NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF
FIRSTSHARES OF TEXAS, INC.
February 26, 1998
NOTICE IS HEREBY GIVEN that, pursuant to the call of the Board of Directors
of Firstshares of Texas, Inc. ("Firstshares"), a Special Meeting of the
shareholders of Firstshares will be held at the main office of Firstshares of
Texas, Inc., 100 North Bolivar, Marshall, Texas 75670 on February 26, 1998 at
3:00 P.M., for the purpose of considering and voting upon the following matters:
1. A proposal to approve (a) the Agreement and Plan of Merger effective as
of October 24, 1997 (the "Agreement") between Firstshares and Hibernia
Corporation ("Hibernia") pursuant to which (i) Firstshares will be merged (the
"Merger") into Hibernia (which will survive the Merger) and (ii) each
outstanding share of common stock, $4.00 per share par value, of Firstshares
("Firstshares Common Stock") will be converted into 7.15 shares of Class A
common stock, no par value, of Hibernia as described more fully in the
accompanying Proxy Statement - Prospectus) and (b) the Merger.
2. The transaction of such other business as may properly come before the
Special Meeting and any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on January 22, 1998
as the record date for determining the shareholders entitled to receive notice
of, and to vote at, the Special Meeting.
Each share of Firstshares Common Stock will entitle the holder thereof to
one vote on all matters that come before the Special Meeting. Approval of the
Merger will require the affirmative vote of two-thirds of the issued and
outstanding shares of Firstshares Common Stock, in person or by proxy, at the
Special Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT HOLDERS OF FIRSTSHARES
COMMON STOCK VOTE "FOR" THE APPROVAL OF THE AGREEMENT AND THE MERGER.
Whether you intend to attend the Special Meeting, and regardless of the
number of shares you own, your vote is important. Please take a moment to
complete, date and sign the enclosed proxy card. Your proxy may be revoked by
notice to the Secretary of Firstshares prior to the date of the Special Meeting,
by attending the Special Meeting or by executing and delivering a later dated
proxy to the Secretary prior to the Special Meeting.
By Order of the Board of Directors,
Norman S. Bynum
Secretary
PROXY STATEMENT
FIRSTSHARES OF TEXAS, INC.
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON February 26, 1998
PROSPECTUS
HIBERNIA CORPORATION
3,690,616 SHARES OF
CLASS A COMMON STOCK
(NO PAR VALUE)
This Proxy Statement-Prospectus is being furnished to the holders of
common stock, par value $4.00 per share (the "Firstshares Common Stock"), of
Firstshares of Texas, Inc., a Texas corporation ("Firstshares"), in connection
with the solicitation of proxies by the Board of Directors of Firstshares for
use at a special meeting of shareholders (the "Special Meeting") to be held at
3:00 P.M., local time, on February 26, 1998, at the office of Firstshares, 100
North Bolivar, Marshall, Texas 75670, and at any adjournments or postponements
thereof.
At the Special Meeting, the holders of record of Firstshares Common
Stock as of the close of business on January 22, 1998 (the "Record Date") will
consider and vote upon a proposal to approve (a) the Agreement and Plan of
Merger effective as of October 24, 1997 (the "Agreement") between Firstshares
and Hibernia Corporation ("Hibernia") pursuant to which (i) Firstshares will be
merged (the "Merger") into Hibernia and Hibernia will be the corporation
surviving the Merger and (ii) each outstanding share of Firstshares Common
Stock, except for shares of Firstshares Common Stock owned by Hibernia or its
subsidiaries and shares as to which dissenters' rights have been exercised and
perfected under Texas law, will be converted into 7.15 shares of common stock,
no par value, of Hibernia ("Hibernia Common Stock") and (b) the Merger. Cash
will be paid in lieu of issuing fractional shares. For a description of the
Agreement, which is included in its entirety as Appendix A to this Proxy
Statement-Prospectus, see "PROPOSED MERGER."
This Proxy Statement-Prospectus also constitutes a prospectus of
Hibernia with respect to the shares of Hibernia Common Stock to be issued
pursuant to the Agreement if the Merger is consummated. The actual number of
shares of Hibernia Common Stock to be issued will be determined in accordance
with the terms of the Agreement. See "PROPOSED MERGER -- Terms of the Merger."
The outstanding shares of Hibernia Common Stock are listed on the New
York Stock Exchange, Inc. (the "NYSE"). The reported last sale price of Hibernia
Common Stock on the NYSE Composite Transactions Reporting System on January 23,
1998 was $17.8125 per share.
This Proxy Statement-Prospectus and the accompanying proxy card are
first being mailed to shareholders of Firstshares on or about January 28, 1998.
No person is authorized to give any information or to make any
representations other than those contained in this Proxy Statement-Prospectus,
and, if given or made, such information or representation may not be relied upon
as having been made by Hibernia or Firstshares.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE SHARES OF HIBERNIA COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
The date of this Proxy Statement-Prospectus is January 28, 1998.
TABLE OF CONTENTS
Page
INTRODUCTION 6
AVAILABLE INFORMATION 6
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 7
THE PARTIES TO THE MERGER 8
Hibernia 8
Results for the Year Ended December 31, 1997 9
Selected Financial Data 10
Firstshares 13
Firstshares Selected Financial Information 14
Pro Forma Combined Selected Financial Information (Unaudited) 17
Comparative Per Share Information (Unaudited) 19
SUMMARY 21
The Proposed Merger 21
Management and Operations After the Merger 21
Recommendation of the Board of Directors 21
Basis for the Terms of the Merger 21
Advice and Opinion of Financial Advisor 22
Votes Required 22
Conditions; Abandonment; Amendment 22
Interests of Certain Persons in the Merger 23
Employee Benefits 23
Material Tax Consequences 24
Dissenters' Rights 24
Differences in Shareholders' Rights 25
Accounting Treatment 25
Merger Activity 25
MEETING INFORMATION 25
Solicitation and Revocation of Proxies 26
Vote Required 26
Recommendation 27
PROPOSED MERGER 27
General 27
Background of and Reasons for the Merger 28
Terms of the Merger 29
Opinion of Financial Advisor 29
Closing Date and Effective Date of the Merger 31
Employee Benefits 32
Surrender and Exchange of Stock Certificates 33
Expenses 34
Representations and Warranties; Conditions to the Merger; Waiver 34
Regulatory and Other Approvals 35
Business Pending the Merger 35
Termination 36
Management and Operations After the Merger 37
Certain Differences in Rights of Shareholders 37
Interests of Certain Persons in the Merger 40
Material Tax Consequences 41
Resale of Hibernia Common Stock 42
Rights of Dissenting Shareholders 43
Accounting Treatment 45
CERTAIN REGULATORY CONSIDERATIONS 46
General 46
Payment of Dividends 46
Restrictions on Extensions of Credit 47
PRO FORMA FINANCIAL INFORMATION 48
CERTAIN INFORMATION CONCERNING FIRSTSHARES 59
Description of Business 59
Supervision and Regulation 60
Competition 61
Employees 61
Properties 61
Legal Proceedings 62
Market Prices and Dividends 62
Security Ownership of Principal Shareholders and Management 63
FIRSTSHARES CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS
ENDED AS OF AND FOR SEPTEMBER 30, 1997 AND 1996 (Unaudited) 66
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF FIRSTSHARES OF TEXAS, INC. FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996 71
FIRSTSHARES CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
AS OF AND FOR DECEMBER 31, 1996 AND DECEMBER 31, 1995
(Audited) 81
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF FIRSTSHARES OF TEXAS, INC. FOR THE
TWELVE MONTHS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995 101
RELATIONSHIP WITH INDEPENDENT AUDITORS 111
VALIDITY OF SHARES 111
EXPERTS 111
APPENDICES 112
APPENDIX A. AGREEMENT AND PLAN OF MERGER 112
APPENDIX B. OPINION OF KEEFE, BRUYETTE & WOODS, INC. 137
APPENDIX C. RIGHTS OF DISSENTING SHAREHOLDERS 139
APPENDIX D. TAX OPINION OF ERNST & YOUNG, L.L.P. 144
INTRODUCTION
If the shareholders of Firstshares approve the Agreement and the Merger,
Firstshares will be merged into Hibernia and Hibernia will be the corporation
surviving the Merger. If the Merger is completed, shareholders of Firstshares
(except for shareholders who exercise and perfect their dissenters' rights under
Texas law) will receive 7.15 shares of Hibernia Common Stock for each share of
Firstshares Common Stock they own at the time the Merger is effective.
Shareholders of Firstshares will be paid cash in lieu of any fractional shares
of Hibernia Common Stock to which they may otherwise be entitled. See "PROPOSED
MERGER - Terms of the Merger." This Registration Statement relates to 3,690,616
shares of Hibernia Common Stock, which is the maximum number of shares of
Hibernia Common Stock that Hibernia will issue to the shareholders of
Firstshares in connection with the Merger.
Shareholders of Firstshares will be asked to approve the Agreement and
Merger at a Special Meeting to be held on February 26, 1998. The proxy statement
relating to such Special Meeting is included in this Proxy Statement-Prospectus.
The terms of the Merger are described in this Proxy Statement-
Prospectus (see "Proposed Merger"), and a copy of the Agreement is attached
hereto as Appendix A for reference.
AVAILABLE INFORMATION
Hibernia is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices located at 7
World Trade Center, Suite 1300, New York, New York 10007 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials can
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web Site that contains reports, proxy and information statements and
other information and the address of that site is http://www.sec.gov. In
addition, reports, proxy statements and other information concerning Hibernia
may be inspected at the offices of the New York Stock Exchange, Inc. (the
"NYSE"), 20 Broad Street, New York, New York 10005, on which the shares of
Hibernia Common Stock are listed.
In addition to the above, Hibernia news releases, product and service
information and other useful data can be accessed through Hibernia's internet
Web Site at http:/www.hiberniabank.com.
Hibernia has filed with the Commission a registration statement on Form
S-4 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Hibernia Common Stock offered hereby. This Proxy Statement-
Prospectus does not contain all of the information set forth in the Registration
Statement. For further information with respect to Hibernia and the Hibernia
Common Stock offered hereby, reference is hereby made to the Registration
Statement. Statements contained in this Proxy Statement-Prospectus concerning
the provisions of certain documents are not necessarily complete and, in each
instance, reference is made to the copy of the document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference. Copies of all or any part of the Registration Statement,
including exhibits thereto, may be obtained, upon payment of the prescribed
fees, at the offices of the Commission and the NYSE, as set forth above.
All information contained in this Proxy Statement-Prospectus relating to
Hibernia and its subsidiaries has been supplied by Hibernia, and all information
relating to Firstshares and its subsidiaries has been supplied by Firstshares.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated by reference in this Proxy Statement-Prospectus are the
following documents filed by Hibernia with the Commission pursuant to the
Exchange Act: Hibernia's (1) Annual Report on Form 10-K for the year ended
December 31, 1996, (2) definitive Proxy Statement dated March 19, 1997 relating
to its 1997 Annual Meeting of Shareholders held on April 29, 1997 except for the
information contained therein under the headings "Executive Compensation --
Report of the Executive Compensation Committee" and "Executive Compensation --
Stock Performance Graph", which are expressly excluded from incorporation in
this Registration Statement, (3) Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 1997, June 30, 1997 and September 30, 1997, (4) the
Description of Capital Stock included in its Current Report on Form 8-K dated
November 2, 1994, and (5) Current Reports on Form 8-K dated May 12, May 28, July
1, July 28, September 22, October 27, 1997 and January 12, 1998.
All documents subsequently filed by Hibernia with the Commission
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Proxy Statement-Prospectus and prior to the termination of the
offering of Hibernia Common Stock made hereby will be deemed to be incorporated
by reference in this Proxy Statement-Prospectus and to be a part hereof from the
date such documents are filed, except that any and all information included in
any proxy statement filed by Hibernia under the headings "Executive Compensation
- -- Report of the Executive Compensation Committee" and "Executive Compensation
- -- Stock Performance Graph" are hereby expressly excluded from such
incorporation by reference. No statement made herein will be deemed to modify or
supercede any statement contained in a document incorporated or deemed to be
incorporated by reference. Any statement so modified or superseded will not be
deemed, except as so modified or superseded, to constitute a part of this Proxy
Statement-Prospectus.
Hibernia will provide, without charge, to each person, including any
beneficial owner, to whom this Proxy Statement- Prospectus is delivered, on the
written or oral request of any such person, a copy of any or all of the
information incorporated herein by reference other than exhibits to such
information (unless such exhibits are specifically incorporated by reference
into such information). Written or oral requests should be directed to Hibernia
Corporation, 313 Carondelet Street, New Orleans, Louisiana 70130, Attention:
Assistant Secretary, Telephone (504) 533-3411. To ensure timely delivery, any
request should be made before February 15, 1998.
THE PARTIES TO THE MERGER
Hibernia
Hibernia is a Louisiana corporation registered under the Bank Holding
Company Act of 1956, as amended ("BHCA"). As of September 30, 1997, Hibernia had
total consolidated assets of approximately $10.1 billion and shareholders'
equity of approximately $1 billion. As of September 30, 1997, Hibernia was
ranked, on the basis of total assets, as the largest bank holding company
headquartered in Louisiana.
As of September 30, 1997, Hibernia had two banking subsidiaries,
Hibernia National Bank ("HNB"), that provides retail and commercial banking
services through approximately 202 banking offices throughout Louisiana, and
Hibernia National Bank of Texas ("HNBT"), that provides retail and commercial
banking services through approximately 12 banking offices in four Texas
counties. As of September 30, 1997, HNB was the largest bank headquartered in
Louisiana.
From time to time, Hibernia investigates and holds discussions and
negotiations in connection with possible mergers or similar transactions with
other financial institutions. On August 31, 1997, Hibernia consummated the
acquisition of Executive Bancshares, Inc. in northeast Texas. On November 7,
1997, Hibernia consummated the acquisition of Unicorp Bancshares-Texas, Inc. in
southeast Texas. On January 1, 1998, Hibernia consummated the acquisition of
Northwest Bancshares of Louisiana, Inc. in northwest Louisiana. At the date
hereof, Hibernia has entered into a definitive merger agreement with ArgentBank.
The proposed transaction with ArgentBank is subject to various conditions,
including approval by the shareholders of ArgentBank. See "Summary -- Merger
Activity".
Hibernia expects to pursue other possible acquisition opportunities and
intends to continue to pursue such opportunities in the near future when
available and feasible in the light of Hibernia's business and strategic plans.
Although it is anticipated that such transactions may be entered into both
before and after the Merger, there can be no assurance as to when or if, or the
terms upon which, such transactions may be pursued or consummated. If required
under applicable law, any such transactions would be subject to regulatory
approval and the approval of shareholders of the acquired institution.
The principal executive offices of Hibernia are located at 313 Carondelet
Street, New Orleans, Louisiana 70130, and its telephone number is (504)
533-5532. For additional information concerning the business and financial
condition of Hibernia, reference is made to the Hibernia reports incorporated
herein by reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
Results for the Year Ended December 31, 1997
On January 14, 1998, Hibernia reported 1997 net income of $137.4 million
($1.00 per common share), up 22% from $112.8 million ($.85 per common share) in
1996. In addition, loans and deposits continued to grow, and profitability
measures improved.
For the fourth quarter, net income rose to $38.3 million ($.28 per
common share), up 21% from $31.8 million ($.23 per common share) during the same
period in 1996.
EARNINGS SNAPSHOT
(000s, except per common share)
FULL YEAR `97 `96 Chg
Net income $137,389 $112,818 22%
Net income
per common
share $1.00 $.85 18%
Avg common
shares* 130,795 130,161 -%
FOURTH QUARTER `97 `96 Chg
Net income $38,348 $31,791 21%
Net income
per common
share $.28 $.23 22%
Avg common
Shares* 131,103 130,475 -%
* Net of uncommitted ESOP shares
Returns on assets (ROA) and common equity (ROCE) grew to 1.38% and 14.63%,
respectively, for 1997, up from 1.34% and 13.83% in 1996. For the fourth
quarter, ROA and ROCE were 1.44% and 15.70%, respectively, strong improvements
from 1.37% and 14.37% for the same period in 1996.
Total loans were $7.6 billion at December 31, 1997, up 23% from $6.2
billion at December 31, 1996. Consumer loans at the end of 1997 were $3.1
billion, an 18% increase from a year earlier; small-business banking loans grew
15% to $1.4 billion; and commercial loans were up 32% to $3.1 billion.
Nonperforming assets totaled $25.2 million at December 31, 1997, virtually
unchanged from $25.0 million a year earlier and down 15.4% from $29.7 million at
September 30, 1997. Delinquencies at year-end 1997 declined in all categories
compared to year-end 1996. Loans delinquent 30 days or more were 0.79% of total
loans at December 31, 1997, down from 1.23% a year earlier. Consumer
delinquencies at the end of 1997 were 1.30%, an improvement from 1.55%.
Commercial and small-business delinquencies declined to 0.18% and 1.00%,
respectively, from .84% and 1.31%. The nonperforming-asset ratio was 0.33% at
the end of 1997, down from 0.40% a year earlier. Reserve coverage of
nonperforming loans totaled 528% at December 31, 1997, compared to 802% at the
end of 1996.
Total deposits at December 31, 1997, increased 7% to $8.6 billion, compared
to $8.1 billion a year earlier. Contributing to the growth was Tower Super
Savings, introduced in early 1997 and featuring competitive interest rates,
liquidity and safety.
Additional 1997 results were as follows:
Total assets were $11.0 billion at the end of 1997, up 15% from $9.6
billion a year earlier.
An 18% increase in average earning assets in 1997 resulted in a 14%
increase in net interest income to $427.8 million from $375.6 million
in 1996. The net interest margin was 4.75%, compared to 4.89% in 1996.
The margin change resulted from the increased use of market-rate funds
to support Hibernia's growing loan volume.
Excluding gains and losses on securities transactions, noninterest
income grew 21% to $142.7 million from $117.9 million in 1996.
Noninterest expense totaled $361.9 million, up 11% from $327.0 million
in 1996. Excluding certain merger-related expenses for both years and
nonrecurring items in 1996, noninterest expense would have been $358.6
million, up 14% compared to $315.3 million in 1996.
The efficiency ratio was 62.45%, improved from 65.40% in 1996.
Excluding the effect of the amortization of intangibles related to
purchase transactions, the tangible efficiency ratio was 60.31%, an
improvement from 64.07% for 1996.
Shareholders' equity grew 10% to $1,050.3 million at December 31,
1997, from $951.9 million a year earlier. Market capitalization grew
43% to $2.5 billion, an all-time high, from $1.8 billion at the end of
1996.
Selected Financial Data
The closing market price per share of Hibernia Common Stock on the NYSE
on October 23, 1997, the business day prior to the announcement of the proposed
Merger was $17.9375. There can be no assurance of the market price of Hibernia
Common Stock on the Closing Date.
<PAGE>
Selected Fianacial Data of Hibernia
The following table sets forth certain consolidated financial
information for Hibernia. This information is based on the consolidated
financial statements and related notes of Hibernia contained in (i) its Annual
Report on Form 10-K for the year ended December 31, 1996 after giving effect for
the merger with Executive Bancshares, Inc. consummated on August 31, 1997, which
was accounted for as a pooling of interests, and (ii) its Quarterly Report on
Form 10-Q for September 30, 1997. See "Incorporation by Reference."
<TABLE>
<CAPTION>
HIBERNIA CORPORATION
SELECTED FINANCIAL INFORMATION
Year Ended December 31 9 Months Ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------
Unaudited ($ in thousands, except per share amounts)
1996 1995 1994 1993 1992 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income ................ $ 370,326 $ 324,309 $ 304,397 $ 299,337 $ 296,654 $ 313,185 $ 268,585
Income from continuing operations .. 110,717 129,698 102,335 73,543 13,395 97,823 79,583
Per common share:
Income from continuing operations 0.85 1.01 0.79 0.57 0.18 0.72 0.62
Cash dividends .................. 0.29 0.25 0.19 0.03 - 0.24 0.21
Book value ...................... 6.58 6.06 4.98 4.66 4.01 7.08 6.34
SELECTED PERIOD-END BALANCES
Debt ............................... 53,881 36,069 23,395 41,921 42,544 106,777 20,863
Total assets ....................... 9,443,127 7,855,631 7,388,374 7,211,785 7,063,099 10,081,093 8,932,304
</TABLE>
Firstshares
Firstshares is a Texas corporation and a registered bank holding company
under the BHCA which owns all of the issued and outstanding shares of stock of
Firstshares Intermediate Holding Company, Inc., a Delaware corporation and a
registered bank holding company under the BHCA ("Firstshares - Delaware").
Firstshares - Delaware owns all of the outstanding stock of First National Bank,
a national banking association (the "Bank"). As of September 30, 1997,
Firstshares had total consolidated assets of $289 million and shareholders'
equity of $25 million. The Bank has five offices in five counties in Texas. The
Bank engages in retail and commercial banking services, including taking
deposits and extending secured and unsecured credit.
The principal offices of Firstshares are located at 100 North Bolivar,
Marshall, Texas 75670 and its telephone number is (903) 935-9331. For additional
information concerning the business of Firstshares and its financial condition,
see "CERTAIN INFORMATION CONCERNING FIRSTSHARES", "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF FIRSTSHARES" and
"FIRSTSHARES CONSOLIDATED FINANCIAL INFORMATION."
<PAGE>
Selected Financial Data of Firstshares of Texas, Inc.
The following selected financial information of Firstshares with
respect to each year in the three-year period ended December 31, 1996 and the
nine-month periods ended September 30, 1997 and 1996 has been derived from the
financial statements of Firstshares. The information set forth below should be
read in conjunction with Firstshares' financial statements, the notes thereto,
and Firstshares' Management's Discussion and Analysis of Financial Condition and
Results of Operations for the years ended December 31, 1996 and 1995 and the
nine-month periods ended September 30, 1997 and 1996 appearing elsewhere in this
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
FIRSTSHARES OF TEXAS, INC.
SELECTED FINANCIAL INFORMATION
(Unaudited)
Year Ended December 31 9 Months Ended September 30
- -------------------------------------------------------------------------------------------------------------
($ in thousands, except per share amounts)
1996 1995 1994 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income ................ $ 10,204 $ 9,238 $ 8,834 $ 8,559 $ 7,561
Income from continuing operations .. 2,739 2,132 1,901 2,539 1,882
Per common share:
Income from continuing operations 5.33 4.20 3.48 4.92 3.65
Cash dividends .................. 0.73 0.58 0.50 0.54 0.48
Book value ...................... 41.70 39.37 31.87 48.13 39.61
SELECTED PERIOD-END BALANCES
Debt ............................... - 675 - - -
Total assets ....................... 253,927 245,826 214,963 288,813 247,318
</TABLE>
<TABLE>
<CAPTION>
FIRSTSHARES OF TEXAS, INC.
QUARTERLY INCOME RESULTS
- --------------------------------------------------------------------------------
Unaudited ($ in thousands, except per share amounts)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
3/31/97 6/30/97 9/30/97
- --------------------------------------------------------------------------------
Interest income .... $4,375 $4,820 $5,070
Net interest income 2,652 2,853 3,054
Net income ......... 753 967 819
Net income per share 1.46 1.87 1.59
- --------------------------------------------------------------------------------
3/31/96 6/30/96 9/30/96 12/31/96
- --------------------------------------------------------------------------------
Interest income .... $4,234 $4,218 $4,359 $4,393
Net interest income 2,490 2,480 2,591 2,643
Net income ......... 587 653 642 857
Net income per share 1.14 1.27 1.25 1.66
- --------------------------------------------------------------------------------
3/31/95 6/30/95 9/30/95 12/31/95
- --------------------------------------------------------------------------------
Interest income .... $3,593 $3,750 $4,087 $4,210
Net interest income 2,302 2,275 2,275 2,386
Net income ......... 539 497 518 578
Net income per share 1.06 0.98 1.02 1.14
</TABLE>
<PAGE>
Pro Forma Combined Selected Financial Data (Unaudited)
The following table sets forth certain unaudited pro forma combined
selected financial information for Hibernia, after giving effect to the merger
with Executive Bancshares, Inc. (Executive), consummated on August 31, 1997 as
discussed in Note A to the Pro Forma Combined Income Statements, and
Firstshares. The pro forma information, which reflects the Merger and the
consummated merger with Executive using the pooling-of-interests method of
accounting, is presented for informational purposes only and should not be
construed as indicative of the actual operations that would have occurred had
the mergers been consummated at the beginning of the periods indicated or that
may be obtained in the future. See "Pro Forma Financial Information" contained
elsewhere herein.
<TABLE>
<CAPTION>
PRO FORMA HIBERNIA CORPORATION*
PRO FORMA COMBINED SELECTED FINANCIAL INFORMATION
Year Ended December 31 9 Months Ended September 30
- ------------------------------------------------------------------------------------------------------------------------
Unaudited ($ in thousands, except per share amounts)
1996 1995 1994 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income ................ $ 380,530 $ 333,547 $ 313,231 $ 321,744 $ 276,146
Income from continuing operations .. 113,456 131,830 104,236 100,362 81,465
Per common share:
Income from continuing operations 0.85 1.00 0.79 0.72 0.62
Cash dividends .................. 0.29 0.25 0.19 0.24 0.21
Book value ...................... 6.56 6.04 4.97 7.07 6.32
SELECTED PERIOD-END BALANCES
Debt ............................... 53,881 36,744 23,395 106,777 20,863
Total assets ....................... 9,697,054 8,101,457 7,603,337 10,369,906 9,179,622
- ---------------
* Includes Hibernia Corporation and Firstshares of Texas, Inc.
</TABLE>
<PAGE>
Comparative Per Share Information (Unaudited)
The following table sets forth for Hibernia Common Stock and
Firstshares Common Stock certain unaudited pro forma combined and unaudited pro
forma equivalent per share financial information for the nine-month periods
ended September 30, 1997 and 1996 and for the years ended December 31, 1996,
1995 and 1994. Information under the column titled "Hibernia Corporation" is
based on (i) Hibernia's Annual Report on Form 10-K for the year ended December
31, 1996, after giving effect for the merger with Executive Bancshares, Inc.
(Executive) consummated on August 31, 1997, which was accounted for as a pooling
of interests, and (ii) Hibernia's Quarterly Report on Form 10-Q for the
nine-month period ended September 30, 1997. Information under the column titled
"Firstshares of Texas, Inc." is based on, and should be read in conjunction
with, the historical financial statements and related notes and Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Firstshares contained elsewhere in this Proxy Statement/Prospectus.
Information under the column entitled "Pro Forma Hibernia Corporation (with
Firstshares of Texas, Inc.)" is based upon the pro forma financial statements
and related notes contained elsewhere herein. Such pro forma combined
information, which reflects the Merger and the consummated merger with
Executive, is presented for informational purposes only and should not be
construed as indicative of the actual operations that would have occurred had
the mergers been consummated at the beginning of the periods indicated or that
may be obtained in the future. The pro forma combined information gives effect
to the issuance, in each of the periods presented, of 1,161,680 shares of
Hibernia Common Stock for all of the outstanding shares of Executive Common
Stock and of 7.15 shares of Hibernia Common Stock for each outstanding share of
Firstshares Common Stock. The pro forma combined information assumes the Average
Market Price of Hibernia Common Stock will be $18.50 per share. See "THE
PROPOSED MERGER - Terms of the Merger."
The information under the column entitled "Firstshares of Texas, Inc.
Pro Forma Equivalent" is derived by multiplying the amounts contained in the
column titled "Pro Forma Hibernia Corporation (with Firstshares of Texas, Inc.)"
by the Exchange Ratio (as defined in the Merger Agreement) of 7.15. See "THE
PROPOSED MERGER - Terms of the Merger."
<TABLE>
<CAPTION>
HIBERNIA CORPORATION AND FIRSTSHARES OF TEXAS, INC.
COMPARATIVE PER SHARE INFORMATION
- -------------------------------------------------------------------------------------------
Unaudited
PRO FORMA
HIBERNIA FIRSTSHARES
CORPORATION OF TEXAS, INC.
HIBERNIA FIRSTSHARES (WITH FIRSTSHARES PRO FORMA
CORPORATION OF TEXAS, INC. OF TEXAS, INC.) EQUIVALENT
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Common Share:
Income from continuing operations:
For the nine months ended September 30,
1997 $ 0.72 $ 4.92 $ 0.72 $ 5.15
1996 0.62 3.65 0.62 4.43
For the year ended December 31,
1996 $ 0.85 $ 5.33 $ 0.85 $ 6.08
1995 1.01 4.20 1.00 7.15
1994 0.79 3.48 0.79 5.65
Cash dividends:
For the nine months ended September 30,
1997 $ 0.24 $ 0.54 $ 0.24 $ 1.72
1996 0.21 0.48 0.21 1.50
For the year ended December 31,
1996 $ 0.29 $ 0.73 $ 0.29 $ 2.07
1995 0.25 0.58 0.25 1.79
1994 0.19 0.50 0.19 1.36
Book Value:
At September 30, 1997 $ 7.08 $48.13 $ 7.07 $50.55
At December 31, 1996 6.58 41.70 6.56 46.90
</TABLE>
SUMMARY
This summary is necessarily general and abbreviated and has been
prepared to assist shareholders of Firstshares in their review of this Proxy
Statement-Prospectus. This summary is not intended to be a complete explanation
of the matters covered in this Proxy Statement-Prospectus and is qualified in
its entirety by reference to the more detailed information contained elsewhere
in this Proxy Statement-Prospectus, the Appendices hereto and the documents
incorporated herein by reference. Shareholders of Firstshares are urged to read
all of those documents in their entirety prior to the Special Meeting.
The Proposed Merger
The shareholders of Firstshares will consider and vote upon the
Agreement and the Merger at the Special Meeting. If the shareholders of
Firstshares approve the Agreement and the Merger and the other conditions to the
consummation of the Merger are satisfied (see "PROPOSED MERGER --
Representations and Warranties; Conditions to the Merger; Waiver"), the Merger
will be consummated on a date thereafter chosen by the parties (the "Effective
Date").
Shareholders of Firstshares, other than shareholders of Firstshares who
exercise and perfect dissenters' rights under Texas law, will receive 7.15
shares of Hibernia Common Stock in exchange of each share of Firstshares Common
Stock they own (the "Exchange Rate"). Firstshares shareholders will also be paid
cash in lieu of any fractional share of Hibernia Common Stock to which they may
otherwise be entitled.
Management and Operations After the Merger
Firstshares, Firstshares - Delaware and the Bank will cease to exist
after Merger. The business of the Bank will be conducted through HNBT after the
merger. The Boards of Directors of Hibernia and HNBT following the Merger shall
consist of those persons serving as directors immediately prior to the Merger.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS OF FIRSTSHARES HAS UNANIMOUSLY APPROVED THE
AGREEMENT AND THE MERGER, BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF
THE SHAREHOLDERS OF FIRSTSHARES AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
THE MERGER AND THE RELATED AGREEMENT. (See "MEETING INFORMATION.") The Board of
Directors has received from Keefe, Bruyette & Woods, Inc. ("Keefe, Bruyette") an
opinion that the terms of the Merger are fair, from a financial point of view,
to the shareholders of Firstshares. See "PROPOSED MERGER -- Opinion of Financial
Advisor." Firstshares Board believes that the Merger will provide significant
value to all Firstshares shareholders. In recommending the Merger to the
shareholders, Firstshares Board of Directors considered, among other factors,
the financial terms of the Merger, the liquidity it will afford Firstshares
shareholders and the business earnings and potential for future growth of
Firstshares and Hibernia. See "PROPOSED MERGER -- Background of and Reasons for
the Merger."
Basis for the Terms of the Merger
A number of factors were considered by the Board of Directors of
Firstshares in approving the terms of the Merger, including, without limitation,
information concerning the financial condition, results of operations and
prospects of Hibernia, Firstshares, HNB, HNBT, and the Bank; the ability of
Firstshares to compete in its relevant banking markets and to face additional
competitive pressures due to changes in the regulatory environment; the market
price of Hibernia Common Stock; the absence of an active trading market for
Firstshares Common Stock; the consideration to be received by Firstshares
shareholders in relation to Firstshares earnings and book value; the anticipated
tax-free nature of the Merger to Firstshares shareholders for federal income tax
purposes; and the financial terms of other recent business combinations in the
banking industry. See "PROPOSED MERGER -- Background of and Reasons for the
Merger."
Advice and Opinion of Financial Advisor
Keefe, Bruyette has rendered an opinion to Firstshares that, based on
and subject to the procedures, matters and limitations described in its opinion
and such other matters as it considered relevant, as of the date of its opinion,
the terms of the Merger are fair, from a financial point of view, to the
shareholders of Firstshares. Keefe, Bruyette's opinion is attached as Appendix B
to this Proxy Statement - Prospectus. Shareholders are urged to read the opinion
in its entirety for a description of the procedures followed, matters
considered, and limitations on the reviews undertaken in connection therewith.
See "PROPOSED MERGER - - Opinion of Financial Advisor."
Votes Required
Approval of the Merger requires the affirmative vote of the holders of
two-thirds of the issued and outstanding shares of Firstshares Common Stock, in
person or by proxy, at the Special Meeting. (See "MEETING INFORMATION.") The
Board of Directors has fixed the close of business on January 22, 1998 as the
record date (the "Record Date") for determining the shareholders entitled to
receive notice of, and to vote at, the Special Meeting. Directors and executive
officers of Firstshares own 273,085 shares of Firstshares Common Stock,
representing 52.90% of the Firstshares Common Stock issued and outstanding as of
the Record Date. See "CERTAIN INFORMATION CONCERNING FIRSTSHARES -- Security
Ownership of Principal Shareholders and Management." Subject to the fairness
opinion from Keefe, Bruyette having not been withdrawn, the directors of
Firstshares have agreed to vote the stock for which they have voting power in
favor of approval of the Merger and the related Agreement at any meeting of
Firstshares shareholders held before June 30, 1998 at which the Merger is
considered, unless they are legally required to abstain from voting or to vote
against the Merger in the opinion of their counsel. See "MEETING INFORMATION"
and "CERTAIN INFORMATION CONCERNING FIRSTSHARES -- Ownership of Management." In
the absence of those circumstances, approval of the Merger and related Agreement
by the shareholders of Firstshares is assured. Approval of the Merger by
shareholders of Hibernia is not required under the laws of the State of
Louisiana.
Conditions; Abandonment; Amendment
Consummation of the Merger is subject to the satisfaction of a number of
conditions, including, among others, approval of the Agreement by the required
vote of the shareholders of Firstshares, approval of the proposed transactions
by the Board of Governors of the Federal Reserve System ("Federal Reserve
Board") and the Office of the Comptroller of the Currency ("OCC") and exercise
and perfection of dissenters' rights pursuant to Texas law by shareholders of
Firstshares holding in the aggregate no more than 10% of the Firstshares Common
Stock outstanding on the Closing Date. Applicable law provides that the Merger
may not be consummated until at least 15, and the Federal Reserve Board requires
that the Merger be consummated no more than 90, days after approval of the
Federal Reserve Board is obtained. See "PROPOSED MERGER -- Representations and
Warranties; Conditions to the Merger; Waiver" and "PROPOSED MERGER -- Regulatory
and Other Approvals."
Substantially all of the conditions to consummation of the Merger (except
for required shareholder and regulatory approvals) may be waived at any time by
the party for whose benefit they were created, and the Agreement may be amended
or supplemented at any time by written agreement of the parties, except that no
such waiver, amendment or supplement executed after approval of the Agreement by
Firstshares shareholders may reduce the ratio of Hibernia Common Stock to
Firstshares Common Stock to be issued in the Merger. Any other material change
to the Agreement after the date of the Special Meeting would require, however, a
resolicitation of Firstshares shareholders for the purpose of voting on the
transaction as amended. In addition, the Agreement may be terminated, either
before or after shareholder approval, under certain circumstances. See "PROPOSED
MERGER -- Representations and Warranties; Conditions to the Merger; Waiver" and
"PROPOSED MERGER -- Closing Date and Effective Date of the Merger; Termination."
Interests of Certain Persons in the Merger
The executive officers and members of the Board of Directors of
Firstshares have interests in the Merger that are in addition to their interests
as shareholders of Firstshares. These benefits include, among others, the
continuation of certain employee benefits generally, provisions in the Agreement
relating to the indemnification of officers, directors and employees of
Firstshares for certain liabilities up to certain aggregate limitations, and
payments to be received by executive officers pursuant to agreements with the
Bank. See "PROPOSED MERGER -- Employee Benefits" and -- "Interests of Certain
Persons in the Merger."
Employee Benefits
Hibernia has agreed as part of the Agreement that it will offer to all
former employees of Firstshares and/or the Bank who become employees of Hibernia
or its subsidiaries the same employee benefits as those offered by Hibernia,
HNB, and HNBT to their employees, except that former employees of Firstshares
and/or the Bank will not be required to wait for any period in order to be
eligible to participate in Hibernia's Flex Plan (including its medical and
dental coverage). Hibernia will also give Firstshares employees full credit for
their years of service (for both eligibility and vesting) with Firstshares for
purposes of Hibernia's 401(k) plan, the Retirement Security Plan and Hibernia's
Employee Stock Ownership Plan ("ESOP") to the extent permitted under the terms
of those plans.
Hibernia has agreed to assume Firstshares and the Bank's obligations
under the Firstshares' severance plan. Hibernia has also agreed to assume the
Bank's employment agreements with certain of the Bank's employees, including
executive officers of Firstshares. Each of those employment agreements provides
for a severance payment equal to the employees annual base salary for the
remainder of the term of the agreement if the employee's employment is
terminated by the Bank without cause. Certain of the employment agreements also
provide that for a 30 day period commencing on the first anniversary of the
Effective Date, the employee may terminate his or her employment and receive a
cash payment in an amount equal to the sum of all or a part of such employee's
annual base salary and all or part of the amount of the last bonus paid to the
employee. Finally, certain of the employment agreement provide that the employee
shall receive a specified payment if the employee remains in the employ of
Hibernia until the earlier to occur of (i) the date on which all of the Bank's
computer systems are converted to Hibernia's systems or (ii) 120 days after the
Effective Date. See "PROPOSED MERGER---Employee Benefits."
Material Tax Consequences
It is a condition to consummation of the Merger that, the parties
receive an opinion of a nationally recognized public accounting firm to the
effect that (i) the Merger when consummated in accordance with the terms of the
Agreement will constitute a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), (ii) the exchange
of Firstshares Common Stock to the extent exchanged for Hibernia Common Stock
will not give rise to gain or loss to the shareholders of Firstshares with
respect to such exchange, (iii) the basis of Hibernia Common Stock to be
received by the holders of Firstshares Common Stock will be, in each instance,
the same as the basis in their stock surrendered in exchange therefore,
decreased by the amount of cash received, if any, and increased by the amount of
gain, if any, recognized in the exchange, and (iv) the holding period of the
Hibernia Common Stock to be received by the holders of Firstshares Common Stock
in the transaction will include in each instance the period during which the
Firstshares Common Stock surrendered in exchange therefore is held as a capital
asset on the date of surrender. The parties have received an opinion from Ernst
& Young LLP, certified public accountants, who serve as independent auditors for
Hibernia, to these effects. A copy of such opinion is attached hereto as
Appendix D. See "PROPOSED MERGER -- Material Tax Consequences."
Because of the complexities of the tax laws and because the tax
consequences may vary depending upon a holder's individual circumstances or tax
status, it is recommended that each shareholder of Firstshares consult his or
her tax advisor concerning the federal (and any applicable state, local or
other) tax consequences of the Merger to him, her or it.
Dissenters' Rights
Each holder of Firstshares Common Stock who objects to the Merger and
perfects his or her rights to dissent from the Merger in accordance with the
Texas Business Corporation Act is entitled to the rights and remedies of
dissenting shareholders provided in the Texas Business Corporation Act, Articles
5.11, 5.12, and 5.13, copies of which are attached hereto as Appendix C.
However, if dissenters' rights are exercised and perfected with respect to 10%
or more of the outstanding shares of Firstshares Common Stock, Hibernia may
abandon the Merger. In addition, dissenting shareholders may receive value for
their shares that is more or less than, or equal to, the value received by other
shareholders in the Merger. See "PROPOSED MERGER -- Rights of Dissenting
Shareholders."
Differences in Shareholders' Rights
Shareholders of Firstshares, to the extent they receive shares of
Hibernia Common Stock in the Merger, will become shareholders of Hibernia and
their rights as such will be governed by Hibernia's Articles of Incorporation
and Bylaws and the laws of the State of Louisiana. The rights of shareholders of
Hibernia are different in certain respects from the rights of shareholders of
Firstshares. See "PROPOSED MERGER -- Certain Differences in Rights of
Shareholders."
Accounting Treatment
The parties intend the Merger to be treated as a pooling of interests
for financial accounting purposes. If, among other things, holders of more than
10% of the outstanding shares of Firstshares Common Stock exercise and perfect
dissenters' rights, the Merger will not qualify for pooling-of-interests
accounting treatment, and Hibernia will not be obligated to complete the Merger.
See "PROPOSED MERGER -- Accounting Treatment."
Merger Activity
On August 31, 1997, Hibernia consummated the acquisition of Executive
Bancshares, Inc. ("Executive") in a transaction accounted for as a pooling of
interest. Executive operates three banking offices in northeast Texas and had
$138 million in consolidated assets and $8 million in shareholders' equity as of
June 30, 1997. On November 7, 1997, Hibernia consummated the acquisition of
Unicorp Bancshares-Texas, Inc. ("Unicorp") which was accounted for as a pooling
of interest. Unicorp operates three banking offices in southeast Texas and had
$119 million in consolidated assets and $7 million in shareholders' equity as of
September 30, 1997. On January 1, 1998, Hibernia consummated the acquisition of
Northwest Bancshares of Louisiana, Inc. ("Northwest") which was also accounted
for as a pooling of interest. Northwest operates five banking offices in
northwest Louisiana and had $105 million in consolidated assets and $12 million
in shareholders' equity as of September 30, 1997.
On July 16, 1997, Hibernia announced the definitive agreement to merge
with ArgentBank. As of September 30, 1997, ArgentBank reported total
consolidated assets of $758 million and shareholders' equity of $86 million.
Hibernia expects to issue a maximum of approximately 13 million shares of its
Common Stock in the merger with ArgentBank which Hibernia expects to account for
as a pooling of interests. Shareholders of Firstshares will not be entitled to
vote on the merger with ArgentBank. The merger with ArgentBank, if completed,
will not have a material impact on Hibernia's assets, liabilities, financial
condition or results of operations. The merger with ArgentBank is subject to
terms and conditions similar or identical to those applicable to the Merger and
may be completed or abandoned before or after completion of the Merger.
MEETING INFORMATION
This Proxy Statement-Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors of Firstshares for use at the
Special Meeting. Each copy of this Proxy Statement-Prospectus mailed to holders
of Firstshares Common Stock is accompanied by a proxy card furnished in
connection with the Firstshares Board's solicitation of proxies for use at the
Special Meeting and at any adjournment thereof. The Special Meeting is scheduled
to be held at 3:00 P.M., local time, on Thursday, February 26, 1998, at the
main office of Firstshares, 100 North Bolivar, Marshall, Texas. Only holders of
record of Firstshares Common Stock at the close of business on the Record Date
are entitled to receive notice of and to vote at the Special Meeting. At the
Special Meeting, shareholders will consider and vote upon (a) a proposal to
approve the Agreement and Merger, and (b) such other matters as may properly be
brought before the Special Meeting or any adjournment thereof.
HOLDERS OF FIRSTSHARES COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND
SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED, POSTAGE
PAID ENVELOPE.
Solicitation and Revocation of Proxies
Any holder of Firstshares Common Stock who has delivered a proxy may revoke
it any time before it is voted by attending the Special Meeting and voting in
person, or by giving notice of revocation in writing to the Secretary of
Firstshares prior to the date of the Special Meeting or submitting a signed
proxy card bearing a later date before the Special Meeting. The shares of
Firstshares Common Stock represented by properly executed proxy cards received
at or prior to the Special Meeting and not subsequently revoked will be voted as
directed by the shareholders submitting such proxies. If instructions are not
given, executed proxy cards received by Firstshares will be voted FOR approval
of the Agreement and Merger. If any other matters are properly presented at the
Special Meeting for consideration, the persons named in the proxy card enclosed
herewith will have discretionary authority to vote on such matters in accordance
with their best judgment. The Firstshares Board is unaware of any matter to be
presented at the Special Meeting other than the proposal to approve the Merger
and the related Agreement.
The cost of soliciting proxies from shareholders of Firstshares, including
expenses incurred in preparing, assembling and mailing this Proxy
Statement-Prospectus, will be borne by Firstshares, except that Hibernia will
bear all expenses incurred in printing this Proxy Statement-Prospectus. Such
solicitation will be made by mail but also may be made by telephone or other
means of telecommunications or in person by the directors, officers and
employees of Firstshares (who will receive no additional compensation for doing
so).
FIRSTSHARES SHAREHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH
THEIR PROXY CARDS. IF THE MERGER IS APPROVED, SHAREHOLDERS WILL RECEIVE
INSTRUCTIONS REGARDING THE EXCHANGE OF THEIR STOCK CERTIFICATES AFTER THE MERGER
HAS BEEN CONSUMMATED.
Vote Required
Approval of the Agreement requires the affirmative vote of the holders of
two-thirds of the issued and outstanding shares of Firstshares Common Stock, in
person or by proxy, at the Special Meeting. The Firstshares Board has fixed the
close of business on January 22, 1998, as the Record Date for the determination
of shareholders entitled to notice of and to vote at the Special Meeting. As of
the Record Date, there were 516,170 shares of Firstshares Common Stock
outstanding and entitled to vote at the Special Meeting, with each share being
entitled to one vote.
A majority of the outstanding shares of Firstshares Common Stock
constitutes a quorum for purposes of the Special Meeting. An abstention will be
considered present for quorum purposes, but will have the same effect as a vote
against the proposal to be considered at the Special Meeting. Because a quorum
is determined based on the total number of shares outstanding, a broker non-vote
would make it more difficult to obtain a quorum, because the shares would not be
present for quorum purposes. In addition, because approval requires a two-thirds
vote of the total shares outstanding, a broker non-vote would count the same as
a vote against the Agreement and Merger.
As of the Record Date, the directors and executive officers of Firstshares
beneficially owned a total of 273,085 shares, or approximately 52.90% of the
outstanding shares, of Firstshares Common Stock. Such directors and executive
officers have agreed to vote their stock, in favor of the Merger and the related
Agreement, unless the fairness opinion from Keefe, Bruyette is withdrawn or they
are legally required to abstain from voting or to vote against the Merger and
the related Agreement in the opinion of their counsel. Consequently, in the
absence of such circumstances, approval of the Merger and the related Agreement
by the shareholders of Firstshares is assured.
Recommendation
For the reasons described below, the Board of Directors of Firstshares has
unanimously approved the Agreement, believes the Merger is in the best interests
of Firstshares and its shareholders and recommends that holders of Firstshares
Common Stock vote FOR approval of the Agreement and Merger. In making its
recommendation to shareholders, the Firstshares Board considered, among other
things, the opinion of Firstshares financial advisor, Keefe, Bruyette, that the
consideration to be received by the holders of Firstshares Common Stock pursuant
to the Merger is fair to such shareholders from a financial point of view. See
"Background of and Reasons for the Merger" and "Opinion of Financial Advisor"
under "PROPOSED MERGER", below.
PROPOSED MERGER
This section of the Proxy Statement-Prospectus describes certain aspects
of the Merger. The following description does not purport to be complete and is
qualified in its entirety by reference to the Agreement, which is attached as
Appendix A to this Proxy Statement-Prospectus and is incorporated herein by
reference. All shareholders are urged to read the Agreement carefully and in its
entirety.
General
If the shareholders of Firstshares approve the Agreement and the Merger
and the other conditions to the consummation of the Merger are satisfied,
Firstshares will be merged with and into Hibernia, whereupon the separate
existence of Firstshares will cease. Firstshares - Delaware will also be merged
with and into Hibernia and its separate existence will cease at that time.
Simultaneously with the Merger and the merger of Firstshares - Delaware into
Hibernia, the Bank will be merged into HNBT, and the separate existence of the
Bank will also cease. As soon as practicable following the Effective Date, the
operations previously conducted by the Bank will be conducted under the name of
HNBT.
In the Merger, Hibernia will exchange 7.15 shares of Hibernia Common
Stock, plus cash in lieu of any fractional shares, for each outstanding share of
Firstshares Common Stock as to which dissenters' rights have not been perfected
and exercised. Each share of Hibernia Common Stock outstanding immediately prior
to the effective date of the Merger will remain outstanding and unchanged as a
result of the Merger.
Background of and Reasons for the Merger
Background. In July, 1997, after discussion, the Board of Firstshares
concluded that it should explore the potential sale of Firstshares or the
potential merger of Firstshares with another financial institution. The Board
engaged Keefe, Bruyette to assist in locating potential parties interested in
acquiring Firstshares and evaluating expressions of interest and proposals from
such parties. The result of this process was the negotiation and execution of
the Agreement on October 24, 1997.
Reasons for the Merger. The terms of the Agreement, including the Exchange
Rate, are the result of arms-length negotiations between Hibernia and
Firstshares and their respective representatives. Firstshares Board of Directors
believes that the Merger is fair and in the best interests of its shareholders.
In reaching that decision, the Firstshares Board consulted with its financial
and other advisors, as well as with Firstshares management, and considered a
number of factors, including, but not limited to, the following:
(a) the financial condition and results of operations of, and prospects
for, each of Hibernia and Firstshares;
(b) the financial terms of the Merger, including the amount and type of the
Merger Consideration to be received by Firstshares shareholders pursuant to the
Agreement;
(c) the Hibernia Common Stock to be received by holders of Firstshares
Common Stock pursuant to the Agreement will be listed for trading on the NYSE
and will provide liquidity that is unavailable to holders of Firstshares Common
Stock, for which an active trading market does not exist;
(d) the Agreement will allow holders of Firstshares Common Stock to become
shareholders of Hibernia, an institution which was, as of September 30, 1997,
the second largest bank holding company headquartered in Louisiana;
(e) the Firstshares Board believes that recent changes in the regulatory
environment will result in Firstshares facing additional competitive pressures
in its market area from other financial institutions with greater financial
resources capable of offering a broad array of financial services;
(f) the Merger is expected to qualify as a tax-free reorganization so that
neither Firstshares nor the holders of Firstshares Common Stock (except to the
extent that cash is received in lieu of a fractional share of Hibernia Common
Stock) will recognize any gain in the transaction (see "Material Tax
Consequences"); and
(g) the opinion received from Keefe, Bruyette that the terms of the Merger
are fair, from a financial point of view, to the shareholders of Firstshares as
of the date of such opinion (see "Opinion of Financial Advisor").
The Firstshares Board did not assign any specific or relative weight to the
foregoing factors in its considerations. The Firstshares Board believes that the
Agreement and the Merger will provide significant value to all Firstshares
shareholders.
Based on the foregoing, the Firstshares Board has unanimously approved the
Agreement and the Merger, believes that the Agreement and the Merger are in the
best interests of Firstshares shareholders, and recommends that all holders of
Firstshares Common Stock vote "FOR" the approval of the Agreement and the
Merger.
Terms of the Merger
If the shareholders of Firstshares approve the Agreement and the Merger
and the other conditions to the consummation of the Merger are satisfied (see
"PROPOSED MERGER--Representations and Warranties; Conditions to the Merger;
Waiver"), the Merger will be consummated on the Effective Date. Firstshares
shareholders who do not exercise and perfect dissenters' rights will receive
7.15 shares of Hibernia Common Stock for each share of Firstshares Common Stock
they own. Also, each shareholder of Firstshares who would be entitled to receive
a fraction of a share of Hibernia Common Stock will receive (without interest)
an amount in cash equal to such part of a fractional share multiplied by the
Average Market Price of Hibernia Common Stock instead of a fractional share. For
this purpose, the Average Market Price of Hibernia Common Stock is the average
of the closing price of one share of Hibernia Common Stock for the 10 business
days preceding the last trading day immediately prior to the Closing Date as
reported in The Wall Street Journal.
On the Closing Date each share of Firstshares Common Stock, other than
shares held by shareholders who exercise and perfect dissenters' rights in
accordance with Texas law and shares owned beneficially by Hibernia or its
subsidiaries, will automatically convert to the number of shares of Hibernia
Common Stock described above. Firstshares shareholders will automatically be
entitled to all of the rights and privileges afforded to Hibernia shareholders
as of such date. However, the exchange of Firstshares stock certificates for
certificates representing Hibernia Common Stock will occur after the Closing
Date.
SHAREHOLDERS OF FIRSTSHARES SHOULD NOT FORWARD THEIR STOCK CERTIFICATES TO
FIRSTSHARES OR HIBERNIA AT THIS TIME. IF THE MERGER IS CONSUMMATED, FIRSTSHARES
SHAREHOLDERS WILL RECEIVE INSTRUCTIONS REGARDING THE EXCHANGE OF THEIR
CERTIFICATES FOR HIBERNIA COMMON STOCK.
For a discussion of the rights of dissenting shareholders, see
"PROPOSED MERGER -- Rights of Dissenting Shareholders."
Opinion of Financial Advisor
Keefe, Bruyette was retained by Firstshares to act as its financial advisor
in connection with its ongoing consideration of a merger partner. Keefe,
Bruyette, as part of its investment banking business, is continuously engaged in
the evaluation of businesses and securities in connection with mergers and
acquisitions, negotiated underwriting, and distributions of listed and unlisted
securities. Keefe, Bruyette is familiar with the market for common stocks of
publicly traded banks, savings institutions and bank and savings institution
holding companies. The Board of Directors of Firstshares selected Keefe,
Bruyette on the basis of the firm's reputation and its experience and expertise
in transactions similar to the Merger. Except as described herein, Keefe,
Bruyette is not affiliated with Firstshares, Hibernia, or their respective
affiliates.
Pursuant to this engagement, Keefe, Bruyette was asked to render an opinion
as to the fairness from a financial point of view of the terms of the Merger to
the stockholders of Firstshares. Keefe, Bruyette delivered a verbal fairness
opinion dated as of October 14, 1997 to the Board of Directors of Firstshares
that the Exchange Ratio in the Merger is fair, from a financial point of view,
to the stockholders of Firstshares from a financial point of view. No
limitations were imposed by Firstshares upon Keefe, Bruyette in rendering its
opinion. Keefe, Bruyette has consented to the inclusion herein of the summary of
its opinion to the Board of Firstshares and to the entire opinion being attached
hereto as Appendix B.
The full text of the opinion of Keefe, Bruyette, updated as of the date of
this Proxy Statement-Prospectus which sets forth certain assumptions made,
matters considered and limitations on the review undertaken, is attached as
Appendix B to the Proxy Statement-Prospectus and should be read in its entirety.
The summary of the opinion set forth in this Proxy Statement- Prospectus is
qualified in its entirety by reference to the opinion. Such opinion does not
constitute a recommendation by Keefe, Bruyette to any Firstshares shareholder as
to how such stockholder should vote with respect to the Agreement and Merger.
In rendering its opinion, Keefe, Bruyette reviewed (i) the financial and
business data supplied to it by Firstshares including the Agreement; (ii) Annual
Reports to Stockholders for the three years ended December 31, 1996, 1995 and
1994 for Firstshares and Hibernia; (iii) certain interim reports to holders of
Firstshares Common Stock and Hibernia Common Stock and quarterly reports on Form
10-Q of Hibernia and certain other communications from Firstshares and Hibernia
to their respective shareholders; (iv) other financial information concerning
the businesses and operations of Firstshares and Hibernia furnished to Keefe,
Bruyette from Firstshares and Hibernia for the purpose of Keefe, Bruyette's
analysis including certain internal financial analyses and forecasts prepared by
senior management; (v) certain publicly available information concerning the
trading of, and the trading market for, the Hibernia Common Stock; (vi) certain
publicly available information with respect to banking companies and the nature
and terms of certain other transactions that Keefe, Bruyette considered relevant
to its inquiry. Additionally, in connection with its written opinion attached as
Appendix B to this Proxy Statement-Prospectus, Keefe, Bruyette also held
discussions with senior management of Firstshares and Hibernia concerning their
past and current operations, financial condition and prospects. Keefe, Bruyette
also considered such financial and other factors as it deemed appropriate under
the circumstances and took into account its assessment of general economic,
market and securities valuation and its knowledge of banks, bank holding
companies and thrift institutions generally. Keefe, Bruyette's opinion was
necessarily based upon conditions as they existed and could be evaluated on the
date thereof and the information made available to Keefe, Bruyette through the
date thereof.
In rendering its opinion, Keefe, Bruyette assumed and relied upon the
accuracy and completeness of the information provided to it by Hibernia and
Firstshares and obtained by it from public sources. In its review, with the
consent of the Firstshares' Board, Keefe, Bruyette did not undertake any
independent appraisal or evaluation of the assets or liabilities of Firstshares,
or of potential or contingent liabilities of Hibernia or Firstshares. With
respect to the financial information including forecasts and asset valuations
received from Firstshares, Keefe, Bruyette assumed (with Firstshares' consent)
that such information had been reasonably prepared.
Keefe, Bruyette also calculated the imputed value of the Hibernia offer to
holders of Firstshares Common Stock. Based on a Hibernia stock price at October
14, 1997 of $18.25, the exchange ratio which the offer represents of 7.15 yields
a value to holders of Firstshares Common Stock as of October 14, 1997 equivalent
to $130.49 per share of Firstshares Common Stock. The offer represents the
following multiples: 2.85 times June 30, 1997 book value, 3.45 times June 30,
1997 tangible book value, 19.81 times estimated 1997 earnings and 17.27 times
estimated 1998 earnings. In Keefe, Bruyette's experience, these are acquisition
multiples which compare favorably to other acquisitions of comparable size in
Texas and throughout the nation.
In preparing its analysis, Keefe, Bruyette made numerous assumptions with
respect to industry performance, business conditions and other matters, many of
which are beyond the control of Keefe, Bruyette and Firstshares. The analyses
performed by Keefe, Bruyette are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than suggested
by such analyses and do not purport to be appraisals or reflect the prices at
which a business may be sold.
On July 30, 1997, Firstshares engaged Keefe, Bruyette to, among other
things, assist Firstshares in evaluating and advising Firstshares relative to
potential merger offers, to prepare a summary of recent merger acquisition
trends in the financial service industry, advise Firstshares as to the structure
of the proposed merger, and render an opinion as to the fairness of the
consideration to be paid in any proposed merger. Firstshares agreed to pay
Keefe, Bruyette for such services a fee of $25,000 upon execution of the
engagement letter, $50,000 upon the delivery of the fairness opinion, 1.0% of
the amount of all consideration paid to shareholders (any prior fees to be
credited against the amount) upon consummation of the Merger. Firstshares has
also agreed to reimburse Keefe, Bruyette for its reasonable out-of-pocket
expenses up to $10,000. Keefe, Bruyette's compensation, including the success
fee which is contingent upon completion of the Merger, was determined by
arm's-length negotiations between Firstshares and Keefe, Bruyette. Firstshares
has further agreed to indemnify Keefe, Bruyette and its affiliates, and their
respective directors, officers and employees and each such other person
controlling Keefe, Bruyette or any of its affiliates from and against any and
all losses, claims, damages, and liabilities, joint and several, to which such
indemnified parties may become subject under any applicable federal or state
law, or otherwise, and related to or arising out of the Merger or the engagement
of Keefe, Bruyette pursuant to, and the performance by Keefe, Bruyette of the
services contemplated by Firstshares with Keefe, Bruyette.
Closing Date and Effective Date of the Merger
Unless otherwise agreed upon by Hibernia and Firstshares, and subject to
the conditions to the obligations of the parties to effect the Merger, the
Closing Date will occur on the first business day occurring after the last to
occur of: (i) the date that falls 15 days after the later to occur of (a) the
date of the order of the Federal Reserve Board approving the Merger pursuant to
the Bank Holding Company Act or (b) the date of approval of the Merger of the
Bank with and into HNBT by the Office of the Comptroller of the Currency; and
(ii) the date that falls five days after the date on which the last meeting of
shareholders called to approve the Agreement is held; or such later date within
60 days of such date as may be agreed upon between Hibernia and Firstshares.
After all conditions to consummation of the Merger have been satisfied or
waived, the effective date of the Merger (the "Effective Date") will be the date
and time of the consummation of the Merger evidenced by the issuance by the
Louisiana Secretary of State and Texas Secretary of State of certificates of
merger relating to the Merger. It is expected that the Effective Date will occur
shortly after the Closing Date, on a date chosen by the parties to the Merger.
No assurance can be provided that the necessary shareholder and
regulatory approvals can be obtained or the other conditions precedent to the
Merger can or will be satisfied. Hibernia and Firstshares anticipate that all
conditions to consummation of the Merger will be satisfied so that the Merger
can be consummated in the first quarter of 1998. However, delays in the
consummation of the Merger could occur.
The Board of Directors of either Hibernia or Firstshares may terminate
the Agreement if the Merger is not consummated by June 30, 1998 or any condition
to the consummation of the Merger cannot be satisfied by June 30, 1998 and will
not be waived by the party or parties entitled to waive it. See "PROPOSED MERGER
- -- Conditions to Consummation of the Merger" and "PROPOSED MERGER -- Waiver,
Amendment, and Termination of the Agreement."
Employee Benefits
Hibernia has agreed as part of the Agreement that it will offer to all
former employees of Firstshares and the Bank who become employed by Hibernia or
its subsidiaries as of the Effective Date the same employee benefits as those
offered by Hibernia, HNB, and HNBT to their employees, except that employees of
Firstshares and the Bank will not be required to wait for any period in order to
be eligible to participate in Hibernia's Flex Plan (including its medical and
dental coverage). Hibernia will also give Firstshares employees full credit for
their years of service (for both eligibility and vesting) with Firstshares for
purposes of Hibernia's 401(k) plan, the Retirement Security Plan, and its ESOP
(to the extent permitted under the terms of those plans). If, however, Hibernia
decides that it cannot merge any benefit plan of Firstshares into a comparable
benefit plan of Hibernia or HNB without creating material potential liability
for Hibernia's or HNB's plans, then Hibernia shall be entitled to freeze the
existing benefit plan of Firstshares and prohibit participation by former
employees of Firstshares in Hibernia's or HNB's plans for the period of time
required by applicable law to ensure that Hibernia's and HNB's plans are not
deemed to be successor plans of the Firstshares plan in question.
Firstshares and the Bank have adopted a severance plan that permits
severance payments to employees. Hibernia has agreed to assume Firstshares and
the Bank's obligations under such severance plan with respect to Firstshares or
the Bank's employees who continue as employees of Hibernia or its subsidiaries.
Hibernia has also agreed to assume the Bank's employment agreements with certain
of the Bank's employees, including executive officers of Firstshares. Each of
those employment agreements provides for a severance payment equal to the
employee's annual base salary for the remainder of the term of the agreement if
the employee's employment is terminated by the Bank without cause. Certain of
the employment agreements also provide that for a 30 day period commencing on
the first anniversary of the Effective Date, the employee may terminate his or
her employment and receive a cash payment in an amount equal to the sum of all
or a portion of such employee's annual base salary and all or a portion of the
amount of the last bonus paid to the employee. Finally, certain of the
employment agreement provide that the employee shall receive a specified payment
if the employee remains in the employ of Hibernia until the earlier to occur of
(i) the date on which all of the Bank's computer systems are converted to
Hibernia's systems or (ii) 120 days after the Effective Date.
Surrender and Exchange of Stock Certificates
As soon as practicable after the Effective Date, Hibernia will cause
Chase Mellon Shareholder Services, acting in its capacity as Exchange Agent, to
mail all non-dissenting shareholders of Firstshares a letter of transmittal,
together with instructions for the exchange of their Firstshares Common Stock
certificates for certificates representing Hibernia Common Stock. Until so
exchanged, each certificate representing Firstshares Common Stock outstanding
immediately prior to the Effective Date will be deemed for all purposes to
evidence ownership of the number of shares of Hibernia Common Stock into which
such shares have been converted on the Effective Date.
FIRSTSHARES SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES
UNTIL THEY RECEIVE THE FORM LETTER OF TRANSMITTAL AND INSTRUCTIONS. Upon
surrender to the Exchange Agent of certificates for Firstshares Common Stock,
together with a properly completed letter of transmittal, there will be issued
and mailed to each holder of Firstshares Common Stock surrendering such items a
certificate representing the number of shares of Hibernia Common Stock to which
such holder is entitled as a result of the Merger and a check representing cash
paid in lieu of a fractional share. After the Effective Date, to the extent
permitted by law, holders of record of Firstshares Common Stock as of the
Effective Date will be entitled to vote at any meeting of Hibernia shareholders
the number of shares of Hibernia Common Stock into which their Firstshares
Common Stock has been converted regardless of whether such shareholders have
surrendered their stock certificates. No dividend or other distribution payable
after the Effective Date with respect to Hibernia common stock, however, will be
paid to the holder of any unsurrendered Firstshares stock certificate until the
holder duly surrenders such certificate. Upon such surrender, all undelivered
dividends and other distributions will be delivered to such shareholder, in each
case without interest and less the amount of taxes, if any, that may have been
withheld, imposed or paid thereon.
Firstshares shareholders who cannot locate their Firstshares stock
certificates are encouraged to contact Suzanne H. Turner, Treasurer, 100 North
Bolivar, Marshall, Texas 75670, telephone: (903) 935-9331 prior to the Special
Meeting. New certificates will be issued to Firstshares shareholders who have
misplaced their certificates only if the shareholder executes an affidavit
certifying that the certificate cannot be located and agreeing to indemnify
Firstshares and Hibernia (as its successor), against any claim that may be made
against either of them by the owner of the lost certificate(s). Firstshares or
Hibernia (as its successor) may require a shareholder to post a bond in an
amount sufficient to support the shareholder's indemnification obligation.
Shareholders who have misplaced their stock certificates and shareholders who
hold certificates in names other than their own are encouraged to resolve those
matters prior to the Effective Date of the Merger in order to avoid delays in
receiving their Hibernia Common Stock, if the Merger is approved and
consummated.
Expenses
The Agreement provides that all expenses incurred in connection with the
negotiation and execution of the Agreement and the consummation of the Merger
will be borne by the party that incurred them, regardless whether the Merger is
consummated, provided that printing expenses will be borne by Hibernia.
Representations and Warranties; Conditions to the Merger; Waiver
The Agreement contains representations and warranties by Firstshares
regarding, among other things, its organization, authority to enter into the
Agreement, capitalization, properties, financial statements, pending and
threatened litigation, contractual obligations and contingent liabilities. The
Agreement also contains representations and warranties by Hibernia regarding,
among other things, its organization and authority to enter into the Agreement,
capitalization, financial statements and public reports. Except as otherwise
provided in the Agreement, these representations and warranties will not survive
the Effective Date.
The obligations of Hibernia and Firstshares to consummate the Merger are
conditioned upon, among other things, approval of the Agreement and Merger by
Firstshares shareholders; the receipt of necessary regulatory approvals,
including the approval of the Federal Reserve Board and the Office of the
Comptroller of the Currency; the receipt of an opinion to the effect that the
Merger, when consummated in accordance with the terms of the Agreement, will
constitute a reorganization within the meaning of Section 368(a) of the Code and
that, to the extent Firstshares Common Stock is exchanged for Hibernia Common
Stock, Firstshares shareholders will recognize no gain or loss for federal
income tax purposes with respect to such exchange; the effectiveness under the
Securities Act of a registration statement relating to the Hibernia Common Stock
to be issued in connection with the Merger and the absence of a stop order
suspending such effectiveness; the absence of an order, decree or injunction
enjoining or prohibiting the consummation of the Merger; the accuracy of the
representations and warranties set forth in the Agreement as of the Closing
Date; the listing of the Hibernia Common Stock to be issued in the Merger on the
NYSE; the receipt of certain opinions of counsel; Hibernia and/or HNBT shall
have entered into an employment agreement with George E. Grobowsky (Chairman of
the Board and Chief Executive Officer of Firstshares) and Joseph A. Wood
(President of Firstshares), each agreement having a term of at least two years
and other provisions mutually acceptable to Hibernia and Mr. Grobowsky and
Hibernia and Mr. Wood, as applicable; and in the case of Firstshares, the
receipt of updated fairness opinions of Keefe, Bruyette within five days of the
scheduled mailing of the proxy statement to Firstshares shareholders and within
five days of the Closing Date. Hibernia may abandon the Merger if Firstshares
shareholders holding more than 10% of the outstanding Firstshares Common Stock
exercise and perfect dissenters' rights.
Except with respect to any required shareholder or regulatory approval,
substantially all of the conditions to consummation of the Merger may be waived
at any time by the party for whose benefit they were created, and the Agreement
may be amended or supplemented at any time by written agreement of the parties,
except that no such waiver, amendment or supplement executed after approval of
the Agreement by Firstshares shareholders may reduce the Exchange Rate. In
addition, any material change in the terms of the Merger after the Special
Meeting would require a resolicitation of votes from Firstshares shareholders.
Regulatory and Other Approvals
Hibernia is a registered bank holding company and as such is regulated
by the Federal Reserve Board. The approval of the Federal Reserve Board of the
Merger is required in order to consummate the Merger, and the Merger must be
consummated within 90 calendar days after such approval is obtained.
HNBT is regulated by the OCC, and consequently the merger of the Bank
with and into HNBT must be approved by the OCC before it may be effected.
Firstshares and Hibernia must wait at least 15 days after the date of
the Federal Reserve Board approval before they may consummate the Merger. During
this 15-day period, the Department of Justice may object to the Merger on
antitrust grounds.
The shares of Hibernia Common Stock offered pursuant to the Proxy
Statement-Prospectus have been registered with the Commission. The shares,
however, will not be registered in any state due to the enactment on October 11,
1996 of the National Securities Markets Improvements Act of 1996 which exempts
from state regulation, among other things, securities listed on the NYSE such as
the shares of Hibernia Common Stock offered pursuant to this Proxy Statement -
Prospectus.
The regulatory approvals sought in connection with the Merger may be
obtained or denied prior to or after the Special Meeting. The vote on the Merger
at the Special Meeting is not dependent or conditioned upon receipt of any such
approvals prior to the Special Meeting. Even if the Merger is approved at the
Special Meeting, there is a possibility that it will not be consummated. Failure
to receive the requisite regulatory approvals will result in a termination of
the Agreement.
Business Pending the Merger
Under the terms of the Agreement, neither Firstshares nor the Bank,
among other things, may, without the prior written consent of Hibernia or as
otherwise provided in the Agreement: (i) create or issue any additional shares
of capital stock or any options or other rights to purchase or acquire shares of
capital stock; (ii) enter into employment contracts with directors, officers or
employees or otherwise agree to increase the compensation of or pay or agree to
pay any bonus or severance payment to such persons except in accordance with
existing agreements or past practices during the preceding three years; (iii)
enter into or substantially modify any employee benefits plans, except that
Firstshares may amend its employee pension plan to award additional benefits to
participants in the plan to the extent the plan is overfunded; (iv) amend their
Articles of Incorporation or Association or Bylaws; (v) establish or add
additional automatic teller machines or branch or other banking offices; (vi)
make any capital expenditure(s) in excess of $50,000, except in the ordinary
course of business consistent with past practices; (vii) except in certain
limited circumstances, merge with any other company or bank or liquidate or
otherwise dispose of its assets; (vii) acquire another company or bank (except
in connection with foreclosures of bona fide loan transactions); (viii) in the
case of Firstshares, and not the Bank, make, declare, set aside or pay any
dividend or make any distribution on, or directly or indirectly combine, redeem,
purchase or otherwise acquire, any shares of Firstshares Common Stock (other
than in a fiduciary capacity), except that Firstshares may make, declare, set
aside and pay regular dividends not to exceed $.18 per share of Firstshares
Common Stock per calendar quarter for each quarter completed prior to the
Effective Date, consistent in timing with past practices during the preceding
three years; or (ix) carry on its business other than in the usual, regular and
ordinary course in substantially the same manner as previously conducted or as
provided in the Agreement. In addition, Firstshares may not solicit bids or
other transactions that would result in a merger of Firstshares, Firstshares -
Delaware or the Bank with an entity other than Hibernia or HNBT except in
certain very limited circumstances. The Bank may pay normal and customary
dividends prior to the Closing Date.
Termination
Prior to the Effective Date, the Agreement may be terminated by either
party, whether before or after approval of the Agreement and the Merger by
Firstshares shareholders, for the following reasons, among others: (i) in the
event of a breach by the other party of any covenant or agreement set forth in
the Agreement or of any representation or warranty in the Agreement, if the
facts constituting such breach reflect a material and adverse change in the
financial condition, results of operations, business or prospects taken as a
whole, of the breaching party, which in either case cannot be or is not cured
within 60 days after written notice of such breach is given to the party
committing such breach, or in the event of a breach of a warranty or covenant,
such breach results in a material increase in the cost of the non-breaching
party's performance of the Agreement; (ii) if any application for any required
federal or state regulatory approval has been denied, and the time for all
appeals of such denial has expired; (iii) if the shareholders of Firstshares
fail to approve the Merger at the Special Meeting; or (iv) in the event that the
Merger is not consummated by June 30, 1998 or any condition to consummation of
the Merger cannot be satisfied by June 30, 1998 and will not be waived by the
party or parties entitled to waive it. The Agreement also may be terminated (i)
at any time by the mutual consent of the parties; (ii) by Hibernia, if the
holders of more than 10% of the outstanding Firstshares Common Stock exercise
statutory rights of dissent and appraisal pursuant to Texas law; (iii) by
Firstshares, if after June 30, 1997 a material adverse change occurs in the
financial condition, results of operations, business or prospects of Hibernia,
HNB or HNBT (excluding changes in laws or regulations affecting banking
institutions generally); (iv) by Hibernia, if after June 30, 1997 a material
adverse change occurs in the financial condition, results of operations,
business or prospects of Firstshares and the Bank (excluding changes in laws or
regulations affecting banking institutions generally); (v) by Hibernia, if it
shall determine in good faith that the Merger does not qualify as a
pooling-of-interests for accounting purposes; or (vi) by Firstshares, if
Firstshares does not receive an updated fairness opinion from Keefe, Bruyette
dated within five days of the date of scheduled mailing of this Proxy
Statement-Prospectus to its shareholders, and updated to within five days of the
Closing Date, to the effect that the terms of the Merger are fair to Firstshares
from a financial point of view. Certain provisions of the Agreement, including
provisions relating to indemnification and confidentiality, survive both the
Merger and a termination of the Agreement without the Merger having been
completed.
Management and Operations After the Merger
On the Effective Date, Firstshares will be merged with and into Hibernia
and will cease to exist after the Merger. Firstshares - Delaware will also be
merged with and into Hibernia, and its separate existence will cease at that
time. Simultaneously with the Merger and the merger of Firstshares - Delaware
with and into Hibernia, the Bank will be merged into HNBT and the separate
existence of the Bank will also cease. HNBT will continue to operate as a wholly
owned subsidiary of Hibernia and will offer banking services similar to those
offered prior to the Merger.
The Boards of Directors of Hibernia and HNBT following the Merger will
consist of those persons serving as directors immediately prior to the Merger.
Certain information regarding the directors of Hibernia elected at its annual
meeting of shareholders on April 29, 1997 is contained in documents incorporated
herein by reference. See "AVAILABLE INFORMATION."
Certain Differences in Rights of Shareholders
If the shareholders of Firstshares approve the Merger and the Merger is
subsequently consummated, all shareholders of Firstshares, other than any
shareholders who exercise and perfect dissenters' rights, will become
shareholders of Hibernia. As shareholders of Hibernia, their rights will be
governed by and subject to Hibernia's Articles of Incorporation and Bylaws
rather than Firstshares' Articles of Incorporation and Bylaws, and the laws of
the State of Louisiana rather than the laws of the State of Texas. The following
is a summary of the principal differences between the rights of shareholders of
Firstshares and Hibernia not described elsewhere in this Proxy
Statement-Prospectus which are due to differences in Hibernia's Articles of
Incorporation and ByLaws and Firstshares' Articles of Incorporation and By-Laws
and the fact that Hibernia Common Stock is listed on the NYSE.
Stock. The total number of shares of all classes of stock which Hibernia
will have authority to issue is three hundred million, of which two hundred
million shares will be designated as Class A Common Stock of no par value and
one hundred million shares will be designated as Preferred Stock, without par
value. The rights, preferences and privileges with respect to shares of
preferred stock may be determined by the Hibernia Board of Directors.
Consequently, shares of preferred stock could be issued in circumstances in
which it would make an attempted acquisition of Hibernia more difficult.
Hibernia currently has 2,000,000 shares of preferred stock outstanding. The
holders of those preferred shares are entitled to receive dividends on a
quarterly basis and would have limited voting rights if the dividends on their
stock were not paid for a certain period of time. If those voting rights were
triggered, the preferred shareholders may be able to elect a director to the
board of directors of Hibernia. Firstshares is authorized to issue two classes
of shares of stock. The total number of shares of stock which Firstshares is
authorized to issue consists of 1,000,000 shares of Series A preferred stock,
par value $10.00 per share, and 1,500,000 shares of common stock, par value
$4.00 per share.
Liquidity of Stock. There currently is no ready market for the shares of
Firstshares Common Stock, and such a market is not likely to develop in the
future. The shares of Hibernia Common Stock, if issued in the Merger, will be
registered under applicable securities laws and may therefore be freely resold
by persons who are not "affiliates" of Firstshares or Hibernia. See "Resale of
Hibernia Stock." In addition, the Hibernia Common Stock is listed on the NYSE
and actively traded on that exchange. Current quotes of the market price of
Hibernia Common Stock are available from brokerage firms and other securities
professionals, as well as other sources, and are published in major newspapers
on a daily basis.
Directors' Qualifications. No individual will be elected a director of
Hibernia unless such individual owns, in his or her own right, at the time of
such election, not less than 100 shares of Hibernia voting stock. No individual
will be eligible for election as a director of Hibernia who has attained the age
of 71 prior to the date of such election. No individual who is or becomes a
business competitor or who is or becomes affiliated with, employed by or a
representative of any individual, corporation, association, partnership, firm,
business enterprise or other entity or organization which the Hibernia Board
determines to be in competition with Hibernia will be eligible for election as a
director of Hibernia. Any financial institution having branches or affiliates
within any state in which Hibernia or any of its subsidiaries operates or having
(together with its affiliates) total assets or total deposits exceeding $500
million will be presumed to be a business competitor of Hibernia, unless the
Hibernia Board determines otherwise. Firstshares does not have similar
qualification limitations for its directors. Firstshares directors need not be
residents of Texas or shareholders of the corporation.
Number of Directors. The number of Hibernia directors will be as
determined, from time to time, by resolution of the Board of Directors. The
number of Firstshares directors is set at 20 persons in the By-Laws, provided
that the number of directors may be increased or decreased by resolution of the
Board of Directors to a number of directors not less than one nor more than 30.
Removal of Directors. Shareholders of Hibernia may remove a director for
cause (defined as gross negligence or willful misconduct) by the vote of a
majority of the total voting power and may remove a director without cause by a
vote of two-thirds of the total voting power. One or more directors of
Firstshares may be removed at any time, with or without cause, at any special or
annual meeting of the shareholders, by the affirmative vote of a majority of the
shares of the shareholders present, in person or by proxy, at such meeting and
entitled to vote for the election of directors, if notice of intention to act
upon such matter will have been given in the notice calling such meeting.
Amendment of Articles and Bylaws. Hibernia's Articles of Incorporation
may be amended by a vote of a majority of the voting power present at any
meeting called for that purpose. Firstshares' Articles of Incorporation do not
have similar provisions; however, Texas law requires the affirmative vote of
two-thirds of the issued and outstanding shares of Firstshares Common Stock.
The Bylaws of Hibernia may be amended or repealed by a vote of
two-thirds of the total voting power outstanding or by a vote of two-thirds of
the "continuing directors" of the company, as defined in the Bylaws. A
"continuing director" for this purpose is generally a director who was nominated
for election by a majority of the existing directors. Firstshares' Bylaws may be
altered, amended, or repealed and new Bylaws may be adopted by the Board, at any
meeting of the Board at which a quorum is present, by the affirmative vote of a
majority of the directors present at such meeting (provided notice of the
proposed alteration, amendment or repeal is contained in the notice of the
meeting) but Bylaws adopted by the Board will be subject to repeal or change by
action of the shareholders at any meeting of the shareholders at which a quorum
is present, by the affirmative vote of a majority of the shareholders present at
such meeting (provided notice of the proposed alteration, amendment or repeal is
contained in the notice of the meeting).
Special Meetings of Shareholders. Special meetings of the shareholders
of Hibernia may be called by the Chairman of the Board, the President, the Chief
Executive Officer, the Treasurer, or the Board of Directors. In addition,
shareholders holding one-fifth or more of the total voting power of Hibernia may
request a special meeting of shareholders and, upon receipt of such request, the
Secretary of Hibernia is required to call a special meeting of the shareholders.
A special meeting of shareholders of Firstshares may be called at any time by
the President, the Board of Directors, or the holders of not less than ten
percent (10%) of all shares entitled to vote at such meeting.
Shareholder Proposals. Hibernia's Bylaws contain certain provisions
expressly allowing shareholders to submit shareholder proposals and to nominate
individuals for election as directors, under certain circumstances and provided
the shareholder complies with all of the conditions set forth in those
provisions. Firstshares' Bylaws provide that all proposals of shareholders
intended to be presented at an annual meeting of shareholders must be received
by Firstshares no later than 120 days in advance of the date Firstshares' proxy
statement was released to shareholders of Firstshares in connection with the
previous year's annual meeting of shareholders.
Inspection Rights. The Bylaws of Firstshares provide that at least ten
days before each meeting of Firstshares shareholders, the officer or agent
having charge of the stock transfer books will prepare a complete list of
Firstshares shareholders entitled to vote at such meeting or any adjournment
thereof, arranged in alphabetical order, including the address of each
shareholder and the number of voting shares held by each shareholder. For a
period of ten days prior to such meeting, such list will be kept on file at the
registered office of Firstshares and will be subject to inspection by any
shareholder during usual business hours. Such list will be produced at such
meeting, and at all times during such meeting will be subject to inspection by
any shareholder. Hibernia's Articles of Incorporation and By-Laws contain no
specific provision relating to inspection rights; however, Louisiana law
requires that a list of shareholders entitled to vote, arranged alphabetically
and certified by the Secretary or by the agent in charge of share transfers,
showing the number and class of shares held by each shareholder on the record
date for the meeting shall be made available at a shareholder meeting and
produced at the request of any shareholder.
Shareholders' Meetings - Telephone Conference. The Bylaws of Firstshares
permit shareholders to participate in and hold a meeting by means of conference
telephone or similar communication equipment by means of which all persons
participating in the meeting can hear each other. Participation in such a
meeting constitutes presence in person at the meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground the meeting is not lawfully called or
convened. Telephonic shareholder meetings are not permitted under Louisiana law.
Vacancy on Board of Directors. Any vacancy occurring in the Firstshares
board of directors may be filled by the affirmative vote of a majority of the
remaining directors though less than a quorum of the board of directors, except
that any vacancy in the board of directors resulting from the removal of a
director by the shareholders shall be filled only by the shareholders entitled
to vote at an annual meeting or a special meeting called for that purpose. A
director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office. Any directorship to be filled by reason of an
increase in the number of directors either may be filled by the Board of
Directors for a term of office continuing only until the next election of
directors by shareholders or may be filled by election at an annual meeting or
at a special meeting of the shareholders entitled to vote called for that
purpose. Hibernia's Bylaws permit the Board to fill any vacancy, however
created.
Merger or Consolidation. Hibernia's Articles allow an agreement of
merger or consolidation to be approved by a majority vote of the voting shares
issued and outstanding, taken at a meeting called for the purpose of such
approval. Firstshares' Articles contain no similar provision; however, under
Texas law, an agreement of merger or consolidation, such as the Agreement, may
be approved by a vote of two-thirds of the Firstshares Common Stock.
Dissenting Shareholder's Rights. Each Firstshares shareholder who
objects to the Merger is entitled to the rights and remedies of dissenting
shareholders provided by Texas law. See "PROPOSED MERGER -- Rights of Dissenting
Shareholders." Louisiana law provides that a shareholder's right to dissent does
not exist in the case of shareholders holding shares of any class of stock that
are listed on a national securities exchange, such as Hibernia Common Stock,
unless the articles of incorporation of the issuing corporation provide
otherwise or the shares of such shareholders are not converted by the merger or
consolidation solely into shares of the surviving or new corporation. In such
event, a shareholder who votes against the merger shall have the right to
dissent only if the shareholders authorize the merger by less than 80% of the
total voting power.
Interests of Certain Persons in the Merger
The terms of the Agreement include certain provisions that protect the
officers and directors of Firstshares and the Bank from and against liability
for actions arising while they served in those capacities for Firstshares. The
Agreement provides for indemnification of such persons to the same extent as
they would have been indemnified under the Articles of Incorporation and Bylaws
of Hibernia in effect on October 24, 1997, except that the Agreement limits
Hibernia's aggregate liability for such indemnification to $5 million and
requires each officer and director eligible for such indemnification to execute
a joinder agreement in which such persons agree to cooperate with Hibernia in
any litigation or proceeding giving rise to a claim of indemnification.
The Agreement also provides for indemnification of Firstshares and the
Bank's officers, directors and certain affiliates from and against liability
arising under the Securities Act or otherwise insofar as such liability arises
out of or is based on an untrue statement or alleged untrue statement of a
material fact contained in this Proxy Statement-Prospectus or arises out of or
is based upon the omission or alleged omission to state herein a material fact
required to be stated herein or necessary to make the statements made herein not
misleading. This indemnification does not apply to statements made in reliance
on information furnished to Hibernia by Firstshares for use in the Registration
Statement, including this Proxy Statement-Prospectus.
The Agreement also requires Hibernia to enter into mutually satisfactory
employment agreements with George E. Grobowsky (Chairman of the Board and Chief
Executive Officer of Firstshares) and Joseph A. Wood (President of Firstshares).
These agreements will provide for a term of employment of at least two years and
salary, bonus and other provisions mutually acceptable to Mr. Grobowsky and
Hibernia and Mr. Wood and Hibernia, as applicable.
Material Tax Consequences
The following summary description of the material income tax
consequences of the Merger is not intended to be a complete description of the
federal income tax consequences of the Merger. Tax laws are complex, and each
shareholder's individual circumstances may affect the tax consequences to such
shareholder. In addition, no information is provided with respect to the tax
consequences of the Merger under applicable state, local or other tax laws. Each
shareholder is therefore urged to consult a tax advisor regarding the tax
consequences of the Merger to him, her or it.
Consummation of the Merger is conditioned upon the receipt of an opinion
to the effect that the Merger, when consummated in accordance with the terms of
the Agreement, will constitute a reorganization within the meaning of Section
368 of the Code, and that the exchange of Firstshares Common Stock for Hibernia
Common Stock will not give rise to the recognition of gain or loss for federal
income tax purposes to Firstshares shareholders with respect to such exchange.
See "PROPOSED MERGER -- Representations and Warranties; Conditions to the
Merger; Waiver."
If the Merger constitutes a reorganization within the meaning of Section
368 of the Code: (i) no gain or loss will be recognized by Firstshares, the
Bank, Hibernia, HNB or HNBT by reason of the Merger; (ii) a shareholder of
Firstshares will not recognize any gain or loss for federal income tax purposes
to the extent Hibernia Common Stock is received in the Merger in exchange for
Firstshares Common Stock; (iii) the tax basis in the Hibernia Common Stock
received by a shareholder of Firstshares will be the same as the tax basis in
the Firstshares Common Stock surrendered in exchange therefor; and (iv) the
holding period, for federal income tax purposes, for Hibernia Common Stock
received in exchange for Firstshares Common Stock will include the period during
which the shareholder held the Firstshares Common Stock surrendered in the
exchange, provided that the Firstshares Common Stock was held as a capital asset
at the Effective Date.
The parties have received the opinion of Ernst & Young LLP, certified
public accountants, to the effect that the Merger, if consummated in accordance
with the terms of the Agreement, will constitute a reorganization for purposes
of Section 368 of the Code and will have the tax effects described in this
section. A copy of the opinion of Ernst & Young LLP in this regard is attached
hereto as Appendix D. As noted in the opinion, the opinion is based upon certain
representations and assumptions described therein. Shareholders of Firstshares
are urged to review the full text of the opinion of Ernst & Young LLP attached
hereto as Appendix D with regard to the tax consequences of the Merger to them.
Because of the complexities of the tax laws, and because the tax
consequences to a particular shareholder may be affected by matters not
discussed herein, it is recommended that each shareholder consult his or her own
tax advisor concerning the applicable federal, state and local tax consequences
of the Merger.
For information regarding the federal income tax consequences of cash
payments received by dissenting shareholders, see "PROPOSED MERGER -- Rights of
Dissenting Shareholders."
Resale of Hibernia Common Stock
The shares of Hibernia Common Stock issuable to shareholders of
Firstshares upon consummation of the Merger have been registered under the
Securities Act. It is a condition to closing of the Merger that all shares of
Hibernia Common Stock issued in connection with the Merger be approved for
listing, upon official notice of issuance, on the NYSE. Such shares may be
traded freely by those shareholders not deemed to be affiliates of Firstshares
as that term is defined under the Securities Act. The term "affiliate" generally
means each person who controls, or is a member of a group that controls, or who
is under common control with, Firstshares, and for purposes hereof could be
deemed to include all executive officers, directors and 10% shareholders of
Firstshares.
Hibernia Common Stock received and beneficially owned by those
shareholders who are deemed to be affiliates of Firstshares may be resold
without registration as provided by Rule 145, or as otherwise permitted, under
the Securities Act. Such affiliates, provided they are not affiliates of
Hibernia, may publicly resell Hibernia Common Stock received by them in the
Merger if they register the resale of those shares or they comply with the
restrictions of Rule 145. Anyone who is or may be an affiliate of Firstshares
should carefully consider the resale restrictions imposed by Rule 145 prior to
attempting to transfer any shares of Hibernia Common Stock after the Merger. In
addition, shares of Hibernia Common Stock issued to affiliates of Firstshares in
the Merger will not be transferable until financial statements pertaining to at
least 30 days of post-Merger combined operations of Hibernia and Firstshares
have been published, in order to satisfy certain requirements of the Commission
relating to pooling-of-interests accounting treatment.
The Agreement requires Firstshares to use its best efforts to identify
those persons who may be deemed to be affiliates of Firstshares and to cause
each person so identified to deliver to Hibernia a written agreement providing
that such person will not dispose of Firstshares Common Stock or Hibernia Common
Stock received in the Merger except in compliance with the Securities Act, the
rules and regulations promulgated thereunder and the Commission's rules relating
to pooling-of-interests accounting treatment. In addition, Hibernia intends to
place stop transfer instructions with its transfer agent regarding Hibernia
Common Stock issued to affiliates of Firstshares to ensure that transfers by
those persons comply with Rule 145 and the terms of any applicable affiliate
resale agreement with Hibernia.
Rights of Dissenting Shareholders
Holders of shares of Firstshares Common Stock have a statutory right to
dissent from the Merger by following the specific procedures set forth below. If
the Merger is approved and consummated, holders of shares of Firstshares Common
Stock who properly perfect their dissenters' rights will be entitled to receive
an amount of cash equal to the fair value of their shares of Firstshares Common
Stock rather than being required to accept the consideration therefor provided
in the Agreement. The following summary is not a complete statement of the
statutory dissenters' rights of appraisal, and such summary is qualified in its
entirety by reference to the applicable provisions of the Texas Business
Corporation Act ("TBCA"), which are reproduced in full at Appendix C hereto. A
Firstshares shareholder must follow the exact procedure required by the TBCA in
order to properly exercise his dissenter's rights of appraisal and avoid waiver
of those rights.
Holders of shares of Firstshares Common Stock who desire to dissent from
the Merger must file a written objection to the Merger with the Secretary of
Firstshares, Mr. Norman S. Bynum, 100 North Bolivar, Marshall, Texas 75670,
prior to the Special Meeting at which a vote on the Merger will be taken. The
written notice must state that the shareholder will exercise his right to
dissent if the Merger is consummated and give the shareholder's address to which
notice of effectiveness of the Merger will be sent. A vote against the Merger is
not sufficient to perfect a shareholder's statutory right to dissent from the
Merger. If the Merger is consummated, each shareholder who sent notice to
Firstshares as described above and who did not vote in favor of the Merger will
be deemed to have dissented from the Merger ("Dissenting Shareholder"). Failure
to vote against the Merger will not constitute a waiver of the dissenters'
rights of appraisal; on the other hand, a vote in favor of the Merger will
constitute such a waiver.
Hibernia will be liable for any payments to Dissenting Shareholders and
will, within ten (10) days of the Effective Date, notify the Dissenting
Shareholders in writing that the Merger has been effected. Each Dissenting
Shareholder so notified must, within ten (10) days of the delivery or mailing of
such notice, make a written demand on Hibernia at 313 Carondelet Street, New
Orleans, Louisiana 70130, Attention: Patricia C. Meringer, Secretary, for
payment of the fair value of the Dissenting Shareholder's shares of Firstshares
Common Stock as estimated by the Dissenting Shareholder. Failure to follow this
procedure will constitute a waiver of his dissenter's rights of appraisal by
such Dissenting Shareholder. The demand will state the number of shares of
Firstshares Common Stock owned by the Dissenting Shareholder and the fair value
of the shares as estimated by the Dissenting Shareholder. The fair value of the
shares will be the value thereof as of the date immediately preceding the
Special Meeting, excluding any appreciation or depreciation in anticipation of
the Merger. Dissenting Shareholders who fail to make a written demand within the
ten (10) day period will be bound by the Merger and lose their rights to
dissent. Within twenty (20) days after making a demand, the Dissenting
Shareholder must submit certificates representing his shares of Firstshares
Common Stock to Hibernia for notation thereon that such demand has been made.
Dissenting Shareholders who have made a demand for payment of their shares will
not thereafter be entitled to vote or exercise any other rights of a shareholder
except the right to receive payment for their shares pursuant to the provisions
of the TBCA and the right to maintain an appropriate action to obtain relief on
the basis of fraud.
Within twenty (20) days after receipt of a Dissenting Shareholder's
demand letter as described above, Hibernia will deliver or mail to the
Dissenting Shareholder written notice (i) stating that Hibernia accepts the
amount claimed in the demand letter and agrees to pay that amount, within ninety
(90) days after the Effective Date, upon surrender of the relevant certificates
of Firstshares Common Stock duly endorsed by the Dissenting Shareholder, or (ii)
containing Hibernia's written estimate of the fair value of the shares of
Firstshares Common Stock together with an offer to pay such amount within ninety
(90) days after the Effective Date if Hibernia receives notice, within sixty
(60) days after the Effective Date, stating that the Dissenting Shareholder
agrees to accept that amount and upon surrender of the relevant certificates of
Firstshares Common Stock duly endorsed by the Dissenting Shareholder. In either
case, the Dissenting Shareholder will cease to have any ownership interest in
Hibernia or Firstshares following payment of the agreed value.
If the Dissenting Shareholder and Hibernia cannot agree on the fair
value of the shares within sixty (60) days after the Effective Date, the
Dissenting Shareholder or Hibernia may, within sixty (60) days of the expiration
of such sixty (60) day period, file a petition ("Petition") in any court of
competent jurisdiction in Harrison County, Texas, requesting a finding and
determination of the fair value of the Dissenting Shareholder's shares. Each
Dissenting Shareholder is not required to file a separate Petition.
If one Dissenting Shareholder files a Petition, Hibernia must file, with the
clerk of the court in which the Petition was filed, a list containing the names
and addresses of the Dissenting Shareholders with whom agreements as to the
value of their shares have not been reached. The court will give notice of the
time and place of the hearing on the Petition to the Dissenting Shareholders
named on the list. Dissenting Shareholders so notified by the court will be
bound by the final judgment of the court regarding fair value of the shares. If
no petition is filed within the appropriate time period, then all Dissenting
Shareholders who have not reached an agreement with Hibernia on the value of
their shares will be bound by the Merger and lose their right to dissent.
After a hearing concerning the petition, the court will determine which
Dissenting Shareholders have complied with the provisions of the TBCA and have
become entitled to the valuation of, and payment for, their shares, and will
appoint one or more qualified appraisers to determine the value of the shares of
Firstshares Common Stock in question. The appraisers will determine such value
and file a report with the court. The court will then in its judgment determine
the fair value of the shares of Firstshares Common Stock, which judgment will be
binding on Hibernia and on all Dissenting Shareholders receiving notice of the
hearing. The court will direct Hibernia to pay such amount, together with
interest thereon, beginning 91 days after the Effective Date of the Merger to
the date of judgment, to the Dissenting Shareholders entitled thereto. The
judgment will be payable upon the surrender to Hibernia of certificates
representing shares of Firstshares Common Stock duly endorsed by the Dissenting
Shareholder. Upon payment of the judgment, the Dissenting Shareholders will
cease to have any interest in Hibernia. The court will allow the appraisers a
reasonable fee as court costs, and all court costs will be allotted between the
parties in the manner that the court determines to be fair and equitable.
Any Dissenting Shareholder who has made a written demand on Hibernia for
payment of the value of his Firstshares Common Stock may withdraw such demand at
any time before payment for his shares has been made or before a petition has
been filed with an appropriate court for determination of the fair value of such
shares but no such demand may be withdrawn after such payment has been made or,
unless Hibernia will consent thereto, after such petition has been filed. If a
Dissenting Shareholder withdraws his demand, or if he is otherwise unsuccessful
in asserting his dissenters' rights of appraisal, such Dissenting Shareholder
will be bound by the Merger and his status as a former shareholder of
Firstshares will be restored without prejudice to any corporate proceedings,
dividends, or distributions which may have occurred during the interim.
In the absence of fraud in the transaction, a Dissenting Shareholder's
statutory right of appraisal is the exclusive remedy for the recovery of the
value of his shares or money damages to the shareholder with respect to the
Merger.
Cash received by a Dissenting Shareholder of Firstshares in exchange for
his or her Firstshares Common Stock will generally be subject to state and
federal income tax and should be treated as having been received by such
shareholder as a distribution in redemption of his or her stock, subject to the
provisions and limitations of Section 302 of the Code. If, as a result of such
distribution, a shareholder owns no stock either directly or through the
application of Section 318(a) of the Code, the redemption should be a complete
termination of interest within the meaning of Section 302(b)(3) of the Code and
such cash will be treated as a distribution in full payment in exchange for his
or her stock, as provided by Section 302(a) of the Code. In that case, the
shareholder would recognize ordinary income or capital gain, as the case may be,
in an amount equal to the difference between the amount of cash received in
redemption of his shares and his basis in his Firstshares Common Stock.
Accounting Treatment
It is anticipated that the Merger will be accounted for as a pooling of
interests. In order for the Merger to qualify for pooling-of-interests
accounting treatment, among other things, 90% or more of the outstanding
Firstshares Common Stock must be exchanged for Hibernia Common Stock. If holders
of more than 10% of the outstanding Firstshares Common Stock exercise and
perfect dissenters' rights, the Merger will not qualify as a pooling of
interests. Also, in order for the pooling-of-interests accounting method to
apply, "affiliates" of Firstshares cannot, directly or indirectly, sell,
transfer, pledge or otherwise alienate or encumber any shares of Hibernia Common
Stock received in the Merger until such time as at least 30 days of post-Merger
combined operations of Firstshares and Hibernia have been published. Persons
believed by Firstshares to be "affiliates" have agreed to comply with these
restrictions.
Firstshares has agreed to use its best efforts to permit the transaction
to be accounted for as a pooling of interests. Hibernia is not obligated to
consummate the Merger if the Merger does not qualify for pooling-of-interests
accounting treatment under these circumstances.
CERTAIN REGULATORY CONSIDERATIONS
General
As a bank holding company, Hibernia is subject to the regulation and
supervision of the Federal Reserve Board. Under the BHCA, bank holding companies
may not directly or indirectly acquire the ownership or control of more than 5%
of the voting shares or substantially all of the assets of any company,
including a bank, without the prior approval of the Federal Reserve Board. In
addition, bank holding companies are generally prohibited from engaging under
the BHCA in nonbanking activities, subject to certain exceptions.
Hibernia's banking subsidiaries, HNB and HNBT, are subject to
supervision and examination by applicable federal and state banking agencies.
HNB and HNBT are national banking associations subject to the regulation and
supervision of the Comptroller of the Currency (the "Comptroller"). HNB and HNBT
are also subject to various requirements and restrictions under federal and
state law, including requirements to maintain reserves against deposits,
restrictions on the types and amounts of loans that may be granted and the
interest that may be charged thereon and limitations on the types of investments
that may be made and the types of services that may be offered. Various consumer
laws and regulations also affect the operations of HNB and HNBT. In addition to
the impact of regulation, commercial banks are affected significantly by the
actions of the Federal Reserve Board as it attempts to control the money supply
and credit availability in order to influence the economy.
Payment of Dividends
Hibernia generally depends upon payment of dividends by HNB and HNBT in
order to pay dividends to its shareholders and to meet its other needs for cash
to pay expenses. Hibernia derives substantially all of its income from the
payment of dividends by HNB and HNBT, and its ability to pay dividends is
affected by the ability of HNB and HNBT to pay dividends. HNB and HNBT are
subject to various statutory restrictions on their ability to pay dividends to
Hibernia. Under such restrictions, the amount available for payment of dividends
in any calendar year generally may not exceed net income for that year plus
retained net income for the preceding two years less any required transfers to
surplus or to a fund for the retirement of preferred stock. The amount available
for payment of dividends to Hibernia by HNB was approximately $221 million and
by HNBT was approximately $5 million at September 30, 1997. In addition, the
Comptroller has the authority to prohibit any national bank from engaging in an
unsafe or unsound practice, and the Comptroller has indicated its view that it
generally would be an unsafe and unsound practice to pay dividends if the
payment of the dividend would deplete a bank's capital to an adequate level. The
ability of HNB and HNBT to pay dividends in the future is presently, and could
be further, influenced by bank regulatory policies or agreements and by capital
guidelines. Additional information in this regard is contained in documents
incorporated by reference herein. See "AVAILABLE INFORMATION."
In addition, consistent with its policy regarding bank holding companies
serving as a source of strength for their subsidiary banks, the Federal Reserve
Board has stated that, as a matter of prudent banking, a bank holding company
generally should not maintain a rate of cash dividends unless its net income
available to common stockholders has been sufficient to fully fund the
dividends, and the prospective rate of earnings retention appears to be
consistent with the holding company's capital needs, asset quality and overall
financial condition.
Restrictions on Extensions of Credit
HNB and HNBT are subject to restrictions imposed by federal law on the
ability of any national bank to extend credit to affiliates, including Hibernia,
to purchase the assets thereof, to issue a guarantee, acceptance or letter of
credit on their behalf (including an endorsement or standby letter of credit) or
to purchase or invest in the stock or securities thereof or to take such stock
or securities as collateral for loans to any borrower. Such extensions of credit
and issuances generally must be secured by eligible collateral. In addition, all
such transactions with a single affiliate are generally limited to 10% of HNB's
and HNBT's capital and surplus and all such transactions with affiliates may not
exceed 20% of HNB's and HNBT's capital and surplus.
Hibernia's banking subsidiaries are also limited in the aggregate amount
that may be loaned to a single borrower or a group of borrowers that are deemed
to be affiliated with each other for purposes of these rules. These loans are
limited to 15% of HNB's and HNBT's capital and surplus.
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined balance sheet of Hibernia as
of September 30, 1997 and income statements of Hibernia for the nine-month
periods ended September 30, 1997 and 1996 and the years ended December 31, 1996,
1995 and 1994 give effect to the pending merger with Firstshares, assuming the
Merger is accounted for using the pooling-of-interests method of accounting, and
as if the Merger had been consummated on January 1, 1994.
The information at September 30, 1997 and for the nine-month periods
ended September 30, 1997 and 1996 in the column titled "Hibernia Corporation" is
summarized from the unaudited consolidated financial statements of Hibernia
contained in Hibernia's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.
For the years ended December 31, 1996, 1995 and 1994, information in
the column titled "Hibernia Corporation" is summarized from the consolidated
financial statements of Hibernia contained in Hibernia's Annual Report on Form
10-K for the year ended December 31, 1996. Information in the column titled
"Restated Hibernia Corporation" reflects the impact of the merger with Executive
Bancshares, Inc. on August 31, 1997, which was accounted for as a pooling of
interests.
The information contained in the column titled "Firstshares of Texas,
Inc." is based on, and should be read in conjunction with the financial
statements and related notes and Management's Discussion and Analysis of
Financial Condition and Results of Operations of Firstshares contained elsewhere
in this Proxy Statement/Prospectus.
The Pro Forma Financial Statements are presented for information
purposes only and are not necessarily indicative of the combined financial
position or results of operations which would actually have occurred if the
mergers had been consummated in the past or which may be obtained in the future.
<PAGE>
Pro Forma Combined Balance Sheet (Unaudited)
The following unaudited pro forma combined balance sheet combines the
balance sheets of Hibernia and Firstshares as if the Merger had been effective
on September 30, 1997. This unaudited pro forma combined balance sheet should be
read in conjunction with the financial statements and related notes of Hibernia
contained in Hibernia's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 incorporated by reference into this Proxy
Statement/Prospectus, and the September 30, 1997 financial statements and
related notes of Firstshares included elsewhere herein.
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED BALANCE SHEET
Hibernia Corporation and Subsidiaries
September 30, 1997
- ---------------------------------------------------------------------------------------------------------------------------
PRO PRO FORMA
HIBERNIA FIRSTSHARES FORMA HIBERNIA
Unaudited ($ in thousands) CORPORATION OF TEXAS, INC. ADJUSTMENTS CORPORATION
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks .......................... $ 415,518 $ 11,785 $ 427,303
Short-term investments ........................... 240,555 4,018 244,573
Securities available for sale .................... 2,010,247 129,618 2,139,865
Securities held to maturity ...................... - - -
Loans, net of unearned income .................... 7,041,630 132,445 7,174,075
Reserve for possible loan losses ............. (113,796) (1,425) (115,221)
- ---------------------------------------------------------------------------------------------------------------------------
Loans, net ............................... 6,927,834 131,020 - 7,058,854
- ---------------------------------------------------------------------------------------------------------------------------
Bank premises and equipment ...................... 172,620 5,382 178,002
Customers' acceptance liability .................. 821 - 821
Goodwill ......................................... 129,297 3,942 133,239
Other intangibles assets ......................... 22,931 - 22,931
Other assets ..................................... 161,270 3,048 164,318
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS ............................. $ 10,081,093 $ 288,813 $ 0 $ 10,369,906
===========================================================================================================================
LIABILITIES
Deposits:
Demand, noninterest-bearing .................. $ 1,465,049 $ 60,029 $ 1,525,078
Interest-bearing ............................. 6,636,694 183,518 6,820,212
- ---------------------------------------------------------------------------------------------------------------------------
Total Deposits ........................... 8,101,743 243,547 8,345,290
- ---------------------------------------------------------------------------------------------------------------------------
Short-term borrowings ............................ 718,499 17,000 735,499
Liability on acceptances ......................... 821 - 821
Other liabilities ................................ 142,969 3,423 146,392
Debt ............................................. 106,777 - 106,777
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES ........................ 9,070,809 263,970 - 9,334,779
- ---------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred Stock .................................. 100,000 - 100,000
Common Stock ..................................... 250,919 2,404 $ 4,682 258,005
Surplus .......................................... 381,879 4,374 (7,044) 379,209
Retained earnings ................................ 285,596 19,346 304,942
Treasury stock ................................... (643) (2,362) 2,362 (643)
Unrealized gains (losses) on securities
available for sale ........................... l10,808 1,081 11,889
Unearned compensation ............................ (18,275) - (18,275)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY ............... 1,010,284 24,843 - 1,035,127
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,081,093 $ 288,813 $ 0 $ 10,369,906
===========================================================================================================================
- ---------------
See notes to Pro Forma Combined Balance Sheet.
</TABLE>
<PAGE>
HIBERNIA CORPORATION
NOTES TO PRO FORMA COMBINED BALANCE SHEET
September 30, 1997
A. Hibernia plans to issue approximately 3,690,616 shares of Hibernia
Common Stock, with an aggregate market value at the date of the Merger
of $68,276,396 based upon an assumed market value of $18.50 per share,
in exchange for all the outstanding shares of Firstshares Common Stock
at September 30, 1997 to effect the Merger with Firstshares resulting
in an exchange rate of 7.15. The stated value of the Hibernia Common
Stock is $1.92 per share.
In accordance with the pooling-of-interests method of accounting, the
historical equities of the merged companies are combined for the
purposes of this pro forma combined balance sheet.
<PAGE>
Pro Forma Combined Income Statements (Unaudited)
The following unaudited pro forma combined income statements for the
nine months ended September 30, 1997 and 1996 and the years ended December 31,
1996, 1995, and 1994 combine the income statements of Hibernia and Firstshares
as if the Merger had been effective on January 1, 1994 and reflect the impact of
the merger with Executive Bancshares, Inc. consummated in the third quarter of
1997 as discussed in Note A to the Pro Forma Combined Income Statements. The
unaudited pro forma combined income statements should be read in conjunction
with the consolidated financial statements and notes of Hibernia contained in
Hibernia's Quarterly Report on Form 10-Q for the quarter ended September 30,
1997 and Hibernia's Annual Report on Form 10-K for the year ended December 31,
1996, each incorporated by reference into this Proxy Statement/Prospectus, and
the financial statements and notes for the years ended December 31, 1996 and
1995 and the nine-month periods ended September 30, 1997 and 1996 of Firstshares
contained elsewhere herein. The cost associated with the Merger, estimated to be
approximately $XXX,XXX, will be accounted for as a current period expense when
incurred.
<PAGE>
<TABLE>
<CAPTION>
HIBERNIA CORPORATION
PRO FORMA COMBINED INCOME STATEMENT
Nine months ended September 30, 1997
PRO FORMA
HIBERNIA FIRSTSHARES HIBERNIA
Unaudited ($ in thousands, except per share data) CORPORATION OF TEXAS, INC. CORPORATION
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income
Interest and fees on loans ................... $ 428,469 $ 8,439 $ 436,908
Interest on securities available for sale .... 106,313 5,668 111,981
Interest on securities held to maturity ...... - - -
Interest on short-term investments ........... 9,651 158 9,809
- -----------------------------------------------------------------------------------------------------------
Total interest income .................... 544,433 14,265 558,698
- -----------------------------------------------------------------------------------------------------------
Interest expense
Interest on deposits ......................... 210,770 5,213 215,983
Interest on short-term borrowings ............ 18,786 493 19,279
Interest on debt ............................. 1,692 - 1,692
- -----------------------------------------------------------------------------------------------------------
Total interest expense ................... 231,248 5,706 236,954
- -----------------------------------------------------------------------------------------------------------
Net interest income .............................. 313,185 8,559 321,744
Provision for possible loan losses ........... 64 189 253
- -----------------------------------------------------------------------------------------------------------
Net interest income after provision
for possible loan losses ...................... 313,121 8,370 321,491
- -----------------------------------------------------------------------------------------------------------
Noninterest income
Service charges on deposits .................. 51,828 1,474 53,302
Trust fees ................................... 10,878 545 11,423
Other service, collection and exchange charges 31,707 277 31,984
Other operating income ....................... 9,064 104 9,168
Securities gains (losses), net ............... 372 - 372
- -----------------------------------------------------------------------------------------------------------
Total noninterest income ................. 103,849 2,400 106,249
- -----------------------------------------------------------------------------------------------------------
Noninterest expense
Salaries and employee benefits ............... 130,761 3,886 134,647
Occupancy expense, net ....................... 22,863 582 23,445
Equipment expense ............................ 21,098 687 21,785
Data processing expense ...................... 16,270 49 16,319
Foreclosed property expense, net ............. (498) - (498)
Amortization of intangibles .................. 10,261 128 10,389
Other operating expense ...................... 65,828 1,999 67,827
- -----------------------------------------------------------------------------------------------------------
Total noninterest expense ................ 266,583 7,331 273,914
- -----------------------------------------------------------------------------------------------------------
Income before income taxes ....................... 150,387 3,439 153,826
Income tax expense ............................... 52,564 900 53,464
- -----------------------------------------------------------------------------------------------------------
Income from continuing operations ................ $ 97,823 $ 2,539 $ 100,362
===========================================================================================================
Income from continuing operations
applicable to common shareholders ............ $ 92,648 $ 2,539 $ 95,187
===========================================================================================================
Pro forma weighted average common shares ......... 128,458,086 3,690,616 132,148,702
===========================================================================================================
Pro forma income per common share from
continuing operations (B) ................... $ 0.72 $ 0.72
===========================================================================================================
- -------------
See notes to Pro Forma Combined Income Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIBERNIA CORPORATION
PRO FORMA COMBINED INCOME STATEMENT
Nine months ended September 30, 1996
PRO FORMA
HIBERNIA FIRSTSHARES HIBERNIA
Unaudited ($ in thousands, except per share data) CORPORATION OF TEXAS, INC. CORPORATION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income
Interest and fees on loans ................... $ 348,196 $ 7,242 $ 355,438
Interest on securities available for sale .... 104,309 5,450 109,759
Interest on securities held to maturity ...... - - -
Interest on short-term investments ........... 7,618 119 7,737
- -------------------------------------------------------------------------------------------------------------
Total interest income .................... 460,123 12,811 472,934
- -------------------------------------------------------------------------------------------------------------
Interest expense
Interest on deposits ......................... 179,351 4,921 184,272
Interest on short-term borrowings ............ 10,939 286 11,225
Interest on debt ............................. 1,248 43 1,291
- -------------------------------------------------------------------------------------------------------------
Total interest expense ................... 191,538 5,250 196,788
- -------------------------------------------------------------------------------------------------------------
Net interest income .............................. 268,585 7,561 276,146
Provision for possible loan losses ........... (12,490) 349 (12,141)
- -------------------------------------------------------------------------------------------------------------
Net interest income after provision
for possible loan losses ...................... 281,075 7,212 288,287
- -------------------------------------------------------------------------------------------------------------
Noninterest income
Service charges on deposits .................. 42,161 1,188 43,349
Trust fees ................................... 9,820 406 10,226
Other service, collection and exchange charges 25,048 181 25,229
Other operating income ....................... 7,585 114 7,699
Securities gains (losses), net ............... (5,470) (2) (5,472)
- -------------------------------------------------------------------------------------------------------------
Total noninterest income ................. 79,144 1,887 81,031
- -------------------------------------------------------------------------------------------------------------
Noninterest expense
Salaries and employee benefits ............... 119,694 3,583 123,277
Occupancy expense, net ....................... 20,163 518 20,681
Equipment expense ............................ 22,112 592 22,704
Data processing expense ...................... 16,088 44 16,132
Foreclosed property expense, net ............. (1,901) (3) (1,904)
Amortization of intangibles .................. 3,653 94 3,747
Other operating expense ...................... 58,253 1,727 59,980
- -------------------------------------------------------------------------------------------------------------
Total noninterest expense ................ 238,062 6,555 244,617
- -------------------------------------------------------------------------------------------------------------
Income before income taxes ....................... 122,157 2,544 124,701
Income tax expense ............................... 42,574 662 43,236
- -------------------------------------------------------------------------------------------------------------
Income from continuing operations ................ $ 79,583 $ 1,882 $ 81,465
=============================================================================================================
Income from continuing operations
applicable to common shareholders ............ $ 79,583 $ 1,882 $ 81,465
=============================================================================================================
Pro forma weighted average common shares ......... 127,821,487 3,690,616 131,512,103
=============================================================================================================
Pro forma income per common share from
continuing operations (B) ................... $ 0.62 $ 0.62
=============================================================================================================
- -------------
See notes to Pro Forma Combined Income Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIBERNIA CORPORATION
PRO FORMA COMBINED INCOME STATEMENT
Year ended December 31, 1996
(A)
RESTATED PRO FORMA
HIBERNIA HIBERNIA FIRSTSHARES HIBERNIA
Unaudited ($ in thousands, except per share data) CORPORATION CORPORATION OF TEXAS, INC. CORPORATION
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans ................... $ 477,299 $ 482,488 $ 9,934 $ 492,422
Interest on securities available for sale .... 138,549 140,723 7,127 147,850
Interest on securities held to maturity ...... - - - -
Interest on short-term investments ........... 9,780 10,550 143 10,693
- -------------------------------------------------------------------------------------------------------------------------------
Total interest income .................... 625,628 633,761 17,204 650,965
- -------------------------------------------------------------------------------------------------------------------------------
Interest expense
Interest on deposits ......................... 242,570 246,374 6,576 252,950
Interest on short-term borrowings ............ 15,288 15,287 381 15,668
Interest on debt ............................. 1,553 1,774 43 1,817
- -------------------------------------------------------------------------------------------------------------------------------
Total interest expense ................... 259,411 263,435 7,000 270,435
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income .............................. 366,217 370,326 10,204 380,530
Provision for possible loan losses ........... (12,625) (12,460) 582 (11,878)
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for possible loan losses ...................... 378,842 382,786 9,622 392,408
- -------------------------------------------------------------------------------------------------------------------------------
Noninterest income
Service charges on deposits .................. 58,330 58,733 1,633 60,366
Trust fees ................................... 13,397 13,397 554 13,951
Other service, collection and exchange charges 33,985 34,045 273 34,318
Gain on sale of business lines ............... 517 517 - 517
Other operating income ....................... 9,436 9,664 246 9,910
Securities gains (losses), net ............... (5,306) (5,306) (2) (5,308)
- -------------------------------------------------------------------------------------------------------------------------------
Total noninterest income ................. 110,359 111,050 2,704 113,754
- -------------------------------------------------------------------------------------------------------------------------------
Noninterest expense
Salaries and employee benefits ............... 161,170 162,882 4,767 167,649
Occupancy expense, net ....................... 26,959 27,232 705 27,937
Equipment expense ............................ 28,735 29,052 825 29,877
Data processing expense ...................... 20,234 20,426 59 20,485
Foreclosed property expense, net ............. (1,743) (1,736) (3) (1,739)
Amortization of intangibles .................. 7,290 7,334 126 7,460
Other operating expense ...................... 77,088 78,064 2,241 80,305
- -------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense ................ 319,733 323,254 8,720 331,974
- -------------------------------------------------------------------------------------------------------------------------------
Income before income taxes ....................... 169,468 170,582 3,606 174,188
Income tax expense ............................... 59,518 59,865 867 60,732
- -------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations ................ $ 109,950 $ 110,717 $ 2,739 $ 113,456
===============================================================================================================================
Income from continuing operations
applicable to common shareholders ............ $ 108,210 $ 108,977 $ 2,739 $ 111,716
===============================================================================================================================
Pro forma weighted average common shares ......... 126,765,513 127,927,193 3,690,616 131,617,809
===============================================================================================================================
Pro forma income per common share from
continuing operations (B) ................... $ 0.85 $ 0.85 $ 0.85
===============================================================================================================================
- ---------------
See notes to Pro Forma Combined Income Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIBERNIA CORPORATION
PRO FORMA COMBINED INCOME STATEMENT
Year ended December 31, 1995
(A)
RESTATED PRO FORMA
HIBERNIA HIBERNIA FIRSTSHARES HIBERNIA
Unaudited ($ in thousands, except per share data) CORPORATION CORPORATION OF TEXAS, INC. CORPORATION
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans ................... $ 389,609 $ 394,278 $ 8,404 $ 402,682
Interest on securities available for sale .... 49,632 50,546 6,471 57,017
Interest on securities held to maturity ...... 116,237 117,110 - 117,110
Interest on short-term investments ........... 7,368 7,603 765 8,368
- -------------------------------------------------------------------------------------------------------------------------------
Total interest income .................... 562,846 569,537 15,640 585,177
- -------------------------------------------------------------------------------------------------------------------------------
Interest expense
Interest on deposits ......................... 226,669 229,592 5,999 235,591
Interest on short-term borrowings ............ 13,791 13,809 337 14,146
Interest on debt ............................. 1,630 1,827 66 1,893
- -------------------------------------------------------------------------------------------------------------------------------
Total interest expense ................... 242,090 245,228 6,402 251,630
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income .............................. 320,756 324,309 9,238 333,547
Provision for possible loan losses ........... 1,140 1,260 124 1,384
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for possible loan losses ...................... 319,616 323,049 9,114 332,163
- -------------------------------------------------------------------------------------------------------------------------------
Noninterest income
Service charges on deposits .................. 48,715 49,063 1,030 50,093
Trust fees ................................... 12,498 12,498 549 13,047
Other service, collection and exchange charges 28,673 28,818 236 29,054
Gain on divestiture of banking offices ....... 2,361 2,361 - 2,361
Gain on sale of business lines ............... 3,402 3,402 - 3,402
Other operating income ....................... 8,317 8,450 273 8,723
Securities gains (losses), net ............... 248 227 - 227
- -------------------------------------------------------------------------------------------------------------------------------
Total noninterest income ................. 104,214 104,819 2,088 106,907
- -------------------------------------------------------------------------------------------------------------------------------
Noninterest expense
Salaries and employee benefits ............... 136,804 138,077 4,447 142,524
Occupancy expense, net ....................... 26,501 26,761 746 27,507
Equipment expense ............................ 21,648 21,968 690 22,658
Data processing expense ...................... 19,373 19,493 49 19,542
Foreclosed property expense, net ............. (699) (693) (12) (705)
Amortization of intangibles .................. 3,709 3,709 98 3,807
Other operating expense ...................... 76,742 77,522 2,240 79,762
- -------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense ................ 284,078 286,837 8,258 295,095
- -------------------------------------------------------------------------------------------------------------------------------
Income before income taxes ....................... 139,752 141,031 2,944 143,975
Income tax expense ............................... 10,867 11,333 812 12,145
- -------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations ................ $ 128,885 $ 129,698 $ 2,132 $ 131,830
===============================================================================================================================
Income from continuing operations
applicable to common shareholders ............ $ 128,885 $ 129,698 $ 2,132 $ 131,830
===============================================================================================================================
Pro forma weighted average common shares ......... 126,880,767 128,042,447 3,690,616 131,733,063
===============================================================================================================================
Pro forma income per common share from
continuing operations (B) ................... $ 1.02 $ 1.01 $ 1.00
===============================================================================================================================
- ---------------
See notes to Pro Forma Combined Income Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIBERNIA CORPORATION
PRO FORMA COMBINED INCOME STATEMENT
Year ended December 31, 1994
(A)
RESTATED PRO FORMA
HIBERNIA HIBERNIA FIRSTSHARES HIBERNIA
Unaudited ($ in thousands, except per share data) CORPORATION CORPORATION OF TEXAS, INC. CORPORATION
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans ................... $ 307,545 $ 311,134 $ 6,558 $ 317,692
Interest on securities available for sale .... 53,134 55,107 6,023 61,130
Interest on securities held to maturity ...... 111,325 111,325 - 111,325
Interest on short-term investments ........... 7,941 8,105 609 8,714
- -------------------------------------------------------------------------------------------------------------------------------
Total interest income .................... 479,945 485,671 13,190 498,861
- -------------------------------------------------------------------------------------------------------------------------------
Interest expense
Interest on deposits ......................... 169,633 171,887 4,216 176,103
Interest on short-term borrowings ............ 6,225 6,226 140 6,366
Interest on debt ............................. 2,971 3,161 - 3,161
- -------------------------------------------------------------------------------------------------------------------------------
Total interest expense ................... 178,829 181,274 4,356 185,630
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income .............................. 301,116 304,397 8,834 313,231
Provision for possible loan losses ........... (17,869) (17,826) 40 (17,786)
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for possible loan losses ...................... 318,985 322,223 8,794 331,017
- -------------------------------------------------------------------------------------------------------------------------------
Noninterest income
Service charges on deposits .................. 47,139 47,499 889 48,388
Trust fees ................................... 13,092 13,092 523 13,615
Other service, collection and exchange charges 22,487 22,503 239 22,742
Other operating income ....................... 12,129 12,329 150 12,479
Securities gains (losses), net ............... (1,669) (1,672) - (1,672)
- -------------------------------------------------------------------------------------------------------------------------------
Total noninterest income ................. 93,178 93,751 1,801 95,552
- -------------------------------------------------------------------------------------------------------------------------------
Noninterest expense
Salaries and employee benefits ............... 133,002 134,111 4,122 138,233
Occupancy expense, net ....................... 28,338 28,537 652 29,189
Equipment expense ............................ 17,871 18,108 698 18,806
Data processing expense ...................... 21,231 21,331 36 21,367
Foreclosed property expense, net ............. (7,064) (7,034) (31) (7,065)
Amortization of intangibles .................. 23,231 23,231 78 23,309
Other operating expense ...................... 86,309 87,128 2,368 89,496
- -------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense ................ 302,918 305,412 7,923 313,335
- -------------------------------------------------------------------------------------------------------------------------------
Income before income taxes ....................... 109,245 110,562 2,672 113,234
Income tax expense ............................... 7,785 8,227 771 8,998
- -------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations ................ $ 101,460 $ 102,335 $ 1,901 $ 104,236
===============================================================================================================================
Income from continuing operations
applicable to common shareholders ............ $ 101,460 $ 102,335 $ 1,901 $ 104,236
===============================================================================================================================
Pro forma weighted average common shares ......... 127,595,944 128,757,624 3,690,616 132,448,240
===============================================================================================================================
Pro forma income per common share from
continuing operations (B) ................... $ 0.80 $ 0.79 $ 0.79
===============================================================================================================================
- ---------------
See notes to Pro Forma Combined Income Statements.
</TABLE>
<PAGE>
HIBERNIA CORPORATION
NOTES TO PRO FORMA COMBINED INCOME STATEMENTS
A. On August 31, 1997, Hibernia Corporation merged with Executive
Bancshares, Inc. in a transaction accounted for as a pooling of
interests. Hibernia issued 1,161,680 shares of Hibernia Common Stock in
such transaction, with a market value of $16,837,390.
B. Hibernia expects to achieve savings through reductions in operating
costs in connection with the Merger. The majority of savings will be
achieved through consolidation of certain operations. The extent to
which the savings will be achieved depends, among other things, on the
regulatory environment and economic conditions, and may be affected by
unanticipated changes in business activities, inflation and certain
external factors. Therefore, there can be no assurance that such
savings will be realized. No adjustment has been included in the
unaudited pro forma financial statements for the anticipated savings.
CERTAIN INFORMATION CONCERNING FIRSTSHARES
Description of Business
Firstshares was organized in 1982 as a Texas corporation for the purpose
of becoming a bank holding company through the acquisition of all the issued and
outstanding common stock of the Bank. The Company was inactive until it
consummated its acquisition of the Bank on January 1, 1989. Organized in the
state of Delaware in 1994, Firstshares-Delaware, a wholly-owned subsidiary of
Firstshares, acquired all of the issued and outstanding common stock of the Bank
and of The First National Company of Marshall ("FNCO"), a non-active company,
from Firstshares on March 21, 1995. Unless the context otherwise requires,
references to Firstshares include all subsidiaries.
Firstshares' primary activity is to provide assistance to the
subsidiaries in the management and coordination of its financial resources and
to provide capital. The subsidiaries operate under the management of their own
officers and formulate their own policies with respect to banking matters.
Firstshares presently conducts no activity other than the operation of its
subsidiaries and the investment of its own funds and derives all of its
operating revenues from the Bank.
The Bank services a large portion of the East Texas area with offices in
Marshall, serving Harrison County, in Longview, serving Gregg County, in Tyler,
serving Smith County, in Texarkana, serving Bowie County, and in Jacksonville,
serving Cherokee County. The Bank is the largest Marshall-based bank in the
Marshall area. The Bank was established in 1877, making it the oldest bank in
Harrison County.
Firstshares conducts substantially all of its business through the Bank.
The principal services provided by the Bank are as follows:
Commercial Services. The Bank provides a full range of banking services
for its commercial, industrial and financial customers. Commercial lending
activities include short-term and medium-term loans, revolving credit
arrangements, inventory and accounts receivable financing, equipment financing
and leasing, and interim, medium-term and permanent real estate lending, which
includes home equity lending beginning January 1, 1998. Other services include
cash management programs, federal tax depository and night depository services.
Consumer Services. The Bank also provides a wide range of consumer
banking services, including savings and checking accounts, various savings
programs, and installment and other personal loans. It makes automobile and
other installment loans directly to customers, as well as through dealers to
whom the Bank may also provide various forms of "floor plan" financing.
The Bank makes home improvement and real estate loans, provides safe deposit
services, and provides 24-hour routine banking service through six automated
teller machines. The Bank also provides 24-hour banking service through
telebanking through which customers can make account transfers, retrieve account
balances, verify deposits, make loan payments and conduct other transactions.
Trust Services. The Bank provides trust and agency services to
individuals, partnerships and corporations. The Bank's trust division also
provides investment management, administration and advisory services for agency
and trust accounts, and acts as trustee for pension and profit sharing funds.
The business of the Bank is not seasonal, and neither the loans nor
deposits of the Bank are concentrated in any individual or group that, if lost,
would have a material adverse effect on the business of the Bank.
Supervision and Regulation
As a bank holding company, Firstshares is subject to the supervision of
and regulations adopted by the Federal Reserve Board pursuant to the BHCA.
Firstshares is required under the BHCA to file quarterly and annual reports with
the Federal Reserve Board and such additional information as the Federal Reserve
Board may require. The Federal Reserve Board may also make examinations of
Firstshares and the Bank. Under the BHCA, Firstshares also is generally
prohibited, with certain exceptions, from engaging in or acquiring control of
any company that is engaged in non-banking activities.
The Bank is chartered under the National Bank Act and is subject to the
supervision and regulation of, and is examined by, the Comptroller of the
Currency. The Bank is a member of the Federal Reserve System and the Federal
Deposit Insurance Corporation ("FDIC"). Both of those agencies further regulate
and examine their respective member banks. The supervision and regulation of the
Bank by all these authorities is intended to protect the interests of depositors
rather than shareholders.
The Bank's deposits are insured by the Bank Insurance Fund ("BIF") of the
FDIC, which insures up to $100,000 per each insured deposit account. As of
January 1, 1993, the FDIC implemented a traditional risk-related insurance
assessment system whereby the FDIC places each insured bank in one of nine risk
categories based on its level of capital and other relevant information. Under
the system, there is a twenty-seven basis point spread between the highest and
lowest assessment, with the strongest banks (including the Bank) paying an
insurance premium equal to 0.00% of deposits and the weakest banks paying a
premium of 0.27% of deposits. The FDIC Board of Directors has the flexibility to
adjust the entire BIF assessment rate schedule twice a year without seeking
public comment first, but only within a range of five basis points above or
below the premium schedule adopted. Changes in the rate schedule outside the
basis point range above or below the current schedule will be made by the FDIC
Board of Directors only after a full rulemaking with opportunity for public
comment. The Bank is not currently paying any deposit insurance premium.
Congress recently adopted, and the President signed into law, an act requiring
BIF-insured institutions, such as the Bank, to pay a portion of the interest due
on bonds that were issued by the Financing Corporation ("FICO") to help shore up
the ailing Federal Savings and Loan Insurance Corporation. The amount of FICO
debt service to be paid by all BIF-insured institutions, in the aggregate, is
approximately $320,343,000 per year, or 0.0128% of domestic deposits, from 1997
until the year 2000 when the obligation of BIF-insured institutions increases to
approximately $600,000,000 per year, or 0.0240% of domestic deposits, through
the year 2019.
The operations of the Bank, and therefore Firstshares, is affected
significantly by the actions of the Federal Reserve Board intended to control
the money supply and credit availability in order to influence the national
economy.
Competition
The Bank is engaged in a highly competitive business. All financial
activities and the geographic markets served involve competition with other
banks as well as with non-bank financial institutions and non-financial
enterprises. The Bank actively competes with other banks in efforts to obtain
deposits and make loans, in the scope and type of services offered, in interest
rates paid on time and savings deposits and charged on loans and in other
aspects of banking. In addition to competing with other commercial banks within
and outside its primary service areas, the Bank competes with other financial
institutions engaged in the business of making loans and accepting deposits,
such as savings and loan associations, credit unions, insurance companies, small
loan companies, finance companies, investment brokers, mortgage companies, real
estate investment trusts, certain governmental agencies, credit card
organizations and other enterprises. Additional competition for deposits comes
from government and private issuers of debt obligations and other investment
alternatives for depositors such as money market funds. The Bank also competes
with suppliers of equipment in providing equipment financing.
Employees
Firstshares and the Bank had in the aggregate approximately 168 full and
part time employees as of November 30, 1997. None of such employees are subject
to a collective bargaining agreement.
Properties
The Bank's main office is located in a three-story, 40,900 square foot
building owned by the Bank and located at 100 North Bolivar, Marshall, Texas.
The Bank owns and operates a one-story, 4,250 square foot drive-in facility
located two city blocks from the main banking building at 100 North Columbus.
The Bank also owns a 22,257 square foot parking lot immediately east of the main
banking building for use by employees of the Bank. The Bank owns and operates an
automated teller machine on the parking lot of the main building. All facilities
owned by the Bank in Marshall, Texas are unencumbered.
The Bank's Longview, Texas office is located in a 17,500 square foot,
two-story building owned by the Bank and located at 1111 Judson Road. The Bank
also owns a facility adjacent to 1100 Judson Road which has eight drive-in lanes
and an automated teller machine. Also in Longview, the Bank owns but does not
currently occupy a two-story, 5,355 square foot building located at 1302 Judson
Road. In addition, the Bank owns the one-story, four-station drive-in facility
adjacent to this property and an automated teller machine is located in the
parking lot. All facilities owned by the Bank in Longview, Texas are
unencumbered.
The Bank's Tyler, Texas office is located on leased property at 909 ESE
Loop 323. The lease commenced on January 1, 1989 and ends on December 31, 2003
with an option to renew for an additional five years. The Bank owns and operates
a 1,995 square foot, one-story, seven-station drive-in facility and an automated
teller machine, both located adjacent to the leased branch facility. All
facilities owned by the Bank in Tyler, Texas are unencumbered.
The Bank's Texarkana, Texas office is located in a one-story, 6,457
square foot facility, with two drive-in lanes and one automated teller machine,
owned by the Bank and located at 4605 Texas Boulevard. The Bank owns these
facilities which are unencumbered.
The Bank's Jacksonville, Texas office is located in a 37,375 square
foot, four-story building owned by the Bank and located at 222 South Ragsdale.
The automated teller machine is located in the parking lot of this facility. The
Bank also leases a drive-in facility in Jacksonville, Texas with five drive-in
lanes. The lease commenced on June 20, 1997 and ends on June 20, 1999.
Legal Proceedings
In the normal course of its business, Firstshares from time to time is
involved in legal proceedings. Other than such legal proceedings incidental to
its business, Firstshares management is not aware of any pending or threatened
legal proceedings, which upon resolution, would have a material adverse effect
upon Firstshares financial condition or results of operations.
Market Prices and Dividends
Firstshares' authorized capital stock consists of 1,500,000 shares of
common stock, par value $4.00 per share, of which 516,170 shares were issued and
outstanding on the Record Date, and 1,000,000 shares of Series A preferred
stock, par value $10.00 per share, none of which were issued and outstanding on
the Record Date. There are 215 shareholders of record of Firstshares. There is
no established public market for Firstshares Common Stock, nor are there any
published quotations for such shares. Firstshares acts as its own transfer agent
and registrar.
Firstshares declared and paid cash dividends of $0.72 per share and
$0.64 per share in 1997 and 1996, respectively. The amount of dividends that may
be paid by Firstshares is restricted under the terms of the Agreement, which
provides that the amount of such dividends may not exceed $0.18 per fiscal
quarter for each quarter completed prior to the Effective Date of the Merger,
consistent in timing with past practices during the preceding three years. As a
bank holding company that does not, as an entity, engage in separate business
activities, Firstshares' ability to pay cash dividends depends upon the income
it receives from the Bank. Firstshares' only sources of income are (i) dividends
paid to it indirectly by the Bank and (ii) tax savings, if any, that result from
the filing of consolidated tax returns for Firstshares and the Bank. Firstshares
must pay all of its operating expenses from the funds received by Firstshares
from the Bank.
The ability of the Bank, as a national banking association, to pay
dividends is restricted under applicable law and regulations.
Security Ownership of Principal Shareholders and Management
Ownership of Principal Shareholders
The following table sets forth information concerning all persons known
to Firstshares to be beneficial owners, directly or indirectly, of more than 5%
of the outstanding shares of Firstshares Common Stock, Firstshares only class of
voting securities, as of the Record Date. Unless otherwise indicated, the named
persons have direct beneficial ownership of the shares with sole voting and
investment power.
Name and Address Amount and Nature Percent of Class
of Beneficial Owner of Beneficial
Ownership
George E. Grobowsky 44,254 8.57%
816 Shadowood Drive
Marshall, Texas 75672
Thomas L. Whaley (*) 167,488 32.45%
217 Pitts Avenue
Marshall, Texas 75672
* Includes 19,658 shares of Common Stock owned jointly by Mr. Whaley and his
wife, with respect to which he has shared investment and shared voting
authority. Mr. Whaley serves as sole trustee and has sole investment and sole
voting authority with respect to 32,691 shares of Common Stock held by Thomas L.
Whaley, Jr. Trust; 32,689 shares of Common Stock held by Benjamin P. Whaley
Trust; 37,689 shares of Common Stock held by George P. Whaley Trust; 13,474
shares of Common Stock held by Laura Street Pope Trust #1; and 31,287 shares of
Common Stock held Under the Will of Ben S. Pope.
Ownership of Management
The following table sets forth information concerning the shares of
Firstshares Common Stock beneficially owned, directly or indirectly, by each
director and executive officer of Firstshares, and all directors and executive
officers as a group as of the Record Date. Unless otherwise indicated, the named
persons have direct beneficial ownership of the shares with sole voting and
investment power.
Name of Amount and Nature
Beneficial Owner of Beneficial Percent of Class
Iwbersguo
H.A. (Tony) Bridge,Jr. (1) 1,706 *
Rex Brown (2) 2,419 *
Harvey R. Clanton (3) 6,447 1.25%
George E. Grobowsky (4) 44,254 8.57%
James H. Harris, Jr. (5) 1,470 *
Ray B. Nesbitt (6) 24,619 4.77%
James A. Pedison (7) 250 *
Larry Slone (8) 2,088 *
Bill Sullivan (9) 2,991 *
George P. Whaley (10) 21,608 4.19%
Thomas L. Whaley (11) 167,488 32.45%
Louis A. Williams (12) 1,814 *
Joseph A. Wood (13) 17,420 3.37%
Michael L. Wood (14) 5,608 1.09%
Directors and Officers
of Firstshares as a
group (14 people) 300,182 58.16%
* Represents less than 1% of the issued and outstanding shares of Firstshares
Common Stock.
(1) Mr. Bridge serves as a Director of Firstshares.
(2) Mr. Brown serves as a Director of Firstshares.
(3) Mr. Clanton serves as a Director of Firstshares. Includes 4,962 shares owned
of record by Mr. Clanton, with respect to which he has sole investment and
voting authority, and 1,485 shares owned by Harvey R. Clanton IRA, with respect
to which he has sole investment and voting authority.
(4) Mr. Grobowsky serves as the Chairman of the Board and Chief Executive
Officer of Firstshares.
(5) Mr. Harris serves as a Director of Firstshares.
(6) Mr. Nesbitt serves as a Director of Firstshares. Includes 22,788 shares
owned of record by Mr. Nesbitt, with respect to which he has sole investment and
sole voting authority, and 1,831 shares held of record individually by his wife
over which she exercises sole investment and sole voting authority.
(7) Mr. Pedison serves as a Director of Firstshares.
(8) Mr. Slone serves as a Director of Firstshares.
(9) Mr. Sullivan serves as a Director of Firstshares. Includes 1,109 shares
owned of record by Mr. Sullivan, with respect to which he has sole investment
and sole voting authority, and 350 shares owned of record by Sullivan Funeral
Home and Colonial Chapel, Inc. and 1,532 shares owned of record by Sullivan Life
Insurance Co., Inc., with respect to which he has sole investment and sole
voting authority.
(10) Mr. Whaley serves as a Director and a Vice President of Firstshares.
(11) Mr. Whaley serves as a Director of Firstshares. Includes 19,658 shares
owned jointly by Mr. Whaley and his wife, with respect to which he has shared
investment and shared voting authority. Mr. Whaley serves as sole trustee and
has sole investment and sole voting authority with respect to 32,691 shares held
by Thomas L. Whaley, Jr. Trust; 32,689 shares held by Benjamin P. Whaley Trust;
37,689 shares held by George P. Whaley Trust; 13,474 shares held by Laura Street
Pope Trust #1; and 31,287 shares held Under the Will of Ben S. Pope.
(12) Mr. Williams serves as a Director of Firstshares. Includes 350 shares owned
of record by Mr. Williams, with respect to which he has sole investment and sole
voting authority and 1,464 shares owned of record by Louis A. Williams and
Associates, Inc. with respect to which he has sole voting and sole investment
authority.
(13) Mr. Wood serves as a Director and the President of Firstshares.
(14) Mr. Wood serves as a Director of Firstshares. Includes 5,608 shares owned
of record jointly by Mr. Wood and his wife, with respect to which he shares
investment and shares voting authority with his wife.
<PAGE>
<TABLE>
<CAPTION>
FIRSTSHARES OF TEXAS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
September 30, 1997 and 1996
A S S E T S Sept 30, 1997 Sept 30, 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks ................................... 11,784,735 11,639,490
Federal funds sold ........................................ 3,935,000 0
- -------------------------------------------------------------------------------------------
Cash and cash equivalents ............................ 15,719,735 11,639,490
- -------------------------------------------------------------------------------------------
Interest-bearing deposits with other financial institutions 83,041 98,770
Securities - available-for-sale ........................... 129,617,603 118,561,407
Loans, net ................................................ 131,019,354 108,578,811
Bank premises and equipment, net .......................... 5,382,425 4,931,598
Accrued interest receivable ............................... 2,097,712 1,670,186
Other assets .............................................. 4,892,468 1,838,129
===========================================================================================
TOTAL ASSETS ............................................ 288,812,338 247,318,391
===========================================================================================
L I A B I L I T I E S
Deposits:
Demand .................................................. 60,029,104 39,566,964
NOW accounts ............................................ 44,706,828 51,729,204
Money market and savings ................................ 40,959,601 38,380,830
Certificates of deposit and other time .................. 97,851,535 85,822,779
- -------------------------------------------------------------------------------------------
Total deposits ....................................... 243,547,068 215,499,777
- -------------------------------------------------------------------------------------------
Securities sold under agreements to repurchase ............ 12,000,000 8,000,000
Federal funds purchased ................................... 5,000,000 730,000
Accrued interest payable and other liabilities ............ 3,422,603 2,682,713
Note payable to a bank .................................... 0 1
- -------------------------------------------------------------------------------------------
TOTAL LIABILITIES ....................................... 263,969,671 226,912,491
- -------------------------------------------------------------------------------------------
S T O C K H O L D E R S' E Q U I T Y
Preferred stock ........................................... 0 0
Common stock .............................................. 2,403,516 2,403,516
Capital surplus ........................................... 4,374,285 4,359,147
Net unrealized gains on securities available-for-sale,
net of income tax ....................................... 1,080,677 (324,418)
Retained earnings ......................................... 19,346,368 16,357,696
Treasury stock ............................................ (2,362,179) (2,390,041)
- -------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY .............................. 24,842,667 20,405,900
- -------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ............................. 288,812,338 247,318,391
===========================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRSTSHARES OF TEXAS, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
For the Nine Months Ended September 30, 1997 and 1996
Sept 30, 1997 Sept 30, 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income:
Loans ..................................................... $ 8,439,047 7,241,562
Securities:
Taxable ................................................. 4,684,182 4,748,890
Tax-exempt .............................................. 920,979 651,651
Dividend income ........................................... 62,953 49,356
Federal funds sold ........................................ 153,437 114,486
Interest-bearing deposits with other financial institutions 4,473 4,867
- ---------------------------------------------------------------------------------------------
Total interest income .............................. 14,265,071 12,810,812
- ---------------------------------------------------------------------------------------------
Interest expense:
Deposits:
NOW accounts ............................................ 848,697 729,771
Money market and savings ................................ 772,478 850,460
Certificates of deposit and other time .................. 3,591,941 3,340,591
Securities sold under agreements to repurchase ............ 218,588 227,357
Federal funds purchased ................................... 274,172 58,620
Other borrowings .......................................... 0 43,488
- ---------------------------------------------------------------------------------------------
Total interest expense ............................. 5,705,876 5,250,287
- ---------------------------------------------------------------------------------------------
Net interest income ................................ 8,559,195 7,560,525
Provision for loan losses ................................... 188,528 349,067
- ---------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 8,370,667 7,211,458
Other income:
Gains/(losses) on available-for-sale securities sold ...... 0 (1,905)
Income from Fiduciary activities .......................... 544,761 405,970
Service charges on deposit accounts ....................... 1,473,629 1,187,590
Other service charges, commissions, and fees .............. 276,887 180,941
Other ..................................................... 103,798 114,662
- ---------------------------------------------------------------------------------------------
Total other income ................................ 2,399,075 1,887,258
- ---------------------------------------------------------------------------------------------
Other expenses:
Salaries and benefits ..................................... 3,885,505 3,583,333
Occupancy and equipment ................................... 1,269,070 1,110,285
Other ..................................................... 2,176,056 1,861,912
- ---------------------------------------------------------------------------------------------
Total other expense .............................. 7,330,631 6,555,530
- ---------------------------------------------------------------------------------------------
Income before income taxes ....................... 3,439,111 2,543,186
Income tax expense .......................................... 899,905 661,595
- ---------------------------------------------------------------------------------------------
Net income ....................................... $ 2,539,206 1,881,591
=============================================================================================
Net income per common share ................................. $ 4.92 3.65
=============================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRSTSHARES OF TEXAS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Unaudited)
For the Nine Months Ended September 30, 1997 and 1996
Net Unrealized
(Losses)
Gains on Total
Preferred Common Capital Available-For- Retained Treasury Stockholders'
Stock Stock Surplus Sale Securities Earnings Stock Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 ........... $ --- 2,402,916 4,439,125 1,002,002 14,723,042 -2,604,060 19,963,025
Net income ........................... --- --- --- --- 1,881,591 --- 1,881,591
Cash dividends--common stock
($0.48 per share) .................. --- --- --- -246,937 --- -246,937
Stock options exercised (7,500 shares) --- 600 -85,005 --- --- 204,405 120,000
Net change in unrealized gains on
available-for-sale securities, net
of taxes ........................... --- --- --- -1,326,420 --- --- -1,326,420
Purchase of treasury stock
(684 shares) ....................... --- --- 5,027 --- --- -23,758 -18,731
Issuance of treasury stock
(1,200 shares for stock award) ..... --- --- --- --- --- 33,372 33,372
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 .......... --- 2,403,516 4,359,147 -324,418 16,357,696 -2,390,041 20,405,900
====================================================================================================================================
Balance at December 31, 1996 ........... --- 2,403,516 4,374,285 22,246 17,085,895 -2,362,179 21,523,763
Net income ........................... --- --- --- --- 2,539,206 --- 2,539,206
Cash dividends--common stock
($0.54 per share) .................. --- --- --- --- -278,733 --- -278,733
Net change in unrealized gains on
available-for-sale securities, net
of taxes ........................... --- --- --- 1,058,431 --- --- 1,058,431
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1997 .......... $ --- 2,403,516 4,374,285 1,080,677 19,346,368 -2,362,179 24,842,667
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRSTSHARES OF TEXAS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 1997 and 1996
Sept 30, 1997 Sept 30, 1996
- ------------------------------------------------------------------------------------------------------------
Operating activities:
<S> <C> <C>
Net income ............................................................ 2,539,206 1,881,591
Adjustments to reconcile net income to net cash provided by
operating activities:
Net accretion of discounts and premiums on securities
available-for-sale ............................................ (343,863) (630,965)
Provision for loan losses ........................................ 188,528 349,067
(Gains) losses on sale of other real estate ...................... - 1,838
Depreciation and amortization .................................... 684,515 560,123
Gains on sale of assets .......................................... (263) (5,500)
Stock award expense .............................................. - 33,372
(Increase) decrease in accrued interest receivable and other assets (272,610) (181,599)
Increase in accrued interest payable and other liabilities ........ 182,411 271,268
- ------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities ................ 2,977,924 2,279,194
- ------------------------------------------------------------------------------------------------------------
Investing activities:
Proceeds from maturities and paydowns of securities
available-for-sale ................................................. 18,703,577 19,665,265
Proceeds from sale of securities available-for-sale ................... 1,277,300 3,987,225
Purchases of securities available-for-sale ............................ (37,974,432) (17,421,736)
Net (increase) decrease in interest-bearing deposits with
other financial institutions ....................................... 15,989 (73,247)
Net increase in loans ................................................. (17,011,040) (13,426,022)
Proceeds from sales of other real estate .............................. - 60,107
Proceeds from sales of bank premises and other assets ................. 1,137 9,140
Purchases of bank premises and equipment .............................. (1,005,205) (616,515)
Net cash received from acquisition .................................... 38,368,075 -
- ------------------------------------------------------------------------------------------------------------
Net cash used (provided) by investing activities ......... 2,375,401 (7,815,783)
- ------------------------------------------------------------------------------------------------------------
Financing activities:
Net increase (decrease) in deposits ................................... (20,539,853) 5,604,884
Net increase (decrease) in securities sold under
agreements to repurchase ........................................... 4,500,000 (4,200,000)
Net increase in federal funds purchased ............................... 5,000,000 730,000
Cash dividends paid ................................................... (314,551) (245,652)
Payments on notes payable to a bank ................................... - (674,999)
Proceeds from stock options exercised ................................. - 120,000
Purchase of treasury stock ............................................ - (18,731)
- ------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities ......... (11,354,404) 1,315,502
- ------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents ......................... (6,001,078) (4,221,087)
Cash and cash equivalents at beginning of year ........................... 21,720,813 15,860,577
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year ................................. 15,719,735 11,639,490
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
FIRSTSHARES OF TEXAS, INC. AND SUBSIDIARIES
Notes of Consolidated Financial Statements (Unaudited)
For the Nine Months Ended September 30, 1997 and 1996
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements for Firstshares
have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine month period
ended September 30, 1997 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1997. For further information, refer
to the consolidated financial statements and footnotes thereto included in
Firstshares financial statements for the year ended December 31, 1996 and 1995,
contained elsewhere in the Proxy Statement - Prospectus.
Note B - Merger Agreement
On October 24, 1997, Firstshares and Hibernia entered into an Agreement and Plan
of Merger pursuant to which Firstshares would merge with and into Hibernia. The
Merger, to be accounted for as a pooling of interest, will be affected with the
exchange of approximately $67 million in Hibernia Common Stock for all of the
outstanding Firstshares Common Stock. Each outstanding share of Firstshares
Common Stock (516,170 shares outstanding) would be exchanged for 7.15 shares of
Hibernia Common Stock. The Merger is subject, among other things, to receipt of
regulatory and shareholder approval. It is anticipated that the Merger will be
consummated during the first quarter of 1998.
Note C - Acquisitions
On June 20, 1997, the Bank purchased certain assets and assumed certain
liabilities of the Jacksonville, Texas branch of Wells Fargo, N.A. Assets
purchased included $38,368,075 of cash and due from banks, $392,172 of bank
premises, furniture and fixtures, and $10,650 of other assets. Liabilities
assumed included $41,914,072 of deposits and $77,203 of accrued interest payable
and other liabilities. In connection with the acquisition, the Company recorded
goodwill of approximately $3,220,378 which is being amortized on a straight-line
basis over twenty-five years. The purchase method of accounting was used to
record the acquisition. Operations of the Jacksonville, Texas branch prior to
the acquisition are not included in these consolidated financial statements.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
FIRSTSHARES OF TEXAS, INC., FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
The following discussion provides certain information concerning the financial
condition and results of operations of Firstshares for the nine months ended
September 30, 1997 and 1996. The financial position and results of operations of
Firstshares resulted primarily from operations of Firstshares-Delaware. The
financial position and results of operations of Firstshares-Delaware resulted
primarily from operations at the Bank. Firstshares-Delaware also owns an
inactive, nonbank subsidiary The First National Company of Marshall.
Overview
Firstshares reported net income for the nine months ended September 30, 1997 of
$2,539,206 or $4.92 per share, an increase of 34.95% from the same period during
1996. Annualized returns of average assets and average equity for the nine
months ended September 30, 1997 were 1.25% and 14.84%, respectively, compared
with 1.02% and 12.61% for the same period in 1996.
Firstshares' total assets at September 30, 1997 were $288,812,338, an increase
of 41,493,947 or 16.78% from September 30, 1996. Loans grew to $132,444,542 at
September 30, 1997 from $109,904,342 at September 30, 1996, an increase of
$22,540,200 or 20.51%. Interest bearing deposits increased $19,747,391 to
$183,517,964 at September 30, 1997, and non-interest bearing deposits increased
by $8,299,900 to $60,029,104 at September 30, 1997. The increases in deposits
were primarily the result of the June 20, 1997 acquisition of the Jacksonville,
Texas branch of Wells Fargo, Texas, N.A. The increase in loans is primarily from
large commercial customers.
Results of Operations
Net Interest Income. The major source of Firstshares' revenue is net interest
income. Net interest income is the difference between gross interest on earning
assets (primarily loans and investment securities) and interest paid on deposits
and borrowed funds. Net interest income for the nine months ended September 30,
1997 was $8,559,195, an increase of $998,672 or 13.21% from the same period in
1996, primarily as a result of growth in loans and investment securities.
The following table sets forth certain information concerning the average
balances, interest income (on a fully taxable equivalent basis), interest
expense, and average rates on Firstshares' interest-earning assets and
interest-bearing liabilities for the periods indicated. (Dollars in Thousands):
<TABLE>
<CAPTION>
September 30,
- ----------------------------------------------------------------------------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------
Average Average
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans (before allowance for
loan losses) .................. $121,215 $ 8,439 9.28% $102,025 $ 7,242 9.46%
- ----------------------------------------------------------------------------------------------------
Investment Securities:
Taxable securities ............ 98,724 4,684 6.33% 103,554 4,749 6.11%
Tax exempt securities*......... 23,771 1,395 7.82% 16,805 987 7.83%
- ----------------------------------------------------------------------------------------------------
Total Investment securities .. 122,495 6,079 6.62% 120,358 5,736 6.35%
Other corporate stocks ......... 1,514 63 5.55% 1,191 49 5.49%
Federal funds sold & due froms . 3,754 155 5.50% 2,875 119 5.52%
- ----------------------------------------------------------------------------------------------------
Total earning assets ............. $248,978 $ 14,736 7.89% $226,449 $ 13,146 7.74%
*Taxable equivalent
====================================================================================================
Interest-bearing liabilities:
Deposits ...................... $231,973 $ 5,213 3.00% $213,303 $ 4,920 3.08%
Securities sold under
agreement to repurchase ..... 6,300 219 4.63% 6,815 227 4.44%
Federal funds purchased ....... 6,523 274 5.60% 1,388 59 5.67%
Notes payable ................. 0 0 0.00% 654 43 8.77%
- ----------------------------------------------------------------------------------------------------
Total interest bearing liabilities $244,796 $ 5,706 3.11% $222,160 $ 5,249 3.15%
====================================================================================================
Net interest income .............. 9,030 7,897
====================================================================================================
Net interest margin .............. 4.84% 4.65%
</TABLE>
Net interest income is affected both by the interest rate earned and paid and by
changes in volume, principally in loans, investment securities, deposits and
borrowed funds. The following table sets forth for the periods indicated changes
in taxable equivalent net interest income between the nine months ended
September 30, 1997 and September 30, 1996 for each major category of earning
assets and interest bearing liabilities attributable to changes in average
volumes and rates.
<TABLE>
<CAPTION>
CHANGES IN TAXABLE EQUIVALENT NET INTEREST INCOME
(Dollars in Thousands)
Nine Months Ended September 30, 1997 Compared with
Nine Months Ended September 30, 1996
Increase (Decrease) Due to Change In:
Volume Rate Total
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest earning assets:
Loans ....................................... $ 1,349 ($ 152) $ 1,197
Securities
Taxable ................................... (225) 160 (65)
Tax-exempt ................................ 409 (1) 408
Dividend income ............................. 14 - 14
Federal funds sold .......................... 36 - 36
Time deposits with banks .................... (1) 1 -
- ----------------------------------------------------------------------------------
Total Interest Income ................... 1,582 8 1,590
- ----------------------------------------------------------------------------------
Interest bearing funds:
Interest-bearing demand ..................... 110 10 120
Money market & savings ...................... 470 (548) (78)
Certificate of deposit and other time ....... 254 (3) 251
Federal funds purchased ..................... 216 (1) 215
Securities sold under agreement to repurchase (17) 9 (8)
Notes payable ............................... (22) (22) (43)
- ----------------------------------------------------------------------------------
Total Interest Expense .................. $ 1,012 ($ 555) $ 457
- ----------------------------------------------------------------------------------
Net Interest Income ..................... $ 570 $ 563 $ 1,133
==================================================================================
- ----------
Variances attributable to changes in rate/volume (change in rate times the
change in volume) have been allocated equally between the change attributable to
rate and the change attributable to volume, on a consistent basis.
</TABLE>
Interest Rate Sensitivity. Interest rate risk is the potential impact on net
interest income due to changes in interest rates in any given time frame and the
opportunity to reprice interest earning assets and interest bearing liabilities.
Management uses simulation models to estimate the effect of significant interest
rate changes on net interest income and the fair market value of securities
available for sale. Management may alter the mix of floating and fixed-rate
assets and liabilities, change loan and deposit pricing schedules and adjust
maturities through sales and purchases of securities available for sale as a
means of limiting interest rate risk to an acceptable level.
Provision for Loan Losses. The provision for possible loan losses is the amount
that is added to Firstshares' allowance for loan losses, by a charge against
earnings, in order to maintain a balance in the allowance for loan losses that
is deemed by management to be adequate to absorb the inherent risk of future
loan losses in Firstshares' loan portfolio. The amount of the provision is
dependent upon many factors, including managements evaluation of historical loan
loss experience in relation to outstanding loans, the existing level of the
allowance, reviews of loan quality, loan growth, changes in the composition of
the loan portfolio, general economic factors, the financial condition of the
borrowers, their ability to repay the loan and the value and liquidity of
collateral.
Non-Interest Income. Income other than from interest-earning assets is derived
primarily from services to customers for which fees are charged. These services
are chiefly deposit services such as account service charges, overdraft and
insufficient funds charges, issuance of cashier's checks and similar services
and trust fees. Non-interest income for nine months ended September 30, 1997
increased to $2,339,075 from $1,887,258 at September 30, 1996, an increase of
23.94%. This increase was primarily due to an increase in service charge income
and an increase in trust fees.
Non-Interest Expense. Expenses other than those incurred in connection with
interest-bearing liabilities include, among others, those associated with
personnel, facilities, equipment and supplies, advertising and professional
services. Total non-interest expense for the nine months ended September 30,
1997 increased to $7,330,632 from $6,555,532 at September 30, 1996, an increase
of 11.82%. Salaries and benefits, net occupancy expenses, and other expenses
increase due primarily to the acquisition of the Jacksonville, Texas branch in
June, 1997.
Income Taxes. Firstshares' effective tax rate for the nine months ended
September 30, 1997 was 26.17% compared to 26.01% for the same period in 1996.
The effective income tax rate is directly affected by holdings of tax-exempt
securities and tax-exempt loans.
Financial Condition
Investment Securities. On September 30, 1997, the estimated fair value of
Firstshares' total securities portfolio amounted to $129.6 million, as compared
to $118.6 million at September 30, 1996. The securities portfolio represented
44.8% of total assets and 49.2% of earning assets as of September 30, 1997. The
increase in the securities portfolio at September 30, 1997 was a result of the
investment of cash acquired from the Jacksonville, Texas branch purchase in
June, 1997. The following table reflects the breakdown of the investment
portfolio for September 30, 1997 and September 30, 1996.
<TABLE>
<CAPTION>
September 30,
- ------------------------------------------------------------------------------------------------------
(in thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U. S. Treasury securities ............................ $ 18,365 $ 18,461 $ 34,101 $ 34,080
U.S. Government agency obligations:
Issued by FNMA ................................... 30,245 30,443 28,181 28,069
Issued by government-sponsored agencies .......... 22,033 22,387 14,187 14,201
Guaranteed by GNMA ............................... 7,221 7,341 6,121 6,034
Collateralized mortgage obligations ............. 20,848 20,980 17,693 17,366
Securities issued by states and political subdivision:
General obligations .............................. 24,360 25,061 14,558 14,577
Revenue obligations .............................. 3,636 3,673 2,997 3,019
Equity securities .................................... 1,272 1,272 1,215 1,215
- ------------------------------------------------------------------------------------------------------
Total securities portfolio ........................... $127,980 $129,618 $119,053 $118,561
======================================================================================================
</TABLE>
Loans. Total loans outstanding increased by $22.5 million to $132.4 million at
September 30, 1997, compared to $109.9 million at September 30, 1996. The
largest increase in the loan portfolio can be seen in the commercial area, both
in non-farm, non-residential real estate and in commercial and industrial. The
following table reflects the changes in Firstshares' loan portfolio for
September 30, 1997 and September 30, 1996, net of unearned discount.
<TABLE>
<CAPTION>
(in thousands) September 30,
- ---------------------------------------------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans secured by real estate:
Construction and land development ....................... $ 4,404 3.33% $ 3,490 3.18%
Secured by farmland ..................................... 2,959 2.23% 2,829 2.57%
Secured by 1-4 family residential properties ............ 24,788 18.72% 19,891 18.10%
Secured by multifamily (5 or more) residential properties 39 0.03% 71 0.06%
Secured by nonfarm nonresidential properties ............ 38,889 29.36% 29,041 26.42%
Loans to finance agricultural production and
other loans to farmers .................................. 836 0.63% 670 0.61%
Commercial and industrial loans ............................. 34,393 25.97% 29,565 26.90%
Loans to individuals for household, family, and
other personal expenditures ............................. 25,070 18.93% 24,060 21.89%
Obligations of state and political subdivisions ............. 143 0.11% 178 0.16%
Other loans ................................................. 1,947 1.47% 1,322 1.20%
Less: Unearned income on loans .............................. (1,024) -0.77% (1,201) -1.09%
- ---------------------------------------------------------------------------------------------------------------
Total loans and leases, net of unearned income .............. $ 132,444 100.00% $ 109,916 100.00%
===============================================================================================================
</TABLE>
The following table summarizes non-performing assets for the periods indicated.
<TABLE>
<CAPTION>
(in thousands)
Non-performing assets: September 30,
- -------------------------------------------------------------
1997 1996
- -------------------------------------------------------------
<S> <C> <C>
Non-accrual loans .................... $ 359 $ 567
90 days and over past due loans ...... 884 43
- -------------------------------------------------------------
Total non-performing loans ............. 1,243 610
Real estate acquired through foreclosure 0 0
- -------------------------------------------------------------
Total non-performing assets ............ $1,243 $ 610
=============================================================
</TABLE>
The following table summarizes the changes in the allowance for loan losses for
the periods indicated.
<TABLE>
<CAPTION>
September 30,
1997 1996
- -------------------------------------------------------------
<S> <C> <C>
Balance at beginning of period $1,404,359 $1,149,632
Provision for loan losses ..... 188,528 349,067
Loans charged to the allowance -265,192 -209,912
Recoveries on charged off loans 97,492 36,742
- -------------------------------------------------------------
Balance at end of period ...... $1,425,187 $1,325,529
=============================================================
</TABLE>
As of September 30, 1997, the allowance for loan losses was $1,425,187, as
compared to $1,325,529 at September 30, 1996. This represents a reserve-to-loan
ratio of 1.08% at September 30, 1997, as compared to 1.21% at September 30,
1996.
Deposits. Total deposits increased by $27.7 million to $243.5 million at
September 30, 1997 from $215.8 million at September 30, 1996. The increase of
$27.7 million is primarily the net result of deposits acquired through the
Jacksonville, Texas branch and the loss of a school depository contract. The
following table summarizes the period end balances of various deposit categories
for the dates indicated.
<TABLE>
<CAPTION>
(in thousands) SEPTEMBER
- ---------------------------------------------------------
1997 1996
- ---------------------------------------------------------
<S> <C> <C>
Non-interest-bearing demand .. $ 60,028 $ 51,729
Interest-bearing demand ...... 44,707 39,567
Money market accounts ........ 24,910 23,379
Savings accounts ............. 16,050 15,002
Individual retirement accounts 15,611 14,358
Time deposit ................. 82,241 71,465
- ---------------------------------------------------------
Total deposits ............... $243,547 $215,500
=========================================================
</TABLE>
Capital Resources. The return on average shareholders' equity was 14.84% for the
first nine months of 1997, as compared to 12.61% for the same period in 1996.
Shareholders' equity increased to $24.8 million at September 30, 1997 from $20.4
million at September 30, 1996. Cash dividends declared by Firstshares for the
nine months ended September 30, 1997 totaled $0.54 per share, compared to $0.48
for the same period of 1996. The following table illustrates the changes in
shareholders' equity for September 30, 1997 and September 30, 1996.
<TABLE>
<CAPTION>
SEPTEMBER
- --------------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year .............................. $21,523,763 $19,963,025
Net income ................................................ 2,539,206 1,881,591
Cash dividends declared ................................... -278,732 -246,937
Treasury shares (purchased)/issued ........................ 0 134,641
Net unrealized gain/(loss) on available-for-sale securities 1,058,430 -1,326,420
- --------------------------------------------------------------------------------------------
Balance at end of year .................................... $24,842,667 $20,405,900
============================================================================================
</TABLE>
The following table summarizes the risk based capital ratios of Firstshares for
the periods indicated. All three ratios for both periods are considered
well-capitalized by regulatory authorities.
<TABLE>
<CAPTION>
(in thousands) SEPTEMBER
- ----------------------------------------------
1997 1996
- ----------------------------------------------
<S> <C> <C>
Tier I capital ..... $ 19,820 $ 19,849
Total capital ...... $ 21,245 $ 21,175
Risk-weighted assets $156,744 $130,769
Average total assets $284,155 $247,501
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER
- -------------------------------------------------
1997 1996
- -------------------------------------------------
<S> <C> <C>
Tier I Capital Ratio .. 12.64% 15.18%
(regulatory minimum) (4.00%) (4.00%)
Total Capital Ratio ... 13.55% 16.19%
(regulatory minimum) (4.00%) (4.00%)
Tier I Leverage Ratio . 6.98% 8.02%
(regulatory minimum) (4.00%) (4.00%)
</TABLE>
Liquidity. Liquidity represents Firstshares' ability to provide funds to satisfy
demands from depositors, borrowers and other commitments by either converting
assets to cash or accessing new or existing sources of funds. The principal
sources of funds which provide liquidity are customer deposits, customers
payments of principal and interest on loans, maturities of securities, earnings
and borrowings. Management closely monitors the maturities of assets and
liabilities through a periodic review of maturity and cash profiles, yield/rate
behaviors and loan/deposit forecasts to minimize funding risks. The level of
cash on hand and other liquid assets is to provide, at all times, sufficient
cash for expected or unexpected demand for funds. At September 30, 1997, cash
and due from banks, securities, net federal funds were 57.7% of deposits, as
compared to 60.1% at September 30, 1996. The loan-to-deposit ratio at September
30, 1997 was 54.4% compared to 51.0% at September 30, 1996.
<PAGE>
FIRSTSHARES OF TEXAS, INC. AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1996 and 1995
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
The Board of Directors
Firstshares of Texas, Inc.:
We have audited the accompanying consolidated balance sheets of Firstshares of
Texas, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended. 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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 Firstshares of
Texas, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s KPMG Peat Marwick LLP
Shreveport, Louisiana
March 12, 1997
<PAGE>
<TABLE>
<CAPTION>
FIRSTSHARES OF TEXAS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
Assets 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks ................................... $ 17,055,813 12,785,577
Federal funds sold ........................................ 4,665,000 3,075,000
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents ............... 21,720,813 15,860,577
Interest-bearing deposits with other financial institutions 99,030 25,523
Securities - available-for-sale ........................... 109,676,503 126,170,924
Loans, net ................................................ 114,196,842 95,501,856
Bank premises and equipment, net .......................... 4,934,463 4,784,355
Accrued interest receivable ............................... 1,746,439 1,758,741
Other assets .............................................. 1,553,282 1,724,409
- -----------------------------------------------------------------------------------------------------
$ 253,927,372 245,826,385
=====================================================================================================
Liabilities and Stockholders' Equity
Deposits:
Demand ................................................ $ 55,603,782 47,125,812
NOW accounts .......................................... 43,118,622 37,078,079
Money market and savings .............................. 37,754,765 42,413,403
Certificates of deposit and other time ................ 85,695,680 83,277,599
- -----------------------------------------------------------------------------------------------------
Total deposits .......................... 222,172,849 209,894,893
Securities sold under agreements to repurchase ............ 7,500,000 12,200,000
Accrued interest payable and other liabilities ............ 2,730,760 3,093,467
Note payable to a bank .................................... -- 675,000
- -----------------------------------------------------------------------------------------------------
232,403,609 225,863,360
Stockholders' equity:
Preferred stock ....................................... -- --
Common stock, $4 par value; 1,500,000 shares
authorized; 600,879 and 600,729 shares
issued in 1996 and 1995, respectively ............... 2,403,516 2,402,916
Capital surplus ....................................... 4,374,285 4,439,125
Net unrealized gains on securities available-for-sale,
net of income tax ................................... 22,246 1,002,002
Retained earnings ..................................... 17,085,895 14,723,042
- -----------------------------------------------------------------------------------------------------
23,885,942 22,567,085
Less treasury stock, at cost .......................... (2,362,179) (2,604,060)
- -----------------------------------------------------------------------------------------------------
Total stockholders' equity .............. 21,523,763 19,963,025
Commitments and contingencies.............................. -- --
$ 253,927,372 245,826,385
=====================================================================================================
- ------------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRSTSHARES OF TEXAS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1996 and 1995
1996 1995
---- ----
Interest income:
<S> <C> <C>
Loans ........................................................... $ 9,933,897 8,403,608
Securities:
Taxable ....................................................... 6,239,877 5,862,363
Tax-exempt .................................................... 886,894 608,763
Federal funds sold .............................................. 136,653 710,665
Interest-bearing deposits with other financial institutions ..... 6,323 54,739
- ---------------------------------------------------------------------------------------------------------
Total interest income ............................. 17,203,644 15,640,138
- ---------------------------------------------------------------------------------------------------------
Interest expense:
Deposits:
NOW accounts .................................................. 975,907 1,076,564
Money market and savings ...................................... 1,116,792 1,217,114
Certificates of deposit and other time ........................ 4,482,948 3,705,252
Securities sold under agreements to repurchase .................. 302,411 329,658
Other borrowings ................................................ 121,669 74,044
- ---------------------------------------------------------------------------------------------------------
Total interest expense ............................ 6,999,727 6,402,632
- ---------------------------------------------------------------------------------------------------------
Net interest income ............................... 10,203,917 9,237,506
Provision for loan losses ........................................... 582,474 123,990
- ---------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 9,621,443 9,113,516
Other income:
Income from fiduciary activities ................................ 553,723 548,947
Service charges on deposit accounts ............................. 1,632,683 1,029,810
Other service charges, commissions, and fees .................... 273,357 235,894
Other ........................................................... 244,163 273,477
- ---------------------------------------------------------------------------------------------------------
Total other income ................................ 2,703,926 2,088,128
- ---------------------------------------------------------------------------------------------------------
Other expenses:
Salaries and benefits ........................................... 4,766,819 4,447,007
Occupancy and equipment ......................................... 1,530,333 1,435,847
Other ........................................................... 2,422,782 2,375,110
- ---------------------------------------------------------------------------------------------------------
Total other expenses .............................. 8,719,934 8,257,964
- ---------------------------------------------------------------------------------------------------------
Income before income taxes ........................ 3,605,435 2,943,680
Income tax expense .................................................. 866,917 812,140
- ---------------------------------------------------------------------------------------------------------
Net income ........................................ $ 2,738,518 2,131,540
=========================================================================================================
Net income per common share ......................................... $ 5.33 4.20
=========================================================================================================
- -------------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996 and 1995
Net Unrealized
(Losses)
Gains on Total
Preferred Common Capital Available-For- Retained Treasury Stockholders'
Stock Stock Surplus Sale Securities Earnings Stock Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 ............... $-- 2,370,380 4,309,794 (1,215,792) 12,885,790 (705,446) 17,644,726
Net income ............................. -- -- -- -- 2,131,540 -- 2,131,540
Cash dividends - common stock
($.58 per share) ..................... -- -- -- -- (294,288) -- (294,288)
Stock options exercised (8,134 shares) . -- 32,536 129,331 -- -- -- 161,867
Net change in unrealized gains on
available-for-sale securities, net
of taxes ............................. -- -- -- 2,217,794 -- -- 2,217,794
Purchase of treasury stock
(55,773 shares) ...................... -- -- -- -- -- (1,935,782) (1,935,782)
Issuance of treasury stock
(1,161 shares) ....................... -- -- -- -- 37,168 37,168
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 ............... -- 2,402,916 4,439,125 1,002,002 14,723,042 (2,604,060) 19,963,025
Net income ............................. -- -- -- -- 2,738,518 -- 2,738,518
Cash dividends - common stock
($.73 per share) ..................... -- -- -- -- (375,665) -- (375,665)
Stock options exercised (7,500 shares) . -- 600 (85,005) -- -- 204,405 120,000
Purchase of treasury stock (884 shares) -- -- -- -- -- (30,759) (30,759)
Issuance of treasury stock (2,450 shares
for stock award) ..................... -- -- 20,165 -- -- 68,235 88,400
Net change in unrealized losses on
available-for-sale securities, net
of taxes ............................. -- -- -- (979,756) -- -- (979,756)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 ............... $-- 2,403,516 4,374,285 22,246 17,085,895 (2,362,179) 21,523,763
====================================================================================================================================
- -------------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Years ended December 31, 1996 and 1995
1996 1995
- --------------------------------------------------------------------------------------------------------------------
Operating activities:
<S> <C> <C>
Net income .............................................................. $ 2,738,518 2,131,540
Adjustments to reconcile net income to net cash provided by
operating activities:
Net accretion of discounts and premiums on securities
available-for-sale ................................................ (785,276) (58,810)
Net accretion of discounts and premiums on securities
held-to-maturity .................................................. -- (1,051,618)
Provision for loan losses ........................................... 582,474 123,990
(Gains) losses on sale of other real estate ......................... 1,838 (7,634)
Depreciation and amortization ....................................... 769,033 722,567
Gains on sale of assets ............................................. (29,775) (7,027)
Deferred income tax benefit ......................................... (150,357) (88,870)
Stock award expense ................................................. 88,400 --
Increase in accrued interest receivable and other assets ............ (4,732) (705,263)
Increase in accrued interest payable and other liabilities .......... 244,780 1,024,323
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities ................. 3,454,903 2,083,198
- --------------------------------------------------------------------------------------------------------------------
Investing activities:
Proceeds from maturities and paydowns of securities
available-for-sale .................................................... 24,062,213 18,118,555
Proceeds from maturities and paydowns of securities
held-to-maturity ...................................................... -- 5,337,173
Proceeds from sale of securities available-for-sale ..................... 9,814,880 --
Purchases of securities available-for-sale .............................. (18,081,874) (34,818,257)
Purchases of securities held-to-maturity ................................ -- (8,443,515)
Net (increase) decrease in interest-bearing deposits with
other financial institutions .......................................... (73,507) 1,202,641
Net increase in loans ................................................... (19,277,460) (13,700,151)
Proceeds from sales of other real estate ................................ 60,107 79,859
Proceeds from sales of bank premises and other assets ................... 29,775 12,961
Purchases of bank premises and equipment ................................ (792,926) (471,992)
Net cash received from acquisition ...................................... -- 15,058,026
- --------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities ..................... (4,258,792) (17,624,700)
- --------------------------------------------------------------------------------------------------------------------
Financing activities:
Net increase in deposits ................................................ 12,277,956 4,829,929
Net increase (decrease) in securities sold under agreements to repurchase (4,700,000) 5,600,000
Cash dividends paid ..................................................... (328,072) (290,703)
Proceeds from issuance of notes payable to a bank ....................... -- 1,610,000
Payments on notes payable to a bank ..................................... (675,000) (935,000)
Proceeds from stock options exercised ................................... 120,000 161,867
Purchase of treasury stock .............................................. (30,759) (1,935,782)
Sale of treasury stock .................................................. -- 37,168
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities ................. 6,664,125 9,077,479
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents ............................ 5,860,236 (6,464,023)
Cash and cash equivalents at beginning of year .............................. 15,860,577 22,324,600
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year .................................... $ 21,720,813 15,860,577
====================================================================================================================
- --------------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
FIRSTSHARES OF TEXAS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies
Business -- Firstshares of Texas, Inc. ("Firstshares," or the "Company") is
a bank holding company with principal executive offices in Marshall, Texas. The
Company has one subsidiary--Firstshares Intermediate Holding Company, Inc.
("Delaware"), a Delaware incorporated company. Delaware has two subsidiaries:
First National Bank (the "Bank"), which provides a full range of banking
services to individual and corporate customers in east Texas and the First
National Company (FNCO), which is not an active corporation at this time. The
Company and its subsidiaries are subject to regulations of certain federal
agencies and undergo periodic examinations by those regulatory authorities.
Delaware was formed in 1996 as an intermediary holding company. The
Company's investment in the Bank was contributed to Delaware in exchange for all
shares of Delaware.
Principles of Consolidation -- The consolidated financial statements
include the accounts of Firstshares, Delaware, the Bank, and FNCO. All
significant intercompany balances and transactions have been eliminated in
consolidation.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
balance sheet and income and expenses for the period. Actual results could
differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the valuation
of other real estate acquired in connection with foreclosures or in satisfaction
of loans. In connection with the determination of the allowance for loan losses
and the valuation of other real estate, management obtains independent
appraisals for significant properties.
Cash and Cash Equivalents -- For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due from banks, and federal funds
sold. Generally, federal funds are sold for one-day periods.
Securities -- The Company accounts for its debt and marketable equity
securities under the provisions of Statement of Financial Accounting Standards
No. 115 (Statement 115), Accounting for Certain Investments in Debt and Equity
Securities. Under Statement 115, the Company classifies its debt and marketable
equity securities in one of three categories: trading, available-for-sale, or
held-to-maturity. Trading securities are bought and held principally for the
purpose of selling them in the near term. Held-to-maturity securities are those
securities in which the Company has the ability and intent to hold the security
until maturity. All other securities not included in trading or held-to-maturity
are classified as available-for-sale.
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding gains and
losses on trading securities are included in earnings. Unrealized holding gains
and losses, net of the related tax effect, on available-for-sale securities are
excluded from earnings and are reported as a separate component of stockholders'
equity until realized. Transfers of securities between categories are recorded
at fair value at the date of transfer.
A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the effective interest method.
Dividend and interest income are recognized when earned. Realized gains and
losses for securities classified as available-for-sale and held-to-maturity are
included in earnings and are derived using the specific identification method
for determining the cost of securities sold.
Loans -- Interest on substantially all loans, including impaired loans, is
accrued as earned. Interest on certain installment loans is deferred and
recognized under the sum-of-the-digits method, which generally results in level
rates of return on principal balances outstanding. Loans are placed in a
nonaccrual status when the loan is past due as to principal or interest and, in
management's opinion, the circumstances are such that the ultimate collection of
either is in doubt. Normally, loans are reviewed for placement in a nonaccrual
status when the principal or interest has been billed and uncollected for a
period of ninety days. Generally, when a loan is placed on nonaccrual status,
any interest previously accrued but not collected is reversed unless the
collateral for the loan is sufficient to cover the accrued interest or a
guarantor assures payment of interest.
Effective January 1, 1995, the Company adopted Financial Accounting
Standards Board Statement No. 114, Accounting by Creditors for Impairment of a
Loan, as amended by Statement 118, Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures. Statements 114 and 118 address
recognition criteria for loan impairment and the measurement methods for certain
impaired and restructured loans. A loan within the scope of Statement 114 is
considered impaired when, based on current information and events, it is
probable that the Company will be unable to collect all amounts due according to
the contractual terms of the loan agreement, including scheduled interest
payments. Under these standards, the reserve for credit losses related to loans
that are identified as impaired is based on discounted cash flows using the
loan's effective interest rate, or the fair value of the collateral for
collateral-dependent loans. The impact of the adoption of Statements 114 and 118
was not significant.
Allowance for Loan Losses -- The allowance for loan losses is maintained at
a level believed adequate by management to absorb probable loan losses.
Management's determination of the adequacy of the allowance is based on an
evaluation of the relative risks inherent in the loan portfolio, taking into
consideration the nature, volume, and quality of the portfolio, specific problem
loans, past credit loss experience, current and future economic conditions,
results of internal review procedures, and other relevant factors. The provision
for loan losses is charged to expense, and loans charged off, net of recoveries,
are charged directly to the allowance.
While management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan
losses. Such agencies may require the Bank to recognize additions to the
allowance based on their judgments about information available to them at the
time of their examination.
Bank Premises and Equipment -- Bank premises and equipment are carried at
cost, less accumulated depreciation. Depreciation is provided over the estimated
useful lives of the respective assets on the straight-line basis. Maintenance
and repairs are charged to operating expense, and renewals and betterments are
capitalized. Gains or losses on dispositions are reflected currently in the
consolidated statements of income.
Other Real Estate -- Other real estate represents property acquired through
foreclosure or deeded to the Bank in lieu of foreclosure on real estate mortgage
loans on which the borrowers have defaulted as to payment of principal and
interest. Amounts are carried at the lower of the Bank's cost of acquisition or
the asset's estimated fair value, less estimated selling costs. Reductions in
the balance at the date of acquisition are charged to the allowance for loan
losses. Any subsequent write-downs to reflect current fair value are charged to
other operating expense. The Bank had no investment in other real estate at
December 31, 1996. At December 31, 1995, the Bank had an investment in other
real estate of $59,000.
Income Taxes -- The Company uses the asset and liability method of
accounting for income taxes under which deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
Net Income Per Common Share -- Net income per common share is calculated
based on the weighted average number of common shares outstanding during the
year. The weighted average common shares outstanding totaled 513,698 and 507,469
in 1996 and 1995, respectively.
Excess Cost Over Net Assets Acquired -- Excess cost over net assets
acquired relate to the Company's 1992 acquisition of the Tyler, Texas, branch of
First National Bank of Winnsboro, Texas, as well as the Company's 1995
acquisition of the Texarkana, Texas, branch of Bank of America Texas, N.A.
The excess cost over net assets acquired for these acquisitions amounted to
$850,000 and $976,000 at December 31, 1996 and 1995, respectively, and is
included in other assets in the consolidated balance sheets. Amortization is on
a straight-line basis over ten years and amounted to $126,000 and $97,000 in
1996 and 1995, respectively.
Reclassifications -- Certain amounts in the 1995 financial statements have
been reclassified to conform to the 1996 presentation.
(2) Cash and Due From Banks
The Bank is a member of the Federal Reserve System and is required to
maintain reserve balances in accordance with Federal Reserve Bank requirements.
Such reserve requirements averaged $4,509,000 and $3,957,000 for the years ended
December 31, 1996 and 1995, respectively.
(3) Securities
The amortized cost and approximate market value (carrying value) of
securities available-for-sale at December 31, 1996 and 1995, are summarized as
follows:
<TABLE>
<CAPTION>
December 31, 1996
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury ..... $ 25,951,382 171,759 (197,094) 25,926,047
U.S. government
agencies ...... 14,172,370 133,655 (17,666) 14,288,359
State and municipal 18,201,457 269,829 (122,864) 18,348,422
Mortgage-backed
securities .... 50,091,172 244,558 (448,470) 49,887,260
Other securities .. 1,226,415 -- -- 1,226,415
- ----------------------------------------------------------------------------------------------
$109,642,796 819,801 (786,094) 109,676,503
==============================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury ..... $ 37,853,885 425,142 (100,941) 38,178,086
U.S. government
agencies ...... 8,172,236 188,180 (3,697) 8,356,719
State and municipal 15,797,079 394,634 (41,997) 16,149,716
Mortgage-backed
securities .... 61,689,124 762,936 (106,072) 62,345,988
Other securities .. 1,140,415 -- -- 1,140,415
- ----------------------------------------------------------------------------------------------
$124,652,739 1,770,892 (252,707) 126,170,924
==============================================================================================
</TABLE>
The amortized cost and estimated market value of securities at December 31,
1996, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Securities
Available-For-Sale
- -----------------------------------------------------------------------------
Amortized Market
Cost Value
- -----------------------------------------------------------------------------
<S> <C> <C>
Due in one year ...................... $ 11,435,061 11,343,035
Due after one year through five years 33,877,798 34,217,986
Due after five years through ten years 10,573,511 10,631,452
Due after ten years .................. 2,438,839 2,370,355
Mortgage-backed securities ........... 50,091,172 49,887,260
Other securities ..................... 1,226,415 1,226,415
- -----------------------------------------------------------------------------
$109,642,796 109,676,503
=============================================================================
</TABLE>
Proceeds from the sale of available-for-sale securities during 1996 were
$9,814,880. The gross gains and losses on these sales were not significant.
There were no sales of securities in 1995.
Securities having a book value of $35,587,000 and $48,115,000 at December
31, 1996 and 1995, respectively, were pledged to secure public funds on deposit
or for other purposes as required or permitted by law.
During 1995, the Bank transferred securities having an amortized cost of
$48,338,000 from its held-to-maturity portfolio to its available-for-sale
portfolio. At the time of the transfer, these securities had net unrealizable
gains of approximately $565,000. This transfer was made during the one time
reassessment allowed by the Financial Accounting Standards Board for the
reclassification of held-to-maturity to available-for-sale investment security
category.
(4) Loans and Allowance for Loan Losses
The composition of the Bank's loan portfolio at December 31, 1996 and 1995,
was as follows:
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------
<S> <C> <C>
Commercial and industrial .. $ 40,881,500 35,417,951
Real estate - construction . 5,156,568 2,582,210
Real estate - mortgage ..... 47,660,151 38,756,429
Installment ................ 22,729,464 21,047,494
Other ...................... 352,908 113,738
- ----------------------------------------------------------------------
Total ........ 116,780,591 97,917,822
Less:
Allowance for loan losses (1,404,359) (1,149,632)
Unearned discount ....... (1,179,390) (1,266,334)
- ----------------------------------------------------------------------
Loans, net ... $ 114,196,842 95,501,856
======================================================================
</TABLE>
The Bank enters into various loans and other transactions in the ordinary
course of business with its directors, executive officers, and some of their
related business interests. The loans and other transactions are made on
substantially the same terms as those prevailing at the time for comparable
loans and similar transactions with other persons. The amounts of these loans
were $1,801,000 and $2,493,000 at December 31, 1996 and 1995, respectively. The
change during 1996 reflects $1,216,000 in new loans and $1,908,000 of
repayments.
At December 31, 1996 and 1995, the Bank had discontinued the accrual of
interest on loans aggregating $460,000 and $554,000, respectively. Net interest
income for 1996 and 1995 would have been higher by $48,000 and $58,000,
respectively, had interest been accrued at contractual rates on these loans. At
December 31, 1996 and 1995, the Bank had no loans it considered impaired other
than those on nonaccrual.
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------
<S> <C> <C>
Balance, January 1 .... $ 1,149,632 1,065,118
Provision charged to
operating expense 582,474 123,990
Loans charged off .. (390,188) (85,076)
Recoveries on loans 62,441 45,600
- -------------------------------------------------------------
Balance, December 31 .. $ 1,404,359 1,149,632
=============================================================
</TABLE>
(5) Bank Premises and Equipment
Bank premises and equipment at December 31, 1996 and 1995, are
summarized as follows:
<TABLE>
<CAPTION>
Estimated December 31,
Useful Lives 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land ............................... -- $ 888,602 $ 888,602
Bank buildings and motorbank ....... 40 years 4,831,949 4,824,442
Furniture, fixtures, and equipment . 3-10 years 3,910,981 3,853,037
- ------------------------------------------------------------------------------------------
9,631,532 9,566,081
Less accumulated depreciation ...... (4,697,069) (4,781,726)
- ------------------------------------------------------------------------------------------
Bank premises and equipment, net $ 4,934,463 $ 4,784,355
==========================================================================================
</TABLE>
Amounts charged to operating expenses for depreciation aggregated
$643,000 and $625,000 in 1996 and 1995, respectively.
(6) Certificates of Deposit and Other Time Deposits
Included in time deposits at December 31, 1996 and 1995, were $28,240,000
and $27,882,000, respectively, of certificates of deposit in denominations of
$100,000 or more. Interest expense on time deposits of $100,000 or more amounted
to $1,484,000 and $1,142,000 for the years ended December 31, 1996 and 1995,
respectively.
At December 31, 1996, the scheduled maturities of certificate of
deposits are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $61,548,809
1998 13,237,484
1999 4,754,758
2000 5,351,666
2001 802,963
- ----------------------------------
$85,695,680
</TABLE>
During 1996 and 1995, the Company made interest payments of approximately
$6,900,000 and $5,952,000, respectively, to depositors.
(7) Note Payable to Another Bank
As of December 31, 1995, the Company had a note payable to another bank due
on September 20, 2002, with interest payments due quarterly at a bank's prime
plus 0.5%. During 1996, this note was paid in full. The Company made interest
payments of $46,000 during 1996 on the note.
(8) Income Taxes
Income tax expense for the years ended December 31, 1996 and 1995,
follows:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------
<S> <C> <C>
Current $ 1,017,274 901,010
Deferred (150,357) (88,870)
- ---------------------------------------------
$ 866,917 812,140
=============================================
</TABLE>
A reconciliation of the expected federal income tax expense (computed by
applying the federal corporate income tax rate of 34% to pretax income) to
actual income tax expense for the years ended December 31, 1996 and 1995,
follows:
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Computed "expected" tax expense .. $ 1,225,848 1,000,851
Decrease in income taxes resulting
from:
Tax-exempt interest ......... (250,644) (169,615)
Other ....................... (108,287) (19,096)
- -----------------------------------------------------------------------
Total tax expense $ 866,917 812,140
=======================================================================
Effective income tax rate ........ 24.0% 27.6
=======================================================================
</TABLE>
The Company has gross deferred tax assets of $117,706 and $77,053 and gross
deferred tax liabilities of $333,727 and $974,411 at December 31, 1996 and 1995,
respectively. The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at December 31,
1996 and 1995, were primarily related to the allowance for loan losses,
depreciation of fixed assets, discount accretion on securities, and unrealized
gains or losses on available-for-sale securities.
No valuation allowance was recorded against the gross deferred tax asset
because management believes that it is more likely than not that the gross
deferred tax asset will be realized in full. The Company based its conclusion on
various factors, including ongoing profitable operations as well as significant
taxes available in the carryback period.
At December 31, 1996, current federal income taxes payable of $69,000 were
included in accrued interest payable and other liabilities. At December 31,
1995, current federal income taxes receivable of $42,000 were included in other
assets.
Income taxes paid during 1996 and 1995 totaled approximately $1,028,000
and $929,000, respectively.
(9) Stockholders' Equity
Firstshares is authorized to issue 1,000,000 shares of $10 par value Series
A preferred stock. As of December 31, 1996 and 1995, there were no shares issued
and outstanding.
On February 16, 1995, the shareholders of the Company approved an amendment
to the Company's Restated Articles of Incorporation to effect a reverse split of
its common stock on a basis of one share for 700 shares of common stock and to
then effect a forward split on a basis of 350 shares of stock for one share of
common stock. All share data presented in the consolidated financial statements
has been restated to reflect the common stock splits.
Subsequent to the splits, the Company filed a Form 15 with the Securities
and Exchange Commission which terminated its Registration under the Securities
Act of 1934.
Common treasury shares totaled 84,709 and 93,626 shares at December 31,
1996 and 1995, respectively, at a cost of $2,362,179 and $2,604,060,
respectively.
(10) Stock Options
The Company has a Stock Option Plan which enables the Board of Directors to
grant to key officers and employees of the Company and the Bank (including
officers and directors who are employees) options to purchase shares of common
stock of the Company at a price equal to 100% of the fair market value of the
stock on the date any such option is granted. The Plan provides that options
expire ten years from the date such options are granted. Such options are not
exercisable until 12 months after the date of grant and become exercisable at
twenty percent per year.
The Plan is intended as an employment incentive. In addition, the Board of
Directors believes that it is beneficial to the Company to encourage stock
ownership by certain key employees of the Company and the Bank, so as to
increase their proprietary interest in the Company's success. The Plan is
administered by members of the Executive Committee of the Board of Directors who
are not officers of the Bank.
At December 31, 1995, 7,500 shares were under option and exercisable at
$16.00 per share. During 1996, 7,500 options were exercised and were issued with
150 shares of previously unissued common stock and 7,350 shares of treasury
stock. During 1995, 8,134 options were exercised and issued out of previously
unissued common stock. No options were granted in 1996 or 1995. In 1995, 3,016
options were canceled. At December 31, 1996, there were no options outstanding.
(11) Regulatory Matters
Applicable federal regulations impose restrictions on the amounts of
dividends that may be declared by the Company and the Bank. In addition to the
formal statutes and regulations, regulatory authorities also consider the
adequacy of the Bank's total capital in relation to its assets, deposits, and
other such items.
National banks are required to obtain approval of the Office of the
Comptroller of the Currency (OCC) if dividends declared in any year exceed the
profits of that year combined with the net retained profits of the preceding two
years. In 1997, the Bank will have available for the payment of dividends to the
Company, without approval of the OCC, its net retained profits of 1996 and 1995,
totaling $3,247,000 adjusted for 1997 operations.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
was signed into law on December 19, 1991. The prompt corrective actions of the
FDICIA place restrictions on any insured depository institution that does not
meet certain requirements, including minimum capital ratios. The restrictions
are based on an institution's FDICIA defined capital category and become
increasingly more severe as an institution's capital category declines. In
addition to the prompt corrective action requirements, the FDICIA includes
significant changes to the legal and regulatory environment for insured
depository institutions, including reductions in insurance coverage for certain
kinds of deposits, increased supervision by the federal regulatory agencies,
increased reporting requirements for insured institutions, and new regulations
concerning internal controls, accounting, and operations.
The prompt corrective action regulations define specific capital categories
based on an institution's capital ratios. The capital categories, in declining
order, are "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized." To be
considered "well capitalized," an institution is required to have at least a 5%
leverage ratio, a 6% Tier I risk-based capital ratio, and a 10% total risk-based
ratio. However, the regulatory agencies may impose higher minimum standards on
individual institutions or may downgrade an institution from one category
because of safety and soundness concerns.
At December 31, 1996, the Bank's leverage ratio was 7.9%, Tier I risk-based
capital ratio was 14.6%, and total risk-based ratio was 16.3%.
(12) Pension Plans
The Bank has a defined benefit pension plan covering substantially all of
its employees. The benefits are generally based on years of service and the
employee's salary level. The Bank's funding policy is to contribute annually the
amount necessary to satisfy the Internal Revenue Service's funding standards.
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheets at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
<S> <C> <C>
Accumulated benefit obligation .................... $ 1,804,714 1,648,638
==========================================================================================
Vested benefit obligation ......................... $ 1,423,191 1,295,361
==========================================================================================
Projected benefit obligation for service rendered
to date ........................................... $ 2,222,885 2,087,993
Plan assets at fair value ........................... 2,357,215 2,190,170
- ------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 134,330 102,177
Unrecognized net loss ............................... 182,704 318,822
Prior service costs not yet recognized .............. 4,155 4,606
Unrecognized net transition asset being amortized
over 12.8 years ................................... (159,422) (214,930)
- ------------------------------------------------------------------------------------------
Prepaid pension cost included in other assets ....... $ 161,767 210,675
==========================================================================================
</TABLE>
Plan assets consist primarily of listed stocks and U.S. government bonds.
Additionally, the plan held 4,500 shares of Firstshares common stock at December
31, 1996 and 1995.
Net pension cost for 1996 and 1995 included the following components:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Service cost-benefits earned during the period $ 127,837 116,742
Interest cost on projected benefit obligation 141,246 135,624
Actual return on plan assets ................. (319,021) (408,352)
Net amortization and deferral ................ 98,846 173,688
- ------------------------------------------------------------------------------
Net pension cost .............. $ 48,908 17,702
==============================================================================
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.25% at December 31, 1996
and 1995, and the rate of increase in future compensation levels used 4.75% at
December 31, 1996 and 1995. The expected long-term rate of return on plan assets
in 1996 and 1995 was 8.5%.
The Bank has a 401(k) plan that provides for employer contributions equal
to fifty percent of employee contributions up to six percent of the employee's
compensation. Future Bank contributions are discretionary and will be decided
each year by the Board of Directors. During the years ended December 31, 1996
and 1995, the Bank contributed $71,000 and $69,000, respectively.
(13) Acquisitions
On July 1, 1995, the Bank purchased certain assets and assumed certain
liabilities of the Texarkana, Texas, branch of Bank of America Texas, N.A. (the
"Texarkana Branch"). Assets purchased included $15,058,000 of cash and due from
banks, $48,000 of loans, $386,000 of bank premises, furniture and fixtures, and
$19,000 of other assets. Liabilities assumed included $15,984,000 of deposits
and $2,000 of accrued interest payable and other liabilities. In connection with
the acquisition, the Company recorded goodwill of approximately $475,000 which
is being amortized on a straight-line basis over ten years. The purchase method
of accounting was used to record the acquisition. Operations of the Texarkana
Branch prior to the acquisition are not included in these consolidated financial
statements.
In March 1997, the Bank signed a definitive agreement to purchase certain
assets and assume the deposits of the Jacksonville, Texas branch of Wells Fargo,
N.A. (the "Jacksonville Branch"). The value of assets to be purchased were not
available as of this report date. Deposits to be assumed approximate
$41,400,000. In connection with this acquisition, approximately $3,400,000 of
goodwill will be recorded by the Company and will be amortized over ten years.
(14) Commitments and Contingencies
The Bank is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management of the Company, the
ultimate disposition of these matters will not have a material adverse effect on
the Company's consolidated financial position or results of operations.
The Bank is obligated under various noncancelable leases for certain
premises and equipment. In 1996 and 1995, the Bank incurred rent expense
associated with these obligations of $107,000 and $106,000, respectively. At
December 31, 1996, there are three years remaining under operating leases that
have initial or remaining non-cancelable lease terms of one year or less, and
the approximate future minimum rental payments required subsequent to December
31, 1996, for these leases are estimated to be $97,000 annually.
(15) 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 and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the balance sheet. The
contractual or notional amounts of those instruments reflect the extent of
involvement the Company has in particular classes of financial instruments.
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 is represented by the contractual or notional amount
of those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
<TABLE>
<CAPTION>
Contract or
Notional Amount at
December 31, 1996
Financial instruments whose contract
amounts represent credit risk:
<S> <C>
Commitments to extend credit ... $20,348,000
Standby letters of credit ...... 951,000
</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 and nature of collateral
obtained if deemed necessary by the Company upon extension of credit, is based
on management's credit evaluation of the counterparty. Such collateral may
include accounts receivable; inventory; property, plant and equipment; real
estate; and income-producing commercial and oil and gas properties.
Standby letters of credit 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 short-term borrowing
arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The Company holds collateral supporting those commitments for which collateral
is deemed necessary.
(16) Concentration of Credit Risk
The Bank grants real estate, commercial, and industrial loans to customers
primarily in Marshall, Longview, Tyler, and Texarkana, Texas, and surrounding
areas of east Texas. Although the Bank has a diversified loan portfolio, a
substantial portion (approximately 45%) of its loans are secured by real estate
and its ability to fully collect its loans is dependent upon the real estate
market in this region. The Bank typically requires collateral sufficient in
value to cover the principal amount of the loan. Such collateral is evidenced by
mortgages on property held and readily accessible to the Bank.
(17) Fair Value of Financial Instruments
Fairvalue estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance-sheet
financial instruments without attempting to estimate the value of assets and
liabilities that are not considered financial instruments. The following methods
and assumptions were used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value:
Cash and Cash Equivalents and Interest-Bearing Deposits with Other
Financial Institutions -- For those short-term investments, the carrying amount
is a reasonable estimate of fair value.
Securities -- The fair value, which approximates the estimated market
values, of longer term securities and mortgage-backed securities, except certain
state and municipal securities, is estimated based on bid prices published in
financial newspapers or bid quotations received from securities dealers. The
fair value, which approximates the estimated market values, of certain state and
municipal securities is not readily available through market sources other than
dealer quotations, so fair value estimates are based on quoted market prices of
similar instruments, adjusted for differences between the quoted instruments and
the instruments being valued.
Loans -- Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type such as commercial,
commercial real estate, residential mortgage, and consumer. The carrying amount
of performing loans that were funded and will mature within three months of the
balance sheet date approximate the fair value of those loans. Additionally, the
carrying amount of adjustable rate loans that reprice within ninety days also
approximate the fair value of those loans. The fair value of the remaining
performing and nonperforming loans is calculated by discounting scheduled cash
flows through the estimated maturity using estimated market discount rates that
reflect the credit and interest rate risk inherent in the loan. The estimate of
maturity is based on the Company's historical experience with repayments for
each loan classification, modified, as required, by an estimate of the effect of
current economic and lending conditions.
Accrued Interest -- The fair value of the Company's accrued interest
receivable and accrued interest payable amounts approximate their carrying value
due to the short maturity of these financial instruments.
Deposit Liabilities and Repurchase Agreements -- The fair value of deposits
with no stated maturity, such as noninterest bearing demand deposits, savings,
NOW accounts, money market accounts, and repurchase agreements is equal to the
amount payable as of December 31, 1996 and 1995. The fair value of certificates
of deposit and other time deposits is based on the discounted value of
contractual cash flows. The discount rate is estimated using the rates currently
offered for deposits of similar remaining maturities.
Note Payable to a Bank -- The fair value of the note payable to a bank
approximates the amount payable as of December 31, 1995, due to its variable
interest rate.
The estimated fair values of the Company's financial instruments at
December 31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
(dollars in thousands) (dollars in thousands)
Financial assets:
<S> <C> <C> <C> <C>
Cash and due from banks ........ $ 17,056 17,056 12,786 12,786
Federal funds sold ............. 4,665 4,665 3,075 3,075
Interest-bearing deposits with
other financial institutions . 99 99 26 26
Securities available-for-sale .. 109,677 109,677 126,171 126,171
Loans, net receivable .......... 114,197 114,330 95,502 96,843
Accrued interest receivable .... 1,746 1,746 1,759 1,759
Financial liabilities:
Deposits:
Demand, noninterest bearing .. 55,604 55,604 47,126 47,126
NOW accounts ................. 43,119 43,119 37,078 37,078
Money market and savings ..... 37,755 37,755 42,413 42,413
Certificates of deposits and
other time ................ 85,696 85,905 83,278 83,940
Securities sold under agreements
to repurchase ................ 7,500 7,500 12,200 12,200
Accrued interest payable ....... 806 806 750 750
Note payable to a bank ......... -- -- 675 675
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
FIRSTSHARES OF TEXAS, INC., FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1996 AND DECEMBER 31, 1995
The following discussion provides certain information concerning the financial
condition and results of operations of Firstshares for the twelve months ended
December 31, 1996 and 1995. The financial position and results of operations of
Firstshares resulted primarily from operations of Firstshares-Delaware. The
financial position and results of operations of Firstshares-Delaware resulted
primarily from operations at the Bank. Firstshares-Delaware also owns an
inactive, nonbank subsidiary The First National Company of Marshall.
Overview
Firstshares reported net income for the twelve months ended December 31, 1996 of
$2,738,518 or $5.33 per share, an increase of 28.48% from the same period during
1995. Returns on average assets and average equity for the twelve months ended
December 31, 1996 were 1.12% and 13.56% respectively compared with 0.94% and
11.60% for the same period in 1995.
Firstshares' total assets at December 31, 1996 were $253,927,372, an increase of
8,100,987 or 3.30% from December 31, 1995. Loans grew to $115,601,201 at
December 31, 1996 from $96,651,488 at December 31, 1995, an increase of
$18,949,713 or 19.61%. Interest bearing deposits increased $3,799,986 to
$166,569,067 at December 31, 1996, and non-interest bearing deposits increased
by $8,477,970 to $55,603,782 at December 31, 1996. The increase in deposits is
attributable to growth, primarily in the Longview, Texas and Tyler, Texas
markets. The increase in loans comes primarily from large commercial customers.
Results of Operations
Net Interest Income. The major source of Firstshares' revenue is net interest
income. Net interest income is the difference between gross interest on earning
assets (primarily loans and investment securities) and interest paid on deposits
and borrowed funds. Net interest income for the twelve months ended December 31,
1996 was $10,203,917, an increase of $966,411 or 10.46% from the same period in
1995, primarily as a result of growth in loans.
The following table sets forth certain information concerning the average
balances, interest income (on a fully taxable equivalent basis), interest
expense, and average rates on Firstshares' interest-earning assets and
interest-bearing liabilities for the periods indicated. (Dollars in Thousands):
<TABLE>
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------------------------------------
Average Average
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans (before allowance for
loan losses) .................. $104,811 $ 9,934 9.48% $ 87,767 $ 8,405 9.58%
Investment Securities:
Taxable securities ............ 101,514 6,240 6.15% 95,989 5,862 6.11%
Tax exempt securities*......... 17,130 1,344 7.85% 11,834 922 7.79%
- -----------------------------------------------------------------------------------------------------
Total Investment securities .. 118,644 7,584 6.39% 107,823 6,784 6.29%
Other corporate stocks ......... 1,200 66 5.50% 1,123 64 5.70%
Federal funds sold & due froms . 2,586 143 5.53% 12,766 765 5.99%
- -----------------------------------------------------------------------------------------------------
Total earning assets ............. $227,241 $ 17,727 7.80% $209,479 $ 16,018 7.65%
=====================================================================================================
Interest-bearing liabilities:
Deposits ...................... $164,241 $ 6,577 4.00% $152,978 $ 5,999 3.92%
Securities sold under
agreement to repurchase ..... 6,759 302 4.47% 6,442 330 5.12%
Federal funds purchased ....... 1,400 78 5.57% 125 8 6.40%
Notes payable ................. 490 43 8.78% 464 66 14.22%
- -----------------------------------------------------------------------------------------------------
Total interest bearing liabilities $172,890 $ 7,000 4.05% $160,009 $ 6,403 4.00%
=====================================================================================================
Net interest income .............. 10,727 9,615
=====================================================================================================
Net interest margin .............. 4.72% 4.59%
*Taxable Equivalent
=====================================================================================================
</TABLE>
Net interest income is affected both by the interest rate earned and paid and by
changes in volume, principally in loans, investment securities, deposits and
borrowed funds. The following table sets forth for the periods indicated changes
in taxable equivalent net interest income between the twelve months ended
December 31, 1996 and December 31, 1995 for each major category of earning
assets and interest bearing liabilities attributable to changes in average
volumes and rates.
<TABLE>
<CAPTION>
CHANGES IN TAXABLE EQUIVALENT NET INTEREST INCOME
(Dollars in Thousands)
Twelve Months Ended December 31, 1996 Compared with
Twelve Months Ended December 31, 1995
Increase (Decrease) Due to Change In:
Volume Rate Total
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest earning assets:
Loans ....................................... $ 1,623 ($ 93) $ 1,530
Securities
Taxable ................................... 339 39 378
Tax-exempt ................................ 414 7 421
Dividend income ............................. 4 (2) 2
Federal funds sold .......................... (544) (30) (574)
Time deposits with banks .................... (43) (5) (48)
- -----------------------------------------------------------------------------------
Total Interest Income ................... 1,793 (84) 1,709
Interest bearing funds:
Interest-bearing demand ..................... (1) (100) (101)
Money market & savings ...................... (11) (89) (100)
Certificate of deposit and other time ....... 594 184 778
Federal funds purchased ..................... 76 (6) 70
Securities sold under agreement to repurchase 15 (42) (27)
Notes payable ............................... 2 (68) (66)
- -----------------------------------------------------------------------------------
Total Interest Expense .................. $ 675 ($ 121) $ 554
- -----------------------------------------------------------------------------------
Net Interest Income ..................... $ 1,118 $ 37 $ 1,155
===================================================================================
- ----------
Variances attributable to changes in rate/volume (change in rate times the
change in volume) have been allocated equally between the change attributable to
rate and the change attributable to volume, on a consistent basis.
</TABLE>
Interest Rate Sensitivity. Interest rate risk is the potential impact on net
interest income due to changes in interest rates in any given time frame and the
opportunity to reprice interest earning assets and interest bearing liabilities.
Management uses simulation models to estimate the effect of significant interest
rate changes on net interest income and the fair market value of securities
available for sale. Management may alter the mix of floating and fixed-rate
assets and liabilities, change loan and deposit pricing schedules and adjust
maturities through sales and purchases of securities available for sale as a
means of limiting interest rate risk to an acceptable level.
Provision for Loan Losses. The provision for possible loan losses is the amount
that is added to Firstshares' allowance for loan losses, by a charge against
earnings, in order to maintain a balance in the allowance for loan losses that
is deemed by management to be adequate to absorb the inherent risk of future
loan losses in Firstshares' loan portfolio. The amount of the provision is
dependent upon many factors, including managements evaluation of historical loan
loss experience in relation to outstanding loans, the existing level of the
allowance, reviews of loan quality, loan growth, changes in the composition of
the loan portfolio, general economic factors, the financial condition of the
borrowers, their ability to repay the loan and the value and liquidity of
collateral.
Non-Interest Income. Income other than from interest-earning assets is derived
primarily from services to customers for which fees are charged. These services
are chiefly deposit services such as account service charges, overdraft and
insufficient funds charges, issuance of cashier's checks and similar services
and trust fees. Non-interest income for twelve months ended December 31, 1996
increased to $2,703,926 from $2,088,128 at December 31, 1995, an increase of
29.49%. This increase was primarily due to an increase in service charge income.
Non-Interest Expense. Expenses other than those incurred in connection with
interest-bearing liabilities include, among others, those associated with
personnel, facilities, equipment and supplies, advertising and professional
services. Total non-interest expense for the twelve months ended December 31,
1996 increased to $8,719,934 from $8,257,964 at December 31, 1995, an increase
of 5.59%. Salaries and benefits, net occupancy expenses and other expenses
increased due primarily to the acquisition of the Texarkana, Texas branch in
July, 1995.
Income Taxes. Firstshares' effective tax rate for the twelve months ended
December 31, 1996 was 24.04% compared to 27.59% for the same period in 1995. The
effective income tax rate is directly affected by holdings of tax-exempt
securities and tax-exempt loans.
Financial Condition
Investment Securities. On December 31, 1996, The estimated fair value of
Firstshares' total securities portfolio amounted to $109.7 million, as compared
to $126.2 million at December 31, 1995. The securities portfolio represented
43.2% of total assets and 47.7% of earning assets as of December 31, 1996. The
decrease in the securities portfolio from December 31, 1995 to December 31, 1996
was primarily a result of an increase in loan demand. The following table
reflects the breakdown of the investment portfolio for the years ending December
31, 1996 and December 31, 1995.
<TABLE>
<CAPTION>
(in thousands) December 31,
- ------------------------------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U. S. Treasury securities ............................ $ 25,952 $ 25,926 $ 37,854 $ 38,178
U.S. Government agency obligations:
Issued by FNMA ................................... 27,310 27,332 33,947 34,396
Issued by government-sponsored agencies .......... 14,172 14,288 8,172 8,357
Guaranteed by GNMA ............................... 5,915 5,959 5,941 5,985
Collateralized mortgage obligations ............. 16,867 16,596 21,801 21,965
Securities issued by states and political subdivision:
General obligations .............................. 15,212 15,329 12,777 13,071
Revenue obligations .............................. 2,989 3,020 3,020 3,079
Equity securities .................................... 1,226 1,226 1,140 1,140
- ------------------------------------------------------------------------------------------------------
Total securities portfolio ........................... $109,643 $109,676 $124,652 $126,171
======================================================================================================
</TABLE>
Loans. Total loans outstanding increased by $18.9 million to $115.6 million at
December 31, 1996, compared to $96.7 million at December 31, 1995. The following
table reflects the changes in Firstshares' loan portfolio for the years ending
December 31, 1996 and December 31, 1995, net of unearned discount.
<TABLE>
<CAPTION>
(in thousands) DECEMBER
- ------------------------------------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans secured by real estate:
Construction and land development ....................... $ 5,157 4.46% $ 2,695 2.79%
Secured by farmland ..................................... 3,047 2.64% 1,850 1.91%
Secured by 1-4 family residential properties ............ 20,921 18.10% 15,240 15.77%
Secured by multifamily (5 or more) residential properties 69 0.06% 135 0.14%
Secured by nonfarm nonresidential properties ............ 29,044 25.12% 21,872 22.63%
Loan to depository institutions ............................. - 0.00% - 0.00%
Loans to finance agricultural production and
other loans to farmers .................................. 667 0.58% 489 0.51%
Commercial and industrial loans ............................. 31,968 27.65% 31,816 32.92%
Loans to individuals for household, family, and
other personal expenditures ............................. 24,415 21.12% 22,823 23.61%
Obligations of state and political subdivisions ............. 169 0.15% 202 0.21%
Other loans ................................................. 1,261 1.09% 795 0.82%
Less: Unearned income on loans .............................. (1,117) -0.97% (1,266) -1.31%
- ------------------------------------------------------------------------------------------------------------
Total loans and leases, net of unearned income .............. $ 115,601 100.00% $ 96,651 100.00%
============================================================================================================
</TABLE>
The following table summarizes non-performing assets for the period indicated.
<TABLE>
<CAPTION>
(in thousands)
Non-performing assets: December 31,
- -------------------------------------------------------------
1996 1995
- -------------------------------------------------------------
<S> <C> <C>
Non-accrual loans .................... $460 $555
90 days and over past due loans ...... 66 25
- -------------------------------------------------------------
Total non-performing loans ............. 526 580
Real estate acquired through foreclosure 0 59
- -------------------------------------------------------------
Total non-performing assets ............ $526 $639
=============================================================
</TABLE>
The following table summarizes the changes in the allowance for loan losses for
the periods indicated.
<TABLE>
<CAPTION>
December 31,
1996 1995
- ------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of period $1,149,632 $1,065,118
Provision for loan losses ..... 582,474 123,990
Loans charged to the allowance -390,188 -85,076
Recoveries on charged off loans 62,441 45,600
- ------------------------------------------------------------------
Balance at end of period ...... $1,404,359 $1,149,632
==================================================================
</TABLE>
As of December 31, 1996, the allowance for loan losses was $1,404,359, as
compared to $1,149,632 at December 31, 1995. This represents a reserve-to-loan
ratio of 1.21% at December 31, 1996, as compared to 1.19% at December 31, 1995.
Deposits. Total deposits increased by $12.4 million to $222.5 million at
December 31, 1996 from $210.1 million at December 31, 1995. The increase of
$12.4 million is primarily attributable to growth, specifically in the Longview,
Texas market and the Tyler, Texas market. The following table summarizes the
period end balances of various deposit categories for the dates indicated.
<TABLE>
<CAPTION>
(in thousands) DECEMBER 31,
1996 1995
- ------------------------------------------------------------
<S> <C> <C>
Non-interest-bearing demand .. $ 55,604 $ 47,126
Interest-bearing demand ...... 43,118 37,378
Money market accounts ........ 22,962 26,025
Savings accounts ............. 14,794 16,388
Individual retirement accounts 11,311 13,572
Time deposit ................. 74,384 69,706
- ------------------------------------------------------------
Total deposits ............... $222,173 $209,895
============================================================
</TABLE>
Capital Resources. The return on average shareholders' equity was 13.56% for the
twelve months ended December 31, 1996, compared to 11.60% for the same period in
1995. Shareholders' equity increased $1.5 million during 1996 from $20.0 million
at December 31, 1995. Cash dividends declared by Firstshares for 1996 totaled
$0.73 per share, compared to $0.58 for the same period of 1995.
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year .............................. $19,963,025 $17,644,726
Net income ................................................ 2,738,518 2,131,540
Cash dividends declared ................................... -375,665 -294,288
Treasury shares (purchased)/issued ........................ 177,641 -1,736,747
Net unrealized gain/(loss) on available-for-sale securities -979,756 2,217,794
- ------------------------------------------------------------------------------------------------
Balance at end of year .................................... $21,523,763 $19,963,025
================================================================================================
</TABLE>
The following table summarizes the risk based based capital ratios of
Firstshares for the periods indicated. All three ratios for both periods are
considered well-capitalized by regulatory authorities.
<TABLE>
<CAPTION>
(in thousands) DECEMBER
- ---------------------------------------------------
1996 1995
- ---------------------------------------------------
<S> <C> <C>
Tier I capital ..... $ 20,652 $ 17,985
Total capital ...... $ 22,056 $ 19,135
Risk-weighted assets $137,517 $120,139
Average total assets $247,219 $243,497
</TABLE>
<TABLE>
<CAPTION>
DECEMBER
- -----------------------------------------------------
1996 1995
- -----------------------------------------------------
<S> <C> <C>
Tier I Capital Ratio . 15.02% 14.97%
(regulatory minimum) 4.00% 4.00%
Total Capital Ratio .. 16.04% 15.93%
(regulatory minimum) 4.00% 4.00%
Tier I Leverage Ratio 8.35% 7.39%
(regulatory minimum) 4.00% 4.00%
</TABLE>
Liquidity. Liquidity represents Firstshares' ability to provide funds to satisfy
demands from depositors, borrowers and other commitments by either converting
assets to cash or accessing new or existing sources of funds. The principal
sources of funds which provide liquidity are customer deposits, customers
payments of principal and interest on loans, maturities of securities, earnings
and borrowings. Management closely monitors the maturities of assets and
liabilities through a periodic review of maturity and cash flow profiles,
yield/rate behaviors and loan/deposit forecasts to minimize funding risks. The
level of cash on hand and other liquid assets is to provide, at all times,
sufficient cash for expected or unexpected demand for funds. At December 31,
1996, cash and due from banks, securities, net federal funds were 59.2% of
deposits, as compared to 67.7% at December 31, 1995. The loan-to-deposit ratio
at December 31, 1996 was 52.0% compared to 46.0% at December 31, 1995.
RELATIONSHIP WITH INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, independent auditors, has continuously served as
the independent auditor for Firstshares from 1990 through the present. A
representative of KPMG Peat Marwick LLP is expected to be present at the Special
Meeting of Firstshares shareholders, will have an opportunity to make a
statement if he or she desires and will be available to respond to appropriate
questions.
VALIDITY OF SHARES
The validity of the shares of Common Stock offered hereby has been
passed upon for Hibernia by Patricia C. Meringer, Corporate Counsel and
Secretary of Hibernia. As of the date of this Proxy Statement-Prospectus, Ms.
Meringer owned 2,050 shares of Hibernia Common Stock and held options to
purchase shares of Hibernia Common Stock of which 18,037 are currently
exercisable.
EXPERTS
The consolidated financial statements of Hibernia Corporation incorporated
by reference in Hibernia's Corporation's Annual Report (Form 10-K) for the year
ended December 31, 1996 have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon incorporated by reference therein
and incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Firstshares as of December 31,
1996 and 1995, and for the years then ended have been included in the Proxy
Statement of Firstshares, which is referred to and made a part of this
Prospectus and Registration Statement, in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
APPENDICES
APPENDIX A
AGREEMENT AND PLAN OF MERGER
OF
FIRSTSHARES OF TEXAS, INC.
WITH AND INTO
HIBERNIA CORPORATION
THIS AGREEMENT AND PLAN OF MERGER, effective as of October 24, 1997
(this "Agreement"), adopted and made by and between Firstshares of Texas, Inc.
("Firstshares"), and Hibernia Corporation ("Hibernia").
Firstshares is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas, has its registered office at
100 North Bolivar, Marshall, Texas, 75670; is a bank holding company within the
meaning of the Bank Holding Company Act of 1956, as amended (the "Bank Holding
Company Act"); and owns all of the issued and outstanding shares of capital
stock of Firstshares Intermediate Holding Company, Inc., a Delaware corporation
("Firstshares-Delaware"). The presently authorized capital stock of Firstshares
consists solely of 1,500,000 shares of common stock of the par value of $4.00
each ("Firstshares Common Stock") and 1,000,000 shares of Series A preferred
stock, par value $10.00 per share (the "Firstshares Preferred Stock"). As of
September 30, 1997, 600,879 shares of Firstshares Common Stock had been issued,
516,170 shares of Firstshares Common Stock were outstanding, and 84,709 shares
of Firstshares Common Stock were held in Firstshares treasury, and no shares of
Firstshares Preferred Stock were issued and outstanding. All outstanding shares
of Firstshares Common Stock have been duly issued and are validly outstanding,
fully paid and nonassessable. The foregoing are the only voting securities of
Firstshares authorized, issued, or outstanding. There are no existing stock
options, warrants, calls, or commitments of any kind obligating Firstshares to
issue any share of its capital stock or any other security of which it is or
will be the issuer. None of the shares of Firstshares capital stock has been
issued in violation of preemptive rights of shareholders. Firstshares indirectly
owns 100 percent of the outstanding capital stock of First National Bank (the
"Bank"), a national banking association, duly organized, validly existing and in
good standing under the laws of the United States of America. The Bank (i) is an
"insured bank" as defined in the Federal Deposit Insurance Act and applicable
regulations thereunder, and (ii) has full authority to conduct its business as
and where currently conducted.
Firstshares-Delaware is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and directly owns
all of the issued and outstanding shares of capital stock of the Bank. The
presently authorized capital stock of Firstshares-Delaware consists solely of
1,200,000 shares of common stock of the par value of $.10 each, and, as of
September 30, 1997, 1,101,190 shares of such common stock had been issued and
were outstanding and owned directly by Firstshares, with no shares held in
treasury. All outstanding shares of Firstshares-Delaware's common stock have
been duly issued and are validly outstanding, fully paid and nonassessable. The
foregoing are the only voting securities of Firstshares-Delaware authorized,
issued, or outstanding. There are no existing stock options, warrants, calls, or
commitments of any kind obligating Firstshares to issue any shares of its
capital stock or any other security of which it is or will be the issuer. None
of the shares of Firstshares-Delaware's capital stock has been issued in
violation of preemptive rights of shareholders.
Hibernia is a corporation duly organized, validly existing and in good
standing under the laws of the State of Louisiana; has its registered office at
313 Carondelet Street, New Orleans, Louisiana 70130; and is a bank holding
company within the meaning of the Bank Holding Company Act. Hibernia owns all of
the issued and outstanding shares of capital stock of Hibernia National Bank
("HNB") and Hibernia National Bank of Texas ("HNBT"). The presently authorized
capital stock of Hibernia is 300,000,000 shares, consisting of 100,000,000
shares of preferred stock, no par value, and 200,000,000 shares of Class A
voting common stock, no par value (the Class A voting common stock being
referred to hereinafter as "Hibernia Common Stock"). As of September 30, 1997,
2,000,000 shares of Hibernia's preferred stock were issued and outstanding,
130,634,764 shares of Hibernia Common Stock were outstanding, and 51,898 shares
of Hibernia Common Stock were held in Hibernia's treasury. All outstanding
shares of Hibernia Common Stock have been duly issued and are validly
outstanding, fully paid and nonassessable. The foregoing are the only voting
securities of Hibernia authorized, issued or outstanding and there are no
existing options, warrants, calls or commitments of any kind obligating Hibernia
to issue any shares of its capital stock or any other security of which it is or
will be the issuer, except that Hibernia anticipates issuing an aggregate of
17,302,660 shares of Hibernia Common Stock in connection with mergers pending on
or prior to the date of this Agreement, and further except that as of September
30, 1997 Hibernia had authorized or reserved 1,608,952 shares of Hibernia Common
Stock for issuance under its 1987 Stock Option Plan, pursuant to which options
covering 1,454,706 shares of Hibernia Common Stock were outstanding; 7,031,781
(as adjusted) shares of Hibernia Common Stock for issuance under its 1992
Long-Term Incentive Plan, pursuant to which options covering 5,822,440 shares of
Hibernia Common Stock were outstanding; 932,500 shares of Hibernia Common Stock
for issuance under its 1993 Director Stock Option Plan, pursuant to which
options covering 290,000 shares of Hibernia Common Stock were outstanding;
17,237 shares of Hibernia Common Stock were available for issuance pursuant to
Hibernia's Dividend Reinvestment and Stock Purchase Plan; and warrants covering
213,176 shares of Hibernia Common Stock were outstanding. None of the shares of
Hibernia's capital stock has been issued in violation of preemptive rights of
shareholders.
HNB is a national banking association duly organized, validly existing
and in good standing under the laws of the United States of America having its
principal registered office at 313 Carondelet Street, New Orleans, Louisiana
70130. HNBT is a national banking association duly organized, validly existing
and in good standing under the laws of the United States of America and having
its principal office at 100 W. Broad Street, Texarkana, Texas 75501. All of the
issued and outstanding shares of capital stock of HNB and HNBT are owned by
Hibernia. HNB and HNBT (i) are "insured banks" as defined in the Federal Deposit
Insurance Act and applicable regulations thereunder, and (ii) have full
authority to conduct their businesses as and where currently conducted.
The Boards of Directors of Firstshares and of Hibernia have duly
approved this Agreement and have authorized the execution hereof by Firstshares
Chairman of the Board and Chief Executive Officer and Hibernia's President and
Chief Executive Officer, respectively. Firstshares has directed that this
Agreement be submitted to a vote of its shareholders in accordance with Texas
law and the terms of this Agreement.
In consideration of their mutual promises and obligations, the parties
hereto adopt and make this Agreement for the merger of Firstshares with and into
Hibernia and prescribe the terms and conditions of such merger and the mode of
carrying it into effect, which shall be as follows:
1. The Merger. On the Effective Date (as defined in Section 14 hereof),
Firstshares shall be merged with and into Hibernia under the Articles of
Incorporation of Hibernia, pursuant to the provisions of, and with the effect
provided in, (i) Part XI of the Louisiana Business Corporation Law ("LBCL") and
(ii) Sections 5.01 through 5.04 of the Texas Business Corporation Act ("TBCA")
(the "Merger") and the Merger Agreement in substantially the form of Exhibit 1
hereto (the "Merger Agreement"). Immediately after the Merger, the Bank shall be
merged with and into HNBT, with HNBT as the surviving bank in such merger (the
"Bank Merger").
2. Hibernia Capital Stock. The shares of the capital stock of Hibernia
issued and outstanding immediately prior to the Effective Date shall, on the
Effective Date, continue to be issued and outstanding.
3. Firstshares Common Stock.
3.1. Conversion. On the Effective Date and subject to the
provisions of Section 3.7 hereof,
(a) each share of Firstshares Common Stock issued and
outstanding immediately prior to the Effective Date other than (i) shares which
are held by shareholders who have not voted such shares in favor of the Merger
and who shall have delivered a written demand for payment of the fair value of
such shares within the time and in the manner provided in Article 5.12 of the
TBCA (unless such holder shall have failed to perfect or shall have effectively
withdrawn or lost his right to appraisal and payment under the TCBA), and (ii)
shares owned beneficially by Hibernia or its subsidiaries, shall, by virtue of
the Merger automatically and without any action on the part of the holder
thereof, become and be converted into the number of shares of Hibernia Common
Stock that equals the Exchange Rate set forth in Section 3.8 hereof;
(b) holders of certificates which represent shares of
Firstshares Common Stock outstanding immediately prior to the Effective Date
(hereinafter called "Old Certificates") shall cease to be, and shall have no
rights as, shareholders of Firstshares;
(c) each share of Firstshares Common Stock held in the treasury
of Firstshares or owned beneficially by Hibernia or any of its subsidiaries
shall be canceled; and
(d) Old Certificates shall be exchangeable by the holders
thereof in the manner provided in the transmittal materials described below for
new certificates for the number of whole shares of Hibernia Common Stock to
which such holders shall be entitled in accordance with the Exchange Rate set
forth in Section 3.8 and a check representing cash paid in lieu of fractional
shares as provided in Section 3.2 hereof.
3.2. Fractional Shares. Each holder of Old Certificates who
would otherwise have been entitled to receive a fraction of a share of Hibernia
Common Stock (after taking into account all shares of Firstshares Common Stock
represented by the Old Certificates then delivered by such holder) shall
receive, in lieu thereof, cash (without interest) in an amount equal to such
fractional part of a share multiplied by the Average Market Price (as defined in
Section 3.8 hereof), and no such holder shall be entitled to dividends, voting
rights or any other rights of shareholders in respect of any fractional share.
3.3. Transmittal Materials. As promptly as practicable after the
Effective Date, Hibernia shall send or cause to be sent to each former
shareholder of record of Firstshares transmittal materials for use in exchanging
Old Certificates for certificates representing Hibernia Common Stock and a check
representing cash paid in lieu of fractional shares, if any. The letter of
transmittal will contain instructions with respect to the surrender of Old
Certificates and the distribution of certificates representing Hibernia Common
Stock. If any certificate for shares of Hibernia Common Stock is to be issued in
a name other than that in which an Old Certificate surrendered for exchange is
issued, the Old Certificate so surrendered shall be properly endorsed and
otherwise in proper form for transfer and the person requesting such exchange
shall affix any requisite stock transfer tax stamps to the Old Certificate
surrendered or provide funds for their purchase or establish to the satisfaction
of the exchange agent to be appointed by Hibernia in connection with such
exchange (the "Exchange Agent") that such taxes are not payable.
3.4. Rights as Shareholders. With respect to any meeting of
Hibernia shareholders the record date for which occurs after the Effective Date,
former shareholders of Firstshares will be able to vote at such meeting of
Hibernia shareholders the number of whole shares of Hibernia Common Stock into
which their shares of Firstshares Common Stock are converted, regardless of
whether they have exchanged their Old Certificates. Whenever a dividend is
declared by Hibernia on the Hibernia Common Stock with a record date that occurs
after the Effective Date, the declaration of such dividend shall include
dividends on all shares issuable hereunder, but no shareholder will be entitled
to receive his distribution of such dividends until physical exchange of his Old
Certificates shall have been effected or until Hibernia has issued or caused to
be issued certificates of Hibernia Common Stock for his Old Certificates that
have been lost, stolen or destroyed. Upon physical exchange of his Old
Certificates, any such person shall be entitled to receive from Hibernia an
amount equal to all dividends (without interest thereon and less the amount of
taxes, if any, that may have been withheld, imposed or paid thereon) declared,
and for which the payment has occurred, on the shares represented thereby;
provided, however, that former shareholders of Firstshares shall not be entitled
to receive any dividend on their Hibernia Common Stock with respect to any
period for which Firstshares paid a dividend which had a record date on or prior
to the Effective Date.
3.5. Cancellation of Old Certificates. On and after the
Effective Date there shall be no transfers on the stock transfer books of
Firstshares or Hibernia of the shares of Firstshares Common Stock which were
issued and outstanding immediately prior to the Effective Date. If, after the
Effective Date, Old Certificates are properly presented to Hibernia, they shall
be canceled and exchanged for certificates representing shares of Hibernia
Common Stock and a check representing cash paid in lieu of fractional shares as
herein provided. Any other provision of this Agreement notwithstanding, neither
the Exchange Agent nor any party hereto shall be liable to a holder of
Firstshares Common Stock for any amount paid or property delivered in good faith
to a public official pursuant to any applicable abandoned property, escheat, or
similar law.
3.6. Property Transfers. From time to time, as and when
requested by Hibernia and to the extent permitted by Texas law, the officers and
directors of Firstshares last in office shall execute and deliver such deeds and
other instruments and shall take or cause to be taken such further or other
actions as shall be necessary in order to vest or perfect in or to confirm of
record or otherwise to Hibernia title to, and possession of, all the property,
interests, assets, rights, privileges, immunities, powers, franchises, and
authorities of Firstshares, and otherwise to carry out the purposes of this
Agreement.
3.7. Dissenters' Shares. Shares of Firstshares Common Stock held
by any holder having rights of a dissenting shareholder as provided in Texas
law, who shall have properly objected to the Merger and who shall have properly
demanded payment on his stock in accordance with and subject to the provisions
of Texas law, shall not be converted as provided in Section 3.1 hereof until
such time as such holder shall have failed to perfect, or shall have effectively
lost, his right to appraisal of and payment for his shares of Firstshares Common
Stock, at which time such shares shall be converted as provided in Section 3.1
hereof.
3.8. Exchange Rate.
(a) The Exchange Rate shall be 7.15 shares of Hibernia Common
Stock for each outstanding share of Firstshares Common Stock.
(b) For purposes of this Agreement, the term "Average Market
Price" shall mean the average of the closing price of one share of Hibernia
Common Stock (adjusted as set forth in Section 9.7 of this Agreement, if an
adjustment is required by that section) for the ten business days preceding the
last trading day immediately prior to the Closing Date as reported in The Wall
Street Journal.
4. Articles of Incorporation; By-Laws. The Articles of Incorporation
and By-Laws of Hibernia in force immediately prior to the Effective Date shall
on and after the Effective Date continue to be the Articles of Incorporation and
ByLaws of Hibernia, respectively, unless altered, amended or repealed in
accordance with applicable law.
5. Employees. Hibernia shall cause to be provided as soon as
practicable after the Effective Date for each employee of Firstshares or the
Bank immediately prior to the Effective Date who becomes a Hibernia employee
immediately after the Effective Date the employee benefits then made available
to employees of Hibernia and its subsidiaries, subject to the terms and
conditions under which those employee benefits are made available to such
employees; provided, however, that for purposes of determining the eligibility
of an employee of Firstshares or the Bank (or both) to receive, and the benefits
to which such employee shall be entitled, under Hibernia's benefits plans after
the Effective Date, any period of employment of such employee with Firstshares
or the Bank shall be deemed equivalent to having been employed for that same
period by Hibernia and/or its subsidiaries (and employees of Firstshares and the
Bank will not be denied health insurance coverage solely as a result of a
preexisting condition that existed on the Effective Date but did not exist on
the date the employee commenced his or her employment with Firstshares or the
Bank) and provided further, however, that if Hibernia determines in good faith
that it cannot merge any benefit plan of Firstshares into a comparable benefit
plan of Hibernia or HNB or HNBT without creating material potential liability
for Hibernia's or HNB's or HNBT's plan, then Hibernia shall be entitled to
freeze the existing benefit plan of Firstshares and prohibit participation by
former employees of Firstshares in Hibernia's plan for the period of time
required by applicable law to ensure that Hibernia's and HNB's and HNBT's
benefit plans are not deemed to be successor plans of the Firstshares plan in
question.
6. Negative Covenants. From the date hereof until the Effective Date,
or until the termination of this Agreement, Firstshares covenants and agrees
that it will not do, or agree to commit to do, and Firstshares will cause the
Bank not to do and not to agree or commit to do, without the prior written
consent of Hibernia, any of the following:
(a) in the case of Firstshares (and not the Bank), make, declare, set aside or
pay any dividend or declare or make any distribution on, or directly or
indirectly combine, redeem, purchase or otherwise acquire, any shares of
Firstshares Common Stock (other than in a fiduciary capacity), provided,
however, that Firstshares may make, declare, set aside and pay regular dividends
not to exceed $.18 per share of Firstshares Common Stock per calendar quarter
for each quarter completed prior to the Effective Date, consistent in timing
with past practices during the preceding three years;
(b) authorize the creation or issuance of or issue any
additional shares of its capital stock, or any options, calls, warrants, stock
appreciation rights or commitments relating to its capital stock or any
securities or obligations convertible into or exchangeable for, or giving any
person any right to subscribe for or acquire from it, shares of its capital
stock;
(c) enter into any employment contracts with, increase the rate
of compensation of, or pay or agree to pay any bonus or severance payment to,
any of its directors, officers or employees, except in accordance with the terms
of any employment agreement existing on the date hereof or in accordance with
past practices during the preceding three years;
(d) enter into or substantially modify (except as may be
required by applicable law) any pension, retirement, stock option, stock
purchase, stock appreciation right, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any trust agreement
related thereto, in respect of any of its directors, officers or other
employees, provided, however, that Firstshares may amend its profit sharing plan
to award additional benefits to participants in the plan to the extent that the
plan is overfunded;
(e) other than as contemplated in this Agreement, (i) carry on
its business other than in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, (ii) amend its Articles
of Incorporation or Association or By-Laws, (iii) impose, or suffer the
imposition, on any share of stock held by Firstshares-Delaware in the Bank, of
any material lien, charge, or encumbrance, or permit any such lien to exist,
other than as described on Schedule 7.3, (iv) establish or add any automatic
teller machines or branch or other banking offices in addition to those listed
on schedule 6(e) hereto, (v) make any capital expenditures in excess of $50,000
except in the ordinary course of business consistent with past practices or (vi)
take any action that would materially and adversely affect the ability of any
party hereto to obtain the approvals necessary for consummation of the
transactions contemplated hereby or that would materially and adversely affect
Firstshares ability to perform its covenants and agreements hereunder;
(f) except as otherwise provided herein, liquidate, sell or
dispose of any asset other than in the ordinary course of business consistent
with past practices; solicit or encourage inquiries or proposals with respect
to, furnish any information relating to, or participate in any negotiations or
discussions concerning, any acquisition or purchase of all or a substantial
portion of the assets of, or of a substantial equity interest in, Firstshares,
Firstshares-Delaware or the Bank or any business combination with Firstshares,
Firstshares-Delaware or the Bank other than as contemplated by this Agreement,
and Firstshares and the Bank shall instruct each officer, director, agent or
affiliate of it to refrain from doing any of the above, and Firstshares will
notify Hibernia promptly if any such inquiries or proposals are received by, and
such information is requested from, or any such negotiations or discussions are
sought to be initiated with, Firstshares, Firstshares-Delaware or the Bank;
provided, however, that nothing contained in this section shall be deemed to
prohibit any officer or director of Firstshares or the Bank from taking any
action that, in the written opinion of counsel to Firstshares or the Bank, a
copy of which shall be furnished to Hibernia upon its request, is required by
applicable law or is necessary to discharge properly the fiduciary duties of
such officer or director; or
(g) knowingly fail to comply with any laws, regulations,
ordinances, or governmental actions applicable to it and to the conduct of its
business in a manner significant, material and adverse to its business.
7. Representations and Warranties of Firstshares. Firstshares (and not
its directors or officers in their personal capacities) hereby represents and
warrants as follows:
7.1. Recitals. The facts set forth in the preamble to this
Agreement with respect to it, Firstshares-Delaware and the Bank are true and
correct.
7.2. Organization and Qualification. Each of Firstshares,
Firstshares-Delaware and the Bank has the corporate power and authority to carry
on its business as it is now being conducted and to own, lease and operate its
assets, properties and business; and Firstshares has all requisite power and
authority to execute and deliver this Agreement and perform its obligations
hereunder.
7.3. Ownership of Other Banks. Firstshares does not own, directly
or indirectly, 5 percent or more of the outstanding capital stock or other
voting securities of any corporation, bank, or other organization except the
Bank, Firstshares-Delaware and First National Company (which is not an active
corporation and has no assets and no liabilities). The presently authorized
capital stock of the Bank consists solely of 1,151,190 shares of common stock of
the par value of $2.00 each, all of which shares of common stock are
outstanding. The outstanding shares of capital stock of the Bank are validly
issued and outstanding, fully paid and nonassessable and, except as provided on
Schedule 7.3 hereto, all of such shares are owned by Firstshares -Delaware, free
and clear of all liens, claims and encumbrances.
7.4. Corporate Authorization. The execution, delivery and
performance of this Agreement have been authorized by Firstshares Board of
Directors, and, subject to the approval of this Agreement by its shareholders in
accordance with the applicable Texas law and to the regulatory and other
approvals required by Section 12 hereof, all corporate acts and other
proceedings required for the due and valid authorization, execution, delivery
and performance by Firstshares of this Agreement and the consummation of the
Merger have been validly and appropriately taken. Subject to such shareholder
approval and to the regulatory and other approvals required by Section 12
hereof, this Agreement is a legal, valid and binding obligation of Firstshares,
enforceable against Firstshares in accordance with its terms, except that
enforcement may be limited by bankruptcy, reorganization, insolvency and other
similar laws and court decisions relating to or affecting the enforcement of
creditors' rights generally and by general equitable principles or principles of
Texas law that are similar to equitable principles in jurisdictions that
recognize a distinction between law and equity.
7.5. No Conflicts. Except as disclosed on Schedule 7.5 hereto,
the execution and delivery of this Agreement by Firstshares does not, and the
consummation of the transactions contemplated hereby by it will not, constitute
(i) a breach or violation of, or a default under, any law, rule or regulation or
any judgment, decree, order, governmental permit or license, or agreement,
indenture or instrument of Firstshares or the Bank or to which Firstshares or
the Bank is subject, which breach, violation or default would have a material
and adverse effect on the financial condition, properties, businesses or results
of operations of Firstshares and the Bank taken as a whole or on the
transactions contemplated hereby, (ii) to the best knowledge of Firstshares
officers, a breach or violation of, or a default under, any law, rule or
regulation or any judgment, decree, order, governmental permit or license, or
agreement, indenture or instrument of Firstshares or the Bank or to which
Firstshares or the Bank is subject, or (iii) a breach or violation of, or a
default under, the Articles of Incorporation or By-Laws of Firstshares or the
Bank; and the consummation of the transactions contemplated hereby will not
require any consent or approval under any such law, rule, regulation, judgment,
decree, order, governmental permit or license or the consent or approval of any
other party to any such agreement, indenture or instrument, other than any
required approvals of shareholders and applicable regulatory authorities.
7.6. Financial Statements; Dividend Restrictions. Firstshares
has delivered to Hibernia prior to the execution of this Agreement true and
correct copies of the following consolidated financial statements (collectively
referred to herein as the "Firstshares Financial Statements"): Firstshares
Consolidated Balance Sheets as of June 30, 1997 and 1996 (unaudited) and
December 31, 1996, 1995 and 1994 (audited); Consolidated Statements of Income
and Changes in Stockholders' Equity and Consolidated Statements of Cash Flows
for the years ended December 31, 1996, 1995 and 1994 (audited), and Consolidated
Statements of Income for the six-month periods ended June 30, 1997 and 1996
(unaudited). Each of the Firstshares Financial Statements (including the related
notes) fairly presents the consolidated results of operations of Firstshares and
the Bank for the respective periods covered thereby and the consolidated
financial condition of Firstshares and the Bank as of the respective dates
thereof (subject, in the case of unaudited statements, to year-end audit
adjustments that will not be material in amount or effect), in each case in
accordance with generally accepted accounting principles ("GAAP") consistently
applied during the periods involved, except as may be noted therein. Except as
disclosed in the Firstshares Financial Statements, including the notes thereto,
or Schedule 7.6 hereto, and except as otherwise required by this Agreement,
there are no restrictions in any note, indenture, agreement, statute or
otherwise (except for statutes or regulations applicable to Texas corporations
or state banks generally) precluding Firstshares or the Bank from paying
dividends, in each case when, as and if declared by its Board of Directors.
7.7. No Material Adverse Change. Since June 30, 1997, there has
been no event or condition of any character (whether actual, or to the knowledge
of officers of Firstshares or the Bank, threatened or contemplated) that has had
or can reasonably be anticipated to have, or that, if concluded or sustained
adversely to Firstshares, would reasonably be anticipated to have, a material
adverse effect on the financial condition, results of operations, business or
prospects of Firstshares or the Bank, excluding changes in laws or regulations
that affect banking institutions generally.
7.8. Litigation and Proceedings. Except as set forth on Schedule
7.8 hereto, no litigation, proceeding or controversy before any court or
governmental agency is pending against Firstshares that in the opinion of its
officers is likely to have a material and adverse effect on the business,
results of operations or financial condition of Firstshares and the Bank taken
as a whole, and, to the knowledge of its officers, no such litigation,
proceeding or controversy has been threatened or is contemplated. Except as
disclosed on Schedule 7.8 hereto, no member of Firstshares consolidated group is
subject to any written agreement, memorandum, or order with or by any bank or
bank holding company regulatory authority restricting its operations or
requiring any material actions.
7.9. Material Contracts. Except for this Agreement and
arrangements made in the ordinary course of business or disclosed on Schedule
7.9 hereto, neither Firstshares nor the Bank is bound by any material contract
to be performed after the date hereof that is not terminable by Firstshares or
the Bank without penalty or liability on thirty days prior notice.
7.10. Brokers' or Finders' Fees. Neither Firstshares nor the
Bank has entered into an agreement with any agent, broker, investment banker,
investment or financial advisor or other person acting on behalf of Firstshares
or the Bank relating to any commission, broker's or finder's fee in connection
with any of the transactions contemplated by this Agreement except Keefe,
Bruyette & Woods, Inc., which has been engaged by Firstshares in connection with
the Merger. Firstshares shall be permitted to pay to Keefe, Bruyette & Woods,
Inc. the fee required in its engagement letter, a copy of which is attached
hereto as Exhibit 7.10, related to the transactions contemplated by this
Agreement, provided that Firstshares is obligated to pay such fee at the time
payment is made.
7.11. Contingent Liabilities. Except as disclosed on Schedule
7.11 hereto or as reflected in the Firstshares Financial Statements and except
in the case of the Bank for unfunded loan commitments made in the ordinary
course of business consistent with past practices, as of June 30, 1997, neither
Firstshares nor the Bank has any obligation or liability (contingent or
otherwise) that was material, or that when combined with all similar obligations
or liabilities would have been material, to Firstshares and the Bank taken as a
whole and there does not exist a set of circumstances resulting from
transactions effected or events occurring prior to, on, or after June 30, 1997,
or from any action omitted to be taken during such period that, to the knowledge
of officers of Firstshares, could reasonably be expected to result in any such
material obligation or liability.
7.12. Tax Liability. The amounts set up as liabilities for taxes
in the Firstshares Financial Statements are sufficient for the payment of all
respective taxes (including, without limitation, federal, state, local, and
foreign excise, franchise, property, payroll, income, capital stock, and sales
and use taxes) accrued in accordance with GAAP and unpaid at the respective
dates thereof.
7.13. Material Obligations Paid. Other than as set forth on
Schedule 7.13 hereto, since June 30, 1997, neither Firstshares nor the Bank has
incurred or paid any obligation or liability that would be material to
Firstshares on a consolidated basis, except for obligations incurred or paid in
connection with transactions by it in the ordinary course of its business
consistent with its past practices.
7.14. Tax Returns; Payment of Taxes. All federal, state, local,
and foreign tax returns (including, without limitation, estimated tax returns,
withholding tax returns with respect to employees, and FICA and FUTA returns)
required to be filed by or on behalf of Firstshares or the Bank have been timely
filed or requests for extensions have been timely filed and granted and have not
expired for periods ending on or before December 31, 1994, and all returns filed
are complete and accurate to the best knowledge of their respective officers;
all taxes shown on filed returns have been paid. As of the date hereof, there is
no audit, examination, deficiency or refund litigation or matter in controversy
with respect to any taxes that might result in a determination materially
adverse to Firstshares or the Bank except as reserved against in the Firstshares
Financial Statements. All taxes, interest, additions and penalties due with
respect to completed and settled examinations or concluded litigation have been
paid, and Firstshares reserves for bad debts at December 31, 1994, as filed with
the Internal Revenue Service were not greater than the maximum amounts permitted
under the provisions of Section 585 of the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code").
7.15. Loans. To the knowledge of its officers, each loan
reflected as an asset of Firstshares in the Firstshares Financial Statements, as
of June 30, 1997, or acquired since that date, is the legal, valid, and binding
obligation of the obligor named therein, enforceable in accordance with its
terms, and no loan is subject to any asserted defense, offset or counterclaim
known to Firstshares, except as disclosed in writing to Hibernia on or prior to
the date hereof.
7.16. Allowance for Loan Losses. To the knowledge of Firstshares
officers, allowances for possible loan losses shown on the balance sheets of
Firstshares as of June 30, 1997 are adequate in all material respects under the
requirements of GAAP to provide for possible losses, net of recoveries, relating
to loans previously charged off, on loans outstanding (including accrued
interest receivable) as of June 30, 1997, and each such allowance has been
established in accordance with GAAP.
7.17. Title to Assets; Adequate Insurance Coverage.
(a) Except as set forth on Schedule 7.17 hereto, as of June 30, 1997,
Firstshares and the Bank had, and except with respect to assets disposed of for
adequate consideration in the ordinary course of business since such date, now
have, good and merchantable title to all real property and good and merchantable
title to all other material properties and assets reflected in the Firstshares
Financial Statements, free and clear of all mortgages, liens, pledges,
restrictions, security interests, charges and encumbrances of any nature except
for (i) mortgages and encumbrances which secure indebtedness which is properly
reflected in the Firstshares Financial Statements or which secure deposits of
public funds as required by law; (ii) liens for taxes accrued but not yet
payable; (iii) liens arising as a matter of law in the ordinary course of
business with respect to obligations incurred after June 30, 1997, provided that
the obligations secured by such liens are not delinquent or are being contested
in good faith; (iv) such imperfections of title and encumbrances, if any, as do
not materially detract from the value or materially interfere with the present
use of any of such properties or assets or the potential sale of any such owned
properties or assets; (v) capital leases and leases, if any, to third parties
for fair and adequate consideration and (vi) securities pledged for interest
rate swap, cap and floor contracts. Firstshares and the Bank own, or have valid
leasehold interests in, all material properties and assets, tangible or
intangible, used in the conduct of their businesses. Any real property and other
material assets held under lease by Firstshares or the Bank are held under
valid, subsisting and enforceable leases with such exceptions as are not
material, and such leases do not interfere with the continued use made or
proposed to be made by Hibernia in such lease of property by Hibernia in the
manner presently utilized by Firstshares or the Bank.
(b) With respect to each lease of any real property or a material amount of
personal property to which Firstshares or the Bank is a party, except for
financing leases in which Firstshares or the Bank is lessor, (i) such lease is
in full force and effect in accordance with its terms; (ii) all rents and other
monetary amounts that have become due and payable thereunder have been paid;
(iii) there exists no default or event, occurrence, condition or act which with
the giving of notice, the lapse of time or the happening of any further event,
occurrence, condition or act would become a default under such lease; and (iv)
the Merger will not constitute a default or a cause for termination or
modification of such lease.
(c) Neither Firstshares nor the Bank has any legal obligation, absolute or
contingent, to any other person to sell or otherwise dispose of any substantial
part of its assets or to sell or dispose of any of its assets except in the
ordinary course of business consistent with past practices.
(d) To the knowledge of its officers, the policies of fire, theft,
liability and other insurance maintained with respect to the assets or
businesses of Firstshares and the Bank provide adequate coverage against loss
and the fidelity bonds in effect as to which Firstshares or the Bank is named
insured provide adequate coverage with respect to amounts, types and risks
involved.
7.18. Employee Plans. To the knowledge of Firstshares officers,
all "employee benefit plans," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), that cover one or
more employees employed by Firstshares or the Bank, and Firstshares and the
Bank, with respect to such plans:
(i) are in compliance with all laws, regulations,
reporting and licensing requirements and orders applicable to its business or
to such plan or any of its employees (because of such employee's activities on
behalf of it), the breach or violation of which could have a material and
adverse effect on such business; and
(ii) have received no notification from any agency or
department of federal, state or local government or the staff thereof asserting
that any such entity is not in compliance with any of the statutes, regulations
or ordinances that such governmental authority enforces, or threatening to
revoke any license, franchise, permit or governmental authorization, and
Firstshares is not subject to any agreement with any such governmental authority
with respect to any such plan.
7.19. Copies of Employee Plans. Firstshares has provided or will
provide to Hibernia with true, complete and accurate copies of all pension,
retirement, stock purchase, stock bonus, stock ownership, stock option, savings,
stock appreciation right or profit-sharing plans, any employment, deferred
compensation, consultant, severance, bonus, or collective bargaining agreement
or group insurance contract, or any other incentive, welfare, or employee
benefit plan or agreement maintained by it or the Bank for its or the Bank's
employees or former employees.
7.20. Plan Liability. Except for liabilities to the Pension
Benefit Guaranty Corporation pursuant to Section 4007 of ERISA, all of which
have been fully paid, and except for liabilities to the Internal Revenue Service
under section 4971 of the Internal Revenue Code, all of which have been fully
paid, neither Firstshares nor the Bank has any liability to the Pension Benefit
Guaranty Corporation or to the Internal Revenue Service with respect to any
pension plan qualified under Section 401 of the Internal Revenue Code.
7.21. No Default. Neither Firstshares nor the Bank is in default
in any material respect under any contract, agreement, commitment, arrangement,
lease, insurance policy or other instrument to which it is a party or by which
its respective assets, business or operations may be bound or affected or under
which it or its respective assets, business or operations receive benefits, and
there has not occurred any event that with the lapse of time or the giving of
notice or both would constitute such a default.
7.22. Minutes. Firstshares has made or will make available to
Hibernia, for inspection pursuant to the terms of Section 9.5 hereof, the
minutes of meetings of Firstshares and the Bank's Board of Directors and all
committees thereof held during the period beginning June 30, 1991 and prior to
the date hereof, which minutes are complete and correct in all material respects
and fairly present the deliberations and actions of such Boards and committees
and accurately reflect in all material respects the business condition and
operations of Firstshares and the Bank as of the dates and for the periods
indicated therein.
7.23. Insurance Policies. Attached hereto as Schedule 7.23 is a
schedule detailing all policies of fire, theft, public liability, and other
insurance (including without limitation fidelity bonds) maintained by
Firstshares or the Bank at the date hereof. Except as disclosed on Schedule 7.23
hereto, neither Firstshares nor the Bank has received any notice of a premium
increase or cancellation with respect to any of its insurance policies or bonds,
and within the last three years, neither Firstshares nor the Bank has been
refused any insurance coverage sought or applied for, and it has no reason to
believe that existing insurance coverage cannot be renewed as and when the same
shall expire, upon terms and conditions as favorable as those presently in
effect, other than possible increases in premiums or unavailability of coverage
that do not result from any extraordinary loss experience of Firstshares or the
Bank.
7.24. Investments. Except for securities pledged for interest
rate swap, cap and floor contracts and pledged to secure public trust deposits,
none of the investments reflected in the Firstshares Financial Statements under
the heading "Investment Securities," and none of the investments made by
Firstshares or the Bank since June 30, 1997, and none of the assets reflected in
the Firstshares Financial Statements under the heading "Cash and Due From
Banks," is subject to any restriction, whether contractual or statutory, that
materially impairs the ability of Firstshares or the Bank freely to dispose of
such investment at any time. With respect to all repurchase agreements to which
Firstshares or the Bank is a party, Firstshares or the Bank, as the case may be,
has a valid, perfected first lien or security interest in the government
securities or other collateral securing each such repurchase agreement which
equals or exceeds the amount of the debt secured by such collateral under such
agreement.
7.25. Environmental Matters. Except as set forth on Schedule
7.25, neither Firstshares nor the Bank nor, to the knowledge of officers of
Firstshares and the Bank, any previous owner or operator of any properties at
any time owned (including any properties owned as a result of foreclosure of a
loan, whether still owned or subsequently resold), leased, or occupied by
Firstshares or the Bank or used by Firstshares or the Bank in their respective
business ("Firstshares Properties"), used, generated, treated, stored, or
disposed of any hazardous waste, toxic substance, or similar materials on,
under, or about Firstshares Properties except in compliance with all applicable
federal, state, and local laws, rules, and regulations pertaining to air and
water quality, hazardous waste, waste disposal, air emissions, and other
environmental matters ("Environmental Laws"). Neither Firstshares nor the Bank
has received any notice of noncompliance with Environmental Laws, applicable
laws, orders, or regulations of any governmental authorities relating to waste
generated by any such party or otherwise or notice that any such party is liable
or responsible for the remediation, removal, or clean-up of any site relating to
Firstshares Properties. Notwithstanding anything in this Section 7.25 to the
contrary, the parties hereto expressly agree that Firstshares shall not
be in breach of this representation if any of the foregoing representations
in this Section 7.25 are inaccurate solely as a result of, or due to,
circumstances relating to one or more properties as to which Firstshares sole
interest is or was as mortgagee or holder of a security interest.
8. Representations and Warranties of Hibernia. Hibernia (and not its
directors or officers in their personal capacities) hereby represents and
warrants as follows:
8.1. Recitals. The facts set forth in the preamble to this
Agreement with respect to it are true and correct.
8.2. Organization and Qualification. Each of Hibernia and its
material subsidiaries has the corporate power and authority to carry on its
business as it is now being conducted and to own, lease and operate its assets,
properties and business, and Hibernia has all requisite power and authority to
execute and deliver this Agreement and perform its obligations hereunder.
8.3. Shares Fully Paid and Non Assessable. The outstanding
shares of capital stock of Hibernia Corporation, HNB and HNBT are validly issued
and outstanding, fully paid and nonassessable (subject, in the case of HNB and
HNBT, to 12 U.S.C. Section 55) and all of such shares of HNB are owned directly
or indirectly by Hibernia free and clear of all liens, claims, and encumbrances.
The shares of Hibernia Common Stock to be issued in connection with the Merger
pursuant to this Agreement will have been duly authorized and, when issued in
accordance with the terms of this Agreement, will be validly issued, fully paid,
and nonassessable.
8.4. Due Authorization. The execution, delivery and performance
of this Agreement have been authorized by Hibernia's Board of Directors, and,
subject to the regulatory and other approvals required by Section 12 hereof, all
corporate acts and other proceedings required for the due and valid
authorization, execution, delivery and performance by Hibernia of this Agreement
and the consummation of the Merger have been validly and appropriately taken.
Subject to receipt of the regulatory and other approvals required by Section 12
hereof, this Agreement is a legal, valid, and binding obligation of Hibernia,
enforceable against Hibernia in accordance with its terms, except that
enforcement may be limited by bankruptcy, insolvency, and other laws of general
applicability relating to or affecting creditors' rights generally and by
general equitable principles or principles of Louisiana law that are similar to
equitable principles in jurisdictions that recognize a distinction between law
and equity.
8.5. No Conflicts. Except as disclosed on Schedule 8.5 hereto,
the execution and delivery of this Agreement by Hibernia does not, and the
consummation of the transactions contemplated hereby by it will not, constitute
(i) a breach or violation of, or a default under, any law, rule, or regulation
or any judgment, decree, order, governmental permit or license, or agreement,
indenture, or instrument of Hibernia or its subsidiaries or by which Hibernia or
any of its subsidiaries is subject, which breach, violation or default would
have a material and adverse effect on the financial condition, properties,
businesses, or results of operations of Hibernia and its subsidiaries taken as a
whole or on the transactions contemplated hereby, (ii) to the best knowledge of
Hibernia's management, a breach or violation of, or a default under, any law,
rule, or regulation or any judgment, decree, order, governmental permit or
license, or agreement, indenture, or instrument of Hibernia or its subsidiaries
or to which Hibernia or any of its subsidiaries is subject, or (iii) a breach or
violation of, or a default under the Articles of Incorporation or Association or
By-Laws of Hibernia or of its subsidiaries and the consummation of the
transactions contemplated hereby will not require any consent or approval under
any such law, rule, regulation, judgment, decree, order, governmental permit or
license or the consent or approval of any other party to any such agreement,
indenture, or instrument, other than any required approvals of shareholders and
applicable regulatory authorities.
8.6. Reports of Hibernia. As of their respective dates, none of
its Annual Report on Form 10-K for the fiscal year ended December 31, 1996, its
Quarterly Reports on Form 10-Q for the period ended March 31, 1997 and the
period ended June 30, 1997, and its proxy statement for its 1997 annual meeting
of shareholders, each in the form (including exhibits) filed with the Securities
and Exchange Commission (the "SEC") and its quarterly reports to shareholders
for the period ended March 31, 1997 and the period ended June 30, 1997
(collectively, the "Hibernia Reports"), contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading. There is no fact or circumstance
that, individually or in the aggregate, materially and adversely has affected or
is so affecting, or, in the opinion of the executive officers of Hibernia, may
reasonably be expected in the future to so affect, the business, financial
condition, net worth, properties, prospects or results of operations of Hibernia
and its subsidiaries, taken as a whole, that has not been disclosed in the
Hibernia Reports. Each of the balance sheets in or incorporated by reference
into the Hibernia Reports (including the related notes) fairly presents the
financial position of the entity or entities to which it relates as of its date
and each of the statements of income and stockholders' equity and statement of
cash flows or equivalent statements in the Hibernia Reports (including any
related notes and schedules) fairly presents the results of operations and
changes in stockholders' equity, as the case may be, of the entity or entities
to which it relates for the periods set forth therein (subject, in the case of
unaudited statements, to year-end audit adjustments that will not be material in
amount or effect), in each case in accordance with GAAP consistently applied
during the periods involved, except as may be noted therein. Copies of the
Hibernia Reports have been furnished to Firstshares on or before the date
hereof.
8.7. No Material Adverse Change. Since June 30, 1997 and except
as otherwise disclosed publicly prior to the date hereof in press releases,
quarterly reports to shareholders, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, there has been no event or condition of any character
(whether actual, or to the knowledge of Hibernia or HNB, threatened or
contemplated) that has had or can reasonably be anticipated to have, or that, if
concluded or sustained adversely to Hibernia, would reasonably be anticipated to
have, a material adverse effect on the financial condition, results of
operations, business or prospects of Hibernia, HNB, or HNBT excluding changes in
laws or regulations that affecting banking institutions generally.
8.8. Certain Litigation and Proceedings. Except as listed on
Schedule 8.8 hereto, to the knowledge of management of Hibernia, no litigation,
proceeding or controversy has been threatened or is contemplated before any
court or governmental agency that, in the opinion of Hibernia's executive
officers is likely to have a material adverse effect on the business, results of
operations or financial condition of Hibernia, taken as a whole.
8.9. Brokers' or Finders' Fees. No agent, broker, investment
banker, investment or financial advisor or other person acting on behalf of
Hibernia or under its authority is entitled to any commission, broker's or
finder's fee from any of the parties hereto in connection with any of the
transactions contemplated by this Agreement.
9. Agreements and Covenants. Hibernia and Firstshares each hereby
agrees and covenants to the other that:
9.1. Shareholder Approvals. If required by applicable law, this
Agreement shall be submitted to its respective shareholders at a special meeting
called and held in accordance with applicable provisions of law (to be scheduled
to the extent possible for the date of the shareholders' meeting for the other
party hereto, if any) at which its shareholders shall be asked to consider and
vote upon this Agreement and the transactions contemplated hereby.
9.2. Actions Necessary to Complete Merger. It shall use its best
efforts in good faith to take or cause to be taken all action necessary or
desirable under this Agreement on its part as promptly as practicable so as to
permit the consummation of this Agreement at the earliest possible date
(including obtaining the consent or approval of each governmental authority and
individual, partnership, corporation, association, or any other form of business
or professional entity whose consent or approval is required for the
consummation of the transactions contemplated hereby, requesting the delivery of
appropriate opinions and letters from its counsel and recommending that this
Agreement be approved by its shareholders) and cooperate fully with the other
party hereto to that end; provided, however, that nothing contained in this
section shall be deemed to prohibit any officer or director of Firstshares or
the Bank from taking any action that, in the written opinion of counsel to
Firstshares or the Bank, is required by applicable law or is necessary to
discharge properly the fiduciary duties of such officer or director.
9.3. Preparation of Registration Statement and Proxy Statement. It shall
prepare as promptly as practicable jointly with the other party hereto a proxy
statement to be mailed to the shareholders of each party the shareholders of
which are to vote upon this Agreement in connection with the transactions
contemplated hereby and to be part of a registration statement (the
"Registration Statement") to be filed by Hibernia with the SEC pursuant to the
Securities Act of 1933, as amended (the "1933 Act") with respect to the shares
to be issued in the Merger. When the Registration Statement or any
post-effective amendment thereto shall become effective, and at all times
subsequent to such effectiveness, up to and including the time of the last
shareholder meeting with respect to the transactions contemplated hereby, such
Registration Statement and all amendments or supplements thereto, with respect
to all information set forth therein furnished or to be furnished by Hibernia
relating to Hibernia and by Firstshares relating to Firstshares, (i) will comply
in all material respects with the provisions of the 1933 Act and the rules and
regulations of the SEC thereunder and (ii) will not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements contained therein not misleading.
Hibernia will advise Firstshares promptly after it receives notice thereof of
the time when the Registration Statement has become effective or any supplement
or amendment has been filed, of the issuance of any stop order, of the
suspension of the qualification of the Hibernia Common Stock issuable in
connection with the Merger for offering or sale in any jurisdiction, of the
initiation or threat of any proceeding for any such purpose, or of any request
by the SEC for the amendment or supplement of the Registration Statement or for
additional information.
9.4. Press Releases and Public Statements. Unless approved by
Hibernia and Firstshares in advance, neither party will issue any press release,
marketing or advertising material or other written statement for general
circulation relating to the transactions contemplated hereby, except as
otherwise required by law. The parties will cooperate in any public
announcements directly related to the Merger; provided, however, that, in the
event Hibernia determines to file a current report on Form 8-K that discloses
only the substantive facts of a previously released press release, such filing
may be made without prior consultation with Firstshares so long as Firstshares
is furnished with a copy of such report within a reasonable time after its
filing.
9.5. Material Developments; Access to Information.
(i) In order to afford Firstshares access to such information as it may
reasonably deem necessary to perform its due diligence review with respect to
Hibernia and its assets in connection with the Merger, Hibernia shall (and shall
cause HNB and HNBT to), (A) upon reasonable notice, afford Firstshares and its
officers, employees, counsel, accountants and other authorized representatives,
during normal business hours throughout the period prior to the Effective Date
and to the extent consistent with applicable law, access to its premises,
properties, books and records, and to furnish Firstshares and such
representatives with such financial and operating data and other information of
any kind respecting its business and properties as Firstshares shall from time
to time reasonably request to perform such review, (B) furnish Firstshares with
copies of all reports filed by Hibernia with the SEC throughout the period after
the date hereof prior to the Effective Date promptly after such reports are so
filed, and (C) promptly advise Firstshares of the occurrence before the
Effective Date of any event or condition of any character (whether actual or to
the knowledge of Hibernia, threatened or contemplated) that has had or can
reasonably be anticipated to have, or that, if concluded or sustained adversely
to Hibernia, would reasonably be anticipated to have, a material adverse effect
on the financial condition, results of operations, business or prospects of its
consolidated group as a whole.
(ii) In order to afford Hibernia access to such information as it may
reasonably deem necessary to perform any due diligence review with respect to
the assets of Firstshares to be acquired as a result of the Merger, Firstshares
shall (and shall cause the Bank to), upon reasonable notice, afford Hibernia and
its officers, employees, counsel, accountants, and other authorized
representatives, during normal business hours throughout the period prior to the
Effective Date, and to the extent consistent with applicable law, access to all
of its and the Bank's properties, books, contracts, commitments, loan files,
litigation files, and records (including, but not limited to, the minutes of the
Boards of Directors of Firstshares and the Bank and all committees thereof), and
it shall (and shall cause the Bank to), upon reasonable notice and to the extent
consistent with applicable law, furnish promptly to Hibernia such information as
Hibernia may reasonably request to perform such review.
(iii) No investigation pursuant to this Section 9.5 shall affect or be
deemed to modify any representation or warranty made by, or the conditions to
the obligations to consummate the Merger of, either party to this Agreement.
9.6. Affiliates. Prior to the Closing Date (as defined in
Section 14 hereof), Firstshares shall deliver to Hibernia a letter identifying
all persons whom it believes to be "affiliates" of Firstshares for purposes of
Rule 145(c) or Rule 144 (as applicable) under the 1933 Act ("Affiliates").
Firstshares shall use its best efforts to cause each person so identified to
deliver to Hibernia prior to the Effective Date a written agreement in
substantially the form of Exhibit 9.6 hereto providing, among other things, that
such person will not dispose of Hibernia Common Stock received in the Merger
except in compliance with the 1933 Act and the rules and regulations thereunder
and except in accordance with Section 201.01 of the SEC's Codification of
Financial Reporting Policies; provided, however, that Firstshares shall have no
such obligation to use its best efforts to cause any such identified person to
deliver to Hibernia such agreement if such person may not lawfully execute such
agreement.
9.7. Adjustment for Changes in Outstanding Shares. In the event
that prior to the Effective Date the outstanding shares of Hibernia Common Stock
shall have been increased, decreased, or changed into or exchanged for a
different number or kind of shares or securities by reorganization,
recapitalization, reclassification, stock dividend, stock split, or other like
changes in Hibernia's capitalization, then an appropriate and proportionate
adjustment shall be made in the number and kind of shares of Hibernia Common
Stock to be thereafter delivered pursuant to Section 3.1 hereof.
9.8. Accounting Treatment. Each of the parties shall use its
best efforts to cause the Merger to qualify for pooling-of-interests accounting
treatment to the extent factors affecting such treatment are within its control.
9.9. Adoption of Accounting Policies. As soon as practicable
after the satisfaction or waiver of all conditions to the Closing set forth in
Section 12 of this Agreement and in any event prior to the Effective Date
(unless this Agreement is terminated pursuant to Section 13 hereof), Firstshares
shall, and it shall cause the Bank to, take any and all necessary or appropriate
actions to adopt all Hibernia accounting procedures and policies (including
without limitation those policies pertaining to charged-off and non-accrual
assets); provided, however, that no such action taken by Firstshares or the Bank
at the request of Hibernia or HNB pursuant to this Section shall be deemed to
be, or be deemed to cause, a breach of any representation or warranty made by
Firstshares herein.
9.10. Indemnification of Directors and Officers of Firstshares
and the Bank.
(a) From and after the Effective Date of the Merger, Hibernia agrees to
indemnify and hold harmless each person who, as of the date immediately prior to
the Closing Date, served as an officer or director of Firstshares or the Bank,
(an "Indemnified Person") from and against all damages, liabilities, judgments
and claims (and related expenses including, but not limited to, attorney's fees
and amounts paid in settlement) based upon or arising from his capacity as an
officer or director of Firstshares, or the Bank to the same extent as he would
have been indemnified under the Articles of Incorporation and/or By-Laws of
Hibernia, as such documents were in effect on the date of this Agreement as if
he were an officer or director of Hibernia at all relevant times.
(b) The rights granted to the Indemnified Persons hereby shall be
contractual rights inuring to the benefit of all Indemnified Persons and shall
survive this Agreement and any merger, consolidation or reorganization of
Hibernia, HNB, or HNBT.
(c) The rights to indemnification granted by this subsection 9.10 are
subject to the following limitations: (i) the total aggregate indemnification to
be provided by Hibernia pursuant to subsection 9.10(a) shall not exceed, as to
all of the Indemnified Persons as a group, the sum of $5,000,000 and Hibernia
shall have no responsibility to any Indemnified Person for the manner in which
such sum is allocated among that group (but nothing in this subsection is
intended to prohibit the Indemnified Persons from seeking reallocation among
themselves); (ii) a director or officer who would otherwise be an Indemnified
Person under this subsection 9.10 shall not be entitled to the benefits hereof
unless such director or officer has executed a Joinder Agreement (the "Joinder
Agreement") in the form of Exhibit 9.10 hereto; and (iii) amounts otherwise
required to be paid by Hibernia to an Indemnified Person pursuant to this
subsection 9.10 shall be reduced by any amounts that such Indemnified Person
recovers by virtue of the claim for which other employees and officers
indemnification is sought.
(d) Hibernia agrees that the $5,000,000 indemnification limit set forth in
paragraph (c) of this Section 9.10 shall not apply to any damages, liabilities,
judgments and claims (and related expenses, including but not limited to
attorney's fees and amounts paid in settlement) insofar as they arise out of or
are based upon the matters for which indemnification is provided in Section 11.2
hereof.
9.11. Covenant to Close. At such time as is deemed appropriate
by the parties hereto or as otherwise set forth in this Agreement, and upon
satisfaction or waiver of each of the conditions to Closing of the Merger, the
parties agree to take such actions as are reasonably necessary or appropriate to
effect the Closing and the Merger.
9.12. Cooperation in Rule 144 Transfers. Hibernia will use its
best efforts to file in a timely manner all reports to be filed pursuant to the
Securities Exchange Act of 1934, as amended, or the rules and regulations
promulgated thereunder, so as to continue the availability of Rules 144 and
145(d) of the General Rules and Regulations of the Securities Act of 1933, as
amended, for sales of shares of Hibernia Common Stock received pursuant to the
Merger by former shareholders of Firstshares.
10. Permits, Consents and Approvals. As promptly as practicable after
the date hereof:
(a) Hibernia shall submit an application to the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") for
approval of the transactions contemplated hereby in accordance with the
provisions of the Bank Holding Company Act;
(b) Hibernia shall submit an application to any other regulatory
authority whose approval of the transactions contemplated hereby is required
including, but not limited to, an application to the Office of the Comptroller
of the Currency to approve the Bank Merger;
(c) Firstshares shall endeavor to have its Affiliates execute a
written agreement in substantially the form of Exhibit 9.6 hereto; provided,
however, that Firstshares shall have no such obligation prior to the receipt by
the Board of Directors of Firstshares of the Fairness Opinion; and
(d) Firstshares shall endeavor to have each of the directors of
Firstshares and the Bank execute an Agreement in substantially the form of
Exhibit 10(d) hereto; provided, however, that Firstshares shall have no such
obligation prior to the receipt by the Board of Directors of Firstshares of the
Fairness Opinion.
11. Confidentiality; Hold Harmless; Restriction on Acquisitions.
11.1. Confidentiality. For a period of five years after the date
hereof, the parties hereto acknowledge that each of them or their
representatives or agents has engaged in, and may continue to engage in, certain
due diligence reviews and examinations with respect to the other and that, in
the course of such reviews and examination, has received or may receive in the
future confidential or proprietary information. Hibernia and Firstshares agree,
on behalf of themselves, their respective officers, directors, employees,
representatives and agents, that they will not use any information obtained
pursuant to due diligence investigations for any purpose unrelated to the
consummation of the transactions contemplated by this Agreement, and, if the
Merger is not consummated, will hold all such information and documents in
confidence unless and until such time as such information or documents otherwise
become publicly available or as it is advised by counsel that any such
information or document is required by law to be disclosed, in which event the
party required to make such disclosure shall advise and consult with the other
party reasonably in advance of such disclosure regarding the information
proposed to be disclosed. In the event of the termination of this Agreement,
Hibernia and Firstshares shall, promptly upon request by the other party, either
destroy or return any documents so obtained. The parties hereto expressly
acknowledge and agree that the terms of this Section 11.1 shall supersede any
prior agreements relating to the confidentiality of information received by the
parties hereto from each other, specifically the terms of the confidentiality
agreement dated as of April 24, 1997 between Firstshares and Hibernia.
11.2. Hold Harmless. Hibernia will indemnify and hold harmless
Firstshares, each of its directors and officers and each person, if any, who
controls Firstshares or the Bank within the meaning of the 1933 Act against any
losses, claims, damages or liabilities, joint, several or solidary, to which
they or any of them may become subject, under the 1933 Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement, or in any amendment
or supplement thereto, or arising out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse each
such person for any legal or other expenses reasonably incurred by such person
in connection with investigating or defending any such action or claim;
provided, however, that Hibernia shall not be liable in any such case to the
extent that any such loss, claim, damage or liability (or action in respect
thereof) arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement or
any such amendment or supplement in reliance upon and in conformity with
information furnished to Hibernia by Firstshares or the Bank for use therein.
Promptly after receipt by an indemnified party hereunder of notice of the
commencement of any action, such indemnified party shall, if a claim in respect
thereof is to be made against Hibernia under this Section, notify Hibernia in
writing of the commencement thereof. In case any such action shall be brought
against any indemnified party and it shall notify Hibernia of the commencement
thereof, Hibernia shall be entitled to participate therein, and to the extent
that it shall wish, to assume the defense thereof, with counsel satisfactory to
such indemnified party, and, after notice from Hibernia to such indemnified
party of its election to so assume the defense thereof, Hibernia shall not be
liable to such indemnified party under this Section 11.2 for any legal expenses
of other counsel or any other expenses subsequently incurred by such indemnified
party.
12. Conditions. The consummation of the Merger is conditioned upon:
12.1. Shareholder Approval; Dissenters. Approval of this
Agreement by the required vote of shareholders of Firstshares and exercise and
perfection of dissenters' rights pursuant to Texas law by holders of Firstshares
Common Stock holding in the aggregate no more than 10% of the Firstshares Common
Stock outstanding on the Closing Date.
12.2. Federal Reserve Board and Other Approvals. Procurement by
Hibernia of the approval of the Federal Reserve Board and any other regulatory
authorities whose approval is required by law or regulation of the Merger and
any and all other transactions contemplated hereby.
12.3. Other Approvals. Procurement of all other consents and
approvals and satisfaction of all other requirements prescribed by law that are
necessary to the consummation of the transactions contemplated by this
Agreement.
12.4. No Restraining Action. No litigation or proceeding
initiated by any governmental authority shall be pending before any court or
agency that shall present a claim to restrain, prohibit or invalidate the
transactions contemplated hereby and neither Hibernia nor Firstshares shall be
prohibited by any order of any court or other governmental authority from
consummating the transactions provided for in this Agreement.
12.5. Opinion of Hibernia Counsel. Firstshares and its directors
shall have received an opinion, dated the Closing Date, of counsel for Hibernia,
in form and substance reasonably satisfactory to Firstshares, as to such matters
as Firstshares may reasonably request with respect to the transactions
contemplated hereby.
12.6. Opinion of Firstshares Counsel. Hibernia, its directors
and its officers who sign the Registration Statement shall have received an
opinion, dated the Closing Date, of Ford & Ferraro, L.L.P., for Firstshares, in
form and substance reasonably satisfactory to Hibernia, which shall cover such
matters as Hibernia may reasonably request with respect to the transactions
contemplated hereby.
12.7. Representations, Warranties and Agreements of Firstshares.
Each of the representations, warranties, and agreements of Firstshares contained
herein in all material respects shall be true on, or complied with by, the
Closing Date as if made on such date (or on the date when made in the case of
any representation or warranty which specifically relates to an earlier date)
and Hibernia shall have received a certificate signed by the President of
Firstshares, dated the Closing Date, to such effect; Firstshares shall have
furnished to Hibernia such other certificates as Hibernia shall reasonably
request in connection with the Closing (as defined in Section 14 hereof),
evidencing compliance with the terms hereof and its status, business and
financial condition. Firstshares shall have furnished Hibernia with such further
documents or other materials as Hibernia shall have reasonably requested in
connection with the transactions contemplated hereby.
12.8. Representations, Warranties and Agreements of Hibernia.
Each of the representations, warranties and agreements of Hibernia contained
herein in all material respects shall be true on, or complied with by, the
Closing Date as if made on such date (or the date when made in the case of any
representations or warranty which specifically relates to an earlier date) and
Firstshares shall have received a certificate signed by the Chief Executive
Officer and the Treasurer of Hibernia, dated the Closing Date, to such effect;
Hibernia shall have furnished to Firstshares such other certificates as
Firstshares shall reasonably request in connection with the Closing, evidencing
compliance with the terms hereof and its status, business and financial
condition. Hibernia shall have furnished Firstshares with such further documents
or other materials as Firstshares shall have reasonably requested in connection
with the transactions contemplated hereby.
12.9. Effective Registration Statement. The Registration
Statement shall have become effective and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC
and Firstshares shall have received a certificate to such effect from the
officer of Hibernia designated as its agent for service on the cover page of the
Registration Statement (which certificate may be to the knowledge of such
officer).
12.10. Tax Opinion. Hibernia shall have received an opinion of a
nationally recognized public accounting firm satisfactory to Firstshares, which
opinion shall be satisfactory in form and substance to Hibernia and Firstshares,
to the effect that (i) the Merger when consummated in accordance with the terms
hereof will constitute a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code, (ii) the exchange of Firstshares Common Stock to the
extent exchanged for Hibernia Common Stock will not give rise to gain or loss to
the shareholders of Firstshares with respect to such exchange, (iii) the basis
of Hibernia Common Stock to be received by the holders of Firstshares Common
Stock will be, in each instance, the same as the basis of their stock
surrendered in exchange therefor, decreased by the amount of cash received, if
any, and increased by the amount of gain, if any, recognized in the exchange,
and (iv) the holding period of the Hibernia Common Stock to be received by the
holders of Firstshares Common Stock in the transaction will include in each
instance the period during which the Firstshares Common Stock surrendered in
exchange therefor is held as a capital asset on the date of the surrender.
Firstshares shall have received a copy of such opinion, which shall permit
Firstshares and its shareholders to rely on it.
12.11. Listing on New York Stock Exchange. The shares of
Hibernia Common Stock issuable to the holders of Firstshares Common Stock in the
Merger shall have been approved for listing on the New York Stock Exchange, Inc.
on or before the Closing Date, subject to official notice of issuance.
12.12. Fairness Opinion. Firstshares shall have received a
letter from Keefe, Bruyette & Woods, Inc. dated within five days of the
scheduled date of mailing of the Proxy Statement to its shareholders, and
updated to within five days of the Closing Date to the effect that consideration
to be paid to Firstshares shareholders under the terms of the Merger is fair to
Firstshares shareholders from a financial point of view (the "Fairness
Opinion").
12.13. Employment Arrangement. As of the Effective Date,
Hibernia and/or HNBT shall have entered into an employment agreement with George
E. Grobowsky having a term mutually acceptable to Mr. Grobowsky and Hibernia,
but which shall be at least 2 years, and salary, bonus and other provisions
mutually acceptable to Mr. Grobowsky and Hibernia, and with Joseph A. Wood
having a term mutually acceptable to Mr. Wood and Hibernia, but which shall be
at least 2 years, and salary, bonus and other provisions mutually agreeable to
Mr. Wood and Hibernia.
12.14. Assertion of Conditions. A failure to satisfy any of the
requirements set forth in Section 12.5, 12.8 or 12.11 shall only constitute
conditions to consummation of the Merger if asserted by Firstshares and a
failure to satisfy any of the requirements set forth in Section 12.6 or 12.7
shall only constitute conditions to consummation of the Merger if asserted by
Hibernia.
13. Termination. This Agreement may be terminated prior to the Closing
Date, either before or after its approval by the shareholders of the parties
hereto, in any of the following events:
13.1. Mutual Consent. By the mutual consent of the parties
hereto, if the Board of Directors of each party so determines by vote of a
majority of the members of its entire Board.
13.2. Breach of Representation, Warranty or Covenant. By either
party hereto, in the event of a breach by the other party (a) of any covenant or
agreement contained herein or (b) of any representation or warranty herein, if
(i) the facts constituting such breach reflect a material and adverse change in
the financial condition, results of operations, business, or prospects taken as
a whole, of the breaching party, which in either case cannot be or is not cured
within 60 days after written notice of such breach is given to the party
committing such breach, or (ii) in the event of a breach of a warranty or
covenant, such breach results in a material increase in the cost of the non-
breaching party's performance of this Agreement.
13.3. Passage of Time; Inability to Satisfy Conditions. By
either party hereto, in the event that (i) the Merger is not consummated by June
30, 1998, or (ii) any condition to Closing cannot be satisfied by June 30, 1998
and will not be waived by the party or parties entitled to waive it.
13.4. Failure to Obtain Regulatory Approval. By either party
hereto, at any time after the Federal Reserve Board, the Federal Reserve Bank,
the Office of the Comptroller of the Currency or any other regulatory authority
whose approval is required by law or regulation has denied any application for
any approval or clearance required to be obtained as a condition to the
consummation of the Merger and the time period for all appeals or requests for
reconsideration thereof has run.
13.5. Failure to Obtain Shareholder Approval. By either party
hereto, if the Merger is not approved by the required vote of shareholders of
Firstshares.
13.6. Dissenters. By Hibernia, if holders of more than 10
percent of the outstanding Firstshares Common Stock exercise statutory rights of
dissent and appraisal pursuant to Texas law.
13.7. Material Adverse Change. By Firstshares, if a material
adverse change as described in Section 8.7 of this Agreement occurs, and by
Hibernia, if a material adverse change as described in Section 7.7 hereof
occurs, after the date hereof and prior to the Closing.
13.8. Use of Pooling-of-Interests Accounting Treatment. By
Hibernia, in the event it shall determine in good faith, that the Merger does
not qualify as a pooling-of-interests for accounting purposes.
13.9. Fairness Opinion. By Firstshares, if it shall not have
received a letter from Keefe, Bruyette & Woods, Inc. dated within five days of
the scheduled date of mailing of its proxy statement to its shareholders, and
updated to within five days of the Closing Date, to the effect that the terms of
the Merger are fair to Firstshares from a financial point of view, or if such
letter is withdrawn before the Closing.
13.10. Due Diligence. By Hibernia, within 30 days after the date
hereof, if its due diligence review of Firstshares results in or discloses
material liabilities, obstacles to the Merger or other circumstances that are
not disclosed in this Agreement or the Schedules hereto and that, in the good
faith judgment of Hibernia, materially alter the economic basis for, or
feasibility of, the Merger; provided, however, that the sole remedy that
Hibernia shall have in that event pursuant to this Section 13.10 shall be the
termination of this Agreement.
14. Closing and Effective Date. The closing of the Merger (the
"Closing") shall take place at the office of Hibernia at 313 Carondelet Street,
New Orleans, Louisiana, at 11:00 a.m. local time, or at such other place or time
as shall be mutually agreeable to the parties hereto, on the first business day
occurring after the last to occur of: (i) the date that falls 15 days after the
later to occur of (a) the date of the order of the Federal Reserve Board
approving the Merger pursuant to the Bank Holding Company Act or (b) the date of
approval of the Bank Merger by the Office of the Comptroller of the Currency;
and (ii) the date that falls 5 days after the date on which the last meeting of
shareholders called to approve this Agreement is held; or such later date within
60 days of such date as may be agreed upon between the parties hereto (the date
and time of the Closing being referred to herein as the "Closing Date").
Immediately upon consummation of the Closing, or on such other later date as the
parties hereto may agree, the Merger Agreement shall be certified, executed,
acknowledged and delivered to (i) the Secretary of State of the State of
Louisiana for filing pursuant to and in accordance with the provisions of
Section 12:112 of the LBCL and (ii) the Secretary of State of the State of Texas
for filing pursuant to and in accordance with Section 5.05 of the TBCA. The
Merger shall become effective as of the date and time of issuance by both
Secretaries of State of a certificate of merger relating to the Merger (such
date and time being referred to herein as the "Effective Date").
15. Survival and Termination of Representations, Warranties and
Covenants.
15.1. Except as otherwise provided in this Section 15, the
representations, warranties and covenants contained in this Agreement shall
terminate as of the earlier of the Effective Date or the termination of this
Agreement. Upon termination of such representations, warranties and covenants,
such provisions shall be of no further force or effect, and no party hereto
shall have any legal right to redress, whether for breach of contract or
otherwise, as a result of a breach of any such provision.
15.2. The provisions and agreements set forth in Sections 3, 5,
9.10, 9.12, 11 and 15 and the last sentence of Section 8.3 hereof shall survive
the Closing, if the Closing occurs, for the benefit of the shareholders,
directors and officers of Firstshares who are the intended beneficiaries of such
provisions.
15.3. The provisions of Section 11 and liabilities for a breach of the
provisions of Sections 9.2 or 9.10 shall survive the termination of this
Agreement if this Agreement terminates without the Closing or the Merger having
occurred, in which event liability for a breach of Section 9.2 or Section 9.10
shall survive the termination of the Agreement for a period of 180 days
following the date on which the Agreement terminates. Nevertheless, no party to
this Agreement shall have a legal right to redress or cause of action for a
breach of Section 9.2 except in those circumstances in which such breach
directly resulted in the termination of the Agreement.
15.4 In the event of the breach of a representation or warranty herein prior to
the Closing, the exclusive remedy for the non-breaching party shall be that
specified in Section 13.2 above. Upon termination of this Agreement pursuant to
Section 13.2, all representations, warranties, and covenants shall be of no
further force or effect, and no party hereto shall have any legal right to
redress, whether for breach of contract or otherwise, as a result of the
termination of this Agreement pursuant to Section 13.2.
15.5. In consideration of the mutual benefits and agreements
contained in this Agreement, each of the parties hereto, on behalf of itself and
its successors and assigns, hereby irrevocably waives any right or cause of
action which otherwise would survive in the absence of this Section 15.
16. Amendment; Waivers. To the extent permitted under applicable law,
prior to the Closing Date any provision of this Agreement may be amended or
modified at any time, either before or after its approval by the shareholders of
the parties hereto, (i) by an agreement in writing among the parties hereto
approved by their respective Boards of Directors and executed in the same manner
as this Agreement, and (ii) as provided in Section 12:112 of the LBCL. Except
with respect to any required shareholder or regulatory approval, each party
hereto, by written instrument signed by a duly authorized officer of such party,
may at any time (whether before or after approval of this Agreement by the
shareholders of Hibernia or Firstshares) extend the time for the performance of
any of the obligations or other acts of the other party hereto and may waive (i)
any inaccuracies of the other party in the representations or warranties
contained in this agreement or any document delivered pursuant hereto, (ii)
compliance with any of the covenants, undertakings, or agreements of the other
party, or satisfaction of any of the conditions precedent to its obligations,
contained herein or (iii) the performance by the other party of any of its
obligations set out herein or therein; provided that no such waiver executed
after approval of this Agreement by the shareholders of Hibernia or Firstshares
shall change the number of shares of Hibernia Common Stock into which shares of
Firstshares Common Stock will be converted by the Merger.
17. Execution in Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to constitute an original. Each such
counterpart shall become effective when one counterpart has been signed by each
party hereto.
18. Governing Law. This Agreement shall be governed by, and interpreted
in accordance with, the laws of the State of Louisiana applicable to agreements
made and entirely to be performed within such State, except as federal law may
be applicable.
19. Expenses. Each party hereto will bear all expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby,
including the fees, expenses and disbursements of its counsel and auditors,
provided that printing expenses shall be borne by Hibernia.
20. No Assignment. Prior to the Effective Date, neither party hereto may
assign any of its rights or obligations under this Agreement to any other person
without the prior written consent of the other bank holding company that is a
party hereto, including any transfer or assignment by operation of law.
21. Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by registered or certified mail, postage prepaid, to the Chief Executive
Officer of each party hereto at the address of such party set forth in the
preamble to this Agreement and shall be deemed to have been given as of the date
so personally delivered or mailed. A copy of all notices or other communications
directed to Hibernia shall be sent to:
Hibernia National Bank
313 Carondelet Street
New Orleans, Louisiana 70130
Attention: Corporate Law Division
and a copy of all notices or other communications directed to Firstshares shall
be sent to:
Joseph M. Ford, Esq.
Ford & Ferraro, L.L.P.
Suite 2000
98 San Jacinto Boulevard
Austin, Texas 78701-4286
22. Headings. The headings in this Agreement are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
23. Entire Agreement. This Agreement and the Schedules and Exhibits
hereto supersede any and all oral or written agreements and understandings
heretofore made relating to the subject matter hereof and contain the entire
agreement of the parties relating to the subject matter hereof. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the parties hereto, and their respective successors. Nothing in this Agreement
or in the Merger Agreement is intended to or shall be construed to confer upon
or to give any person other than the parties hereto any rights, remedies,
obligation or liabilities under or by reason of this Agreement except as
expressly provided herein.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed in counterparts by their duly authorized officers and their corporate
seals to be hereunto affixed, all as of the day and year first above written.
HIBERNIA CORPORATION
/s/ Stephen A. Hansel
By: Stephen A. Hansel
President and Chief
Executive Officer
Attest:
/s/ Patricia C. Meringer
Patricia C. Meringer
Secretary
FIRSTSHARES OF TEXAS, INC.
/s/ George E. Grobowsky
By: George E. Grobowsky,
Chairman of the Board and
Chief Executive Officer
Attest:
/s/ Norman S. Bynum
Norman S. Bynum
Secretary
APPENDIX B
OPINION OF KEEFE, BRUYETTE & WOODS, INC.
January 26, 1998
Firstshares of Texas, Inc.
100 North Bolivar
Marshall, TX 75761
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the shareholders of Firstshares of Texas,
Inc. ("Firstshares") of the exchange ratio in the proposed merger (the "Merger")
of Firstshares with and into Hibernia Corporation ("Hibernia"), pursuant to the
Agreement and Plan of Merger dated as of October 24, 1997 between Firstshares
and Hibernia (the "Agreement"). Under the terms of the Merger, each outstanding
share of common stock of Firstshares will be exchanged for 7.15 shares of common
stock of Hibernia (the "Exchange Ratio"). Keefe, Bruyette & Woods, Inc. ("KBW")
was informed by Firstshares, and assumed for purposes of its opinion, that the
Merger would be accounted for as a pooling-of-interests under generally accepted
accounting principles.
KBW as part of its investment banking business is continually engaged in
the valuation of banking businesses and their securities in connection with
mergers and acquisitions, negotiated underwriting, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. As specialists in the
securities of banking companies we have experience in, and knowledge of, the
valuation of banking enterprises. In the ordinary course of our business as a
broker-dealer, we may, from time to time, purchase securities from, and sell
securities to, Hibernia and as a market maker in securities, we may from time to
time have a long or short position in, and buy or sell, debt or equity
securities of Hibernia for our own account and for the accounts of our
customers. To the extent we have any such position as of the date of this
opinion it has been disclosed to Firstshares. We have acted as a financial
advisor to the Board of Directors of Firstshares in rendering this fairness
opinion and will receive a fee from Firstshares for our services.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Registration Statement on Form S-4, Annual Reports to
Stockholders of Firstshares and Hibernia for the three years ended December 31,
1996; certain interim reports to stockholders and Quarterly Reports of
Firstshares and Hibernia, and certain internal financial analyses and forecasts
for Firstshares and Hibernia prepared by management. We also have held
discussions with members of the senior management of Firstshares and Hibernia
regarding the past and current business operations, regulatory relationships,
financial condition and future prospects of their respective companies. In
addition, we have compared certain financial and stock market information for
Firstshares and Hibernia with similar information for certain other companies
the securities of which are publicly traded, reviewed the financial terms of
certain recent business combinations in the banking industry and performed such
other studies and analyses as we considered appropriate.
In conducting our review and arriving at our opinion, we have relied upon
and assumed the accuracy and completeness of all of the financial and other
information provided to us or publicly available and we have not assumed any
responsibility for independently verifying any of such information. We have
relied upon the management of Firstshares and Hibernia as to the reasonableness
and achievability of the financial and operating forecasts and projections (and
the assumptions and bases therefor) provided to us, and we have assumed that
such forecasts and projections reflect the best currently available estimates
and judgments of Hibernia and that such forecasts and projections will be
realized in the amounts and in the time periods currently estimated by such
management. We have also assumed that the aggregate allowances for loan losses
for Firstshares and Hibernia are adequate to cover such losses. In rendering our
opinions, we have not made or obtained any evaluations or appraisals of the
property of Firstshares or Hibernia, nor have we examined any individual credit
files.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including among others the following: (I)
the historical and current financial position and results of operations of
Firstshares and Hibernia; (ii) the assets and liabilities of Firstshares and
Hibernia; and (iii) the nature and terms of certain other merger transactions
involving banks and bank holding companies. We have also taken into account our
assessment of general economic, market and financial conditions and our
experience in other transactions, as well as our experience in securities
valuation and our knowledge of the banking industry generally. Our opinion is
necessarily based upon conditions as they exist and can be evaluated on the date
hereof and the information made available to us through the date hereof.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the exchange ration in the Merger is fair, from a financial point
of view, to the common shareholders of Firstshares.
Very truly yours,
/s/ KEEFE, BRUYETTE & WOODS, INC.
KEEFE, BRUYETTE & WOODS, INC
APPENDIX C
PROVISIONS OF THE TEXAS BUSINESS CORPORATION ACT
RELATING TO
RIGHTS OF DISSENTING SHAREHOLDERS
(Articles 5.11 - 5.13)
Article 5.11. Rights of Dissenting Shareholders in the Event of
Certain Corporate Actions
A. Any shareholder of a domestic corporation will have the right to dissent from
any of the following corporate actions:
(1) Any plan of merger to which the corporation is a party if shareholder
approval is required by Article 5.03 or 5.16 of this Act and the shareholder
holds shares of a class or series that was entitled to vote thereon as a class
or otherwise;
(2) Any sale, lease, exchange or other disposition (not including any pledge,
mortgage, deed of trust or trust indenture unless otherwise provided in the
articles of incorporation) of all, or substantially all, the property and
assets, with or without goodwill, of a corporation requiring the special
authorization of the shareholders as provided by this Act;
(3) Any plan of exchange pursuant to Article 5.02 of this Act in which the
shares of the corporation of the class or series held by the shareholder are to
be acquired.
B. Notwithstanding the provisions of Section A of this Article, a shareholder
will not have the right to dissent from any plan of merger in which there is a
single surviving or new domestic or foreign corporation, or from any plan of
exchange, if (1) the shares held by the shareholder are part of a class shares
of which are listed on a national securities exchange, or are held of record by
not less than 2,000 holders, on the record date fixed to determine the
shareholders entitled to vote on the plan of merger or the plan of exchange, and
(2) the shareholder is not required by the terms of the plan of merger or the
plan of exchange to accept for his shares any consideration other than (a)
shares of a corporation that, immediately after the effective time of the merger
or exchange, will be part of a class or series of shares of which are (i)
listed, or authorized for listing upon official notice of issuance, on a
national securities exchange, or (ii) held of record by not less than 2,000
holders, and (b) cash in lieu of fractional shares otherwise entitled to be
received.
Article 5.12. Procedure for Dissent by Shareholders as to Said
Corporate Actions
B. 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 will 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 will be delivered or
mailed in that event. If the action is effected and the shareholder will 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, will, 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 will be the value thereof as of the day immediately preceding the
meeting, excluding any appreciation or depreciation in anticipation of the
proposed action. The demand will 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 will 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, will, 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 will 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
will 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 will 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 will 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 will be bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of a
demand for payment made by a dissenting shareholder in accordance with
Subsection (1) of this Section, the corporation (foreign or domestic) or other
entity will deliver or mail to the shareholder a written notice that will 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 will 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 will 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 will 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 or a copy thereof
will be made upon the corporation (foreign or domestic) or other entity, which
will, 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 will be filed by the corporation (foreign or domestic) or other entity,
the petition will be accompanied by such a list. The clerk of the court will
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 will be approved by the court. All shareholders thus
notified and the corporation (foreign or domestic) or other entity will
thereafter be bound by the final judgment of the court.
C. After the hearing of the petition, the court will 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 will appoint one or more
qualified appraisers to determine that value. The appraisers will have power to
examine any of the books and records of the corporation the shares of which they
are charged with the duty of valuing, and they will make a determination of the
fair value of the shares upon such investigation as to them may seem proper. The
appraisers will also afford a reasonable opportunity to the parties interested
to submit to them pertinent evidence as to the value of the shares. The
appraisers will 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 will determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and will file their report of their value in the office of the clerk of the
court. Notice of the filing of the report will be given by the clerk to the
parties in interest. The report will be subject to exceptions to be heard before
the court both upon the law and the facts. The court will by its judgment
determine the fair value of the shares of the shareholders entitled to payment
for their shares and will 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 affected to
the date of such judgment, to the shareholders entitled to payment. The judgment
will 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 will
cease to have any interest in those shares or in the corporation. The court will
allow the appraisers a reasonable fee as court costs, and all court costs will
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, will, 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 will 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 will 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.
Article 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 will 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 will 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 will 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 will 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 will, 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 will otherwise direct. If uncertificated shares for which
payment has been demanded or shares represented by a certificate on which
notation has been so made will be transferred, any new certificate issued
therefor will bear similar notation together with the name of the original
dissenting holder of such shares and a transferee of such shares will acquire by
such transfer no rights in the 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 will consent thereto, after any
such petition has been filed. If, however, such demand will be withdrawn as
hereinbefore provided, or if pursuant to Section B of this Article the
corporation will terminate the shareholder's rights under Article 5.12 of 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 will 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 will 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 will be conclusively presumed to have approved
and ratified the corporate action from which he dissented and will be bound
thereby, the right of such shareholder to be paid the fair value of his shares
will cease, and his status as a shareholder will be restored without prejudice
to any corporate proceedings which may have been taken during the interim, and
such shareholders will be entitled to receive any dividends or other
distributions made to shareholders in the interim.
APPENDIX D
TAX OPINION OF ERNST & YOUNG LLP
January 28, 1998
Hibernia Corporation
313 Carondelet Street
New Orleans, Louisiana 70130
Firstshares of Texas, Inc.
100 North Bolivar
Marshall, Texas 75671
Dear Sir or Madam:
This letter is in response to your request that we provide you with our
opinion concerning certain federal income tax consequences which would arise
from consummation of the proposed merger of Firstshares of Texas, Inc.
("Firstshares") with and into Hibernia Corporation ("Hibernia") (the
"Firstshares Merger"), the proposed merger of Firstshares Intermediate Holding
Company, Inc. ("Firstshares-Delaware") with and into Hibernia (the
"Firstshares-Delaware Merger"), and the proposed merger of First National Bank
("Bank") with and into Hibernia National Bank of Texas ("HNBT") (the "Bank
Merger"). (Hereinafter, the Firstshares Merger, the Firstshares-Delaware Merger,
and the Bank Merger are referred to collectively as the "Proposed Mergers.")
In rendering this opinion, we have relied upon the facts, summarized below,
as they have been presented to us orally by the management of Hibernia and
verified in: the Statements of Facts and Representations dated January 28, 1998
provided by the respective managements of Firstshares, Firstshares-Delaware,
Bank, Hibernia, and HNBT; the Agreement and Plan of Merger made and entered into
by and between Firstshares and Hibernia as of October 24, 1997 (the
"Agreement"); the Agreement to Merge between Firstshares-Delaware and Hibernia
(the "Firstshares-Delaware Plan of Merger"); the Agreement to Merge between Bank
and HNBT (the "Bank Plan of Merger"); and the Registration Statement (Form S-4),
as declared effective by the Securities and Exchange Commission on January 27,
1998 and containing the Proxy Statement - Prospectus of Firstshares and Hibernia
dated January 28, 1998 ("Prospectus"). (These are sometimes hereinafter referred
to collectively as "Documents.")
You have represented to us that the facts contained in the Documents
provide an accurate and complete description of the facts and circumstances
concerning the Proposed Mergers. We have made no independent investigation of
the factual matters and circumstances and, therefore, have relied upon the facts
and representations in the Documents for purposes of this letter. Any changes to
the facts or Documents may affect the conclusions stated herein.
We understand that reference to Ernst & Young LLP and our opinion is
included in the Prospectus relating to the issuance of Hibernia Common Stock in
connection with the Proposed Mergers and the special meeting of the Firstshares
shareholders with respect thereto. We consent to such reference in the
Prospectus under the captions "Summary," "Proposed Merger-Representations and
Warranties; Conditions to the Merger; Waiver" and "--Material Tax Consequences."
We also understand that the form of this letter is included as an appendix to
the Form S-4 Registration Statement and the Prospectus. We consent to such
inclusion.
STATEMENT OF FACTS
Firstshares is a corporation organized and existing under the laws of the
State of Texas, and is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended. As of September 30, 1997, the
authorized capital stock of Firstshares was 1,500,000 shares of common stock of
the par value of $4.00 each ("Firstshares Common Stock") and 1,000,000 shares of
Series A preferred stock, par value $10.00 per share (the "Firstshares Preferred
Stock"). As of September 30, 1997, 600,879 shares of Firstshares Common Stock
had been issued, 516,170 shares of Firstshares Common Stock were outstanding,
84,709 shares of Firstshares Common Stock were held in Firstshares' treasury,
and no shares of Firstshares Preferred Stock were issued and outstanding. The
shares of Firstshares Common Stock are held by approximately 215 shareholders.
There are no options, warrants, subordinated rights or other rights to purchase
Firstshares Common Stock outstanding as of the date hereof.
Firstshares-Delaware is a corporation organized and existing under the laws
of the State of Delaware and is a bank holding company within the meaning of the
Bank Holding Company Act of 1956, as amended. The presently authorized capital
stock of Firstshares-Delaware consists solely of 1,200,000 shares of common
stock of the par value of $.10 each ("Firstshares-Delaware Common Stock"), and,
as of September 30, 1997, 1,101,190 shares of such common stock had been issued
and were outstanding and owned directly by Firstshares, with no shares held in
treasury.
Bank is a nationally chartered bank engaged principally in the banking
business in the state of Texas. The presently authorized capital stock of Bank
is 1,176,790 shares of common stock, par value $2.00 per share, of which
1,151,190 shares were issued and outstanding and held by Firstshares-Delaware
("Bank Common Stock").
Hibernia is a bank holding company organized and existing under the laws of
the State of Louisiana. The presently authorized capital stock of Hibernia is
300,000,000 shares, consisting of 100,000,000 shares of preferred stock, no par
value, and 200,000,000 shares of Class A voting common stock, no par value (the
Class A voting common stock being referred to hereinafter as "Hibernia Common
Stock"). As of September 30, 1997, 2,000,000 shares of Hibernia's preferred
stock were issued and outstanding, 130,634,764 shares of Hibernia Common Stock
were outstanding, and 51,598 shares of Hibernia Common Stock were held in
Hibernia's treasury. As of September 30, 1997, Hibernia has the following
existing options, warrants, calls or commitments of any kind obligating Hibernia
to issue any share of its capital stock or any other security of which it is or
will be the issuer: Hibernia has authorized or reserved 1,608,952 shares of
Hibernia Common Stock for issuance under its 1987 Stock Option Plan, pursuant to
which options covering 1,454,706 shares of Hibernia Common Stock were
outstanding as of September 30, 1997; 7,031,781 (as adjusted) shares of Hibernia
Common Stock for issuance under its Long-Term Incentive Plan, pursuant to which
options covering 5,822,440 shares of Hibernia Common Stock were outstanding as
of September 30, 1997; 932,500 shares of Hibernia Common Stock for issuance
under its 1993 Directors' Stock Option Plan, pursuant to which options covering
290,000 shares of Hibernia Common Stock are outstanding as of September 30,
1997; 17,137 shares of Hibernia Common Stock are available for issuance pursuant
to Hibernia's Dividend Reinvestment and Stock Purchase Plan; and warrants
covering 213,176 shares of Hibernia Common Stock are outstanding. On November 7,
1997, Hibernia completed a merger with Unicorp Bancshares-Texas, Inc. which
resulted in the issuance of 2,233,388 shares of Hibernia Common Stock. On
January 1, 1998, Hibernia completed a merger with Northwest Bancshares of
Louisiana, Inc. which resulted in the issuance of 1,508,019 shares of Hibernia
Common Stock. In addition, one transaction currently pending, when consummated,
will result in the issuance of no more than 13,400,000 additional shares of
Hibernia Common Stock.
Additionally, on March 14, 1995, Hibernia and its Board of Directors
authorized an employee stock ownership plan ("ESOP") to be funded with $30.0
million of Hibernia Common Stock. The $30.0 million purchase of Hibernia Common
Stock will be funded through a loan from Hibernia National Bank ("HNB").
Hibernia Common Stock for the ESOP will be purchased as it becomes available on
the open market at market prices, or in private negotiated transactions, other
than from former shareholders of Firstshares Common Stock, at such prices as may
be agreed by the parties to the transaction, using funds drawn down on the loan
as needed. At September 30, 1997, 2,431,388 shares have been acquired. Hibernia
Common Stock is traded on the New York Stock Exchange.
HNB is a nationally chartered bank engaged principally in the banking
business in the state of Louisiana. HNB is a wholly owned subsidiary of
Hibernia.
HNBT is a nationally chartered bank engaged principally in the banking
business in the state of Texas. HNBT is a wholly owned subsidiary of Hibernia.
BUSINESS PURPOSE
The management of Hibernia has represented to us that Hibernia desires to
consummate the Proposed Mergers in order to improve its presence in the Texas
market. As discussed in the Prospectus under the caption, "Proposed
Merger-Background of and Reasons for Merger," the Firstshares Board of Directors
believes the shareholders of Firstshares will benefit from being part of a
larger banking entity, the stock of which is publicly traded.
PROPOSED TRANSACTIONS
In accordance with the above-stated business purpose, the following
transactions have been proposed:
1. After all necessary regulatory and shareholder approvals have been
granted, there will be simultaneous mergers (i.e., the Proposed Mergers) of
Firstshares with and into Hibernia in accordance with the Louisiana Business
Corporation Law ("LBCL") and the Texas Business Corporation Act ("TBCA"),
Firstshares-Delaware with and into Hibernia in accordance with the LBCL and
Delaware General Business Corporation Law ("DGBCL"), and Bank with and into HNBT
in accordance with the provisions of Bank Merger Act, 12 U.S.C. Sections 1828
et. seq. and 12 U.S.C. Section 215a ("Bank Merger Act"). Upon the completion of
the Firstshares Merger, Hibernia will cause the Firstshares-Delaware Merger and
the Bank Merger to occur.
2. In the Firstshares Merger, Hibernia will acquire all of the assets and
assume all of the liabilities of Firstshares in exchange for Hibernia Common
Stock. As a result of the Firstshares Merger, each share of the issued and
outstanding Firstshares Common Stock shall be converted into and become the
number of shares of Hibernia Common Stock determined in accordance with the
exchange rate (the "Exchange Rate"). The Exchange Rate shall be 7.15 shares of
Hibernia Common Stock for each outstanding share of Firstshares Common Stock.
3. Holders of shares of Firstshares Common Stock outstanding immediately
prior to the effective date of the Firstshares Merger shall cease to be, and
shall have no rights as, shareholders of Firstshares after the Firstshares
Merger.
4. In the Firstshares-Delaware Merger, Hibernia will acquire all the assets
and assume all of the liabilities of Firstshares-Delaware in constructive
exchange for Hibernia Common Stock. As a result of the Firstshares-Delaware
Merger, each share of the issued and outstanding Firstshares-Delaware Common
Stock shall cease to be outstanding and will be canceled. No additional shares
of Hibernia Common Stock will be issued in the Firstshares-Delaware Merger.
5. In the Bank Merger, HNBT will acquire all the assets and assume all of
the liabilities of Bank in constructive exchange for Hibernia Common Stock. As a
result of the Bank Merger, each share of the issued and outstanding Bank Common
Stock shall cease to be outstanding and will be canceled. No additional shares
of Hibernia Common Stock will actually be issued, nor will shares of HNBT Common
Stock be issued in the Bank Merger.
6. No fractional shares will be issued. Each holder of Firstshares Common
Stock who would otherwise have been entitled to receive a fraction of a share of
Hibernia Common Stock shall receive in lieu thereof, cash (without interest) in
an amount equal to such fractional part of a share multiplied by the average of
the closing price of one share of Hibernia Common Stock for the ten business
days preceding the last trading day immediately prior to the Closing Date as
reported in The Wall Street Journal.
7. By following certain statutory procedures, shareholders of Firstshares
Common Stock may exercise dissenter's rights entitling them to receive in cash
the value of their respective Firstshares Common Stock in lieu of receiving
Hibernia Common Stock in the Firstshares Merger.
REPRESENTATIONS
For purposes of our evaluation, we have received from the respective
managements of Firstshares, Firstshares-Delaware, Bank, Hibernia, and HNBT,
Statements of Facts and Representations, dated January 28, 1998, as set forth
below. References to the "Code" are to the Internal Revenue Code of 1986, as
amended.
The following representations have been made in connection with the
Firstshares Merger:
(a) The fair market value of the Hibernia Common Stock to be received by
each shareholder of Firstshares Common Stock will be approximately equal to the
fair market value of the Firstshares Common Stock surrendered in the exchange.
(b) There is no plan or intention by the shareholders of Firstshares who
own five percent or more of the Firstshares Common Stock and to the best
knowledge of management of Firstshares, there is no intention on the part of the
remaining shareholders of Firstshares, to sell, exchange, or otherwise dispose
of a number of shares of Hibernia Common Stock received in the transaction that
would reduce the Firstshares shareholders' ownership of Hibernia Common Stock to
a number of shares having a value, as of the date of the transaction, of less
than 50 percent of the value of all the formerly outstanding stock of
Firstshares as of the same date. For purposes of this representation, any shares
of Firstshares Common Stock surrendered by dissenters, or exchanged for cash in
lieu of fractional shares of Hibernia Common Stock, will be treated as
outstanding on the date of the transaction. Moreover, shares of Firstshares
Common Stock and shares of Hibernia Common Stock held by former Firstshares
shareholders and otherwise sold, redeemed, or disposed of prior to October 24,
1997, in contemplation of this transaction, subsequent to that date, or
subsequent to this transaction will be considered in making this representation.
(c) Hibernia has no plan or intention to reacquire any of its Common Stock
issued in the Firstshares Merger other than to acquire a nominal amount of
shares of Common Stock that may be acquired in ordinary business transactions
(including, but not limited to, open market purchases in brokers' transactions).
(d) Hibernia has no plan or intention to sell or otherwise dispose of any
of the assets of Firstshares acquired in the transaction except for dispositions
made in the ordinary course of business.
(e) Any liabilities of Firstshares assumed by Hibernia and any liabilities
to which the transferred assets of Firstshares are subject were incurred by
Firstshares in the ordinary course of its business.
(f) Following the transaction, Hibernia will continue, substantially
unchanged, the business of Firstshares as operated, prior to the Proposed
Mergers, through Firstshares's subsidiary (Bank) which will be merged with and
into HNBT.
(g) Except for expenses relating to the registration of the Hibernia Common
Stock and certain proxy printing and mailing expenses to be paid solely by
Hibernia, which are directly related to the Proposed Mergers in accordance with
the guidelines established in Revenue Ruling 73-54, 1973-1 C.B. 187, Hibernia,
Firstshares, and the shareholders of Firstshares will pay their respective
expenses, if any, incurred in connection with the transactions.
(h) There is no intercorporate indebtedness existing between Firstshares
and its affiliates on the one hand and Hibernia and its affiliates on the other
hand which was issued, acquired, or will be settled at a discount.
(i) No two parties to the transaction are investment companies as defined
in Section 368(a)(2)(F)(iii) and (iv) of the Code.
(j) Firstshares is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(k) The fair market value of the assets of Firstshares to be transferred to
Hibernia will equal or exceed the sum of the liabilities assumed by Hibernia
plus the amount of liabilities, if any, to which the transferred assets are
subject.
(l) The payment of cash in lieu of fractional shares of Hibernia Common
Stock is solely for the purpose of avoiding the expense and inconvenience to
Hibernia of issuing fractional shares and does not represent separately
bargained for consideration. The total cash consideration that will be paid in
the transaction to the Firstshares shareholders instead of issuing fractional
shares of Hibernia will not exceed one percent of the total consideration that
will be issued in the transaction to the Firstshares shareholders in exchange
for their shares of Firstshares Common Stock. The fractional share interests of
each holder of Firstshares Common Stock will be aggregated, and no Firstshares
shareholder will receive cash in an amount equal to or greater than the value of
one full share of Hibernia Common Stock for its Firstshares Common Stock.
(m) None of the compensation received by any shareholder-employees of
Firstshares or its affiliates will be separate consideration for, or allocable
to, any of their shares of Firstshares Common Stock; none of the shares of
Hibernia Common Stock received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services actually
rendered and will be commensurate with amounts paid to third parties bargaining
at arm's-length for similar services.
(n) The Firstshares Merger will qualify as a statutory merger under the
LBCL and the TBCA.
(o) The shareholders of Firstshares (immediately before the proposed
transaction) receiving shares of Hibernia Common Stock will not own (immediately
after the proposed transaction) more than fifty percent of the fair market value
of Hibernia Common Stock.
The following representations have been made in connection with the
Firstshares-Delaware Merger:
(aa) No additional Hibernia Common Stock will be issued or exchanged in the
Firstshares-Delaware Merger.
(bb) There is no plan or intention by the shareholder of
Firstshares-Delaware to sell, exchange, or otherwise dispose of a number of
shares of Hibernia Common Stock constructively received in the transaction that
would reduce the Firstshares-Delaware shareholder's ownership of Hibernia Common
Stock to a number of shares having a value, as of the date of the transaction,
of less than 50 percent of the value of all the formerly outstanding stock of
Firstshares- Delaware as of the same date. For purposes of this representation,
any shares of Firstshares-Delaware Common Stock constructively surrendered by
dissenters, or exchanged for cash in lieu of fractional shares of Hibernia
Common Stock, will be treated as outstanding on the date of the transaction.
Moreover, shares of Firstshares-Delaware Common Stock and shares of Hibernia
Common Stock held by Firstshares-Delaware or its shareholder and otherwise sold,
redeemed, or disposed of prior to October 24, 1997, in contemplation of this
transaction, subsequent to that date, or subsequent to this transaction will be
considered in making this representation.
(cc) Hibernia has no plan or intention to reacquire any of its Common Stock
constructively issued in the Firstshares-Delaware Merger.
(dd) Hibernia has no plan or intention to sell or otherwise dispose of any
of the assets of Firstshares-Delaware acquired in the transaction except for
dispositions made in the ordinary course of business.
(ee) Any liabilities of Firstshares-Delaware assumed by Hibernia and any
liabilities to which the transferred assets of Firstshares-Delaware are subject
were incurred by Firstshares-Delaware in the ordinary course of its business.
(ff) Following the transaction, Hibernia will continue, substantially
unchanged, the business of Firstshares-Delaware as operated, prior to the
Proposed Mergers, through Firstshares-Delaware's subsidiary (Bank) which will be
merged with and into HNBT.
(gg) Except for expenses relating to the registration of the Hibernia
Common Stock and certain proxy printing and mailing expenses to be paid solely
by Hibernia, which are directly related to the Proposed Mergers in accordance
with the guidelines established in Revenue Ruling 73-54, 1973-1 C.B. 187,
Hibernia, Firstshares-Delaware, and the shareholder of Firstshares-Delaware will
pay their respective expenses, if any, incurred in connection with the
transactions.
(hh) There is no intercorporate indebtedness existing between
Firstshares-Delaware and its affiliates on the one hand and Hibernia and its
affiliates on the other hand which was issued, acquired, or will be settled at a
discount.
(ii) No two parties to the transaction are investment companies as defined
in Section 368(a)(2)(F)(iii) and (iv) of the Code.
(jj) Firstshares-Delaware is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
(kk) The fair market value of the assets of Firstshares-Delaware to be
transferred to Hibernia will equal or exceed the sum of the liabilities assumed
by Hibernia plus the amount of liabilities, if any, to which the transferred
assets are subject.
(ll) The Firstshares-Delaware Merger will qualify as a statutory merger
under the LBCL and the DGBCL.
(mm) The shareholder of Firstshares-Delaware (immediately before the
proposed transaction) constructively receiving shares of Hibernia Common Stock
will not constructively own (immediately after the proposed transaction) more
than 50 percent of the fair market value of Hibernia Common Stock.
The following representations have been made in connection with the Bank Merger:
(aaa) No additional Hibernia Common Stock will be issued or exchanged in
the Bank Merger. No HNBT Common Stock will be issued or exchanged in the Bank
Merger.
(bbb) There is no plan or intention by the shareholder of Bank to sell,
exchange or otherwise dispose of a number of shares of Hibernia Common Stock
constructively received in the transaction that would reduce the Bank
shareholder's constructive ownership of Hibernia Common Stock to a number of
shares having a value, as of the date of the transaction, of less than 50
percent of the value of all of the formerly outstanding Bank Common Stock as of
the same date. For purposes of this representation, any shares of Bank Common
Stock constructively exchanged for cash or other property, surrendered by
dissenters, or exchanged for cash in lieu of fractional shares of HNBT Common
Stock will be treated as outstanding Bank Common Stock on the date of the
transaction. Moreover, shares of Bank Common Stock and shares of Hibernia Common
Stock held by Bank or its shareholder and otherwise sold, redeemed, or disposed
of prior to October 24, 1997, in contemplation of this transaction, subsequent
to that date, or subsequent to this transaction will be considered in making
this representation.
(ccc) HNBT will acquire at least 90 percent of the fair market value of the
net assets and at least 70 percent of the fair market value of the gross assets
held by Bank immediately prior to the Bank Merger. For purposes of this
representation, amounts paid by Bank to dissenters, Bank assets used to pay its
reorganization expenses, and all redemptions and distributions (except for
regular, normal dividends) made by Bank immediately preceding the transfer, will
be included as assets of Bank held immediately prior to the transaction.
(ddd) Prior to the transaction, Hibernia will be in control of HNBT within
the meaning of Section 368(c) of the Code wherein "control" is defined to mean
the ownership of stock possessing at least 80 percent of the total combined
voting power of all classes of stock entitled to vote and at least 80 percent of
the total number of shares of all other classes of the corporation.
(eee) Following the transaction, HNBT will not issue additional shares of
its Common Stock that would result in Hibernia losing control of HNBT within the
meaning of Section 368(c) of the Code.
(fff) Hibernia has no plan or intention to reacquire any of its Common
Stock constructively issued in the Bank Merger.
(ggg) Hibernia has no plan or intention to liquidate HNBT; to merge HNBT
into another corporation; to sell or otherwise dispose of the Common Stock of
HNBT; or to cause HNBT to sell or otherwise dispose of any of the assets of Bank
acquired in the transaction, except for dispositions made in the ordinary course
of business. As Hibernia consummates other mergers, it is likely that some or
all of the merged banks will be merged with and into HNBT. At this time, the
discussion provided under the caption "Summary - Other Pending Transactions for
Hibernia" in the Prospectus provides a complete list of all pending mergers that
are covered by definitive agreements as of October 24, 1997. However, no Common
Stock of HNBT will be issued as consideration in any of the pending mergers.
(hhh) The liabilities of Bank assumed by HNBT and the liabilities to which
the transferred assets of Bank are subject were incurred by Bank in the ordinary
course of its business.
(iii) Following the transaction, HNBT will continue the historic business
of Bank or will use a significant portion of Bank's historic business assets in
its business.
(jjj) Except for expenses relating to the registration of Hibernia Common
Stock and certain proxy printing and mailing expenses to be paid solely by
Hibernia, which are directly related to the Proposed Mergers in accordance with
the guidelines established in Revenue Ruling 73-54, 1973-1 C.B. 187, Hibernia,
HNBT, Bank and the shareholder of Bank will pay their respective expenses, if
any, incurred in connection with the transaction.
(kkk) There is no intercorporate indebtedness existing between Hibernia and
Bank and their affiliates or between HNBT and Bank that was issued, acquired, or
will be settled at a discount.
(lll) No two parties to the Bank Merger are investment companies as defined
in Section 368(a)(2)(F)(iii) and (iv) of the Code.
(mmm) Bank is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(nnn) The basis and fair market value of the assets of Bank transferred to
HNBT will each equal or exceed the sum of the liabilities assumed by HNBT, plus
the amount of liabilities, if any, to which the transferred assets are subject.
(ooo) The merger of Bank into HNBT will qualify as a statutory merger under
the Bank Merger Act.
TECHNICAL ANALYSIS
Section 368(a)(1)(A) of the Code provides that a reorganization (a "Type A"
reorganization) includes a statutory merger or consolidation. Such a
reorganization can only be achieved by strict compliance with the applicable
corporation laws of the United States or a state or territory of the United
States. A statutory merger occurs wherein one party (the surviving corporation)
to the transaction absorbs the other party whose corporate existence ceases. It
has been represented by the management of Hibernia that the merger of
Firstshares with and into Hibernia, wherein Hibernia Common Stock is to be
exchanged for Firstshares Common Stock, is to occur as a statutory merger under
applicable state law. Furthermore, it has been represented by the management of
Hibernia that the merger of Firstshares-Delaware with and into Hibernia wherein
Hibernia Common Stock is to be constructively exchanged for Firstshares
- -Delaware Common Stock, is to occur as a statutory merger under applicable state
law.
Section 368(a)(2)(D) of the Code provides that the acquisition by one
corporation in exchange for stock of a corporation which is in control of the
acquiring corporation, of substantially all of the properties of another
corporation, shall not disqualify a transaction under Section 368(a)(1)(A) if
(i) no stock of the acquiring corporation is used in the transaction and (ii)
the transaction would have otherwise qualified as a Type A reorganization had
the merger been into the controlling corporation. It has been represented by the
management of Hibernia that the merger of Bank with and into HNBT, wherein
Hibernia Common Stock is to be constructively exchanged for Bank Common Stock,
is to occur as a statutory merger under applicable state and national law.
Revenue Procedure 77-37, 1977-2 C.B. 568 (3.01) provides that, for advance
ruling purposes, the "substantially all" requirement of Section 368(a)(2)(D) is
satisfied if there is a transfer of assets representing at least 90 percent of
the fair market value of the net assets and at least 70 percent of the fair
market value of the gross assets held by the transferor corporation immediately
prior to the transfer. Any payments to dissenters and any redemptions and
distributions (except for regular dividend distributions) made by the
corporation immediately preceding the transfer and which are a part of the
transaction will be considered as assets held by the corporation immediately
prior to the transfer. Additionally, the payment of expenses incurred in
connection with the Proposed Mergers is taken into consideration in applying the
"substantially all" test.
In the proposed Bank Merger, it has been represented by the respective
managements of Bank and HNBT that HNBT will acquire assets representing at least
90 percent of the fair market value of the net assets and 70 percent of the fair
market value of the gross assets of Bank and that, for this purpose, the fair
market value of the net and gross assets of Bank will be determined before
payment by Bank of any expenses incurred by it in connection with the Bank
Merger, before payment to any dissenters to the Bank Merger, and before any
redemptions and distributions (except for regular, normal dividends) made by
Bank immediately preceding the transfer. Based upon the foregoing
representations, the "substantially all" requirement will be met in the Bank
Merger.
Additional Requirements
Sections 1.368-1(b) and 1.368-2(g) of the Income Tax Regulations (the
"Regulations") provide that the following additional requirements must be met
for a transaction to qualify as a reorganization within the meaning of Section
368 of the Code:
(i) "continuity of interest" must be present,
(ii) "continuity of business enterprise" must exist, and
(iii) the transaction must be undertaken for reasons pertaining to the
continuance of the business of a corporation which is a party to the
transaction.
Continuity of Interest
In general, the continuity of interest test requires the owners of the
reorganized entity to receive and retain a meaningful equity in the surviving
entity. See e.g., Pinellas Ice & Cold Storage Co. v. Comm'r, 287 U.S. 462
(1933); Cortland Specialty Company v. Comm'r, 60 F.2d 937 (2d Cir. 1932), cert.
denied, 288 U.S. 599 (1932); Helvering v. Minnesota Tea Co., 296 U.S. 378
(1935).
Revenue Procedure 77-37, 1977-2 C.B. 568 (Section 3.02) provides that, for
advance ruling purposes, the continuity of interest requirement is satisfied if
there is a continuing interest through stock ownership in the acquiring or
transferee corporation (or a corporation in "control" thereof within the meaning
of Section 368(c) of the Code) on the part of the former shareholders of the
acquired or transferor corporation which is equal in value as of the effective
date of the reorganization, to at least 50 percent of the value of all of the
formerly outstanding stock of the acquired or transferor corporation as of that
date. Sales, redemptions, and other dispositions of stock occurring prior or
subsequent to the exchange which are part of the plan of reorganization will be
considered in determining whether there is a 50 percent continuing interest
through stock ownership as of the effective date of the reorganization.
Based upon our understanding of the facts presented to us orally and as set
forth in the Statements of Facts and Representations dated January 28, 1998, the
50 percent continuity of interest test of Revenue Procedure 77-37, supra, will
be met in the Firstshares Merger, the Firstshares- Delaware Merger, and the Bank
Merger. It has been represented by the management of Firstshares that the
shareholders of Firstshares have no plan or intention to sell, exchange or
otherwise dispose of a number of Hibernia shares to be received in the
transaction that will reduce their Hibernia Common Stock holdings to less than
the requisite 50 percent continuity of interest. Accordingly, in the Firstshares
Merger there will be a continuing interest through Common Stock ownership in
Hibernia on the part of the former shareholders of Firstshares.
In Revenue Ruling 68-526, 1968-2 C.B. 156, the Internal Revenue Service
(the "Service") held that the acquisition of the assets (and assumption of
liabilities) of a parent corporation and its 60 percent owned subsidiary
constituted separate tax-free reorganizations when the transactions occurred
pursuant to one plan of reorganization and for valid business reasons. In
Revenue Ruling 76-528, 1976-2 C.B. 103, the Service clarified that the
continuity of interest requirement was met in Revenue Ruling 68-526 with respect
to the subsidiary acquisition even when the parent had no assets other than
stock of a subsidiary because, in light of the acquisition of the parent's
assets, and its dissolution pursuant to the plan of reorganization, the parent's
shareholders, in effect, "stepped into the parent's shoes" as the only qualified
parties to receive and continue the stock interest formerly held by the parent
corporation. Although no assurance can be given that the Service will agree, the
rationale of the above Revenue Rulings suggests that the continuity of interest
maintained by the Firstshares shareholders in the Firstshares Merger is relevant
in determining whether the continuity of interest requirement is satisfied in
the Firstshares-Delaware Merger and the Bank Merger. See also PLR 9109044
(December 4, 1990) where the Service, after applying the step transaction
doctrine, ruled that a sideways merger of a Bank Holding Company and its wholly
owned banking subsidiary into an acquiring bank holding company and its banking
subsidiary respectively constituted reorganizations under Section 368(a)(1)(C)
and Section 368(a)(2)(D).
In the past, the Service has frequently ruled on certain facts that the
simultaneous mergers of a parent and its wholly-owned subsidiary into an
acquiring parent corporation and its wholly- owned subsidiary, respectively each
qualified as a Section 368(a)(1)(A) reorganization (see e.g., PLR 9111025
(December 14, 1990), 9047015 (August 24, 1990) and 9003053 (October 26, 1989)).
In other rulings involving slightly different facts (i.e., minority shareholders
in the subsidiary), the Service held that the subsidiary mergers were Section
368(a)(1)(A) reorganizations by reason of Section 368(a)(2)(D) (see e.g., PLR
9109044 (December 4, 1990), 8943067 (August 2, 1989) and 8942090 (July 27,
1989)). These private letter ruling involve simultaneous mergers into two
different acquiring corporations (as with the Firstshares Merger and the Bank
Merger). However, the same of continuity of interest principles would also apply
with a single acquiring corporation (as with the Firstshares Merger and the
Firstshares-Delaware Merger).
Although private letter rulings are not binding on the Service as
precedent, they are cited to illustrate a consistent rulings position. In recent
years, while the Service has declined to rule on whether a transaction qualifies
as a reorganization pursuant to Section 368(a)(1)(A) of the Code (see section
3.01(24) of Rev. Proc. 97-3) it has consistently ruled that the receipt by a
target parent's shareholders of stock of an acquiring corporation will not
prevent a lower tier target's merger from satisfying the continuity of interest
requirement of Section 1.368-1(b) of the Regulations. See, for example, PLR
9237031 (June 16, 1992), PLR 9317027 (January 29, 1993), and PLR 9510059 (March
10, 1995).
Continuity of Business Enterprise
Section 1.368-1(b) of the Regulations also provides that a continuity of
business enterprise (as described in Section 1.368-1(d) of the Regulations) is a
requisite to a reorganization. Section 1.368-1(d) of the Regulations provides
that continuity of business enterprise requires that the acquiring corporation
either continue the acquired corporation's historic business or use a
significant portion of the acquired corporation's historic assets in a business.
The proposed Bank Merger will meet the continuity of business enterprise test of
Section 1.368-1(d) because, based upon the representation of the management of
HNBT, HNBT will continue the historic business of Bank or will use a significant
portion of Bank's historic assets in a business.
Revenue Ruling 85-197, 1985-2 C.B. 120, provides that for purposes of the
continuity of business enterprise requirement, the historic business of a
holding company is the business of its operating subsidiary. Similarly, Revenue
Ruling 85-198, 1985-2 C.B. 120, held that the continuity of business enterprise
requirement was met upon the merger of two bank holding companies where the
business of a former subsidiary of the acquired holding company was continued
through a subsidiary of the acquiring corporation. Accordingly, the continuity
of business enterprise requirement is met with regard to the Firstshares Merger
and Firstshares- Delaware merger because Hibernia through its wholly-owned
subsidiary HNBT, will continue the banking business indirectly conducted by
Firstshares and Firstshares-Delaware.
Business Purpose
Section 1.368-2(g) of the Regulations provides that a reorganization must
be undertaken for reasons germane to the continuance of the business of a
corporation which is a party to the reorganization. As heretofore indicated in
the "Business Purpose" Section set forth above, there are substantial business
reasons for the Proposed Mergers. Accordingly, the Proposed Mergers each satisfy
the business purpose requirement as set forth in the Regulations.
Constructive Exchange of Shares
To avoid the expense and inconvenience of issuing Hibernia shares to itself
in the Firstshares- Delaware Merger and the Bank Merger, and because
Firstshares' shareholders will have already received fair value for their
shares, the share of Firstshares-Delaware Common Stock obtained by Hibernia in
the Firstshares Merger and the shares of Bank Common Stock obtained by Hibernia
in the Firstshares-Delaware Merger shall be canceled. (See the preceding
discussion regarding Rev. Rul. 76-528). In the Firstshares-Delaware Merger,
which occurs simultaneously, but is to be described in the closing documents
covering the Proposed Mergers as a step following the Firstshares Merger,
Hibernia technically would acquire the assets of Firstshares-Delaware by issuing
shares of Hibernia Common Stock to the Firstshares-Delaware shareholder,
Hibernia (as the result of the Firstshares Merger). Likewise, in the Bank
Merger, which occurs simultaneously, but is to be described in the closing
documents covering the Proposed Mergers as a step following the
Firstshares-Delaware Merger, HNBT technically would acquire the assets of Bank
by issuing shares of Hibernia Common Stock to the Bank shareholder, Hibernia (as
the result of the Firstshares Merger and the Firstshares-Delaware Merger).
The tax court has consistently held that the physical transfer of shares is
not necessary if it would be a "meaningless gesture," particularly in situations
where common ownership is present. See, Fowler Hosiery Co., 36 T.C. 201 (1961),
aff'd 301 F.2d 394 (7th Cir. 1962) and William Holton George, 26 T.C. 396
(1956). In fact, the Service has ruled that the absence of an actual physical
exchange of shares does not prevent a transaction from qualifying as a tax- free
reorganization if such an exchange would have been a "meaningless gesture" or a
"useless task." See Rev. Rul. 70-240, 1970-1 C.B. 81 and Rev. Rul. 75-383,
1975-2 C.B. 127. See also Davant v. Commissioner, 366 F.2d 874 (5th Cir. 1966);
James Armour, Inc., 43 T.C. 295 (1964); American Manufacturing Co., 55 T.C. 204
(1970). In addition, the Service held in Revenue Ruling 78-47, 1978-1 C.B. 113,
that a physical issuance of shares was unnecessary in order to eliminate certain
expenses associated with a reorganization.
The Service has also consistently permitted constructive exchanges in
private letter rulings. See e.g., PLR 9247019 (August 24, 1992) and 9137029
(June 13, 1991) citing Revenue Ruling 78-47; PLR 9319017 (February 5, 1993)
citing Revenue Ruling 70-240; PLR 8750071 (September 17, 1987), 8722021
(February 25, 1987), 8620043 (February 14, 1986), 8403028 (October 17, 1983),
and 8306010 (November 4, 1982).
Based on the above, the constructive exchanges described herein do not
prevent the Firstshares-Delaware Merger and the Bank Merger from qualifying as
tax-free reorganizations.
Other Statutory Provisions
Section 368(b) of the Code defines the term "a party to a reorganization"
to include a corporation resulting from a reorganization, and both corporations,
in the case of a reorganization resulting from the acquisition by one
corporation of stock or properties of another.
Section 361(a) of the Code provides that no gain or loss shall be
recognized to a transferor corporation which is a party to a reorganization on
any exchange pursuant to the plan of reorganization solely for stock or
securities in another corporation which is a party to the reorganization.
Section 1032 of the Code provides that no gain or loss shall be recognized
to a corporation on the receipt of money or other property in exchange for stock
of such corporation. Revenue Ruling 57-278, 1957-1 C.B. 124, provides that a
subsidiary will not recognize gain upon the exchange of its parent's stock for
property in connection with a tax-free reorganization. See also Treasury
Regulations (Treas. Regs.) Section 1.1032-2.
Section 354(a)(1) of the Code provides that no gain or loss shall be
recognized if stock or securities in a corporation which is a party to a
reorganization are, in pursuance of the plan of reorganization, exchanged solely
for stock or securities in such corporation or in another corporation which is a
party to the reorganization.
Cash received by shareholders of Firstshares Common Stock who dissent, will
be treated as received in exchange for his or her stock subject to the
provisions and limitations of Section 302 of the Code. See Treas. Reg. Sec.
1.354-1(d), Ex. (3). If, as a result of such distribution, a shareholder owns no
Firstshares Common Stock either directly or indirectly through the application
of Section 318 of the Code, the redemption will be treated as a complete
termination of interest under Section 302(b)(3) of the Code and such cash will
be treated as a distribution in exchange for stock under Section 302(a) of the
Code.
Section 362(b) of the Code generally provides that if property is acquired
by a corporation in connection with the reorganization, then the basis shall be
the same as it would be in the hands of the transferor, increased by the amount
of gain recognized to the transferor on such transfer.
Section 1223(2) of the Code provides that in determining a taxpayer's
holding period for property, there shall be included the period for which such
property was held by another person, if such property has, for the purpose of
determining gain or loss from a sale or exchange, the same basis in whole or in
part in such taxpayer's hands as it would have had in the hands of such other
person.
Section 381 of the Code applies to certain transactions, including those
transactions to which Section 361 of the Code applies, where there is a transfer
in connection with a reorganization described in Section 368(a)(1)(A) or in
Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Code.
FEDERAL INCOME TAX CONSEQUENCES
Based solely upon the Statements of Facts and Representations, the
Agreement, the Firstshares-Delaware Plan of Merger, and the Bank Plan of Merger,
it is our opinion that the following federal income tax consequences will
result:
In the merger of Firstshares with and into Hibernia:
(1) Provided the proposed merger of Firstshares with and into Hibernia
qualifies as a statutory merger under Louisiana and Texas law, the Firstshares
Merger will be a reorganization within the meaning of Section 368(a)(1)(A) of
the Code. Firstshares and Hibernia will each be a party to a reorganization
within the meaning of Section 368(b) of the Code.
(2) No gain or loss will be recognized by Firstshares upon the transfer of
its assets to Hibernia in exchange solely for Hibernia Common Stock, cash for
dissenters, if any, and the assumption by Hibernia of the liabilities of
Firstshares, since any cash for dissenters will be distributed to the
shareholders (Sections 361(a), 361(b), and 357(a) of the Code).
(3) No gain or loss will be recognized by Hibernia on receipt of the
Firstshares assets in exchange for Hibernia Common Stock, cash and the
assumption by Hibernia of the liabilities of Firstshares (Section 1032(a) of the
Code).
(4) The basis of the assets of Firstshares in the hands of Hibernia will,
in each case, be the same as the basis of those assets in the hands of
Firstshares immediately prior to the transaction (Section 362(b) of the Code).
(5) The holding period of the assets of Firstshares in the hands of
Hibernia will, in each case, include the period for which such assets were held
by Firstshares (Section 1223(2) of the Code).
(6) No gain or loss will be recognized, with respect to the receipt of
Hibernia Common Stock, by the shareholders of Firstshares who receive solely
Hibernia Common Stock and cash for fractional shares in exchange for their
shares of Firstshares Common Stock (Section 354(a)(1) of the Code). With respect
to the cash received in lieu of fractional shares, see Item 12 below.
(7) The cash received by a dissenting shareholder of Firstshares in
exchange for his or her Firstshares Common Stock will be treated as having been
received by such shareholder as a distribution in redemption of his or her stock
subject to the provisions and limitations of Section 302 of the Code. If, as a
result of such distribution, a shareholder owns no Firstshares Common Stock
either directly or indirectly through the application of Section 318, the
redemption will be treated as a complete termination of interest under Section
302(b)(3) and such cash will be treated as a distribution in exchange for stock
under Section 302(a).
(8) The basis of Hibernia Common Stock to be received by the shareholders
of Firstshares Common Stock will be, in each instance, the same as the basis of
their stock surrendered in exchange therefor, decreased by the amount of cash
received, if any, and increased by the amount of gain, if any, recognized in the
exchange. (Section 358(a)(1) of the Code).
(9) The holding period of the Hibernia Common Stock to be received by the
shareholders of Firstshares Common Stock in the transaction will include in each
instance, the period during which the Firstshares Common Stock surrendered in
exchange therefor is held as a capital asset on the date of the surrender
(Section 1223(l) of the Code).
(10) Hibernia will succeed to and take into account those tax attributes of
Firstshares described in Section 381(c) of the Code. (Section 381(a) of the Code
and Section 1.381(a)-1 of the Regulations.) These items will be taken into
account by Hibernia subject to the conditions and limitations specified in
Sections 381, 382, 383, and 384 of the Code and the Regulations thereunder.
(11) As provided by Section 381(c)(2) of the Code and Section 1.381(c)(2)-1
of the Regulations, Hibernia will succeed to and take into account the earnings
and profits, or deficit in earnings and profits, of Firstshares as of the date
of transfer. Any deficit in the earnings and profits of Firstshares will be used
only to offset the earnings and profits accumulated after the date of transfer.
(12) The payment of cash in lieu of fractional share interests of Hibernia
Common Stock will be treated as if the fractional shares were distributed as
part of the exchange and then were redeemed by Hibernia. These cash payments
will be treated as distributions in full payment in exchange for the stock
redeemed, subject to the provisions and limitations of Section 302(a) of the
Code (Rev. Rul. 66-365, 1966-2 C.B. 116 and Rev. Proc. 77- 41, 1977-2 C.B. 574).
(13) Firstshares will close its taxable year as of the date of the
distribution or transfer. Hibernia will not close its taxable year merely
because of the Firstshares Merger. (Section 381(b) of the Code).
In the merger of Firstshares-Delaware with and into Hibernia:
(14) Provided the proposed merger of Firstshares-Delaware with and into
Hibernia qualifies as a statutory merger under Louisiana and Delaware law, the
Firstshares-Delaware Merger will be a reorganization within the meaning of
Section 368(a)(1)(A) of the Code. Firstshare-Delaware and Hibernia will each be
a party to a reorganization within the meaning of Section 368(b) of the Code.
(15) No gain or loss will be recognized by Firstshares-Delaware upon the
transfer of its assets to Hibernia in constructive exchange solely for Hibernia
Common Stock and the assumption by Hibernia of the liabilities of
Firstshares-Delaware (Sections 361(a), 361(b) and 357(a) of the Code).
(16) No gain or loss will be recognized by Hibernia on receipt of the
Firstshares-Delaware assets in constructive exchange for Hibernia Common Stock
and the assumption by Hibernia of the liabilities of Firstshares-Delaware
(Section 1032(a) of the Code).
(17) The basis of the assets of Firstshares-Delaware in the hands of
Hibernia will, in each case, be the same as the basis of those assets in the
hands of Firstshares-Delaware immediately prior to the transaction (Section
362(b) of the Code).
(18) The holding period of the assets of Firstshares-Delaware in the hands
of Hibernia will, in each case, include the period for which such assets were
held by Firstshares- Delaware (Section 1223(2) of the Code).
(19) No gain or loss will be recognized by the shareholder of
Firstshares-Delaware who receives solely Hibernia Common Stock in constructive
exchange for its share of Firstshares-Delaware Common Stock (Section 354(a)(1)
of the Code).
(20) Hibernia will succeed to and take into account those tax attributes of
Firstshares- Delaware described in Section 381(c) of the Code. (Section 381(a)
of the Code and Section 1.381(a)-1 of the Regulations). These items will be
taken into account by Hibernia subject to the conditions and limitations
specified in Section 381, 382, 383, and 384 of the Code and the Regulations
thereunder.
(21) As provided by Section 381(c)(2) of the Code and Section 1.381(c)(2)-1
of the Regulations, Hibernia will succeed to and take into account the earnings
and profits, or deficit in earnings and profits, of Firstshares-Delaware as of
the date of the transfer. Any deficit in the earnings and profits of
Firstshares-Delaware will be used only to offset the earnings and profits
accumulated after the date of transfer.
(22) Firstshares-Delaware will close its taxable year as of the date of the
distribution or transfer. Hibernia will not close its taxable year merely
because of the Firstshares- Delaware Merger. (Section 381(b) of the Code).
In the merger of Bank with and into HNBT:
(23) Provided the proposed merger of Bank with and into HNBT qualifies as
statutory merger under the Bank Merger Act, the acquisition by HNBT of
substantially all of the assets of Bank solely in constructive exchange for
Hibernia Common Stock and the assumption by HNBT of the liabilities of Bank,
will qualify as a reorganization under the provisions of Sections 368(a)(1)(A)
and 368(a)(2)(D) of the Code. Bank, Hibernia and HNBT will each be a party to a
reorganization within the meaning of Section 368(b) of the Code.
(24) No gain or loss will be recognized by either Hibernia or HNBT upon the
acquisition by HNBT of substantially all of the assets of Bank in constructive
exchange for Hibernia Common Stock and the assumption of Bank's liabilities
(Section 1032(a) of the Code). (See Treas. Regs. Section 1.1032-2 and Rev. Rul.
57-278, 1957-1 C.B. 124.)
(25) The basis of the assets of Bank acquired by HNBT will be the same in
the hands of HNBT as the basis of such assets in the hands of Bank immediately
prior to the exchange (Section 362(b) of the Code).
(26) The basis of the HNBT Common Stock in the hands of Hibernia will be
increased by an amount equal to the basis of the Bank assets in the hands of
HNBT and decreased by the sum of the amount of the liabilities of Bank assumed
by HNBT and the amount of liabilities to which the assets of Bank are subject
(Section 1.358-6(c)(1) of Treas. Regs.).
(27) The holding period of the assets of Bank received by HNBT will, in
each instance, include the period for which such assets were held by Bank
(Section 1223(2) of the Code).
(28) As provided by Section 381(c) of the Code and Section 1.381(c)(2)-1 of
the Regulations, HNBT will succeed to and take into account the earnings and
profits, or deficit in earnings and profits, of Bank as of the date of transfer.
Any deficit in the earnings and profits of Bank or HNBT will be used only to
offset the earnings and profits accumulated after the date of transfer.
(29) The shareholder of HNBT will recognize no gain or loss upon the
constructive exchange of Bank Common Stock solely for Hibernia Common Stock.
(Section 354(a)(1) of the Code.)
(30) Bank will recognize no gain or loss on the transfer of its assets to
HNBT in constructive exchange for Hibernia Common Stock and the assumption by
HNBT of the liabilities of Bank, as described above. (Sections 361(a) and 357(a)
of the Code.)
(31) Bank will close its taxable year as of the date of the distribution or
transfer. HNBT will not close its taxable year merely because of the Bank
Merger. (Section 381(b) of the Code.)
(32) Pursuant to Section 381(a) of the Code and Section 1.381(a)-1 of the
Regulations, HNBT will succeed to and take into account the items of Bank
described in Section 381(c) of the Code. These items will be taken into account
by HNBT subject to the provisions and limitations specified in Sections 381,
382, 383 and 384 of the Code and Regulations promulgated thereunder.
SCOPE OF OPINION
The scope of this opinion is expressly limited to the federal income tax
issues specifically addressed in (1) through (32) in the section entitled
"Federal Income Tax Consequences" above. Specifically our opinion has not been
requested and none is expressed with regard to the federal, foreign, state or
local income tax consequences for the shareholders of Hibernia or with regard to
the foreign, state or local income tax consequences to Firstshares, Firstshares-
Delaware, Bank, and HNBT. We have made no determination nor expressed any
opinion as to any limitations, including those which may be imposed under
Section 382, on the availability of net operating loss carryovers (or built-in
gains or losses), if any, after the Proposed Mergers, the application (if any)
of the alternative minimum tax to this transaction, nor the application of any
consolidated return or employee benefit issues which may arise as a result of
the Proposed Mergers unless expressly stated above. Further, we have made no
determination as whether Firstshares dividend distributions have been sufficient
to eliminate any undistributed personal holding company tax liability, if
applicable. We have made no determination nor expressed any opinion as to the
fair market value of any of the assets being transferred in the Proposed Mergers
nor the common shares being exchanged in the Proposed Mergers. Furthermore, our
opinion has not been requested and none is expressed with respect to any
foreign, state or local tax consequences to Firstshares, Firstshares-Delaware,
Bank, Hibernia, and HNBT.
Our opinion, as stated above, is based upon the analysis of the Code, the
Regulations thereunder, current case law, and published rulings. The foregoing
are subject to change, and such change may be retroactively effective. If so,
our views, as set forth above, may be affected and may not be relied upon.
Further, any variation or differences in the facts or representations recited
herein, for any reason, might affect our conclusions, perhaps in an adverse
manner, and make them inapplicable. In addition, we have undertaken no
obligation to update this opinion for changes in facts or law occurring
subsequent to the date hereof.
This letter represents our opinions as to the interpretation of existing
law and, accordingly, no assurance can be given that the Service or the courts
will agree with the above analysis.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
