claim,
controversy or contingent liability that might be expected to become the
subject of litigation affecting the Acquired Assets or the Liabilities
Assumed if such litigation or potential litigation might, in the event of
an unfavorable outcome, result in a Material Adverse Effect on the Seller,
the Acquired Assets or the Liabilities Assumed and Seller shall promptly
notify the Assuming Bank of any legal action, suit or proceeding or
judicial, administrative or governmental investigation, pending or, to the
knowledge of Seller, threatened against Seller that questions or might
question the validity of this Agreement or the agreements contemplated
hereby, or any actions taken or to be taken by Seller pursuant hereto or
thereto or seeks to enjoin or otherwise restrain the transactions
contemplated hereby or thereby.
(e) Adverse Changes. Seller shall promptly notify in writing the
---------------
Assuming Bank if, to Seller's knowledge, any change or development shall
have occurred or been threatened with regard to the Seller, the Acquired
Assets or the Liabilities Assumed that has or may reasonably be expected to
have or lead to a Material Adverse Effect on the Seller, the Acquired
Assets or the Liabilities Assumed. Notwithstanding the disclosure to
the Assuming Bank of any such change, Seller shall not be relieved of any
liability to the Assuming Bank pursuant to this Agreement for, nor shall
the providing of such information by Seller to the Assuming Bank be deemed
a waiver by the Assuming Bank of, the breach of any representation or
warranty of Seller contained in this Agreement.
(f) Investigation. Between the date of this Agreement and the Closing
-------------
Date, Seller shall afford to the Assuming Bank and its authorized agents
and representatives reasonable access at mutually convenient times to the
Purchased Branches and to Records and other information within Seller's
possession relating to the Purchased Branches and the Acquired Assets and
Liabilities Assumed. Seller shall cause its personnel to cooperate with the
Assuming Bank and provide to the Assuming Bank reasonable assistance in the
Assuming Bank's investigation of matters relating to the Purchased Branches
and to the Acquired Assets and Liabilities Assumed and the Assuming Bank's
preparation for an orderly transition. Notwithstanding the foregoing, the
parties agree that (i) the Assuming Bank's investigations and preparations
for the transition shall be conducted in a manner
22
<PAGE>
Exhibit 2.2
which does not unreasonably interfere with the Seller's normal operations,
customers and employee relations and (ii) prior to the receipt of
regulatory approvals of this transaction, the Assuming Bank shall not be
given access to actual names and addresses of customers of Seller (except
for those necessary in connection with the Assuming Bank's due diligence
review of Loans). Any information regarding Seller heretofore obtained by
the Assuming Bank, any of its Affiliates or representatives, shall be
subject to the terms of the Confidentiality Agreement dated January 9, 1997
between Seller and the Assuming Bank (the "Confidentiality Agreement") and
such information shall be held by the Assuming Bank and its Affiliates and
representatives in accordance with the terms of such Confidentiality
Agreement.
Notwithstanding any other provision of this Agreement, the Assuming
Bank and its agents or representatives shall not perform any investigation
or study of any asset or property of Seller which may involve the intrusive
or destructive sampling or analysis or chemical testing of any portion of
such asset or property or any improvements thereon, including without
limitation, of any soil, water or groundwater on, under or about such asset
or property ("Phase II Investigation"), without first (a) submitting to
Seller a detailed description of (i) the work to be performed as part of
the Phase II Investigation, (ii) the persons to undertake such Phase II
Investigation, and (iii) the types and amounts of insurance coverage
maintained by such persons, and (b) obtaining the prior written consent of
Seller as to such matters. Seller may grant or withhold such consent in its
sole discretion and may grant such consent subject to such terms,
conditions or restrictions as Seller may in its sole discretion require. In
all events, Seller or its representatives shall have the right, but not the
obligation, to observe any and all activities associated with performance
of any agreed Phase II Investigation, and may obtain half of any samples
which the Assuming Bank or its representatives may collect during the Phase
II Investigation. In the event the Assuming Bank or its representatives
conduct a Phase II Investigation, the Assuming Bank shall cause (x) any
investigation-derived waste generated or created in connection with
performance of the Phase II Investigation (including without limitation,
drill cuttings, purged or developed water, or sample remnants) to be
removed from any investigated property, (y) any wells installed during the
Phase II Investigation to be plugged and abandoned, and (z) the restoration
of any investigated property to substantially the same physical condition
which existed before commencement of the Phase II Investigation, all within
seven (7) days after completion of the field activities related to the
Phase II Investigation, and in compliance with applicable laws and
regulations. The Assuming Bank shall be responsible for executing on its
own behalf, and in compliance with applicable laws and regulations any and
all manifests, shipping documents, plugging and abandoning reports and
similar documents in connection with its obligations under this paragraph.
The Assuming Bank agrees to indemnify and hold Seller harmless from and
against any and all claims, liabilities, damages, expenses, and causes of
action arising out of the Assuming Bank's inspections of the real or
personal property of the Seller, including without limitation, any Phase II
Investigation.
23
<PAGE>
Exhibit 2.2
(g) EDP Conversion. Between the date hereof and the Closing Date,
--------------
Seller shall use its best efforts to cooperate in the conversion from the
Seller's existing electronic data processing systems to the systems of the
Assuming Bank.
(h) Charge-Offs. Seller will notify the Assuming Bank of Loans which
-----------
have been designated for charge-off prior to the Closing Date.
(i) Treatment of Indirect Consumer Loans. Upon repossession of an
------------------------------------
automobile securing an indirect consumer loan, Seller agrees to write down
such loan to 90% of the trade-in value assigned to such automobile by the
N.A.D.A. Appraisal Guide.
11.2 COVENANTS OF THE ASSUMING BANK. Except as otherwise provided
-------------------------------
herein, the Assuming Bank hereby covenants and agrees that it shall do or cause
to be done at all times all things necessary to maintain and preserve and keep
in full force and effect its corporate existence, and all rights and franchises
material to the business of the Assuming Bank.
11.3 BEST EFFORTS; TAKING OF NECESSARY ACTION. Each of the parties
-----------------------------------------
hereto agrees to use its best efforts promptly to take or cause to be taken all
action and promptly 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. In case at any time after the
Closing Date any further action is necessary, proper or advisable to carry out
the purposes of this Agreement, as soon as reasonably practicable each party to
this Agreement shall cause its proper officers and/or directors to take all such
necessary action. Without limiting the foregoing, the Assuming Bank agrees to
promptly prepare and file all applications and other notices required in
connection with, and to use its best efforts to obtain promptly and comply with
all conditions contained in, the regulatory approvals described in Section
10.2(b) and any other consent, approval or other action by, or notice to or
registration or filing with, any governmental or administrative agency or
authority required or necessary to be made, obtained or complied with, as the
case may be, by the Assuming Bank in connection with the performance of this
Agreement by the Assuming Bank or the consummation of the transactions
contemplated hereby. To the extent that any application filed in connection with
obtaining any such approval contains any significant information relating to
Seller, prior to submitting such application to any regulatory agency, the
Assuming Bank will permit Seller to review such information and will consider in
good faith the suggestions of Seller with respect thereto. Seller shall have the
right to approve any such information that relates to Seller, provided that such
approval shall not be unreasonably withheld. The Assuming Bank shall use its
best efforts to insure that any information provided by Seller, its Affiliates
or representatives to be submitted in connection with submissions to
governmental or administrative agencies or authorities receives confidential
treatment if so requested by Seller.
The Assuming Bank shall provide to Seller copies of all applications and
other notices required in connection with the regulatory approvals described in
Section 10.2(b) (excluding personal financial information relating to directors
or regulatory examinations of the Assuming Bank and its Affiliates) and any
other consent, approval or other action by, or notice to, or registration or
filing in connection with the transaction contemplated by this Agreement within
24
<PAGE>
Exhibit 2.2
five days of such submissions. The Assuming Bank shall provide copies of any
comments, requests or actions by governmental or administrative agencies or
authorities to Seller within five days of the Assuming Bank's receipt thereof.
The Assuming Bank shall not be required to provide copies of any such comments
or requests which relate to personal information of directors or regulatory
examinations of the Assuming Bank and its Affiliates, unless such comments or
requests indicate that the applications related thereto may not be approved.
Information provided under this paragraph shall be subject to the
Confidentiality Agreement.
11.4 USE OF NAMES, TRADEMARKS AND SERVICE MARKS. Anything herein to
-------------------------------------------
the contrary notwithstanding, no interest in or right to use any logo, name
(other than Seller's rights (if any) in, or to the use of, the name "San Angelo
National Bank"), trademark or service mark presently or previously used by
Seller is being conveyed pursuant to this Agreement. The Assuming Bank agrees
that on and after the Closing Date neither it nor any of its Affiliates
(including the Purchased Branches) will use names containing the words "Texas
Commerce," "TCB," "Chemical," or "Chase" in connection with any business or
activity engaged in by the Assuming Bank and its Affiliates. Promptly after the
Closing Date, the Assuming Bank shall commence the removal of the trade names,
names, service marks, logos, insignia, slogans, emblems, symbols, designs, and
other identifying characteristics ("names") from all premises, equipment, signs,
interior decor items, fixtures and furnishings, and from all printed materials
and related business literature associated with the Purchased Branches. Such
removal shall be at the sole expense of the Assuming Bank and shall be completed
not later than 30 days after the Closing Date. The Assuming Bank shall not be
liable to Seller in any way by reason of its removal or disposition of Seller's
names from the Purchased Branches or any of the contents thereof.
11.5 ALLOCATION OF PURCHASE PRICE. The parties to this Agreement agree
-----------------------------
to allocate the Purchase Price in accordance with the rules under Section 1060
of the Code, and the Treasury Regulations promulgated thereunder. Such
allocation shall be based on the fair market value of the Acquired Assets. The
Assuming Bank agrees to provide Seller with a schedule allocating the Acquired
Assets and with a properly completed Internal Revenue Service Form 8594 within
60 days after the Closing Date but in no event later than 90 days before the due
date, including extensions, for the consolidated federal income tax return that
includes Seller for the taxable year including the Closing Date. If Seller
objects to any items reflected on such schedule, Seller shall notify the
Assuming Bank of such objection and its reasons for objecting, in which case the
Assuming Bank and Seller shall attempt to resolve the disagreement. If the
Assuming Bank and Seller cannot resolve the disagreement, the allocation shall
be determined by a nationally recognized independent appraiser selected by
Seller and reasonably acceptable to the Assuming Bank. The fees and expenses of
such appraiser shall be borne equally by the Assuming Bank and Seller. Seller
and the Assuming Bank agree to act in accordance with the computations and
allocations contained in the schedule as finally agreed or determined by such
independent appraiser (including any modifications thereto reflecting any post-
closing adjustments) in any relevant Tax Returns or similar filings (including
any forms or reports required to be filed pursuant to Section 1060 of the Code
or the Treasury Regulations promulgated thereunder ("1060 Forms")) and to file
such 1060 Forms in the manner required by applicable law. Seller and the
Assuming Bank will promptly notify each other in accordance with Section 14.6 of
any challenge by any tax authority to such computations or allocations.
25
<PAGE>
Exhibit 2.2
11.6 FACILITIES LEASE. Upon the request of the Seller, the Assuming
-----------------
Bank shall lease Seller space in the building located at 301 West Beauregard,
San Angelo, Texas, which lease shall be mutually satisfactory to Seller and the
Assuming Bank.
11.7 COVENANT NOT TO COMPETE. For a period of three years from and
------------------------
after the Closing Date, Seller agrees that it will not, and will not permit any
of its Affiliates to, (i) establish any de novo branch facility office within
Tom Green County, Texas, which takes deposits (other than Controlled
Disbursement Deposits), provides automatic teller services, originates or
produces loans, or provides trust services under or through the use of any name
containing the words "Texas Commerce" or "TCB"; or (ii) acquire, directly or
indirectly, any banking business or banking facility in Tom Green County, Texas,
which takes deposits (other than Controlled Disbursement Deposits), provides
automatic teller services, or originates or produces loans, under or through the
use of any name containing the words "Texas Commerce" or "TCB"; or (iii)
directly solicit any customers of Seller prior to Closing Date (other than
indirect consumer loan customers) who become customers of the Assuming Bank for
the provision of banking or trust services, except for (l) general solicitation
of banking business which is not specifically addressed to or targeted at
persons who are customers of Seller on the Closing Date and who become customers
of the Assuming Bank on the Closing Date (as opposed to the general public) and
(2) services provided to J. W. Wolslager, Sr. and related entities, A-B
Distributing of San Angelo and related entities, David Hirschfeld and related
entities and Shannon Health System and related entities, customers of Seller.
11.8 NONSOLICITATION OF EMPLOYEES. For a period of one year from and
-----------------------------
after the Closing Date, Seller agrees that it will not and will not permit any
of its Affiliates to solicit the employment of any key employee of the Purchased
Branches, as set forth on Schedule 11.8 hereto, and other than the Chairman and
-------------
Chief Executive Officer of Seller, who become employees of the Assuming Bank
after the Closing Date, unless their employment shall be terminated by the
Assuming Bank. Notwithstanding the foregoing, Seller and its Affiliates may
engage in general solicitation which may reach the key employees referred to
herein so long as such solicitation is not specifically addressed to or targeted
at such key employees, as opposed to the general public.
11.9 BRANCH RENOVATIONS. Prior to the Closing Date, Seller shall
-------------------
permit the Assuming Bank access to the Bank Premises for the purpose of making
certain renovations or alterations of space to install certain computer and
related equipment. All such renovations and alterations shall be approved in
advance by Seller, will be performed in a manner which does not interrupt the
day-to-day operations of Seller, and shall be at the Assuming Bank's cost. In
the event the transactions contemplated by this Agreement are not consummated by
termination or otherwise, the Assuming Bank shall, immediately upon notice from
Seller, restore the premises to the same or substantially similar conditions as
they were as of the date hereof.
11.10 DEALER CONTRACTS. Seller and the Assuming Bank agree to cooperate
-----------------
to effect the transfer of dealer contracts for indirect consumer loans which are
not excluded by the Assuming Bank in accordance with Section 3.4.
26
<PAGE>
Exhibit 2.2
11.11 LIQUIDATED DAMAGES. Seller and Assuming Bank agree that in the
-------------------
event the transfer of the Trust Business to the Subsidiary Trust Company or the
transfer of the Subsidiary Trust Company to the Assuming Bank is deemed void or
set aside by a court of competent jurisdiction, the Assuming Bank shall convey
to Seller the Subsidiary Trust Company and the Trust Business and Seller shall
pay to the Assuming Bank, as liquidated damages for loss of bargain and not as a
penalty, the sum of $1,500,000 minus revenues received by the Assuming Bank from
the Trust Business. Further and for a period of two (2) years from and after the
Closing Date, Seller and the Assuming Bank agree to defend and to share equally
the costs of defending any action challenging the transfer of the Trust
Business; provided that either party may discontinue the defense and the
contribution of defense costs in the event such party has incurred and paid an
amount equal to $200,000 in the aggregate for such purpose.
ARTICLE XII
EMPLOYEE PLANS
12.1 PARTICIPATION IN COMPANY PLANS. Effective as of the Closing Date,
-------------------------------
employees of the Purchased Branches shall cease participation in all plans,
programs, policies and arrangements maintained for their benefit by Seller or
any of its Affiliates. The Assuming Bank agrees to offer employment to each
employee of the Purchased Branches, other than the Chairman and Chief Executive
Officer of Seller, for a position reasonably comparable to and salary comparable
to the position (duties and responsibilities, not officer title) and salary of
the employee as of the Closing Date consistent with Assuming Bank's
organizational structure. In the event an employee, other than the Chairman and
Chief Executive Office of Seller, is not offered a similar position and similar
salary, the Assuming Bank agrees to pay severance to such employee in accordance
with the provisions of the 1997 Severance Pay Plan of Texas Commerce Bank
National Association (the "Severance Plan"), the terms of which are summarized
on Schedule 12.1. Commencing on the Closing Date, the Assuming Bank shall
-------------
provide to employees of the Purchased Branches such plans, programs, policies
and arrangements being maintained by the Assuming Bank and which contain terms
that are, in the aggregate, no less favorable than those provided to similarly
situated employees of the Assuming Bank or any of its Affiliates. Each employee
of Seller shall be given credit for all purposes under each such "employee
benefit plans" and all other such plans, programs, policies and arrangements
maintained by the Assuming Bank (except for purposes of a defined contribution
plan or benefit accrual under a defined benefit plan) for all service prior to
the Closing Date with Seller and its Affiliates.
12.2 CLAIMS INCURRED PRIOR TO AND AFTER CLOSING. Seller will retain
-------------------------------------------
responsibility for and continue to pay all medical, life insurance, disability
and other welfare plan expenses and benefits for each employee of the Purchased
Branches or their covered dependents which are covered and payable under
Seller's Welfare Benefit Plans with respect to claims incurred by such employees
and former employees or their covered dependents prior to the Closing Date.
Expenses and benefits with respect to claims incurred by employees of the
Purchased Branches or their covered dependents on or after the Closing Date
shall be the responsibility of the Assuming Bank. For purposes of this Section,
a claim is deemed incurred when the services that are the subject of
27
<PAGE>
Exhibit 2.2
the claim are performed: in the case of life insurance, when the death occurs;
in the case of longterm disability benefits, when the disability occurs; and, in
the case of a hospital stay, when such stay commences. Seller will retain
responsibility for all welfare plan expenses and benefits, if any, including
responsibility for compliance with COBRA, for all former employees of the
Purchased Branches who are not employed by Seller on the Closing Date or such
former employees' Qualified Beneficiaries and for all Qualified Beneficiaries
with respect to Seller's plans who are eligible for COBRA coverage prior to the
Closing Date.
12.3 WAITING PERIODS, PRE-EXISTING CONDITIONS AND DEDUCTIBLES. With
---------------------------------------------------------
respect to any Welfare Benefit Plans maintained by the Assuming Bank on and
after the Closing Date for the benefit of employees or former employees of the
Purchased Branches, the Assuming Bank shall with respect to employees
participating in the plans of Seller as of the Closing Date (i) cause there to
be waived any waiting periods; (ii) cause there to be waived any pre-existing
condition limitations; and (iii) give effect, in determining any deductible and
maximum out-of-pocket limitations, to claims incurred and amounts paid by, and
amounts reimbursed to, such employees with respect to similar plans maintained
by Seller for their benefit.
12.4 SEVERANCE PAY. The Assuming Bank agrees to pay severance benefits
--------------
in accordance with the Severance Plan to all employees of the Purchased Branches
informed of their termination by the Assuming Bank or its Affiliates prior to
the close of business on the first anniversary from and after the Closing Date
(notwithstanding the date such termination actually occurs). For purposes of
applying the Severance Plan pursuant to this Section 12.4 and notwithstanding
any provision in the Severance Plan to the contrary (i) "cause" shall
mean gross negligence of, or willful misconduct by, the employee and (ii) a
comparable offer of employment shall be determined in accordance with Schedule
12.1. The Assuming Bank shall use its best efforts prior to the close of
business on the l 80th day from and after the Closing Date to inform employees
of the Purchased Branches of their terminations. By agreeing to pay severance
benefits to employees of the Purchased Branches in accordance with the Severance
Plan, the Assuming Bank does not thereby adopt the Severance Plan.
12.5 VACATION PAY. The Assuming Bank agrees to give each employee of
-------------
the Purchased Branches credit under the Assuming Bank's vacation policy for the
time of service recognized by Seller under Seller's vacation policy. If the
Assuming Bank does not extend an offer to hire a Purchased Branches employee
(other than the Chairman and the Chief Executive Officer), the Assuming Bank
will pay in cash to such employee an amount equal to such accrued but unused
vacation time determined in accordance with the vacation policy of Seller. If
the Assuming Bank terminates a Purchased Branches employee for any reason other
than for "cause" (as defined in Section 12.4) prior to the close of business on
the last calendar day of the year in which the Closing Date occurs, the Assuming
Bank will pay in cash to such employee an amount equal to such accrued but
unused vacation time determined in accordance with the vacation policy of the
Assuming Bank. Further, the Assuming Bank will allow employees of the Purchased
Branches to take any accrued but unused vacation days as of the Closing Date
during the period from the Closing Date through the end of the year in which
Closing occurs.
28
<PAGE>
Exhibit 2.2
12.6 INACTIVE EMPLOYEES. Notwithstanding anything to the contrary
-------------------
contained herein, any employee of the Purchased Branches who is not in active
employment status on the Closing Date shall be transferred to an Affiliate of
Seller on such date and shall be entitled to such benefits and compensation from
Seller as otherwise provided immediately prior to the Closing Date. Any such
employee who returns to active employment status within 90 days of the
commencement of such employee's inactive status shall be employed by the
Assuming Bank and treated as if he/she were an employee of the Assuming Bank for
all purposes from and after the Closing Date except that compensation and
benefits provided to which he/she is entitled while not in active employment
status shall be the responsibility of Seller. Schedule 12.6 identifies all
employees of Seller not currently in active employment and Seller shall notify
the Assuming Bank of any changes to Schedule 12.6 if, and whenever, any such
change shall occur.
12.7 INDEMNIFICATION AGAINST CLAIMS FOR SEVERANCE PAY. In addition to
-------------------------------------------------
and not in limitation of any other indemnification provided for in this
Agreement, the Assuming Bank agrees to defend, indemnify and hold harmless
Seller and any of its Affiliates from and against any cost, liability and
expense, (including but not limited to, attorneys' fees and expenses) actually
incurred by any of them as a result of any claim made by any employee of the
Purchased Branches for severance pay relating to the termination of such
employee's employment on or after the Closing.
ARTICLE XIII
INDEMNIFICATION
13.1 INDEMNIFICATION.
----------------
(a) From the Closing Date and for a period of one year thereafter,
Seller shall indemnify, hold harmless, and defend the Assuming Bank, its
Affiliates and their respective directors, officers, agents and employees
from and against any and all costs, losses, liabilities, expenses
(including, without limitation, reasonable attorneys' fees and expenses),
judgments, fines and settlements actually and reasonably incurred by any
such indemnitee in connection with any and all actions, suits, claims,
investigations or other proceedings based upon:
(i) any liability of Seller or any of its Affiliates not
expressly assumed by the Assuming Bank pursuant hereto;
(ii) any breach by Seller of any of its representations,
warranties, covenants or agreements herein or in any instrument,
certificate, agreement or other document delivered by Seller to the
Assuming Bank pursuant hereto; or
(iii) any check or other instrument drawn on or deposited into a
Purchased Branch Deposit account prior to the Closing Date upon which
a forgery (signature or endorsement) or alteration claim is asserted
against the Assuming Bank.
29
<PAGE>
Exhibit 2.2
(b) From the Closing Date and for a period of three (3) years
thereafter, Seller shall indemnify, hold harmless, and defend the Assuming
Bank, its Affiliates and their respective directors, officers, agents and
employees from and against any and all costs, losses, liabilities, expenses
(including, without limitation, reasonable attorneys' fees and expenses),
judgments, fines and settlements actually and reasonably incurred by any
such indemnitee in connection with any and all actions, suits, claims,
investigations or other proceedings based upon alleged exposure of persons
to asbestos containing materials during Seller's ownership of the Purchased
Branches at levels or concentrations which violated applicable laws or
regulations protecting human health or safety.
(c) From the Closing Date and for a period of one year thereafter, the
Assuming Bank shall indemnify, hold harmless and defend Seller, its
Affiliates and their respective directors, officers, agents and employees
from and against any and all costs, losses, liabilities, expenses
(including, without limitation, reasonable attorneys' fees and expenses),
judgments, fines and settlements actually and reasonably incurred by any
such indemnitee in connection with any and all actions, suits, claims,
investigations or other proceedings based upon:
(i) performance or nonperformance by the Assuming Bank of any and
all liabilities of Seller assumed by the Assuming Bank pursuant to
this Agreement; or
(ii) any breach by the Assuming Bank of any of its
representations, warranties, covenants or agreements herein or in any
instrument, certificate, agreement or other document delivered by the
Assuming Bank to Seller pursuant thereto.
(d) With respect to any claim made or threatened against any
indemnitee hereunder for which such indemnitee is or may be entitled to
indemnification hereunder, it shall be a condition to such indemnification
that such indemnitee shall:
(i) promptly upon discovering any facts or circumstances that
might reasonably be expected to give rise to such a claim, give
written notice of such facts or circumstances to the indemnitor;
(ii) as soon as practicable after such a claim is made or
threatened, give written notice thereof to the indemnitor, which
notice shall specify in reasonable detail the nature of the claim and
the amount (or an estimate of the amount) of the claim;
(iii) provide to the indemnitor such information and cooperation
with respect to such claim as the indemnitor may reasonably require
including, without limitation, (a) making records and appropriate
personnel available to the indemnitor at such times as the indemnitor
shall request (provided that such personnel are under the employ of
the indemnitee as such time), (b) providing
30
<PAGE>
Exhibit 2.2
copies of invoices or other evidence of expense incurred, and (c)
providing the indemnitor copies of any process, pleadings,
correspondence or other writings relating to the claim;
(iv) cooperate and take all such steps as the indemnitor may
reasonably request to preserve and protect any defense to such claim;
and
(v) upon reasonable prior notice, afford to the indemnitor the
right, which the indemnitor may exercise at its (or their) sole
discretion and at its (or their) own expense, to participate in
(and/or assume full responsibility for the direction of) the
investigation, defense and/or settlement of such claims.
13.2 EXCLUSIVITY OF REMEDIES. The remedies of the Assuming Bank under
------------------------
Sections 13.1(a) and 13.1(b) shall be considered the Assuming Bank's sole and
exclusive remedies. Without limiting the generality of the foregoing, except
with respect to such remedies specifically set forth herein, the Assuming Bank
hereby waives, agrees not to sue Seller or any of its shareholders officers,
directors, affiliates, employees, agents, representatives, successors or assigns
("Seller's Related Parties") for, any and all claims, causes of action, rights
of contribution, cost recovery, losses, liabilities, suits, costs, fees,
judgments or expenses which may now exist or which may hereafter arise,
REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY THE SOLE, CONTRIBUTORY,
PASSIVE OR PARTIAL NEGLIGENCE OF SELLER OR ANY OF THE SELLER'S RELATED PARTIES,
in connection with:
(i) any material, waste or substance
(a) the use, collection, handling, recycling, generation,
treatment, storage, disposal, release or transportation of which
(1) by the Seller or any of its predecessors, or
(2) at, in, on or under any of Seller's current or
former real or personal property (including without
limitation the Purchased Branches),
has been, is or may become regulated or controlled by any
Governmental Authority, or
(b) the improper management or disposal of which may affect
human health or safety or the environment, or
(ii) the compliance by Seller or any of its predecessors, or any
of its current or former real or personal property, with applicable
laws, regulations, orders or directives pertaining directly or
indirectly to human health or safety or the environment, including
without limitation the laws listed on Schedule 13.2 as amended from
-------------
time to time, and any state or local analogue of the same.
31
<PAGE>
Exhibit 2.2
ARTICLE XIV
MISCELLANEOUS
14.1 ENTIRE AGREEMENT. This Agreement and the Confidentiality
-----------------
Agreement embody the entire agreement of the parties hereto in relation to the
subject matter herein and supersedes all prior understandings or agreements,
oral or written, between the parties.
14.2 HEADINGS. The headings and subheadings of the Table of Contents,
---------
Articles and Sections contained in this Agreement, except the terms identified
for definition in Article I and elsewhere in this Agreement, are inserted for
convenience only and shall not affect the meaning or interpretation of this
Agreement or any provision hereof.
14.3 GOVERNING LAW. This Agreement and the rights and obligations
--------------
hereunder shall be governed by and construed in accordance with the laws of the
State of Texas.
14.4 SUCCESSORS. All terms and conditions of this Agreement shall be
-----------
binding on the successors and assigns of Seller and the Assuming Bank. Except as
otherwise expressly provided in this Agreement, nothing expressed or referred to
in this Agreement is intended or shall be construed to give any Person other
than Seller and the Assuming Bank any legal or equitable right, remedy, or claim
under or with respect to this Agreement or any provisions contained herein, it
being the intention of the parties hereto that this Agreement, the obligations
and statements of responsibilities hereunder, and all other conditions and
provisions hereof are for the sole and exclusive benefit of Seller and the
Assuming Bank and for the benefit of no other Person.
14.5 MODIFICATION; ASSIGNMENT. No amendment or other modification,
-------------------------
rescission, release, or assignment of any part of this Agreement shall be
effective except pursuant to a written agreement subscribed by the duly
authorized representatives of the parties hereto.
14.6 NOTICE. Any notice, request, demand, consent, approval or other
-------
communication to any party hereto shall be effective when received and shall be
given in writing, and delivered in person against receipt therefor, or sent by
certified mail, postage prepaid, courier service, telex, or facsimile
transmission to such party (with copies as indicated below) at its address set
forth below or at such other address as it shall hereafter furnish in writing to
the other parties. All such notices and other communications shall be deemed
given on the date received by the addressee.
TEXAS COMMERCE BANK-SAN ANGELO NATIONAL ASSOCIATION:
- ----------------------------------------------------
Texas Commerce Bank-San Angelo, National Association
301 W. Beauregard
San Angelo, Texas 76902
Telephone: (915) 659-6001
Facsimile: (915) 659-5956
Attention: Darwin D. DeWees
32
<PAGE>
Exhibit 2.2
Chairman and Chief Executive Officer
and
Texas Commerce Bank National Association
712 Main Street
Houston, Texas 77002
Telephone: (713) 216-6398
Facsimile: (713) 216-5570
Attention: Beverly H. McCaskill, Executive Vice President
with a copy to:
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
3400 Texas Commerce Tower
600 Travis
Houston, Texas 77002
Telephone: (713) 226-1177
Facsimile: (713) 223-3717
Attention: Annette L. Tripp
ASSUMING BANK
- -------------
Southwest Bank of San Angelo
3471 Knickerbocker Road
San Angelo, Texas 76904
Telephone: (915) 944-2502
Facsimile: (915) 942-1310
Attention: Michael L. Boyd, President
with a copy to:
First Financial Bankshares, Inc.
400 Pine
Abilene, Texas 79604
Telephone: (915) 627-7155
Facsimile: (915) 627-7393
Attention: Kenneth T. Murphy, Chairman of the Board, President and
Chief Executive Officer
and
33
<PAGE>
Exhibit 2.2
McMahon, Surovik, Suttle, Buhrmann, Hicks & Gill
400 Pine Street, Suite 800
Abilene, Texas 79601
Telephone: (915) 676-9183
Facsimile: (915)676-8836
Attention: David L. Buhrmann
14.7 MANNER OF PAYMENT. All payments due under this Agreement shall be
------------------
in lawful money of the United States of America in immediately available funds
as each party hereto may specify to the other parties.
14.8 COSTS, FEES AND EXPENSES. Except as otherwise specifically provided
-------------------------
herein, each party hereto agrees to pay all costs, fees and expenses which it
has incurred in connection with or incidental to the matters contained in this
Agreement, including without limitation any fees and disbursements to its
accountants and counsel.
14.9 WAIVER. Seller and the Assuming Bank may waive their respective
-------
rights, powers, or privileges under this Agreement; provided, that such waiver
--------
shall be in writing; and further provided, that no failure or delay on the part
----------------
of Seller or the Assuming Bank to exercise any right, power, or privilege under
this Agreement shall operate as a waiver thereof, nor will any single or partial
exercise of any right, power, or privilege under this Agreement preclude any
other or further exercise thereof or the exercise of any other right, power, or
privilege by Seller or the Assuming Bank under this Agreement, nor will any such
waiver operate or be construed as a future waiver of such right, power, or
privilege under this Agreement.
14.10 SEVERABILITY. If any provision of this Agreement is declared
-------------
invalid or unenforceable, then, to the extent possible, all of the remaining
provisions of this Agreement shall remain in full force and effect and shall be
binding upon the parties hereto.
14.11 TERMINATION OF AGREEMENT.
------------------------
(a) This Agreement may be terminated at any time prior to the Closing:
(i) By mutual agreement of Seller and the Assuming Bank;
(ii) By Seller or the Assuming Bank upon notice given to the
other in the event that the other shall, contrary to the terms of this
Agreement, fail or refuse to consummate the Closing contemplated
hereby or to take any other action referred to herein necessary to
consummate the Closing contemplated hereby, after affording such
defaulting party a thirty (30) day period after notice in which to
cure; or
34
<PAGE>
Exhibit 2.2
(iii) By Seller or the Assuming Bank upon notice given to the
other if the Closing shall not have taken place on or before one year
from the date of this Agreement, provided, that the failure of the
Closing to occur on or before such date is not the result of the
breach of the covenants, agreements, representations or warranties
hereunder of the party seeking such termination;
(iv) By Seller if at the expiration of 150 days after the date of
the Agreement, the Assuming Bank's regulatory agencies have failed to
issue a formal approval of the Assuming Bank's applications;
(v) By Seller if the Assuming Bank's applications are disapproved
by the Assuming Bank's regulatory agencies; and
(vi) By Seller or the Assuming Bank upon written notice to the
other party if any court or governmental authority of competent
jurisdiction shall have issued a final permanent order, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement,
or shall have issued an order denying approval of the purchase and
assumption and the other transactions contemplated hereby, and the
time for appeal or petition for reconsideration of such order shall
have expired.
(b) In the event of the termination of this Agreement as provided in
this Section, this Agreement shall forthwith become wholly void and of no
further force and effect and, other than in the event of a termination
pursuant to Section 14.11(a)(ii), there shall be no liability on the part
of Seller or the Assuming Bank or their respective officers or directors
(except as set forth in this Section). In the event of the termination of
this Agreement pursuant to Section 14.11 (a)(ii), the terminating party
shall be indemnified by the other party for any or all damages, costs and
expenses sustained or incurred as a result of such termination. The
obligations of the parties to this Agreement under this Section shall
survive any such termination.
14.12 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
-------------------------------------------
and warranties of the parties in this Agreement shall survive the Closing for a
period of one year.
14.13 COUNTERPARTS. This Agreement may be executed in any number of
-------------
counterparts and by the duly authorized representative of a different party
hereto on separate counterparts, each of which when so executed shall be deemed
to be an original and all of which when taken together shall constitute one and
the same Agreement.
[SIGNATURE PAGES FOLLOW]
35
<PAGE>
Exhibit 2.2
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
TEXAS COMMERCE BANK-SAN ANGELO, NATIONAL
ASSOCIATION
By: /s/ Darwin D. DeWees
-------------------------------------------
Name: Darwin D. DeWees
Title: Chairman and Chief Executive Officer
SOUTHWEST BANK OF SAN ANGELO
By: /s/ Michael L. Boyd
-------------------------------------------
Name: Michael L. Boyd
Title: President
36
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF JUDD, THOMAS, SMITH & COMPANY, P.C. APPEARS HERE]
September 19, 1997
The Board of Directors
Southlake Bancshares, Inc.
3205 E. Highway 114
Southlake, Texas 76092
Gentlemen:
We have consulted with Southlake Bancshares, Inc. in connection with the
proposed merger (the "Merger") of Southlake Bancshares, Inc. ("Southlake"), a
Texas corporation, with and into First Financial Bankshares, Inc. ("First
Financial"), a Texas corporation, upon the terms and conditions set forth in the
Stock Exchange Agreement and Plan of Reorganization (the "Exchange Agreement")
dated August 18, 1997. At your request, in connection with the closing of the
Merger, we are rendering an opinion concerning certain federal income tax
consequences of the Merger.
In arriving at the opinions expressed below, we have relied upon the accuracy
and completeness of the following:
(i) the Exchange Agreement;
(ii) the Prospectus and Proxy Statement (together, the "Prospectus")
included in the Registration Statement on Form S-4 filed with the
Securities and Exchange Commission by First Financial in
connection with the Merger, as amended through the date hereof;
and
(iii) such corporate records of Southlake and First Financial as we
have deemed appropriate.
Defined terms used but not defined herein have the same meaning as in the
Prospectus.
We have assumed that the transactions contemplated by the Exchange Agreement
will be consummated in accordance therewith and as described in the Prospectus
and that the Merger will qualify as a statutory merger under applicable laws of
the State of Texas and the United States.
Based upon and subject to the foregoing, it is our opinion that, under currently
applicable law, the Exchange and Merger will constitute a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), and that, accordingly, the following will be the material federal
income tax consequences of the Exchange and Merger:
1. The Exchange and Merger will be treated as a corporate
reorganization within the meaning of Section 368(a) of the Code,
and First Financial and Southlake each will be a party to the
reorganization within the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized by the Southlake Shareholders
on the exchange of their shares of Southlake Common Stock solely
for shares of First Financial Common Stock pursuant to the terms
of the Exchange Agreement to the extent of such exchange (except
as provided below with respect to fractional shares).
<PAGE>
The Board of Directors - Southlake Bankshares, Inc.
September 19, 1997
- -------------------------------------------------------------------------------
3. The federal income tax basis of the shares of First Financial
Common Stock for which shares of Southlake Common Stock are
exchanged pursuant to the Exchange and Merger will be the same as
the basis of such shares of Southlake Common Stock exchanged
therefor, less any proportionate part of such basis allocable to
any fractional interest in any share of First Financial Common
Stock.
4. The holding period for the shares of First Financial Common Stock
for which the shares of Southlake Common Stock are exchanged will
include the holding period of the Southlake Common Stock they are
exchanged therefor, provided that such shares of Southlake Common
Stock were held as a capital asset on the date of the Exchange.
5. Southlake Shareholders who receive cash in lieu of a fractional
share interest in First Financial Common Stock will be treated as
having received the cash in redemption of the fractional share
interest, and gain or loss will be recognized in an amount equal
to the difference between the cash received and the proportionate
part of basis allocable to the fractional share interest, which
gain or loss will be a capital gain or loss if the Southlake
Common Stock was a capital asset in the hands of the shareholder.
Such capital gain or loss will be long-term capital gain or loss
if the holder's holding period for the First Financial Common
Stock received, determined as set forth above, is longer than one
year.
The effective tax rate on any resulting net long-term capital
gain for Southlake Shareholders who are individuals will
generally depend on the shareholder's holding period for the
shares of First Financial Common Stock received, determined as
set forth above, and the income tax brackets under which the
shareholder is taxed. For individual shareholders, the maximum
capital gains tax rate on property held more than eighteen months
is 20 percent and the maximum capital gains tax rate on property
held more than one year, but not more than eighteen months, is 28
percent.
This opinion may not be applicable to (1) Southlake shareholders who received
their Southlake Common Stock pursuant to the exercise of employee stock options
or otherwise as compensation, or (2) Southlake shareholders who are not citizens
or residents of the United States. We express no opinion as to the laws of any
jurisdiction other than the income tax laws of the United States.
We hereby consent to the filing of this opinion with the Securities and Exchange
Commission as an exhibit to the Registration Statement, and to the reference to
this opinion under the caption "Summary of the Transaction -- Federal Income Tax
Consequences," under the caption "The Exchange Offer -- Federal Income Tax
Consequences," and elsewhere in the Prospectus. In giving such consent, we do
not hereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/s/ JUDD, THOMAS, SMITH & COMPANY
Judd, Thomas, Smith & Company, P.C.
-2-
<PAGE>
EXHIBIT 15.1
[LETTERHEAD OF JUDD, THOMAS, SMITH & COMPANY, P.C. APPEARS HERE]
INDEPENDENT ACCOUNTANTS' ACKNOWLEDGMENT
We acknowledge and consent to the use in the Registration Statement on Form S-4
of which this Exhibit 15.1 is a part, of our Compilation Report dated September
19, 1997 relating to the consolidated balance sheets of Southlake Bancshares,
Inc., as of June 30, 1997 and 1996, and the related consolidated statements of
income, changes in stockholders' equity and cash flows for the six months then
ended and the consolidated statements of income for the three months ended June
30, 1997 and 1996.
/s/JUDD, THOMAS, SMITH & COMPANY, P.C.
- -----------------------------------
JUDD, THOMAS, SMITH & COMPANY, P.C.
September 30, 1997
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
--------------------------
Place of Percentage of Voting
Name of Subsidiary Organization Securities Owned
- ------------------ ------------ ----------------
First Financial Bankshares of Delaware 100%
Delaware, Inc.
First Financial Investments, Inc. Texas 100%
First National Bank of Abilene Texas 100%*
Abilene, Texas
Hereford State Bank Texas 100%*
Hereford, Texas
First National Bank, Sweetwater Texas 100%*
Sweetwater, Texas
Eastland National Bank Texas 100%*
Eastland, Texas
The First National Bank in Cleburne Texas 100%*
Cleburne, Texas
Stephenville Bank & Trust Co. Texas 100%*
Stephenville, Texas
San Angelo National Bank Texas 100%*
San Angelo, Texas
Weatherford National Bank Texas 100%*
Weatherford, Texas
* By First Financial Bankshares of
Delaware, Inc.
All subsidiaries are included in the consolidated financial statements of First
Financial.
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated January 10, 1997 (and to all references to our Firm) included in or made a
part of this registration statement.
/s/ARTHUR ANDERSEN LLP
Dallas, Texas
September 30, 1997
<PAGE>
EXHIBIT 23.4
[LETTERHEAD OF JUDD, THOMAS, SMITH & COMPANY, P.C. APPEARS HERE]
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of First Financial
Bankshares, Inc. on Form S-4 of our report dated September 19, 1997, on the
audited consolidated financial statements as of December 31, 1996 and 1995 and
for the three years ended December 31, 1996 appearing in the Prospectus, which
is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
/s/JUDD, THOMAS, SMITH & COMPANY, P.C.
- -------------------------------------
JUDD, THOMAS, SMITH & COMPANY, P.C.
September 30, 1997
<PAGE>
EXHIBIT 99
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
SOUTHLAKE BANCSHARES, INC.
PURSUANT TO THE OFFER FOR ALL OUTSTANDING SHARES OF
COMMON STOCK OF
SOUTHLAKE BANCSHARES, INC. BY
FIRST FINANCIAL BANKSHARES, INC.
- --------------------------------------------------------------------------------
| THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., |
| ABILENE, TEXAS TIME, ON_____________, 1997 |
| UNLESS EXTENDED (THE "EXPIRATION DATE"). |
- --------------------------------------------------------------------------------
------------------------------
PURSUANT TO THE OFFERING CIRCULAR/PROSPECTUS DATED _________ __, 1997
TO: TRUST DEPARTMENT OF FIRST NATIONAL BANK OF ABILENE, The Exchange Agent
BY HAND, MAIL OR OVERNIGHT COURIER:
Trust Department
First National Bank of Abilene
Third Floor
400 Pine Street
Abilene, Texas 79601
FOR INFORMATION CALL: (915) 627-7003
--------------
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER
OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS
COMPLETED.
The undersigned acknowledges that he or she has received the Offering
Circular/Prospectus dated ___________ __, 1997 (the "Prospectus") of First
Financial Bankshares, Inc. ("First Financial") and this letter of transmittal
(the "Letter of Transmittal"), which constitutes First Financial's offer (the
"Exchange Offer") to exchange shares of its voting common stock, par value
$10.00 per share ("First Financial Common Stock"), which have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to
a Registration Statement of which the Prospectus is a part, for all of the
issued and outstanding shares of common stock of Southlake Bancshares, Inc.
("Southlake"), par value $1.00 per share ("Southlake Common Stock"). Other
capitalized terms used but not defined herein have the meaning given to them in
the Prospectus.
This Letter of Transmittal is to be used by Southlake Shareholders (as
defined below) if certificates representing Southlake Common Stock are to be
physically delivered herewith or if the guaranteed delivery procedures described
in the Prospectus are to be utilized pursuant to the procedures set forth in
"The Exchange Offer -- Exchange of Shares and Certificates" and "--Guaranteed
Delivery Procedures" in the Prospectus.
The term "Southlake Shareholder" with respect to the Exchange Offer means
any person in whose name shares of Southlake Common Stock are registered on the
books of Southlake or any other person who has obtained a properly completed
stock power from the registered Southlake Shareholder. The undersigned has
completed, executed and
-1-
<PAGE>
delivered this Letter of Transmittal to indicate the action that the undersigned
desires to take with respect to the Exchange Offer. Southlake Shareholders who
wish to tender their Southlake Common Stock must complete this Letter of
Transmittal in its entirety.
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE CHECKING ANY BOX BELOW.
================================================================================
DESCRIPTION OF SHARES OF SOUTHLAKE COMMON STOCK TENDERED
- --------------------------------------------------------------------------------
Total Number
of Shares of
Southlake
Common Stock
Represented
Name(s) and Address(es) of Registered Holder(s) Certificate by
(Please fill in, if blank) Number(s) Certificates
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
If the space provided above is inadequate, list the certificate numbers and
principal amounts on a separate signed schedule and affix the list to this
Letter of Transmittal.
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[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name(s) of Tendering Shareholder(s):
--------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
-----------------------
Name of Institution which Guaranteed Delivery:
----------------------------
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer set forth in the
Prospectus (receipt of which is hereby acknowledged), the undersigned hereby
tenders to First Financial the shares of Southlake Common Stock described
herein. Subject to and effective upon the acceptance for exchange of the shares
of Southlake Common Stock tendered in accordance with this Letter of
Transmittal, the undersigned sells, assigns and transfers to, or upon the order
of, First Financial all right, title and interest in and to all the shares of
Southlake Common Stock tendered hereby. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent its true and lawful agent and
attorney-in-fact with respect to the tendered shares of Southlake Common Stock
with full power of substitution to (i) deliver certificates for such shares of
Southlake Common Stock with all accompanying evidences of transfer and
authenticity to, or upon the order of, First Financial and (ii) present such
shares of Southlake Common Stock for transfer on the books of Southlake and
receive all benefits and otherwise exercise all rights of beneficial ownership
of such shares of Southlake Common Stock all in accordance with the terms of the
Exchange Offer. The power of attorney granted in this paragraph shall be deemed
irrevocable and coupled with an interest.
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<PAGE>
For purposes of the Exchange Offer, First Financial shall be deemed to have
accepted validly tendered shares of Southlake Common Stock when, as and if First
Financial has given oral or written notice thereof to the Exchange Agent.
If any tendered shares of Southlake Common Stock are not accepted for
exchange pursuant to the Exchange Offer for any reason, certificates for any
such unaccepted shares of Southlake Common Stock will be returned, without
expense, to the undersigned at the address shown below or at a different address
as may be indicated herein under "Special Delivery Instructions" as promptly as
practicable after the Expiration Date.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the shares of
Southlake Common Stock tendered hereby and that when the same are accepted for
exchange by First Financial, First Financial shall acquire good and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The undersigned will, upon
request, execute and deliver any additional documents deemed by the Exchange
Agent or First Financial to be necessary or desirable to complete the sale,
assignment and transfer of the shares of Southlake Common Stock tendered hereby.
The undersigned hereby irrevocably appoints Curtis R. Harvey the attorney
and proxy of the undersigned, with full power of substitution, to exercise all
voting and other rights of the undersigned in such manner as such attorney and
proxy or his substitute shall in his sole discretion deem proper, with respect
to all of the shares of Southlake Common Stock tendered hereby that have been
acquired by First Financial pursuant to the Exchange Offer prior to the time of
any vote or other action, at any meeting of Southlake Shareholders (whether
annual or special and whether or not an adjourned meeting), by written consent
or otherwise. This proxy is irrevocable and is granted in consideration of, and
is effective upon, the acquisition of such shares of Southlake Common Stock by
First Financial in accordance with the terms of the Exchange Offer. Such
acquisition shall revoke any other proxy or written consent granted by the
undersigned at any time with respect to such shares of Southlake Common Stock,
and no subsequent proxies will be given or written consents will be executed by
the undersigned (and if given or executed, will not be deemed to be effective).
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns. Except as stated in the Exchange
Offer, this tender is irrevocable.
The undersigned understands that tenders of shares of Southlake Common
Stock pursuant to the procedures described under the caption "The Exchange
Offer" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and First Financial upon the terms and
subject to the conditions of the Exchange Offer.
Unless otherwise indicated under "Special Exchange Instructions," please
issue the certificates representing the shares of First Financial Common Stock
issued in exchange for the shares of Southlake Common Stock accepted for
exchange and any cash payment in lieu of fractional shares, as discussed in the
Prospectus, and return any shares of Southlake Common Stock not exchanged, in
the name(s) of the undersigned. Similarly, unless otherwise indicated under
"Special Delivery Instructions," please send the certificates representing the
shares of First Financial Common Stock issued in exchange for the shares of
Southlake Common Stock accepted for exchange and any certificates for shares of
Southlake Common Stock not exchanged (and accompanying documents, as
appropriate) to the undersigned at the address shown below the undersigned's
signatures. In the event that both "Special Exchange Instructions" and "Special
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<PAGE>
Delivery Instructions" are completed, please issue the certificates representing
the shares of First Financial Common Stock issued in exchange for the shares of
Southlake Common Stock accepted for exchange and any cash payment in lieu of
fractional shares and return any shares of Southlake Common Stock not exchanged
in the name(s) of, and send said certificates to, the person(s) so indicated.
The undersigned recognizes that First Financial has no obligation pursuant to
the "Special Exchange Instructions" and "Special Delivery Instructions" to
transfer any shares of Southlake Common Stock from the name of the registered
holder(s) thereof if First Financial does not accept for exchange any of the
shares of Southlake Common Stock so tendered.
<TABLE>
<S> <C>
====================================================== =======================================================
SPECIAL EXCHANGE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3, 4 and 5) (See Instructions 3, 4 and 5)
To be completed ONLY if certificates for shares of To be completed ONLY if certificates for shares of
First Financial Common Stock or the check for any cash First Financial Common Stock, the check for any cash
payment in lieu of fractional shares of First payment in lieu of fractional shares of First Financial
Financial Common Stock are to be issued in the name of Common Stock, or certificates for shares of Southlake
someone other than the undersigned. Common Stock not accepted are to be sent to someone
other than the undersigned, or to the undersigned at an
Issue certificate(s) to: address other than that shown above.
Name Mail to:
--------------------------------------
(Please Print) Name
---------------------------------------
Address (Please Print)
-----------------------------------
Address
- ------------------------------------------ ------------------------------------
(Include Zip Code)
-------------------------------------------
- ------------------------------------------ (Include Zip Code)
(Tax Identification or Social Security No.)
====================================================== =======================================================
</TABLE>
Southlake Shareholders who wish to tender their shares of Southlake Common
Stock and (i) whose shares of Southlake Common Stock are not immediately
available, or (ii) who cannot deliver their shares of Southlake Common Stock,
this Letter of Transmittal or any other documents required hereby to the
Exchange Agent prior to the Expiration Date, may tender their shares of
Southlake Common Stock according to the guaranteed delivery procedures set forth
in the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery
Procedures." See Instruction 1 regarding the completion of this Letter of
Transmittal.
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<PAGE>
PLEASE SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW)
X
- ------------------------------------ -------------------
Date
X
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Signature(s) of Registered Holder(s) Date
or Authorized Signatory
Area Code and Telephone Number:
--------------------
The above lines must be signed by the registered holder(s) of shares of
Southlake Common Stock as their name(s) appear(s) on the certificates reflecting
shares of Southlake Common Stock or by person(s) authorized to become registered
holder(s). If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, such person must set forth his or her full title
below. See Instruction 3 regarding the completion of this Letter of
Transmittal.
Name(s) :
----------------------------------------------------------------
----------------------------------------------------------------
(Please Print)
Capacity:
----------------------------------------------------------------
Address:
----------------------------------------------------------------
----------------------------------------------------------------
(Include Zip Code)
SIGNATURE(S) GUARANTEED BY AN ELIGIBLE INSTITUTION (AS DEFINED
BELOW): (IF REQUIRED BY INSTRUCTION 3)
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(Authorized Signature)
----------------------------------------------------------------
(Title)
----------------------------------------------------------------
(Name of Firm)
----------------------------------------------------------------
(Address, Including Zip Code)
----------------------------------------------------------------
(Area Code and Telephone Number)
Dated: , 199
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<PAGE>
Under the federal income tax laws, the Exchange Agent may be required to
withhold 31% of the amount of any payments made to certain Southlake
Shareholders pursuant to the Exchange Offer. In order to avoid such backup
withholding, each tendering Southlake Shareholder must provide the Exchange
Agent with such Southlake Shareholder's correct taxpayer identification number
by completing the Substitute Form W-9 set forth below. In general, if a
Southlake Shareholder is an individual, the taxpayer identification number is
the Social Security number of such individual. If the Exchange Agent is not
provided with the correct taxpayer identification number, the Southlake
Shareholder may be subject to a $50 penalty imposed by the Internal Revenue
Service. CERTAIN SOUTHLAKE SHAREHOLDERS (INCLUDING, AMONG OTHERS, ALL
CORPORATIONS AND CERTAIN FOREIGN INDIVIDUALS) ARE NOT SUBJECT TO THESE BACKUP
WITHHOLDING AND REPORTING REQUIREMENTS. In order to satisfy the Exchange Agent
that a foreign individual qualifies as an exempt recipient, such Southlake
Shareholder must submit a statement, signed under penalties of perjury,
attesting to that individual's exempt status. A form for such statements can be
obtained from the Exchange Agent. For further information concerning backup
withholding and instructions for completing the Substitute Form W-9 (including
how to obtain a taxpayer identification number if you do not have one and how to
complete the Substitute Form W-9 if securities are held in more than one name),
consult the enclosed Guideline of the Internal Revenue Service for Certification
of Taxpayer Identification Number on Substitute Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause
shares of Southlake Common Stock to be deemed invalidly tendered, but may
require the Exchange Agent to withhold 31% of the amount of any payments made
pursuant to the Exchange Offer. Backup withholding is not an additional federal
income tax. Rather, the federal income tax liability of a person subject to
backup withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund may be obtained.
PAYER'S NAME: TRUST DEPARTMENT OF FIRST NATIONAL BANK OF ABILENE
<TABLE>
<CAPTION>
==================================================================================================================================
SUBSTITUTE REQUEST FOR TAXPAYER
Form W-9 IDENTIFICATION NUMBER AND CERTIFICATION
Department of the Treasury Internal Revenue Service
Payer's Request for Taxpayer Identification No.
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PART I Taxpayer Identification Number (TIN) PART II For Payees Exempt from Backup
Withholding (see enclosed
Guidelines)
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<S> <C> <C>
Enter your TIN on the appropriate line. For Social security number:
individuals, this is your social security number
(SSN). For other entities, it is your employer -------------------------------------
identification number (EIN). OR
Employer identification number:
-------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
CERTIFICATION.--Under penalties of perjury, I certify that:
1. The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me),
AND
2. I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the
Internal Revenue Service that I am subject to backup withholding as a result of a failure to report all interest or dividends, or
(c) the IRS has notified me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS.--You must cross out item 2 above if you have been notified by the IRS that you are currently subject to
backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS
that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup
withholding, do not cross out item 2.
Name (if joint names, list first and circle the name of the person or entity whose number you enter in Part I below.
-------------
Address (number and street)
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City, state, and ZIP code
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Signature Date
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</TABLE>
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<PAGE>
IF YOU CHECKED THE BOX IN PART II OF THE SUBSTITUTE FORM W-9, YOU MUST SIGN AND
DATE THE FOLLOWING CERTIFICATION:
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
================================================================================
I certify, under penalties of perjury, that a Taxpayer Identification Number has
not been issued to me, and that I mailed or delivered an application to receive
a Taxpayer Identification Number to the appropriate IRS Center or Social
Security Administration Office (or I intend to mail or deliver an application in
the near future). I understand that if I do not provide a Taxpayer
Identification Number within sixty (60) days, 31% of all reportable payments
made to me thereafter will be withheld until I provide a number.
SIGNATURE DATE
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================================================================================
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THIS EXCHANGE OFFER.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
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<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND SHARES OF SOUTHLAKE COMMON
STOCK. The certificates for the tendered shares of Southlake Common Stock, as
well as a properly completed and duly executed copy of this Letter of
Transmittal and any other documents required by this Letter of Transmittal, must
be received by the Exchange Agent at its address set forth herein prior to 5:00
p.m., Abilene, Texas time, on the Expiration Date. Subject to certain
conditions to the consummation of the Exchange Offer, the exchange of shares of
First Financial Common Stock for shares of Southlake Common Stock will be
promptly made with respect to all shares of Southlake Common Stock properly
tendered on or prior to 5:00 p.m., Abilene, Texas time, on the Expiration Date,
if First Financial receives notice from the Exchange Agent that the Required
Amount (as defined in the Prospectus) of the outstanding shares of Southlake
Common Stock have been tendered. The method of delivery of the tendered shares
of Southlake Common Stock, this Letter of Transmittal and all other required
documents to the Exchange Agent is at the election and risk of the Southlake
Shareholder and, except as otherwise provided below, the delivery will be deemed
made only when actually received by the Exchange Agent. Instead of delivery by
mail, it is recommended that the Southlake Shareholder use an overnight or hand
delivery service. If certificates for shares of Southlake Common Stock are sent
by mail, registered mail with return receipt requested, properly insured, is
recommended. In all cases, sufficient time should be allowed to assure timely
delivery.
Southlake Shareholders who wish to tender their shares of Southlake Common
Stock and (i) whose certificates representing shares of Southlake Common Stock
are not immediately available, or (ii) who cannot deliver their certificates
representing shares of Southlake Common Stock, this Letter of Transmittal or any
other documents required hereby to the Exchange Agent prior to the Expiration
Date must tender their shares of Southlake Common Stock pursuant to the
guaranteed delivery procedures set forth in the Prospectus. Pursuant to such
procedures:
(i) such tender must be made by or through a firm that is a bank, broker,
dealer, credit union, savings association or other entity which is a member
in good standing of the Securities Transfer Agent's Medallion Program, the
Stock Exchange Medallion Program or the New York Stock Exchange, Inc.
Medallion Signature Program (each, an "Eligible Institution");
(ii) prior to the Expiration Date, the Exchange Agent must have received
from the Eligible Institution a properly completed and duly executed Notice
of Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the shares of Southlake
Common Stock, the certificate number(s) for the certificate(s) representing
such shares of Southlake Common Stock and the amount of shares of Southlake
Common Stock tendered, stating that the tender is being made thereby and
guaranteeing that, within 3 business days after the Expiration Date, this
Letter of Transmittal together with the certificate(s) representing the
shares of Southlake Common Stock and any other required documents will be
deposited by the Eligible Institution with the Exchange Agent; and
(iii) such properly completed and executed Letter of Transmittal, as well
as all other documents required by this Letter of Transmittal and the
certificate(s) representing all tendered shares of Southlake Common Stock
in proper form for transfer, must be received by the Exchange Agent within
3 business days after the Expiration Date, all as provided in the
Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery
Procedures."
Any Southlake Shareholder who wishes to tender his or her shares of Southlake
Common Stock pursuant to the guaranteed delivery procedures described above must
ensure that the Exchange Agent receives the Notice of Guaranteed Delivery prior
to 5:00 p.m., Abilene, Texas time, on the Expiration Date.
-8-
<PAGE>
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered shares of Southlake Common Stock
will be determined by First Financial in its sole discretion, which
determination will be final and binding. First Financial reserves the absolute
right to reject any and all shares of Southlake Common Stock not properly
tendered or any shares of Southlake Common Stock, First Financial's acceptance
of which would, in the opinion of counsel for First Financial, be unlawful.
First Financial also reserves the right to waive any irregularities or
conditions of tender as to particular shares of Southlake Common Stock. Unless
waived, any defects or irregularities in connection with tenders of shares of
Southlake Common Stock must be cured within such time as First Financial shall
determine. Neither First Financial, the Exchange Agent nor any other person
shall be under any duty to give notification of defects or irregularities with
respect to tenders of shares of Southlake Common Stock, nor shall any of them
incur any liability for failure to give such notification. Tenders of shares of
Southlake Common Stock will not be deemed to have been made until such defects
or irregularities have been cured or waived. Any shares of Southlake Common
Stock received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned without cost by the Exchange Agent to the tendering Southlake
Shareholders, unless otherwise provided in this Letter of Transmittal, as soon
as practicable following the Expiration Date.
2. NO PARTIAL TENDERS. All shares of Southlake Common Stock represented
by certificates delivered to the Exchange Agent will be deemed to have been
tendered.
3. SIGNATURES ON THE LETTER OF TRANSMITTAL; STOCK POWERS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed
by the registered holder(s) of the shares of Southlake Common Stock tendered
hereby, the signature must correspond with the name(s) as written on the face of
the certificates representing the shares of Southlake Common Stock without
alteration, enlargement or any change whatsoever.
If this Letter of Transmittal is signed by the registered holder(s) of
shares of Southlake Common Stock tendered and the certificate(s) for shares of
First Financial Common Stock issued in exchange therefor is to be issued to the
registered holder, such holder need not and should not endorse any certificates
for tendered shares of Southlake Common Stock, nor provide a separate stock
power. In any other case, such holder must either properly endorse the
certificates representing shares of Southlake Common Stock tendered or transmit
a properly completed separate stock power with this Letter of Transmittal, with
the signatures on the endorsement or stock power guaranteed by an Eligible
Institution.
If any shares of Southlake Common Stock tendered hereby are held of record
by two or more persons, all such persons must sign this Letter of Transmittal.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of any certificates for shares of Southlake Common Stock
tendered hereby, such certificates for shares of Southlake Common Stock must be
endorsed or accompanied by appropriate stock powers signed exactly as the name
of the registered holder(s) appears on the certificates representing such shares
of Southlake Common Stock and must be guaranteed by an Eligible Institution.
If this Letter of Transmittal or any certificates for shares of Southlake
Common Stock or stock powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, or officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and unless waived by First Financial, evidence satisfactory to First
Financial of their authority to so act must be submitted with this Letter of
Transmittal.
Endorsements on certificates for shares of Southlake Common Stock and
signatures on stock powers required by this Instruction 3 must be guaranteed by
an Eligible Institution.
Signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution unless the shares of Southlake Common Stock tendered pursuant
thereto are tendered (i) by a registered
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<PAGE>
holder who has not completed the box set forth herein entitled "Special Exchange
Instructions" or the box entitled "Special Delivery Instructions" or (ii) for
the account of an Eligible Institution.
4. SPECIAL EXCHANGE AND DELIVERY INSTRUCTIONS. If the certificates for
shares of First Financial Common Stock or checks for any cash payment in lieu of
payment of fractional shares of First Financial Common Stock are to be issued,
or any shares of Southlake Common Stock not accepted for exchange are to be
mailed to someone other than the person(s) signing this Letter of Transmittal or
to the person(s) signing this Letter of Transmittal at an address other than
that provided herein, the appropriate boxes on this Letter of Transmittal should
be completed. In the case of issuance in a different name, the taxpayer
identification or social security number of the person named must also be
indicated.
5. TRANSFER TAXES. First Financial will pay all transfer taxes, if any,
applicable to the exchange of shares of Southlake Common Stock pursuant to the
Exchange Offer unless such payment would jeopardize the tax-free nature of the
Exchange Offer or the Merger (as defined in the Prospectus) for Federal income
tax purposes. If, however, certificates representing shares of First Financial
Common Stock or checks for any cash payment in lieu of fractional shares of
First Financial Common Stock are issued, or certificates for shares of Southlake
Common Stock not accepted for exchange are to be returned, in the name of any
person other than the registered holder of the shares of Southlake Common Stock
tendered hereby, or if tendered shares of Southlake Common Stock are registered
in the name of any person other than the person signing this Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of shares of Southlake Common Stock pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with this Letter of Transmittal, the amount of such transfer taxes
will be deducted from the consideration to be received by such holder (i.e., the
number of shares of First Financial Common Stock to be issued to such holder
will be reduced).
6. WAIVER OF CONDITIONS. First Financial reserves the absolute right to
amend, waive or modify specified conditions in the Exchange Offer in the case of
any shares of Southlake Common Stock tendered.
7. MUTILATED, LOST, STOLEN OR DESTROYED SHARES OF SOUTHLAKE COMMON STOCK.
Any tendering holder whose shares of Southlake Common Stock have been mutilated,
lost, stolen or destroyed should contact the Exchange Agent at the address
indicated herein for further instruction.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address
specified in the Prospectus. Southlake Shareholders may also contact their
broker, dealer, commercial bank, trust company or other nominee for assistance
concerning the Exchange Offer.
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<PAGE>
(DO NOT WRITE IN SPACE BELOW)
DATE RECEIVED __________ ACCEPTED BY __________ CHECKED BY __________
===========================================================================
SHARES SURRENDERED SHARES ACCEPTED SHARES RETURNED CERTIFICATE NO.
- ------------------ --------------- --------------- ---------------
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DELIVERY PREPARED BY CHECKED BY DATE
---------------- ------------ -----------
===========================================================================
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